TMI Blog1967 (6) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 All. ER 100 ; 55 TLR 103 ; In re County Palatine Loan and Discount Co., Cartmell's case ( supra ) ; In re Newcastle-upon-Tyne Marine Insurance Co., ex parte Brown [1854] 19 Beav. 97 ; Dovey v. Cory [1901] AC 477, HL ; and Mahone v. East Holy ford Mining Co. [1875] LR 7 HL 869, HL. June 22. Lord Denning M.R. : In opening this appeal Mr. Wheeler paid tribute to the judgment of Roskill J. He said it was a tour de force. I agree. It was delivered straighaway after a five-day hearing at the end of the term. His findings of fact have been accepted by both parties before us. The discussion has been on the correct legal principles to be applied. I need myself only summarise the salient facts. Lord Suirdale, the plaintiff, was for many years chairman and managing director of a public company dealing in electronics called Perdio Electronics Ltd. (Perdio). He held a great number of its shares and had guaranteed a loan to it from merchant bankers called Guinness Mahon Co. for 50,000. Mr. Richards, a professional accountant, was the chairman of another public company called Brayhead Ltd. (Brayhead). It also dealt in electronics. Towards the end of 1964 Perdio was susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir efforts were unavailing to save Perdio. It went into liquidation. On September 27, 1965, Lord Suirdale resigned from the board of Brayhead. He had been a director for some nine months. The merchant bankers, Guinness Mahon, called on Lord Suirdale to honour his guarantee. He paid them 50,000, and then claimed that sum from Brayhead under the letter of indemnity of May 19, 1965. He also wanted repayment of the 45,000 which he had lent Perdio. He claimed this sum under the letter of guarantee of May 19, 1965, and gave the requisite notice to Brayhead to repay. On November 27, 1965, he issued a writ against Brayhead. The defence of Brayhead is twofold : First, they say that the letter of indemnity and the letter of guarantee are not binding on the company, because Mr. Richards had no authority, actual or ostensible, to write those letters : and that Lord Suirdale, being himself a director of Brayhead, had notice of that want of authority. So there was no contract by the company. Second, they say that if there was a contract by the company, it is unenforceable by Lord Suirdale because he was a director and had an interest which he did not disclose at any board meeting. Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not know of the 500 limitation, see British Thomson-Houston Co., Ltd. v. Federated European Bank Ltd. [1932] 2 KB 176 ; 3 Comp. Cas. 106, CA, which was quoted for this purpose by Pearson L.J. in Freeman Lockyer's case ( supra ) . 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 [1946] AC 459 ; 62 TLR 306 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 anthority 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mways [1898] 1 Ch. 458, 368 ; 14 TLR 244, CA, that "he cannot enforce, as against the company, any contract which he has entered into with that personal interest." It seems to me that when a director fails to disclose his interest, the effect is the same as non-disclosure in contracts uberrimae fidei, or non-disclosure by a promoter who sells to the company property in which he is interested : see Re Cape Breton Co. [1884] 26 Ch. D. 221 ; [1885] 29 Ch. D. 795 ; 1 TLR 450, CA ; Burland v. Earle [1902] AC 83, 96 ; 18 TLR 41, PC . Non-disclosure does not render the contract void or a nullity. It renders the contract voidable at the instance of the company and makes the director accountable for any secret profit which he has made. At first sight article 99 does present difficulties. It says that : "A director may contract with and be interested in any contract or proposed contract with the company either as vendor, purchaser or otherwise, and shall not be liable to account for any profit made by him by reason of any such contract or proposed contract, provided that the nature of the interest of the director in such contract or proposed contract be declared at a meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e drawn ? The suggestion was made that his authority might be implied from the mere fact of his holding the office of director and chairman of Brayhead at the relevant time. The judge dealt with that and held that, merely by virtue of his position as chairman, he would not have the necessary authority to enter into these agreements. I agree with that ; but the question as to implication does not stop there. I quote some words in this connection from Diplock L.J.'s judgment in Freeman Lockyer v. Buckhurst Park Properties ( Mangal ) Ltd. [1964] 2 QB 480, 502 ; 34 Comp. Cas. 405 . He says : "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." I think, therefore, that it is legitimate to go on and consider, over and above the powers he had as chairman, what the actual circumstances of the relationship between him and the board of directors may show. Looking at i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een January 1, 1965, and May 19, 1965, he agreed on behalf of Brayhead to advance 150,000 to Perdio : he agreed to take over certain acceptance credits provided by Kleinwort Benson, and on February 5, 1965, he entered into and signed on behalf of Brayhead an agreement varying the agreement of January 1, 1965. That leads one to the conclusion, which I think follows directly from the judge's analysis, that on May 19, 1965, Mr. Richards, when he made the further agreement with the object of bolstering up the finances of Perdio. was doing so under the authority which he had