Contracts & Obligations
Case Law
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] UKPC 5
Lord Hoffman for the Privy Council advised that ‘there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the company. It is therefore a necessary part of corporate personality that there should be rules by which acts are attributed to the company. These may be called ‘the rules of attribution’. There can be rules in the constitution or rules implied (e.g. shareholders acting unanimously are the company, Multinational Gas). Otherwise, the principles of agency apply, and the company acts through its servants and agents.
“9. These primary rules of attribution are obviously not enough to enable a company to go out into the world and do business. Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company’s primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability in tort.
10. It is worth pausing at this stage to make what may seem an obvious point. Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company “as such” cannot do anything; it must act by servants or agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company “as such” might suggest that there is something out there called the company of which one can meaningfully say that it can or cannot do something. There is in fact no such thing as the company as such, no ding an sich, only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company.
11. The company’s primary rules of attribution together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person “himself”, as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company?
12. One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or a unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.
23. …the fact that a company’s employee is authorised to drive a lorry does not in itself lead to the conclusion that if he kills someone by reckless driving, the company will be guilty of manslaughter. There is no inconsistency. Each is an example of an attribution rule for a particular purpose, tailored as it always must be to the terms and policies of the substantive rule…”
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 QB 480 Diplock L.J. wrote
“ An “actual” authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the “actual” authority, it does create contractual rights and liabilities between the principal and the contractor. It may be that this rule relating to “undisclosed principals,” which is peculiar to English law, can be rationalized as avoiding circuity of action, for the principal could in equity compel the agent to lend his name in an action to enforce the contract against the contractor, and would at common law be liable to indemnify the agent in respect of the performance of the obligations assumed by the agent under the contract.
An “apparent” or “ostensible” authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.
In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the “actual” authority of the agent. His information as to the authority must be derived either from the principal or from the agent or from both, for they alone know what the agent’s actual authority is. All that the contractor can know is what they tell him, which may or may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty of authority.
The representation which creates “apparent” authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal’s business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has usually “actual” authority to enter into.
In applying the law as I have endeavored to summarise it to the case where the principal is not a natural person, but a fictitious person, namely, a corporation, two further factors arising from the legal characteristics of a corporation have to be borne in mind. The first is that the capacity of a corporation is limited by its constitution, that is, in the case of a company incorporated under the Companies Act, by its memorandum and articles of association; the second is that a corporation cannot do any act, and that includes making a representation, except through its agent.
Under the doctrine of ultra vires the limitation of the capacity of a corporation by its constitution to do any acts is absolute. This affects the rules as to the “apparent” authority of an agent of a corporation in two ways. First, no representation can operate to estop the corporation from denying the authority of the agent to do on behalf of the corporation an act which the corporation is not permitted by its constitution to do itself. Secondly, since the conferring of actual authority upon an agent is itself an act of the corporation, the capacity to do which is regulated by its constitution, the corporation cannot be estopped from denying that it has conferred upon a particular agent authority to do acts which by its constitution, it is incapable of delegating to that particular agent.
To recognize that these are direct consequences of the doctrine of ultra vires is, I think, preferable to saying that a contractor who enters into a contract with a corporation has constructive notice of its constitution, for the expression “constructive notice” tends to disguise that constructive notice is not a positive, but a negative doctrine, like that of estoppel of which it forms a part. It operates to prevent the contractor from saying that he did not know that the constitution of the corporation rendered a particular act or a particular delegation of authority ultra vires the corporation. It does not entitle him to say that he relied upon some unusual provision in the constitution of the corporation if he did not in fact so rely.
The second characteristic of a corporation, namely, that unlike a natural person it can only make a representation through an agent, has the consequence that in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his “apparent” authority must be made by some person or persons who have “actual” authority from the corporation to make the representation. Such “actual” authority may be conferred by the constitution of the corporation itself, as, for example, in the case of a company, upon the board of directors, or it may be conferred by those who under its constitution have the powers of management upon some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that where the agent upon whose “apparent” authority the contractor relies has no “actual” authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely upon the agent’s own representation as to his actual authority. He can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates.
The commonest form of representation by a principal creating an “apparent” authority of an agent is by conduct, namely, by permitting the agent to act in the management or conduct of the principal’s business. Thus, if in the case of a company the board of directors who have “actual” authority under the memorandum and articles of association to manage the company’s business permit the agent to act in the management or conduct of the company’s business, they thereby represent to all persons dealing with such agent that he has authority to enter on behalf of the corporation into contracts of a kind which an agent authorized to do acts of the kind which he is in fact permitted to do usually enters into in the ordinary course of such business. The making of such a representation is itself an act of management of the company’s business. Prima facie it falls within the “actual” authority of the board of directors, and unless the memorandum or articles of the company either make such a contract ultra vires the company or prohibit the delegation of such authority to the agent, the company is estopped from denying to anyone who has entered into a contract with the agent in reliance upon such “apparent” authority that the agent had authority to contract on behalf of the company.
If the foregoing analysis of the relevant law is correct, it can be summarized by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown:
(1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;
(2) that such representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
(3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and
(4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.
The confusion which, I venture to think, has sometimes crept into the cases is in my view due to a failure to distinguish between these four separate conditions, and in particular to keep steadfastly in mind (a) that the only “actual” authority which is relevant is that of the persons making the representation relied upon, and (b) that the memorandum and articles of association of the company are always relevant (whether they are in fact known to the contractor or not) to the questions (i) whether condition (2) is fulfilled, and (ii) whether condition (4) is fulfilled, and (but only if they are in fact known to the contractor) may be relevant (iii) as part of the representation on which the contractor relied…
In the present case the findings of fact by the county court judge are sufficient to satisfy the four conditions, and thus to establish that Kapoor had “apparent” authority to enter into contracts on behalf of the company for their services in connection with the sale of the company’s property, including the obtaining of development permission with respect to its use. The judge found that the board knew that Kapoor had throughout been acting as managing director in employing agents and taking other steps to find a purchaser. They permitted him to do so, and by such conduct represented that he had authority to enter into contracts of a kind which a managing director or an executive director responsible for finding a purchaser would in the normal course be authorized to enter into on behalf of the company. Condition (1) was thus fulfilled. The articles of association conferred full powers of management on the board. Condition (2) was thus fulfilled. The plaintiffs, finding Kapoor acting in relation to the company’s property as he was authorized by the board to act, were induced to believe that he was authorized by the company to enter into contracts on behalf of the company for their services in connection with the sale of the company’s property, including the obtaining of development permission with respect to its use. Condition (3) was thus fulfilled. The articles of association, which contained powers for the board to delegate any of the functions of management to a managing director or to a single director, did not deprive the company of capacity to delegate authority to Kapoor, a director, to enter into contracts of that kind on behalf of the company. Condition (4) was thus fulfilled.”
Harold Holdsworth & Co (Wakefield) Ltd v Caddies
[1955] 1 WLR 352 held that someone with the title of “managing director” has no special powers, unless the articles expressly so provide.
