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OFFER - An agreement = a clear and certain offer made and an equally clear, unequivocal acceptance is communicated
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An acceptance is based
on the reasonable man’s intention– Smith v Hughes
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What is an
offer?1
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2
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3
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cf Storer v Manchester CC (it was held to be a clear and certain offer)
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They invite the offeree to enter into
negotiations: 1
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2
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NB EXCEPTION: Unilateral offers (made to the world)
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See: Carlill v Carbolic Smoke Ball; Bowerman v ABTA
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In Lefkowitz v Great Minneapolis Surplus it was limited
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Invitations to tender – where a person seeking
to have work carried out invites people to submit conditions
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BUT NOTE: Blackpool & Flyde Aero Club v
Blackpool BC – was held to be an offer as the parties were invited and there were strict conditions re offers; Harvela Investments Ltd v Royal trust Co
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4
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BUT NOTE: Barry v Davies
re auctions with reserves
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5
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The application by people wanting to purchase shares
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An offer remains open until it is terminated or it is accepted and must
reach the offeree – Routledge v Grant
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Rejection – counter offer – Hyde v Wrench
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NB A counter-offer must be distinguished from a mere request for information – Stevenson Jacques v McLean
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Revocation
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Revocation must have reached offeree before acceptance is sent
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NB Revocation of unilateral offer
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If an advert then revocation must have equal notoriety – Shuey v USA
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Lapse of time – Time nut it depends on commodity (Ramsgate Victoria Hotel
co v Montefiore);Death (Bradbury v Morgan) ; Non-fulfillment of a condition precedent (Financings v Stimson)
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ACCEPTANCE – unconditional agreement to all the terms of the offer
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Must be a mirror image – Hyde v Wrench
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2
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“If I don’t hear anymore from you I’ll consider the horse mine” NB Silence cannot be
acceptance
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3
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4
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5
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EXCEPTIONS:1
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2
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Offeror didn’t have ink in fax machine
so didn’t receive fax from offeree
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3
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It is valid when acceptance is put in post box
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Postal rule does not
apply t emails – see Electronic Commerce (EC Directive) Regulations 2002
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Must be properly posted – Re London and
Northern Bank
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2
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3
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Getreide-import Gesellschaft v Contimar
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Must be reasonable to use post ie same method or not when postal strike is on –
Henthorn v Fraser
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PR must not cause ‘manifest inconvenience and absurdity’ – Holwell Securities v Hughes
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Offerors can be oust the postal rule – Holwell securities v
Hughes
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CONSEQUENCE:1
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Offeror unable to revoke –
bound when acceptance posted
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Offerors bound when acceptance posted (uncertainty for offeror)
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Offeree can’t retract but Scottish authority (purely persuasive) states
you can do this – Dunmore v Alexander
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Cf Thomas v James
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Actual communication is required –
Entores v Miles Far East – receipt rule
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2
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3
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Valid next working day, but no universal rule – Brikinkibon Ltd v Stahag Stalin
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Be explicit
and equally efficacious method will suffice eg “By fax only” – Manchester Diocesan Council for Education v Commercial & general investments
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If none prescribed –
Tinn v Hoffman & Co
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3
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Websites= ITT
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CONSIDERATION:some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the
other – Currie v Misa
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Not be past - Where a benefit has already been provided, a promise in return for that benefit is a
promise for ‘past’ consideration and not enforceable – Eastwood v Kenyon Exception to past consideration rule – Pao on v Lau Yiu Long, states:a)at request of the
promisor? Lampleigh v Braithwaitb)payment understood to be due? Re Casey’s Patentsc)contract enforceable apart from this issue?2
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3
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Giving up a legal right? - White v Bluett
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Performance of an existing duty obligation: public dutyPolice:
Harris v Sheffield UtdParental: Ward v ByhamAt law: Collins v GodefroyAll about whether you are doing more than you have to
