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GAZ E T TE
J ANUARY / F E BRUARY 1985
borrowing (where it is within the directors' powers) or
approving the form of the mortgage or authorising the
affixing of the seal. These were merely matters of internal
management in respect of which an outsider was entitled
to the protection of the rule in
Royal British Bank
-v-
Turquand.
1
In this case, however, the bank had adopted an ultra-
cautious approach and the liquidator contended that they
should be penalised for their pedantry. It was submitted
that because Ulster Investment Bank Limited required as
a condition precedent to the first loan the right to receive
and approve copies of the various board resolutions
authorising the borrowing, they had disqualified
themselves from relying on the rule. Carroll J. would have
none of this. She was satisfied that the bank had acted
bonafide
throughout. They were entitled to assume where
there were two directors present that one was an " A "
director and one was a " B " director.
8
The liquidator also sought to rely on the terms of the
shareholders' agreement between the shareholders of
which the bank had actual notice. It was argued that the
bank must be taken to know from this that the two
directors present were " B " directors. According to the
terms of the agreement the two persons in question
together with another were to be issued with all the " B "
ordinary shares whereas the " A " ordinary shares were
reserved to other named individuals. Again the Judge was
unimpressed.
9
She pointed out that it was possible for the
shareholding to have changed between the date of the
shareholders' agreement and the general meeting. Also
there was no particular shareholding qualification
required for directors in the articles.
Carroll J. indicated that she was influenced in her view
generally by a consideration of other cases that deal with
various aspects of the rule in
Turquand's
case. Among
these cases was
Duck
-v-
Tower Galvanising Co.
10
The case
relates to
defacto
directors. A man formed a company to
carry on his business, and himself and his spouse acted as
directors without being appointed by the subscribers to
the memorandum, as the articles required, and without
those subscribers in any way acquiescing in them so
acting, or in any way conveying the impression that they
had been properly appointed. These
de facto
directors
issued a debenture in the company name to secure a loan
made to the company. The court held that the company
was bound by the debenture. The debenture-holder could
validly assume that there had been no irregularity in the
appointment of the directors from the fact that they
controlled the company's business.
Cox v. Dublin City Distillery (No. 2)
In light of the authorities
Ulster Investment Bank
Limited-v- Euro Estates Ltd.
can be viewed as an orthodox
application of the "indoor management" rule. One Irish,
case which had some relevance to the issues involved,
appears, however, to have escaped the attention of
Carroll J.
In
Cox
-v-
Dublin City Distillery (No. 2)
certain
debentures were issued in trust for persons pursuant to
various resolutions. At the board meetings at which these
resolutions were passed there was no quorum competent
to vote and consequently the resolutions were invalid. It
was decided in
Yiull -v- Grey mouth Point Elizabeth
Railway and Coal Co. Ltd.
12
that the word "quorum" in
the articles of association of a company signified a
quorum competent to transact and vote on the business
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