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd
[1971] 2 QB 711
Lord Denning MR wrote
!“Mr. Hames’ second point is this: he says that the company is not bound by the letters which were signed by Mr. Bayne as “Company Secretary.” He says that, on the authorities, a company secretary fulfils a very humble role: and that he has no authority to make any contracts or representations on behalf of the company. He refers to Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815 where Lord Esher M.R. said at p. 817: “A secretary is a mere servant; his position is that he is to do what he is told, and no person can assume that he has any authority to represent anything at all; …”
Those words were approved by Lord Macnaghten in George Whitechurch Ltd v Cavanagh [1902] AC 117, 124. They are supported by the decision in Ruben v Great Fingall Consolidated [1906] AC 439. They are referred to in some of the textbooks as authoritative.
But times have changed. A company secretary is a much more important person nowadays than he was in 1887. He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day-to-day business of companies. He is no longer a mere clerk. He regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day-to-day running of the company’s business. So much so that he may be regarded as held out as having authority to do such things on behalf of the company. He is certainly entitled to sign contracts connected with the administrative side of a company’s affairs, such as employing staff, and ordering cars, and so forth. All such matters now come within the ostensible authority of a company’s secretary.
Accordingly I agree with the judge that Mr. R. L. Bayne, as company secretary, had ostensible authority to enter into contracts for the hire of these cars and, therefore, the company must pay for them. Mr. Bayne was a fraud. But it was the company which put him in the position in which he, as company secretary, was able to commit the frauds. So the defendants are liable. I would dismiss the appeal, accordingly.”
Royal British Bank v Turquand (1856)
6 E&B 327 Jervis CJ gave the judgment of the Court.
“I am of opinion that the judgment of the Court of Queen’s Bench ought to be affirmed. I incline to think that the question which has been principally argued both here and in that Court does not necessarily arise, and need not be determined. My impression is (though I will not state it as a fixed opinion) that the resolution set forth in the replication goes far enough to satisfy the requisites of the deed of settlement. The deed allows the directors to borrow on bond such sum or sums of money as shall from time to time, by a resolution passed at a general meeting of the Company, be authorized to be borrowed: and the replication shews a resolution, passed at a general meeting, authorizing the directors to borrow on bond such sums for such periods and at such rates of interest as they might deem expedient, in accordance with the deed of settlement and the Act of Parliament; but the resolution does not otherwise define the amount to be borrowed. That seems to me enough. If that be so, the other question does not arise. But whether it be so or not we need not decide; for it seems to us that the plea, whether we consider it as a confession and avoidance or a special Non est factum, does not raise any objection to this advance as against the Company. We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done.”
Mahony v East Holyford Mining Co
1875 LR 7 HL 869 Lord Hatherly wrote
“When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, those so dealing with them externally are not to be affected by irregularities which may take place in the internal management of the company. ”
Hely-Hutchinson v Brayhead Ltd
[1967] 1 QB 549
Lord Denning MR wrote
“I need not consider at length the law on the authority of an agent, actual, apparent, or ostensible. That has been done in the judgments of this court in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd. It is there shown that actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it.
Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation. He may himself do the “holding-out.” Thus, if he orders goods worth £1,000 and signs himself “Managing Director for and on behalf of the company,” the company is bound to the other party who does not know of the £500 limitation, see British Thomson-Houston Co Ltd v Federated European Bank Ltd., which was quoted for this purpose by Pearson L.J. in Freeman & Lockyer. Even if the other party happens himself to be a director of the company, nevertheless the company may be bound by the ostensible authority. Suppose the managing director orders £1,000 worth of goods from a new director who has just joined the company and does not know of the £500 limitation, not having studied the minute book, the company may yet be bound. Lord Simonds in Morris v Kanssen, envisaged that sort of case, which was considered by Roskill J. in the present case.
Apply these principles here. It is plain that Mr. Richards had no express authority to enter into these two contracts on behalf of the company: nor had he any such authority implied from the nature of his office. He had been duly appointed chairman of the company but that office in itself did not carry with it authority to enter into these contracts without the sanction of the board. But I think he had authority implied from the conduct of the parties and the circumstances of the case. The judge did not rest his decision on implied authority, but I think his findings necessarily carry that consequence. The judge finds that Mr. Richards acted as de facto managing director of Brayhead. He was the chief executive who made the final decision on any matter concerning finance. He often committed Brayhead to contracts without the knowledge of the board and reported the matter afterwards. The judge [Roskill J] said:
“I have no doubt that Mr. Richards was, by virtue of his position as de facto managing director of Brayhead or, as perhaps one might more compendiously put it, as Brayhead’s chief executive, the man who had, in Diplock L.J.’s words, ‘actual authority to manage,’ and he was acting as such when he signed those two documents.”
“the board of Brayhead knew of and acquiesced in Mr. Richards acting as de facto managing director of Brayhead.”
“he orders goods worth £1,000 and signs himself “Managing Director for and on behalf of the company,” the company is bound to the other party who does not know of the £500 limitation, see British Thomson-Houston Co Ltd v Federated European Bank Ltd., which was quoted for this purpose by Pearson L.J. in Freeman & Lockyer. Even if the other party happens himself to be a director of the company, nevertheless the company may be bound by the ostensible authority. Suppose the managing director orders £1,000 worth of goods from a new director who has just joined the company and does not know of the £500 limitation, not having studied the minute book, the company may yet be bound. Lord Simonds in Morris v Kanssen, envisaged that sort of case, which was considered by Roskill J. in the present case.
Apply these principles here. It is plain that Mr. Richards had no express authority to enter into these two contracts on behalf of the company: nor had he any such authority implied from the nature of his office. He had been duly appointed chairman of the company but that office in itself did not carry with it authority to enter into these contracts without the sanction of the board. But I think he had authority implied from the conduct of the parties and the circumstances of the case. The judge did not rest his decision on implied authority, but I think his findings necessarily carry that consequence. The judge finds that Mr. Richards acted as de facto managing director of Brayhead. He was the chief executive who made the final decision on any matter concerning finance. He often committed Brayhead to contracts without the knowledge of the board and reported the matter afterwards. The judge [Roskill J] said:
“I have no doubt that Mr. Richards was, by virtue of his position as de facto managing director of Brayhead or, as perhaps one might more compendiously put it, as Brayhead’s chief executive, the man who had, in Diplock L.J.’s words, ‘actual authority to manage,’ and he was acting as such when he signed those two documents.”
“the board of Brayhead knew of and acquiesced in Mr. Richards acting as de facto managing director of Brayhead.”
Ulster Factors Limited v Entonglen Limited
Judgment of Miss Justice Laffoy delivered on the 21st day of February 1997
“15. However, the case made by the Plaintiff is that Mr. Holland had ostensible authority to bind the Company and that the Company and the Liquidator are estopped from denying the existence of such ostensible authority. On the evidence, I am satisfied that the four conditions laid down by Diplock L.J. in Freeman and Lockyer -v- Buckhurst Park Properties (Mangal) Limited (1964) 2 Q.B. 480 for the successful invocation of the doctrine of ostensible authority have been fulfilled in that –
(1) there was a representation that Mr. Holland, as a director and as company secretary, had authority to request draw-down of funds to the Company or to a third party,
(2) such representation was made by the board of directors of the Company, which had actual authority under its articles of association to manage its business,
(3) the Plaintiff actually relied on such representation, and
(4) under its memorandum or articles of association, the Company was not deprived of the capacity to request payment of its funds to a third party or to delegate authority to do so.