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Performance of an EXTRA obligation is good consideration – Hartley
v Ponsonby
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The criteria is: existing contract between the parties to
supply goods or services; the paying party has reason to doubt whether the performing party will be able/willing to complete; the paying party promises an extra payment to
ensure completion; paying party gains a practical benefit or obviation of disbenefit; promise to pay extra is not given as a result of fraud or duress
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Reaction to Williams v Roffey Bros:Been confirmed in Adam Opel GMBH v Mitras Automotive
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Williams only applies to goods and services
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Can be good consideration – Scotson v Pegg; New Zealand Shipping v Satterthwaite
ICLR: “To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly” – Rose and
Frank Co
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Based on the reasonable man test ie objective test
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HOWEVER, rebuttable presumption – commercial agreements -Hadley & others v Kemp & another
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Honourable pledge clause – Rose and Frank
co
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Statements said in anger/jest – Licenses insurance Corporation v Lawson; Leonard v Pepsico3
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4
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Collective agreements – Trade Union and Labour Relations (Consolidation) Act 1992
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married couples – Balfour v Balfour2
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Separating couples – Merritt v Merritt2
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Previous conduct of the parties -Peck v LateauA new
contextual approach?Edmond v Lawson – “whether the parties intended to enter into a legally binding relations is an issue to be determined objectively and not be
inquiring into their respective states of mind
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”
Capacity to contract – minor *A party has to have capacity to contract for it to be a valid agreement– intoxicated people, mentally impairments or minors do not have
capacity to contract, unless in limited circumstances
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However, there are
exceptions such as contract for necessaries (defined by SGA) and education/training (benefit for minor)
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This is governed by Minors Contract Act 2007 and common law
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A
capacity of a company to contract is not unrestricted
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It acts through its directors
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However, the Companies Act 2006 modifies this as long as the innocent party acted in ‘good faith’, even
if it is outside the companies capacity within the terms of its constitution
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Twycross v Grant – it is business term which describes those who
take the necessary actions to bring the company into existence
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They must exercise reasonable care and skill and in the best interests of the company and does not make a secret profit
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If no disclosure, opportunity to recind, but limitations on rescission as
contract only voidable eg involvement of third parties (Edwards v Skyways)
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*Liability to promoters to third parties under pre-incorporation contracts Pre-incorporation Contract*The Common law position – re contract law have to be privy
to contract, but company can’t require rights and liabilities if did not exist at the time – Films Rover International ltd v Cannon films sales; Kelner v Baxter
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However:*The Contract (Rights of Third Parties) Act 1999 – allows enforcement of contracts by third party were express term
or provides benefit of third party
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*The Law of Agency
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Contracts of Novation*A new contract must be made with the third party on same or similar terms, after incorporation to exclude
promoter from liability – Natal Land Co & Colonization Ltd v Pauline Colliery & Development Syndicate Ltd*But novation may be inferred from the conduct of the parties
– Re Patent Ivory Manufacturing Co, Howard v Patent Ivory Manufacturing Co*No inference if the Company acts due to mistaken belief that it is bound –Re
Northumberland Avenue Hotel Co Ltd*No liability for mere confirmatory signature of the company – Newborne v Sensolid (Great Britain) Ltd*But note misrepresentation
of authority
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Objective – designed to protect third parties
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DURESS: “some form of coercion or threat to the person, property, or to a person’s financial interests”
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Contract entered into
under duress is voidable (but not void) and can be set aside by the court
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Can either use duress as a defence
or use it to get your money back
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The duress need not be ‘the
reason’ (for entering into the contract), just ‘a’ reason
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Test for causation is: ‘but for’
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NB
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The original contract is unchanged/still valid, it is the extra that is void
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Development:1
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ED first recognised in The Siboen & The Sibotre
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This case shows that the courts don’t like duress
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3
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4
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Test for causation: must be the significant cause’ ‘but for’
the duress they would not have entered into the contract– huyton sa v peter cremer
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Affirmed: Carillion
construction ltd v felix ltd/ Kolmar group ag v traxpo enterprises ltd
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Also see b & s contracts & designs ltd v victor green publications ltd (C said they couldn’t do the job unless D
gave
