Case Management

Topics: Non-executive director, Executive director, Managing director Pages: 10 (3442 words) Published: December 20, 2009
Indoor Management Rule

1. Indoor management rule. Royal British Bank v Turquand; A rule was formulated to the effect that while a third party who dealt with the company was taken to be aware of the contents of that company’s public documents, they were not bound to ensure that the company’s internal proceedings were properly carried out. See Morris v Kanssen [1946]AC 459 at 474. “A person dealing with a company in good faith may assume that acts within its constitution have been duly performed and are not bound to inquire whether acts of internal management have been regular.”

2. Northside Developments Pty. Ltd v Registrar-General (1990) 170 CLR 146; Northside mortgaged its land to Barclays, the mortgage was executed under the company’s common seal, signed by a director and counter-signed by a company secretary. The articles were not complied with as the company secretary had not been properly appointed. The other directors also had no knowledge of the mortgage and had not authorised the director to affix the company seal. When Barclays exercised its power of sale as mortgagee, after the mortgagor defaulted, a company unrelated to Northside, Northside argued that it did not execute the mortgage. Northside sued the Registrar-General who attempted to rely on the in-door management rule to prevent Northside from denying execution of the mortgage. Issue: whether Northside was bound by the mortgage. Held: High Court held that Northside was not bound by the mortgage. The bank should have been put to inquiry and that it had failed to carry out inquiries. The nature of transaction was such as to put the bank to inquiry (that is, the purpose was unrelated to the company’s business)

3. Brick and Pipe Industries v Occidental Life Nominees(1991) 6 ACSR 464. A director and secretary of Brick and Pipe attested the execution of the deed of guarantee and indemnity. Both were directors but the secretary had never been formerly appointed. The articles of the company required attestation to be made by a director and a secretary. The execution of the deed took place without the need of the other directors. Issue: whether the company was bound by the deed of guarantee. Held: That s129(5) had been met. That the director had actual authority to hold out that the individual who signed as secretary was the actual secretary of the company.

4. Pacific Carriers Limited v BNP Paribas [2004] HCA 35, the High court took a broad approach to this issue. The acations of Ms Dhiri who was manager of the Documentary Credit Department of a bank. She signed two letters of indemnity addressed to the charterer of a cargo ship and fixed a special stamp commonly used by banks involved in trade finance. Under these letters of indemnity, the bank for which Ms Dhiri worked agreed dto indemnify the ship charterer in respect of loss or damage the ship charterer might sustain as a result of delivering cargo without proper documentation being produced by the receiver of the cargo. When the ship was delivered without proper documentation, the ship charterer sued the bank, seeking to be indemnified. One of the arguments for the bank was that it was not liable coz Ms Dhiri had no authority to bind the bank on the indemnity. All parties agreed that Ms Dhiri had no express actual authority to bind the bank. This was because the issuing of indemnities was the function of the bank’s guarantee loan department, not the documentary credit department. Also the banks policies required the indemnities to be signed under power of attorney. All indemnity documents were to be signed by two people one of whom had to be an ‘A” signatory. Ms Dhiri was an ordinary signatory, not an ‘A” signatory. The NSWC of Appeal held that Ms Dhiri had no apparent authority to bind the bank to an indemnity. On appeal however, the High Court noted that a ‘holding out’ might result from permitting a person to act in a certain manner without taking proper...
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