16. The representation on which the ostensible authority of Mr. Holland, as a director and as company secretary, was founded was a tacit representation. The Agreement specifically provided for monies due to the Company being drawn-down either by payment to the Company directly or to a third party. The Agreement itself and the terms and conditions contemporaneously agreed to by the Company in relation to the method of the operation of the Agreement required the Company to advise the Plaintiff as to which officers of the Company had authority to draw-down funds due to the Company. The evidence establishes that in the early stages of the operation of the Agreement it was verbally agreed, in the context of a draw-down of funds into the Company, that draw-downs would be advised by the directors and the company secretary. In the operation of the Agreement prior to 21st
17. June, 1990, subject to one exception, every draw-down was requested by one officer of the Company only. In failing to communicate to the Plaintiff that draw-downs to the order of the Company were to be authorised in a different manner to draw-downs into the Company, in my view, the Company tacitly represented that all draw-downs were to be authorised in the same manner – by one officer of the Company. Moreover, the fact that the first authorisation to make a payment to the order of the Company, that is to say, the authorisation date of 10th May, 1989, was signed by Mr. Annesley, as Managing Director, and Mr. Holland, as Financial Director, in my view, did not negative that tacit representation. That authorisation was made in the early stages of the operation of the Agreement and authorised a payment to a director of the Company, which might well have been perceived as being a special category of payment.”
In ACC Bank Plc -v- McCann & Anor [2012] IEHC 236 Hogan J. wrote
“21. The rule in Turquand reflects the principle that, generally speaking, a third party is entitled to rely as against the company on the validity of acts done or resolutions passed or documents executed by or on behalf of the company without the necessity of inquiring whether the company complied with its own memorandum and articles of association or other associated procedural rules, such as the presence of a quorum or the appointment of officers.
22. Absent actual knowledge on the part of the third party, it is largely immaterial to that third party whether the irregularity in question meant, for example, that a purported resolution was signed by irregularly appointed directors on the one hand or whether the signatures of regularly appointed directors were forged on the other.
23. It is true that there is a long standing dictum of Lord Loreburn L.C. in Ruben v. Great Fingall Consolidated [1906] A.C. 439 which suggests the contrary. Here a company secretary forged share certificates which were then presented to the stockbroker plaintiffs and executed in their names. On the strength of this the plaintiffs arranged for the sum of £20,000 to be transferred to the company secretary. When the fraud was discovered, the plaintiffs then sued the company for the sums in question.
24. This action was unceremoniously dismissed by the House of Lords. Even though the members of the House expressed sympathy for the innocent victims of what Lord Macnaghten described as a “wicked fraud”, Lord Davey nonetheless thought that the action was “as full of holes as a colander”. It was against that background that the following comments of Lord Loreburn L.C. ([1906] A.C . 439 at 443) must be understood:-
“The forged certificates are a pure nullity. It is quite true that persons dealing with limited liability companies are not bound to inquire into their indoor management, and will not be affected by irregularities of which they had not notice. But this doctrine, which is well established, applies only to irregularities that otherwise might affect a genuine transaction. It cannot apply to a forgery.”
25. As Keane C.J. has noted – albeit extra-judicially – this was a case to which the rule in Turquand could never have applied “since a secretary would not normally be empowered to enter into such a transaction and the case could have been decided on that basis without regard to the forgery”: see Company Law (4th ed.) at 12.41. To that extent, the comments are pure dictum. Even if it were otherwise, this court is not strictly bound by the observations of pre-1922 British appellate judges, save where, in the words of Davitt P. in The State (Quinn) v. Ryan [1965] I.R. 70, 88, these comments:-
“represents a principle so well settled, or pronounced by so weighty a juristic authority, that it became part of the law under the combined operation of Article 73 of the Constitution of 1922 and Article 50 of the present Constitution. I would [otherwise] take the view that this Court was free to accept, reject, modify or ignore that principle as we see fit.”
26. In my judgment, the rule in Turquand obviously satisfies the former criteria, as it was so embedded in the fabric of the common law in 1922 that it became part of the “law” that was carried over by Article 50.1 of the Constitution. The same cannot be said of Lord Lorebum’s judgment in Ruben, for irrespective of the technical status of these comments (i.e., regardless of whether they are pure dicta or, alternatively, form part of the ratio), it could not possibly be said that the decision had achieved the unquestioned status and importance which had attached to Turquand, a decision which still remains to this day as a central feature of the entire edifice of company law.
27. Freed thus of any precedential constraints, I would not be disposed to follow the decision in Ruben insofar as it suggests fraud automatically destroys the operation of the rule in Turquand, since, in my view, it is inconsistent with the underlying rationale ofthat rule. Indeed, in his concurring judgment, Lord Davey suggested ([1906] A.C. 434 at 447) that the person dealing with the shares “could always apply” to the shareholders to inquire whether the signatures appearing on the share certificates were genuine. This suggestion is, with respect, so unrealistic – certainly in modem conditions – that in its own way it graphically demonstrates just how far the House in Ruben had failed to grasp the underlying principle in Turquand. On that view, Jervis C.J. might just as well have said in Turquand that any third party was put on inquiry to see that the resolution authorising the company’s borrowings had been duly passed.
28. Instead, I would rather follow and approve the analysis offered by Keane who suggested that:-
“…even in the case of a forged document, the rule [in Turquand] should still apply where
(a) the transaction was within the ostensible authority of the company’s agent and was not patently irregular;
(b) the outside was unaware of the forgery;
(c) there were no circumstances to excite suspicion.”
29. In the present case, the company plainly had the capacity to enter into a loan arrangement of this kind (thus satisfying the first limb of Turquand) and unless ACC can be shown to have had actual knowledge of that forgery, Killorglin would be bound by the resolution and the company minutes which were tendered to the bank on its behalf. Nor was the transaction patently irregular and there were no circumstances to excite suspicion.
30. The fact, however, that the company would be so bound for the purposes of Turquand does not in any way dispose of the question as to whether Mr. McCann should also be bound by a forged document of this nature. Although Mr.McCann is a director of Killorglin, he is not sued in that capacity in these proceedings, but rather qua guarantor. While I naturally accept that Mr. McCann gave a guarantee in order to assist the ventures of a company from which he stood to make a personal profit, nevertheless inasmuch as he is sued qua guarantor, he is as much a third party to the fraud as, indeed, is the Bank.
31. If the February, 2008 amendment can bind Mr. McCann, then it means that he is fixed with an additional exposure as surety as a result of the fraud. Conversely, if Mr. McCann is not so bound, then the Bank will find that it agreed to a variation of the loan arrangement in circumstances where, contrary to its understanding at the time, the agreement as so varied is unguaranteed. Put thus, the question then becomes which of two innocent parties – namely, ACC and Mr. McCann – should bear the loss which is the consequence of the fraud.
32. To my mind, in these circumstances, the lender – and not the surety – should bear this loss. There are several reasons for this conclusion. First, the whole tenor and language of the rule in Turquand is that it protects the third party in its dealing against the company and persons holding themselves out as agents of the company. In the present case we know that the February, 2008 resolution was handed to Ms. Catriona O’Driscoll (who a senior banking manager within a specialised business unit of ACC based in Cork) by Brian Fitzgerald, another director of the company in early March, 2008.