them extra money as a gift); atlas express v kafco ltd; carillion construction ltd v felix (uk) ltd
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b)good or bad faith?Illegitimate threat, but for lawful end is good faith – DSND subsea ltd v petroleum geo-services –
safety of the divers was a priority
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Ct won’t award duress easily
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‘overwhelming pressure’ will be
but it was held not to be in r v AG of England v wales
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In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, The Atlantic Baron, therefore, it
was held that the plaintiffs' inaction during the 8 month period following the delivery of the tanker under the construction contract amounted to constructive affirmation of
the contract
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Contrast with immediate action to avoid – atlas
express ltd v kafco/b&s contracts & design v victor green
Any term of a contract must be clear and certain
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Mere puff (advertising
hyperbole) and mere representation (statement of fact) are NOT terms
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The first step in relation to terms is to see if the statement is
incorporated into the contract
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‘Implied terms’ (terms that neither party has necessarily seen), which can be implied by the courts at common law: in law (necessary to contract)
OR in fact (business efficacy to contract –intention imputed to parties), and can implied by statute
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1
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The
court decided that it was a term of the contract that the hops had not been treated with sulphur
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Timing (just before or at the point of contracting in order for it to be a
term)– Routledge v McKay3
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Is the term in the contract?COURT CONSIDERS:1
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Assumption of responsibility – if you haven’t been allowed to verify then it will be a term of
the contract– Schawel v Reade
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e the sale was made a day later, so it wasn’t deemed a term of the
contract
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Avoiding the Rule1
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Ct decided it was a partly written
contract
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Collateral contracts – City of Westminster v Mudd3
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Can’t bury an onus clause in the contract – needs to be
obvious
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v East Crown ltdIMPLIED TERMSImplied terms are those to which no
direct reference has been made during negotiations
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However, in Photolibrary Ltd v Burda Senator Verlag, there was a course of dealing
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The
test: “something so obvious that it goes without saying” – Shirlaw v Southern Foundries
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S14 – within reasonable time
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If the term is a WARRANTY, the innocent person only has a right to sue for damages only, not to terminate
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Agent was entitled to terminate
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Not such a serious breach as he only missed 3 days of rehearsals
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Contingent
conditions ie clause in the contract by which the contract hangs
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HOW IS A CONDITION CLASSIFIED? - Statute, parties intentions, judiciary
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All conditions unless s15(A) applies ie if business buying from another business and breach if so slight as to make termination so
unreasonable S13-15 (the breach) might be treated as a warranty
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Note: S13 SGSA 1982 “reasonable & skill” is always an
innominate term
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Classification by the partiesCourts usually give effect to parties intention – Lombard North Central v
Butterworths, BUT not always – Schuker v WickmanJudiciary‘Use of the word ‘condition’ is an indication of the parties intentions, but it is by no means conclusive’ –
Schuler v WickmanGenerally: Judiciary – Hong Kong Fir v Kawasaki Kisen Kaishi “goes to the root of the problem”
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ALWAYS A CONDITION: Specific terms: Judiciary – precedents which have established certain terms as conditions:
expected ready to load (The Mihalis Angelos); time of performance (Bunge v Tradex) INNOMINATE TERMSContract doesn’t specify that it is a C or W, OR the terms
cannot be catergorised as being a C or W
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Discharge may occur by agreement, performance and breach and frustration
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‘Agreement’ may suit both
parties but consideration or a deed is required
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AGREEMENT1
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Where agreement to discharge is
supported by consideration
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If wholly executory then bilateral/mutual waiver of rights is
consideration – The Hannah Blumenthal
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The waiver of rights constitutes consideration for the release of their obligations – ie requirement to perform
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WHERE one party has performed but other has not, the party who
has not can be released from their performance if the other is happy to have something different instead = accord (new agreement) & satisfaction (new consideration)
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By
operation of a term in the contract itself – a condition precedent or subsequent
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3
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PERFORMANCEEntire
obligations rule – complete performance ie entire or ‘lump sum’ contracts – Cutter v Powell
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Partial performance*No
obligation to pay unless partial performance voluntarily accepted - Vigers v Cook*A ‘quantum meruit’ payment then owed (how much the thing deserves)– Sumpter v
Hedges2
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Divisible
contracts
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It has to be written in the
contract
