The Gazette 1985

GAZETTE

JANUARY/FEBRUARY 1985

a resolution authorising that which on the face of

the document appeared to be legitimately done.

The decision in

Re Hampshire Land Co.

is also

germane. There it was held that a lender is protected

where directors are empowered to borrow not more than

a specified total amount on their own initiative, and

further to borrow in excess of that amount with the

consent of a general meeting. In such a case the lender

may assume that any necessary consent has been given,

even if he is aware that the directors have already

borrowed up to the limit set for them personally. Having

regard to these decisions, it seems that the reservation

expressed by Kenny J. in

Re Burke Clancy Ltd.

runs

against a strong current of authority and might safely be

disregarded. However, persons will no doubt,

abundanti cautela,

continue to insist on proof of the

necessary resolutions.

Re Burke Clancy Ltd.

must also be read today in the

light of paragraph 6(1) of the European Communities

(Companies) Regulations 1973.

This statutory

instrument provides that, in favour of a person dealing

with a company in good faith, any transaction entered

into by any organ of the company including,

inter alia,

its

board of directors shall be deemed to be within the

capacity of the company and any limitation on the powers

of that organ, whether imposed by the memorandum or

articles of association or otherwise, may not be relied

upon as against any person so dealing with the company.

Any such person is presumed to have acted in good faith

unless the contrary is proved. This provision treats

conditions which must be fulfilled before directors can

borrow in excess of a specified amount as a restriction on

the directors' powers to enter into any transaction within

the company's capacity. The other party to the

transaction is able to disregard these restrictions provided

that he acts in good faith. The 1973 regulations were

enacted in compliance with Ireland's obligations to give

domestic effect to the provisions of the First Company

Law Directive of the EEC.

The phrase " go od faith" has

not been subjected to judicial exegesis in this jurisdiction.

However, in relation to the comparable English

provision, Lawson J. in

International Sales and Agencies

Ltd.

-v-

Marcus

was of opinion that a company could

only prove lack of good faith by showing that the third

party had actual knowledge that the transaction was

ultra

vires

the company or the board of directors as the case

may be, or could not in view of all the circumstances have

been unaware of it. By way of comment, it must be said

that this is an interpretation of " go od faith" in the spirit

of the First Directive's requirements

ut res magis valeat

quam pereat.

The 1973 regulations remain fairly controversial in the

realm of Irish Company Law since they trespass on

territory already covered in part by section 8 of the

Companies Act 1963.

Leaving aside the question of the

relationship between the two provisions as irrelevant to

this paper, one is still left with a difficult problem as to the

effect of the statutory instrument on the rule in

Turquand's

case. Some points should be made. Firstly, the

statutory provision applies only to companies, including

unregistered companies, having limited liability.

Secondly, the provision is limited to circumstances where

the person is dealing with the company in good faith.

According to Lawson J. in the

Marcus

case, a person

who received company money in satisfaction of a private

debt could not be said to be dealing with the company, but

with the director concerned, even though payment was by

cheques drawn on the company. Thirdly, for the statutory

regulations to apply, the transaction must be entered into

by any organ of the company, being its board of directors

or any person registered under the regulations as a person

authorised to bind the company. There is provision

elsewhere in the regulations for the voluntary registration

of a person authorised to bind the company, for example,

a managing director.

Finally, the statutory provision

confers more extensive protection in a certain respect.

Under the rule a person transacting business with the

company is presumed to have read the public documents

of the company and to have ascertained that the proposed

transaction is not inconsistent therewith.

Section B of

the Companies Act 1963 abolished this doctrine of

constructive notice insofar as the objects clause in the

company's memorandum of association is concerned.

The European Communities (Companies) Regulations go

further and protect a person dealing with a company

against absolute prohibitions in the memorandum or

articles, and against infringements of restrictions on the

powers of its directors which entry into the transaction

necessarily entails.

Conclusion

The rule in

Royal British Bank -v- Turquand

embodies

an important principle. It is designed to alleviate the lot of

the hard-pressed business community who might find it

unduly burdensome to delve behind the public documents

of a company. While the underlying rationale of the rule

has not been judicially considered to any great extent in

this jurisdiction, the function it fulfills is of appreciable

significance. Having regard to these factors, it is

disheartening to note that in one of the few cases in which

it occasioned comment in Ireland —

Re Burke Clancy

Ltd..

Kenny J. viewed the rule very restrictively.

•

Footnotes

I.S.I. No. 163 of 1973.

2. (1855) 5 E. and B. 248; on appeal (1856) 6 E. and B. 327.

Gloucester County Bank

-v-

Rudry Merthyr Steam and House Colliery

Co.

[1895] 1 Ch. 629 per Lindley L.J. at 636.

4. [1982] ILRM 57.

5. [1895] I Ch. 629.

Ibid,

at 636.

7. [1982] ILRM 57 at 65.

Ibid,

at 66.

9. A person dealing with a company cannot claim protection if he

knows that there has been some failure to comply or if he knows facts

which would lead a reasonable man to inquire further and thus

discover the failure to comply. See generally

Howard

-v-

Patent Ivory

Manufacturing Co.

[1888] 38 Ch. D 156; and also

E.B.M. Co. -v-

Dominion Bank

[1937] 3 All E.R. 555 and

A.L. Underwood-v- Bank of

Liverpool

[1924] 1 KB 775 which deal with apparent authority of

agents of a company.

10. [1901] 2 K.B. 314.

II. [1915] 1 ER. 345.

12. [1904] 1 Ch. 32.

13.[1915] 1 I.R. 345 at 371.

14. In

Morris -v- Kanssen[

1946] A.C.459 LordSimonds said that it is the

duty of directors, and equally of those who purport to act as

directors, to look after the affairs of the company. To admit in their

favour a presumption that that is rightly done which they have

themselves wrongly done is to encourage ignorance and condone

dereliction from duty.