33. That in itself is sufficient to bind Killorglin as against ACC for the purposes of the rule in Turquand and the persons who acted as agents of the company for that purpose would be estopped vis-à-vis the bank from asserting the invalidity of the resolution. But the rule in Turquand only operates in favour of the third party as against the company. The invalid resolution would, of course, bind the directors qua directors so far as the general law of agency and estoppel is concerned. While Mr. McCann might – perhaps – be bound as against a third party in his capacity as a director of Killorglin in the circumstances just described, he is not sued in that capacity, but, to repeat, he is rather sued as guarantor. Neither the operation of the rule in Turquand or the doctrines of estoppel or agency have any application to him in that capacity.”
Ochre Ridge v Cork Bonded Warehouses
[2004] IEHC 160 (13 July 2004)
Judgment of Mr. Justice Lavan delivered on the 13th day of July, 2004
…..
The Application Of Legal Advice Privilege To Pre-Incorporation Of The Plaintiff (Items 1-19)
The first named defendant in its outline submissions argues that the plaintiff cannot claim privilege over any documents which came into existence before the company itself came into existence, as a shelf company for the purposes of entering a contract. However, as is stated in Delany and McGrath Civil Procedure in the Superior Courts (Roundhall, 2001) para. 8.013, the concept of a “communication” for the purposes of legal advice privilege is broad and extends to a wide formulation of information passing between client and lawyer. This concentration is upon content and not form, however. The fact that the communications relate to a phase prior to the incorporation of the plaintiff itself, Ochre Ridge Limited, is irrelevant so long as the communications form part of the spectrum of legal advice between legal advisor and client. It would be illogical to claim that a company could not claim privilege over documents relating to a pre-incorporation phase as no claim of privilege could ever be possible as to this period then and would deny the benefit of privilege to a vast array of proceedings. Moreover, there is no need to consider the submissions of the plaintiff as to the existence of a “common interest” in order to assert privilege over the documents pre-incorporation. In the correspondence, even after incorporation of the plaintiff on August 18th, 1999, the documentation is addressed interchangeably both to and from Mr. Tallent and Ochre Ridge Ltd.
The “Common Interest” Test
Even if the above is considered incorrect, it is clear that privilege may be claimed by one not strictly a client of the legal advisor if he has an interest in common with such a client, the leading case being that of Buttes Gas and Oil Co. v. Hammer (No.3) [1981] QB 223 (see Cross and Tapper on Evidence (Butterworths: 9th Ed., 1999) p.448). A broad construction of this principle appears possible. This “common interest” concept has been applied in this country in Bula Limited v. Crowley (Unreported, High Court, Murphy J, 8th March, 1991).
The Application Of Legal Advice Privilege To The Remainder Of The Items (excluding correspondence with the bank and the defendant’s solicitors)
The remainder of the communications clearly comprises material which has a dominant purpose of requesting or providing legal advice. Otherwise, the balance of this documentation is necessary or relevant to the provision of legal advice as surrounding or background documentation and clearly fulfils the criteria summarised above to ground a claim of privilege and to discharge the duty of care of a solicitor. Moreover, to deprive the plaintiff of the benefit of relying upon legal advice privilege as to the materials at issue would serve no over-riding public interest objective and is not of the order of the documents at issue in Smurfit Paribas.
As to the account related correspondence (item numbers 44 (in part) and 53) this type of documentation does not satisfy the requirements of legal advice privilege and cannot form part of the surrounding documentation that clearly must benefit from legal advice privilege in order not to negate the content thereof. By contrast, as to the correspondence between the opposing solicitors in item numbers 44 (in part) and 47, such communications must benefit from legal advice privilege as necessary for the provision of legal advice on the part of the plaintiff’s solicitors.
Litigation Privilege
Litigation privilege, which protects the preparations of parties for litigation in advance of such litigation and the associated documents generated in preparation of litigation, is not relevant here as upon examination of the 53 items over which privilege is claimed, under no circumstances could any of these documents be said to have come into being with the dominant purpose of the contemplation of litigation (see the discussion in the Supreme Court in Gallagher v. Stanley [1998] 2 I.R. 267 for the appropriate test).
Whether Legal Advice Privilege Attaches To The Correspondence With Barclays Bank (Item Nos. 27, 29, 30, 31, 34 & 35)
The submissions of the defendant as to the correspondence with Barclays Bank and the plaintiff’s solicitor are predicated upon the application of litigation privilege being asserted, notwithstanding that the plaintiff does not rely upon this ground. However, none of the documents numbered above could be said to satisfy the criteria to ground a successful claim of litigation privilege. As to legal advice privilege, it is difficult to see how the communications between the plaintiff’s solicitors and the third party bank could be construed as necessary for the provision of legal advice or that the protection of the communications could be necessary for the provision of legal advice. At best, these communications comprise the provision of legal assistance to the plaintiff.
The Onus Of Proof As To Legal Professional Privilege
Legal advice privilege belongs to the client and entitles them to refuse to disclose any communications with his or her lawyer. As is stated succinctly in Delany & McGrath Civil Procedure in the Superior Courts (Roundhall, 2001) at para. 8.098, the onus of proof as to legal professional privilege is on the person claiming privilege to establish that the documents are privileged. However, once the party claiming privilege has discharged this onus, it then falls on the party impugning the claim of privilege to do so by evidence. Ultimately, however, the decision as to the existence of a privilege lies with the courts (see Murphy v Dublin Corporation [1972] I.R. 215). Each document must also be individually examined. Thus the “broad brush” or “balanced” approach contended for by the plaintiff in its outline submission is incorrect.
Conclusion
The onus of proof as to legal professional privilege rests on the person claiming privilege to establish that the documents are privileged. However, once the party claiming privilege has discharged this onus, it then falls on the party impugning the claim of privilege to do so by evidence. While the plaintiff here has clearly discharged the burden of proof necessary to ground a claim for privilege, the same cannot be said for the first named defendant. Upon consideration of the various criteria set out above, it appears that all of the documentation, excluding the account related correspondence in items 44 (in part) and 53, is privileged on the basis of legal advice privilege only and not litigation privilege.
Henley Forklift (Ireland) Ltd v Lansing Bagnall & Co Ltd, Lansing Ltd, Handling and Storage Equipment Ltd and Lansing Henley Ltd
1979 No. 139
Supreme Court
13 December 1979
[1979] I.L.R.M. 257
(O’Higgins CJ, Griffin and Parke JJ)
O’HIGGINS CJ
(Parke J concurring) delivered his judgment on 13 December 1979 saying: Two issues arise on this appeal. The first relates to an agreement dated 14 August 1973 and concerns the question whether this agreement was a tripartite agreement between the three companies whose trading arrangements are involved in these proceedings, or whether there were two separate agreements concluded between the companies involved. The second issue relates to a new arrangement as to trading made by the companies in June 1975 and involves the question whether certain terms specified in the agreement of 14 August 1973 apply to these new arrangements. This second issue only arises for consideration if in fact the agreement of August 1973 is held to be a tripartite agreement binding upon all three companies.
The agreement of 14 August 1973 consisted of, what was termed in argument, a head agreement entered into by Henley Forklift Co Ltd with the third-named defendants and also a subsidiary agreement entered into by these defendants with *259 the plaintiffs. Henley Forklift Co Ltd are represented in these proceedings by the first, second and fourth-named defendants and will, for convenience, be referred to hereafter as the English company. For the same reason of convenience I will hereafter refer to the plaintiffs as the Irish company, and to the third-named defendants as the Northern company.