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Performance by 3rd party*Acceptable UNLESS a contract of ‘personal service’ – Robson v Drummond; cf British Waggon Co v Lea (it was acceptable here as
the train did not require personal skill of specific person to paint it)
BREACH -Where a party, without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from
performing then that gives the party right to determinate
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Terms and breach*Breach of condition – innocent party has right of election – terminate or affirm
contract
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*The
innocent party is allowed a period of time to decide – Stocznia Gdanska SA v Latvian Shipping Co (No
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*Obligations and rights remain on both sides – White & Carter v McGregorLimitations to affirmation1
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Innocent party must have ‘legitimate interest’ in affirming – White & Carter v
McGregorLegitimate interest*No legitimate interest where affirmation ‘wholly unreasonable’ – Clea Shipping v Bulk Oil (The Alaskan Trader)*Legitimate interest only
applies in ‘extreme cases’ where: damages would be adequate remedy; affirmation would be ‘unreasonable’ – Ocean Marine Navigation Ltd v Koch Carbon (The
Dynamic)Dangers of affirmation*Innocent party’s obligations remain; the risk of their own breach should be considered – The Simona*A frustrating event may deny a
right to damages – Avery v BowdenRight of Election – Termination*Notification of election to terminate required – Vitol SA v Norelf Ltd
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But note Peyman v Lanjani (if made decision to affirm/terminate, they can go back)
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*C will claim damages occasioned by the breach
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Frustration is used as a defence for a claim for breach
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Contract ended by operation of the
law, all future obligations discharged
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IMPOSSIBILITYUnavailability of a thing or person necessary to perform the
contract
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Destruction of the thing –Taylor v Caldwell; Appleby v Myers2
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In latter case, the 20 days charter hire had been pretty
much completed before the 3 month delay kicked in when authorities impounded the ship illegally
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3
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The ‘Coronation cases’ – Krell v Henry; Chandler v Webster; cf Herne bay Steamboat v Hutton (were is was not held to be frustrated as the
purpose has not been wholly affected by incident)GOVERNMENT INTERVENTION – Metropolitan Water Board v Dick KerrCAN LEASES BE
FRUSTRATED?*Generally never – Paradine v Jane, but the HL was split in Cricklewood Property v Leighton’s Investment Trust
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They would consider the unavailability of property against the length of lease, or a
short lease for specific purpose
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Burden of proof on other party – Joseph Constantine Steamship line v Imperial Smelting Corporation
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The less that an event is foreseeable, the more likely it is to lead on to frustration – The Sea
Angel
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The doctrine is “not lightly to be
invoked” as per Lord Roskill in The Nema
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Partial failure of consideration – Chandler v Webster
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Only applies now where Act excluded
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*S1(2) – Money paid before frustrating event is recoverable AND money
payable before frustrating event ceases to be payable
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Must be tangible
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*S2(4) – Multiple obligations eg leases*S2(5) – Contracts excluded from act eg carriage of goods by sea insurance contracts
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The party subject to LDC may argue that it is in fact a penalty clause, which are struck out of the contract
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Penalty clause if:1
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2
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3
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4
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*If PC do UTCC regs 1999 apply? It will if
consumer contract, not if two businesses
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*Damages
assessed by the court*Compensation NOT punishment – The Golden VictoryNATURE OF COMPENSATIONExpectation (placed in the same situation as if the contract
had been performed)– Robinson v Harman*3 alternative measures:1
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Cost of cure (defective performance has taken place)3
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The burden of proof is on party paying to prove
otherwise
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It prevents unjust enrichment, but there is no loss to c)– AG v
Blake
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Galoo Ltd v Bright Grahame Murray states that it must be an effective cause
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Arising naturally in the usual course of things -imputed knowledge (normal losses)
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Reasonably in the contemplation of the parties (ie in special
circumstances) – actual knowledge (abnormal losses)
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*Application of the test:
Victoria Laundry v Newman Industries; Heron II (the loss was not unlikely due to the d’s action/breach); Balfour Beatty v Scottish Power (the specific type of loss was
unrecoverable as not foreseeable by d); The Achilleas MITIGATION*Technically no obligation to mitigate, but losses resulting from failure to mitigate is not
recoverable
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CONTRIBUTORY NEGLIGENCE -s4 Law Reform (Contrib Neg) Act 45*Contrib neg generally not available but it may be where there is: breach of contractual
duty to take care AND the breach is also a tort – Vesta v Butcher
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AGENCY The common law principle in operation is usually represented in qui facit per alium, facit per se, i
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the one who acts through another, acts in his or her own
interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of another
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There are essentially three