to enter into such arrangement on behalf of Brayhead. I add this significant fact, that after the board meeting which was held on May 19, 1965, and Mr. Richards and Lord Suirdale adjourned to another room to enter into the documents in question, there were two other transactions entered into which were evidenced by documents C.25 and C.24, some of them in the presence of other Brayhead directors, as to which it is not disputed that they were valid and binding on Brayhead. It seems to me, therefore, to follow that Mr. Richards is to be taken to have had authority from the board to carry through to a conclusion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t upon a contract or proposed contract of failure to do so. It does contain, however, in sub-section (5) a statement that nothing in the section shall be taken to prejudice the operation of any rule of law restricting directors of a company from having any interest in contracts with the company. If the matter rested there, it would be plain that the civil law relations between a director and his company with regard to a contract or proposed contract would be governed by normal principles of law and equity relating to contracts made by persons in a fiduciary position, such principles as govern the position of such persons as trustees or solicitors or anyone else in a similar position. The normal consequences which follow from a contract made by a person in such a fiduciary position are that the contract may be voidable at the instance of in this case, the company and that in certain cases a director may be called upon to account for profits which he has made out of the transaction. The application of this doctrine of equity to companies is very clearly brought out in the case of Transvaal Lands Co. v. New Belgium ( Transvaal ) Land and Development Co. [1914] 2 Ch. 488 ; 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own platform at Reading station. That, however, does not seem to me to support t he proposition for which he is contending, for I would regard a refusal to grant specific performance really as the counterpart on the director's side of avoidance of the contract on the side of the company. It seems to me a very different thing to say that a contract if not fully implemented need not be specifically performed and to say that when it is too late to avoid a contract, the other side has no right to enforce it. The other authority on which he relied was Kaye v. Croydon Tramways [1898] 1 Ch. 358 , to which my Lord has referred. There is nothing in the decision which supports his argument. There is only a passage in the judgment of Lord Lindley M.R., where he says that the director cannot enforce as against the company any contract. Now anything, of course, which falls from Lord Lindley in this context commands considerable respect but I do not think that in that passage he can have intended to introduce a new category of remedy or defence to be available to a company when a director has failed to disclose his contract. The case itself had nothing to do directly with the enforcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) How, if at all, are the contracts affected by Lord Suirdale's failure to disclose his interest to the board of directors of Brayhead ? On the first question I agree that on the judge's findings of fact, which are not disputed, there is proof that Mr. Richards had actual authority to make the contracts on behalf of Brayhead. The points to which I attach most importance in coming to this conclusion are these. First, Mr. Richards, while acting as de facto managing director and chief executive and entering into large transactions on behalf of the company, would sometimes merely report the transactions and not seek prior authority or subsequent confirmation by the board, and the board acquiesced in this course of dealing. Secondly, these two contracts, though they seem large and hazardous, were within the scope of Brayhead's business. Brayhead were a holding company and their business involved taking over other companies and operating them as subsidiaries. In the present case Brayhead were taking over the Perdio Company with a view to operating it as a subsidiary and they were pouring in money for the purpose of keeping it alive, though they failed to do so. These contracts were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no question of ostensible authority as between those two parties, the principal and the agent. If the contractor is claiming against the principal on a contract made by the agent professedly on behalf of the principal, the contractor can succeed by proving actual or ostensible authority, but usually it is easier for him to prove ostensible authority and that is what he chooses to do. The peculiarity of the present case is that the proof of ostensible authority, which otherwise would have been easy, is complicated by the existence of a doubt whether, generally or on the facts of this particular case, a director can rely on ostensible authority or on the principle of Turquand's case ( supra ) when he is suing on a contract professedly made on behalf of the company of which he is a director. It can be suggested that a director has by virtue of his office the means of knowing the true facts about the alleged authority and that therefore he is not entitled to rely on the representation of authority. That may or may not be right. I am not expressing any opinion as to how that doubt should be resolved. There is ample proof of actual authority in the present case, and that is a suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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