The events which led to the conclusion of the agreement are relevant and may be stated shortly. The English company was the manufacturer of forklift trucks which it sold in both parts of Ireland. In relation to its sales in Northern Ireland its sole agent was the Northern company. Up to 1973 its agents in the Republic were a company known as Crown Controls. This company, which was American-owned and which operated in Galway, also manufactured forklift trucks of its own design. The sales administrator of Crown Controls was Mr Michael O’Hea and he was mainly responsible for the sale in the Republic of the English company’s forklift trucks. Towards the end of 1972 it became apparent to Mr O’Hea and to a Mr Hardwick, the then managing director of the English company, that a conflict of interest was arising in relation to the promotion by Crown Controls of its own forklift trucks and its sale of the products of the English company. For this reason Mr O’Hea suggested the formation of a new company with which he would be involved and to which would be transferred the sole agency for the English company’s products in the Republic. The suggestion received sympathetic consideration from Mr Hardwick, representing the English company. One immediate problem was the question of the creditworthiness of such a new company, which would be unable to obtain credit guarantees through the usual channels of an insurance company or government agency. Forklift trucks are very expensive machines and credit of the order of upwards of £150,000 would be involved. The English company was therefore reluctant to deal directly with such a company. For this reason the managing director of the Northern company, a Mr Robert Alexander, was involved in the discussions and subsequent negotiations. The Northern company had an excellent credit rating. These negotiations were conducted between Mr O’Hea, Mr Hardwick and Mr Alexander both by personal meetings and by detailed correspondence. The correspondence consists of letters passing between the three negotiators dealing with various matters which require clarification and arrangement if a satisfactory agency of an exclusive nature could be provided in the Republic through which the English company could operate with confidence from a credit point of view. Eventually a proposal emerged that a company to be called Henley Forklift (Ireland) Ltd would be formed in which the Northern company would have a 55% share holding, Mr O’Hea 32½% and another associate Mr Fitzgerald 12½%. This new company was effectively to be given the sole agency for the Republic while the Northern company continued to retain the agency for Northern Ireland. It was, however, an integral part of the arrangement that in respect of all sales in the Republic the debts of the new company would ‘be underwritten by Handling and Storage Equipment Co Ltd’ (i.e. the Northern company): see letter of 12 April from Mr Hardwick to Mr Alexander. The proposal also provided for certain target figures for sales to cover the whole of Ireland on an annual basis which, on being achieved over a fixed period, would give a right for the renewal of the *260 agency and, on not being achieved, an option to the English company to discontinue. It was clearly envisaged in the discussions and the correspondence that all the points discussed and agreed between the three negotiators would be embodied in a formal legal document, to be drawn up by the English company’s solicitors, which would satisfy the board of the English company. A new company was not in fact formed in the Republic. An existing company was taken over by Mr Alexander, Mr O’Hea and Mr Fitzgerald and its name was changed to Henley Forklift (Ireland) Ltd. This is the Irish company. No point, however, is raised as to this. Following the negotiations, and as a result thereof, the agreement of 14 August 1973 was concluded. As indicated, this consists of two documents. One of these is the head agreement and the other the subsidiary or scheduled agreement. The head agreement is expressed to be between the English company and the Northern company. It in effect provides for an exclusive agency for the Northern company ‘on their own account and risk’ in respect of all sales of the English company’s products in the whole of Ireland, such products to be sold by the English company to the Northern company, who in turn would sell them to outlets in Ireland. It, however, records the intention of the Northern company to form a subsidiary with which it will enter into a similar agreement providing for the distribution of the products of the English company in the Republic. The agreement further provides for targets and for a right of renewal. As indicated, the subsidiary company was never formed but the subsidiary or scheduled agreement was claimed to have been entered into between the Northern company and the plaintiffs. This scheduled agreement provided that the Northern company ‘hereby grants to the distributors [ the Irish company ] the exclusive right during the continuance and force of this agreement to purchase for resale in the territory of Southern Ireland those of its products’ therein specified. Appropriate terms and conditions were specified as was a provision that the agreement should remain in force for five years and be renewable for a further five-year period provided that ‘the guaranteed quantity had been achieved for the preceding five-year period’. This scheduled agreement was expressed to have been entered into with the approval of the English company. It was not sealed by either company purporting to have been party to it, but each page of the agreement was initialled by Mr Hardwick, the managing director of the English comany, and a Mr Foster, the secretary of the English company, and by Mr Alexander who was then the managing director of the Northern company and, as indicated, the major shareholder in the Irish company.
Subsequent to this agreement the Irish company went into business and operated in the Republic the sales and promotion of the English company’s products. It did so on the basis of an exclusive agency. The working capital necessary for their operations was provided by the Northern company by way of loan. These products, while shipped directly to the Republic, were in fact invoiced by the English company to the Northern company and paid for by them and were then invoiced again by the Northern company to the Irish company who paid the Northern company for them. In this manner the liability of the Northern company to the English company in respect of the debts of the Irish company was preserved.
I now propose to consider the legal relationships which were created amongst *261 the three companies by the documents which were stated to comprise this agreement of 1973. Before doing so, however, I wish to express considerable doubts as to whether the scheduled agreement can be regarded as ever having been executed by any of the companies. The only indication of execution is the initialling of each page by the three gentlemen to whom I have referred. This initialling was of course by Mr Hardwick the managing director and Mr Foster the secretary of the English company, and by Mr Alexander who was then the managing director of the Northern company and the major shareholder of the Irish company. It has been urged with some substance that this initialling is more indicative of an identification of a document referred to in the head agreement than of an execution of the document itself. It has not been explained in what capacity the document was initialled by Mr Alexander. No evidence has been adduced that he was authorised to initial the document on behalf of the Irish company. I find it very difficult to say in the circumstances whether the suggested execution of this scheduled agreement by any of the companies involved was such as to comply with the provisions of s. 38 of the Companies Act, 1963. It was, by reason of its terms, an agreement which was going to operate over a number of years and therefore was required to be in writing.
Leaving this difficulty aside, however, I have come to the clear view that the nature of the transaction evidenced by these documents, signed or initialled as they were, was a separate agreement in the first instance between the English company and the Northern company and (execution apart) another and entirely separate agreement between the Northern company and the Irish company. I cannot see how these agreements could be regarded in any other light. It was suggested that the reality of the arrangement was that the goods were shipped directly to the Irish company. This, of course, is so, but if they were not paid for or if they proved to be defective, rights would have been exercised by the English company against the Northern company in the one case and by the Irish comapny also against the Northern company in the other case. No privity of contract, in my view, was created in law between the English company and the Irish company. I have no doubt that the correspondence indicated the intention of the negotiators to set up a trading mechanism in which their three companies would be involved. While this may have been their intention it is equally clear to me that the legal instruments under which this intention was to be carried out in fact provided for a situation in which in the first instance the English company contracted with the Northern company and then, and only then, did the Northern company enter into a separate agreement binding only it with the Irish company.
Having come to this conclusion, it is not necessary for me to consider the second issue which could only arise in the event of the Irish company having obtained under the agreement of 1973 contractual rights against the English company. As no such rights were obtained, such new arrangements as were entered into for direct trading between the two companies in June 1975 must depend for their legal effect on the arrangements then made and not upon any term suggested to have been carried over from what was agreed in 1973. For this reason, the claim by the Irish company to have a right to renew the agency for a period of *262 five years cannot be sustained. It was based on a contractual right claimed to have stemmed from what was agreed in 1973. As no such right, in my view, existed, no such claim can succeed.
I would accordingly, for these reasons, allow the appeal and would hold that the plaintiff’s action fails.
GRIFFIN J:
The facts, the circumstances leading to the execution of the head agreement between Henley Forklift Ltd (‘the English company’) and the third-named defendants (‘the Northern company’), and to the initialling of the scheduled agreement, are set out in the judgment of the Chief Justice, as are the relevant terms of the agreements.
The course of dealing between the parties, whereby the goods were invoiced to the Northern company by the English company, and in turn invoiced by the Northern company to the plaintiffs, continued until the month of June 1975.
In the High Court and in this court it was agreed by counsel for all the parties that the plaintiffs were not a subsidiary of the Northern company, and that the head agreement and the scheduled agreement were in fact the agreements that were performed. It was not contested by the plaintiffs that if the plaintiffs did not pay for any of the goods supplied to them between August 1973 and June 1975, or if in any other way they defaulted under the terms of the scheduled agreement, the loss would have fallen on the Northern company who were contractually bound to the English company in respect of all the goods supplied to the whole of Ireland. Again, if the goods supplied to the plaintiffs were in any way defective, it was not contested that the plaintiffs’ rights in respect thereof would have been against the Northern company and not against the English company. In the head agreement the English company warranted its products to be free from defects in material and workmanship. In the scheduled agreement the Northern company expressly convenanted to extend the benefits and rights under such warranty to the plaintiffs and agreed to be similarly bound by the terms of such warranty in relating to the plaintiffs.
In May 1975 Mr Alexander was anxious to retire from the plaintiffs, and to concentrate on operations in Northern Ireland. In that month a meeting took place in Dublin attended by him and Mr O’Hea and the other directors of the plaintiffs. At that meeting it was agreed that Mr O’Hea and the other directors of the plaintiffs would purchase the 55% interest of the Northern company in the plaintiffs. That agreement would have been of no benefit to the plaintiffs unless the English company was agreeable to trade direct with them. On 16 June 1975, Mr Alexander and Mr O’Hea met Mr Gray then the managing director of the English company, who agreed to a proposal that the Northern company would thereafter be agents in Northern Ireland only and that subject to a satisfactory credit rating being obtained by the plaintiffs as then structured, the English company would sell their products direct to the plaintiffs. No terms of a new agreement were discussed at that meeting but on 24 June 1975 the English company wrote to the plaintiffs forwarding a copy of their printed standard distributor agreement for their ‘perusal and comments’, and informing them that an application for a credit limit of £50,000 had been made on their behalf. Mr *263 O’Hea put that document in a drawer and did not reply to the letter. Thereafter the products of the Englsh company were sent to and invoiced to the plaintiffs. A credit rating of £20,000 was approved in August 1975.
In 1976, a merger took place between the first and second-named defendant and the English company (now known as Lansing Henley Ltd), to form what is known as the ‘Lansing Group’. Some differences arose between the plaintiffs and the Lansing Group, and on 9 September 1977, the latter wrote to the plaintiffs giving them twelve months notice that the trading arrangements between them would terminate on 9 September 1978. The plaintiffs claimed that they had an arrangement for five years certain under the agreement of 14 August 1973 and gave notice of their intention to renew that agreement for a further period of five years from 14 August 1978.
In the High Court, and again in this court on the hearing of the appeal, it was contended on behalf of the plaintiffs that, while the head agreement was made between the English company and the Northern company, and the scheduled agreement was expressed and intended to be made between the Northern company and the plaintiffs, the two agreements should be read together, and with the correspondence which took place between the parties when they were negotiating in April 1973, for the purpose of ascertaining the real agreement between the parties, which they say was a tripartite agreement between the English company, the Northern company and the plaintiffs. They rely on the execution of the head agreement by the English and Northern companies, and on the initialling of the scheduled agreement by the representatives of the English company and by Mr Alexander who, it was alleged, initialled on behalf of both the Northern company and the plaintiffs, as evidence of this alleged tripartite agreement. This submission found favour with the learned trial judge.
In my opinion, that submission is, on the evidence, unsustainable. First as to the initialling of the scheduled agreement: Mr O’Hea, the managing director of the plaintiffs, was present when the head agreement was executed and would have been the appropriate person to sign or initial any document intended to create contractual relations between the plaintiffs and the other parties. He did not initial the scheduled agreement. It seems to me that, as submitted on behalf of the defendants, in initialling the documents the parties to the head agreement were merely doing so in accordance with the normal conveyancing practice of initialling the pages of a schedule for the purpose of identification.
Because of the inherent risks in dealing directly with a company which had no credit rating, the English company was not prepared to contract directly with the plaintiffs and this is quite understandable when the huge amount of credit which would necessarily have to be given to the plaintiffs is considered. It was for the express purpose of ensuring that a company which was creditworthy was contractually interposed between them and the plaintiffs that the legal advisers of the English company required the head agreement to be made between the English company and the Northern company, with the subsidiary agreement to be made between the Northern company and the plaintiffs. This was a precaution that any prudent lawyer would take so as to ensure that the head agreement conferred contractual rights and obligations only on the English company and *264 the Northern company. The head agreement was not intended to, nor did it in any way, confer any rights or obligations on the plaintiffs, who were not privy to that agreement. However, to enable the plaintiffs to obtain the benefit of the exclusive right to sell the products of the English company in the State, the scheduled agreement was drawn in such a way as to give to the Northern company and the plaintiffs, inter se, contractual rights and obligations somewhat similar to those contained in the head agreement.
The terms of the head agreement are wholly inconsistent with the intention that it and the scheduled agreement should be read together as one agreement. The documents and the evidence show that it was intended by the parties that the head agreement and the scheduled agreement should be binding only as between the respective parties to each of them; that the plaintiffs understood that this was so was clearly demonstrated by the manner in which the agreements were performed until June 1975, and by the conduct of the plaintiffs when they received from the English company notice purporting to terminate the trading arrangements between them. As stated earlier, that notice was given by letter dated 9 September 1977. Before replying the plaintiffs sought legal advice and then they replied by letter dated 15 November 1977. In their letter, the plaintiffs claimed to have a binding agreement for the sole right to distribute the products of the English company in the State for five years with the right to renewal for a further five years. That right was alleged to arise under the agreement they had with the Northern company, which they ‘claimed to be binding, although it had not been formally sealed’. on the ground that each page had been initialled by Mr Alexander, the managing director of the Northern company. They stated their intention to enforce that agreement and further stated that:
If the terms of this agreement are not complied with we will have no option but to take the appropriate steps against [ the Northern company ]. We have no doubt that should proceedings be instituted you will be brought into the proceedings by [ the Northern company ] and made a party to the proceedings.
This letter was a clear and express recognition by them that such rights as they had under the agreement of 14 August 1973 were against the Northern company.
In my opinion, therefore, on the true construction of the agreement of 14 August 1973, the head agreement was binding only as between the English company and the Northern company, and the plaintiffs, who were not privy to it, had no rights or obligations under it. The entire commercial undertaking had been arranged in such a way that the English company contracted only with the Northern company for the whole of Ireland, leaving the Northern company to contract with the plaintiffs for the Republic. It would in my view be quite wrong to construe the two agreements in such a way as to read them as one agreement giving the plaintiffs rights as against the English company. In all the circumstances of this case, there was no way in which the plaintiffs would have obtained an agency to sell the plaintiffs’ goods within the State unless these contracts had been entered into between the English company and the Northern company on the one hand, and between the Northern company and the plaintiffs on the other *265 hand. The learned trial judge was, therefore, in my opinion, incorrect in construing these documents as one agreement. The claim of the plaintiffs that under the agreements they became the sole agents of the English company for the period of five years from 14 August 1973, therefore fails.
As an alternative argument, the plaintiffs submitted that the verbal agreement reached by the plaintiffs and the Northern company, subsequently approved of by the English company, had the effect as from that time of substituting the plaintiffs for the Northern company in the head agreement, and that accordingly the terms of that agreement thereafter applied as between them and the English company. There is in my view no evidence to support any such submission. The evidence is all the other way. Immediately after the verbal agreement of June 1975 was reached, as a result of which the plaintiffs and the Northern company were no longer to be contractually bound to each other, the English company sent a copy of their standard distributor agreement to the plaintiffs. The reasonable inference to be drawn from this is that they intended that an agreement should be negotiated between them and the plaintiffs along the lines of the terms of that document. There were a number of blank spaces in the document which would require to be filled in before an agreement could be concluded. These included such matters as the duration of the agreement, the products to be covered by the agreement, the right to determine the agreement, and the like. Mr O’Hea, it will be recalled, put the document into a drawer and did not reply to that letter. In the result, no terms had in fact been agreed and that document did not apply to the subsequent dealing between the parties. The legal position, therefore, was that the plaintiffs became the agents of the English company, trading on an ad hoc basis, with no fixed period during which the agency should subsist or no fixed period for determination of the agreement by notice. The relationship created was essentially a commercial relationship and was therefore determinable on reasonable notice. The plaintiffs received twelve months notice of the intention to determine the agreement, and twelve months was, on any view, reasonable notice. Such arrangements as existed between the parties under the verbal agreement of June 1975 were therefore lawfully terminated on the expiration of the notice given, i.e. on 14 August 1977.
I would accordingly allow the appeal and dismiss the plaintiff’s claim.
Kavanagh -v- Walsh
[2018] IEHC 91 (16 February 2018)
JUDGMENT of Ms. Justice Baker delivered on the 16th day of February, 2018
1. The plaintiff acting as receiver claiming to have been appointed by Ennis Property Finance Limited, now Ennis Property Finance DAC (“Ennis”), has sought injunctive relief and an order for possession of certain properties in Co. Kerry owned by the defendant. A number of issues arose for consideration in the course of the hearing of the motion but this judgment deals with one question concerning the validity of the deed or instrument of appointment of the plaintiff as receiver in regard to which Mr. Walsh argues that there exists a material defect in the attestation clause.
2. Rulings have been given regarding the other arguments raised by the defendant in opposing the injunction following oral submissions, but having regard to the importance of the matter raised by Mr. Walsh regarding the attestation clause, I invited further submissions from the parties to deal with that question only.
3. Mr. Kavanagh was appointed receiver by Ennis by two deeds of appointment under seal made on 18th February, 2016 and 17th October, 2016 respectively. In each case Ennis was acting as mortgagee in pursuance of powers vested in it by two mortgages made by Mr. Walsh with its respective predecessors in title. No argument now exists regarding the devolution of the interest of the mortgagee in the security interest.
4. The deeds are in standard form and appointed Mr. Kavanagh as receiver over the properties identified in the schedule. The deeds were executed under seal and the attestation clause identifies that the seal was affixed in the presence of a director and secretary. Mr. Walsh argues that the signature of the director on each deed is no more than a “squiggle” and, as the name of the director is not anywhere identified in the deed or in the attestation clause, it is not possible for a person reading the deed to be able to identify who witnessed the affixing of the seal. It is argued in those circumstances that it is not possible to objectively and independently verify compliance with the mode of appointment chosen by Ennis to appoint Mr. Kavanagh, and that therefore the deed of appointment is defective.
5. The defendant relies on the principle explained by Gilligan J. in The Merrow Limited v. Bank of Scotland plc & Anor [2013] IEHC 130, where he stated the proposition that: –
“Since a receiver’s authority is derived from the instrument under which he is appointed, an appointment is not valid unless it is made in accordance with the terms of that instrument. This principle has been recognised by the leading commentators in this area and accepted and applied by the courts throughout the common law world.” (At para 29)
6. Gilligan J. went on to stress the “importance of strict adherence to the terms of the debenture” and at para. 44 explained that: –
“…a receiver who is not appointed in accordance with the terms of the debenture is not validly appointed. In addition, an invalidly appointed receiver may be a trespasser on Company property.”
7. I adopt this approach of Gilligan J. and note that there is no real argument to the contrary made by the plaintiff.
8. Cregan J. in McCleary v. McPhillips [2015] IEHC 591 quoted extensively from the judgment of Gilligan J. and distilled the principles from the case law at para. 131 of his judgment where he, inter alia, explained the imperative that a receiver be appointed according to the terms of the contract between the parties, and that where a receiver’s authority is derived from an instrument under which he is appointed, the appointment is not valid unless it is made in accordance with the terms of that instrument. He summarised the principle as follows: –
“Considerations of basic fairness and contractual interpretation mean that the Bank should be obliged to comply with the terms it chooses to impose in the instrument involved.”
9. The defendant argues that as Ennis has chosen to appoint Mr. Kavanagh as receiver by deed under seal, it is imperative that the affixing of the seal of the company be authenticated by those persons authorised by resolution of the board or by the memorandum or articles of association of the company.
10. That proposition is correct and scarcely contentious.
The Companies Act 2014
11. The appointment was made by instrument intended to be a deed under seal and the formalities therefor are governed by s. 64(2) of the Land and Conveyancing Law Reform Act, 2009 by which is provided that a document under the seal of a company is to be executed in accordance with the company’s articles of association. Section 43(2) of the Companies Act, 2014 provides that save where otherwise provided in the constitution of a company or by the Act, the company seal shall be used only by the authority of its directors, and the instrument to which the company seal shall be affixed shall be signed by a director or a suitably appointed person and countersigned by its secretary.
12. The minutes of a meeting of Ennis held on 16th February, 2015 show that authority was given to any one director to “agree and approve or ratify” the document of the types identified in the minutes, including a deed of appointment. The evidence now before me is that the seal of Ennis was affixed and attested by a director, and countersigned by the secretary and the statutory provisions contained in s. 43(2) of the Act have in my view been satisfied.
13. The identity of the person who attested to the affixing of the corporate seal was raised by Mr. Walsh in correspondence and later in his replying affidavit sworn on 6th November, 2017. He avers that the deeds of appointment were “signed by an unverifiable person purportedly acting on behalf of Ennis. There is thus no printed legal name therein for the purported Director….”
14. An affidavit of Mr. Donal O’Sullivan in reply sworn on behalf of Ennis on 23rd November, 2017 avers to the fact that an inspection of the original deeds of appointment reveals that they were made under the seal of Ennis, but for the avoidance of doubt confirms in his third affidavit sworn on 22nd January, 2018 that the signature of the attesting director on each of the deeds is that of Mr. Jonathan Hanly, who was at the time a director of Ennis. He also avers that Mr. Hanly was authorised to execute the deeds of appointment by virtue of a resolution made by the board of Ennis passed on 16th February, 2017, and he exhibits the minutes of the board meeting.
15. The current state of the evidence is, therefore, that there is affidavit evidence from which it is possible to identify that the “squiggle” is that of Mr. Hanly. That the relevant person is a director of the company is clear on the face of the deeds, and requires no further clarification.
16. On the evidence the affixing of the seal of Ennis was attested by the signature of a person authorised to so do.
17. However, the defendant raises a further point, that the attestation cause and the identity of the director who attests the affixing of the company seal must be capable of objective verification from a reading of the deed. He argued that “exact compliance with a mode of appointment must be verifiable” and that in the present case the “squiggle” which purports to be a signature cannot be objectively identified as the signature of any person, and that a person reading the deed could not know who had attested the affixing of the seal and whether that person was duly authorised.
18. This argument requires that I consider the purpose of the attestation clause.
The attestation clause
19. The fixing of the seal is the act of the company, and the signature is by way of attestation. The purpose of the attestation is to authenticate the affixing of the seal.
20. Some assistance can be obtained in regard to the general rules to execution of a deed or the execution of a will. In Clarke v. Clarke [1879] 5 LR Ir. 47, the old Court of Appeal considered that sufficient evidence had been given to pronounce in favour of the validity of a will. Ball C. stated the matter at p. 54: –
“The Court of Probate is no more restricted to direct proof than our other Courts. In all, circumstantial evidence supplies the want of direct; and presumptions are constantly drawn to compensate for the loss of positive testimony occasioned by accident or lapse of time. This being so, we have in the present case simply to consider whether its facts afford reasonable grounds for inferring to execution.”
21. The matter of attestation is to be considered by reference to the intention of the person attesting a signature or affixing of a seal. McDermott L.C.J. giving the judgment in Re: Estate of Bulloch, deceased 1968 N.I. 96 was considering whether a will had been properly witnessed. After the signature of the testator there appeared the names of a married couple described as witnesses. The name of the wife was written by her in her own hand, but the name of the husband was not written by him, but was produced by means of a rubber stamp. The evidence showed that the stamp was affixed to the will by the wife in the presence of her husband but without any physical act or participation on the part of the husband. It was the fact of an absence of evidence of the participation of the husband that made the court come to the conclusion that the will was not duly executed. McDermott L.C.J. regarded the test as being whether the witness had “properly subscribed” in accordance with the requirements of s. 9 of the Wills Act, 1837 and considered that signing or the affixing of a rubber stamp could be a sufficient subscription. He did add “that a hand written signature is much to be preferred, if only because it is so much more easily authenticated”. McDermott L.C.J. then went on to say the following: –
“The witness, for one reason or another may not be able to sign his name in the ordinary way, and I have said, it has been recognised that he may make a valid subscription in some way, as by making a mark or appending his initials. But he must do something himself, if though the effort is made with the aid of another”.
22. Thus the purpose of the signature or other subscription to a will is to authenticate or attest the execution by the testator. The purpose of the signature of a director is similarly to attest or subscribe to the affixing of the seal of a company. The purpose is authentication, and that purpose must of its nature require some physical act or action by the attesting witness that signifies his or her affirmation or attestation of the document.
23. As Maguire P. said in the old Irish case of In Re Mullins, [1937] Ir.Jur.Rep. 43, the signing by a witness “had the effect of completing the execution of the codicil”. He held that the erasure of the signature of an attesting witness did not have the effect of leaving the codicil unexecuted, and he was prepared to accept evidence that the testator did sign the document and that it was duly attested. The question was whether the authenticating or attesting signifier was duly affixed.
A signature
24. The Court of Appeal for England and Wales in Goodman v. J. Eban Ltd. [1954] 1 Q.B. 550, held that a rubber stamp with a facsimile of the signature of the plaintiff’s solicitor was sufficient for the purposes of the Solicitors Act, 1932. The dissenting judgment of Denning L.J. is often quoted, and is useful not so much for its dissent but for its description of the uniqueness of a signature: –
“The virtue of a signature lies in the fact that no two persons write exactly alike, and so it carries on the face of it a guarantee that the person who signs has given his personal attention to the document” (at p. 561).
25. A signature is generally to be preferred but this can give rise to difficulty when the handwritten signature is indecipherable. The question then becomes one of proof that the person who attested the affixing of the seal, or the signature of a testator, did in fact so attest.
26. But as a matter of law there is no general requirement that a signature be capable of being decipherable. If a rubber stamp will suffice, any mark or signifier that signifies an intention to attest will suffice.
27. It is also the case and well established that a person may sign or signify by his mark.
28. The purpose of a signature is to signify, and provided the mark, signature or rubber stamp, or other means of signification, is sufficiently unique or personal to the signifier there seems to me to be no reason why the signature should be decipherable.
29. FitzGibbon L.J. in his judgment in Clarke v. Clarke noted that the question of the validity of the will was a question of fact whether the evidence reasonably sustained the instrument. I accept this to be a correct statement of the law.
30. The evidence of the correctness of an attestation clause does not require any special proofs and the matter is to be resolved in the light of the evidence.
Application to the facts
31. Applying those principles to the instant case the following emerges. The seal of the company was affixed to the deeds of appointment, and is clear on the face of the instruments. The affixing of the seal was attested by a director and the secretary of the Company. It is not on the face of the document easy or indeed possible to discern the identity of the attesting director. Evidence has been heard and is not controverted that the relevant signature was that of Mr. Hanly.
32. The defendant argues that the deed is objectively speaking invalid. I consider that the deed is objectively speaking valid and was objectively speaking correctly executed, and appropriately attested. Subjectively it is difficult to read the signature of Mr. Hanly and subjectively a person who did not by other means know or recognise Mr. Hanly, might not have been aware upon reading the document that it was properly witnessed. The subjective fact that it is difficult to discern the signature could not invalidate the document.
33. I accept the argument that as a matter of good practice a person executing or attesting a deed should ensure that the identity of that person can be discerned either from the signature or from another part of the deed. In the case of a conveyance the identity of the signing parties will be clear from the attestation clause read together with other parts of the document when both parties are natural persons. In the case of a company it is good practice that a director attesting the fixing of the seal of the company should be identified by a legible means, and that is because it may be necessary to ascertain whether the affixing of the company seal was attested by an authorised person. A prudent purchaser or other person examining the devolution of the title could legitimately requisition a statutory declaration to confirm the identity of the person who affixed the seal of the company.
34. I accept that the authorities bear out the proposition that a court must be vigilant regarding the validity of the appointment of a receiver who seeks an injunction against a mortgager and a court is entitled to scrutinise the deed of appointment. The making of an injunction in favour of a receiver is a remedy not to be likely made, and the proofs must be sufficient and clear.
35. In the present case, the proofs are established and I am therefore satisfied that the arguments made by the defendant are not borne out on the facts or in law.