kinds of authority recognised in the law: actual authority (whether express or implied), apparent authority, and ratified authority
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Chaudry v Prabhaker
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*Implied agreement – can be inferred by virtue of a position held by an agent eg an agent may have implied authority to do what is usual or customary for an
agent in his particular trade or profession eg company directors/secretaries – Hely-Hutchinson v Brayhead Ltd*Usual or customary authority – A has the authority which
a person in his position usually or customarily has
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APPARENT/OSTENSIBLE AUTHORITY: -exists where the principal's words or conduct would lead a reasonable person in the third party's position to
believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship
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*Freeman & Lockyer v
Buckhurst Park Properties - the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on
the representations made
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(ii) that representation must come from someone with authority,
usually, though not always, the principal – Freeman & Lockyer v Buckhurst Park Properties – the board of directors had actual authority to act on behalf of the company
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(iii) that representation must be relied upon by the
third party reliance and changed their position as a result
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C must therefore know of the rep
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C cannot claim to have relied on the rep if he knows the rep is false
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This may be express or implied from the principal's behavior, e
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if the agent has purported to act in a number of situations
and the principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied
grant of authority for future transactions of a similar nature
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A must obey P and not go outside the terms of his authority - Bertam, Arnstrong & Co v Godfrey*Duty to exercise reasonable skill and care in
performing his duties and to the agreed tasks
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Other factors
include: A involved in relevant trade or profession; level of skill and expertise which he has or purports to have
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* An agent also must not engage in self-dealing,
or otherwise unduly enrich himself from the agency
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*In
return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged
commission, or a reasonable fee established after the fact
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*The agent can lose the right to commission if he acts outside the scope of his
authority (Mason v Clifton); acts in an unlawful or dishonest manner; commits a serious breach of its duties (Boston v Ansell case)*The agent has a right to keep any of the
P’s goods which are in possession until the A has been paid any commission or expenses he is owed by the P
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TERMINATION- by parties or operation of law
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*Effective revocation will bring the agency contract to an end
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*A is appointed for a fixed time and the period ends
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*Destruction of the subject
matter of the agency
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*Death, insanity or bankruptcy of P or A, or insolvency if one party is a company*Notice by A to P renouncing the
agency
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*P & A are
still entitled sue one another for claims occurring up to the point of termination, so A is entitled to sue for commission on completed deals
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AGENCY – Dunlop v selfridge; scruttons v midland silicones ltd – scruttons couldn’t take advantage of limitation clause sillicones had with carriers, so sillicones were
able to sue for full amount of damage caused by scruttons
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b)that the contracting party was acting as agent for the principalc)the contracting party has authority from the principal to act as his
agentd)the principal has provided consideration to the other contracting partyAlso see: Eurymedon – commercial agreement was set up differently so they were allowed to
rely on the exemption clause as it stated ‘the carrier, its servants, agents and employees are exempted’ (himalayan clause)
Negligence – provides a remedy to C for loss or damage caused by the negligence of D
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d of c owed to the C; 2
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The breach caused the damage (ie causation); 4
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The universal test of Donoghue v
Stevenson devised the ‘neighbour principle’ and has been extended to cover a wide variety of situations eg Hedley Byrne & co v Heller v Partners
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If no, follow the 3 stage test in Caparo Industries plc v Dickman:1
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there must be a
relationship of sufficient proximity between the c and d; and3
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Problem: Pure Economic
Loss*PE can occur in 2 ways: by negligent misstatement or by a wrongful act or omission
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A special relationship of trust and confidence between c and d
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Early decisions
concentrated on there being a business, professional or fiduciary relationship between the parties
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Social relationships were
considered in Chaudry v Prabhakar
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D must have voluntarily assumed the risk, expressly and impliedly
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NB Policy considerations in Caparo
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Reliance by C on the advice or information
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4
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Statements made by third party – exceptional case:*statutory duty – Ministry of housing and local government
v sharp*Drafting wills – ross v caunters; white v jones*References/provision of services – sping v guardian assurance plcSUMMARY OF CURRENT LAW*James
McNaughton Paper Group v Hicks – no liability as no knowledge by d that c would rely on accounts
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*cf
Morgan Crucible v Hill Samuel Bank; Yorkshire Enterprise ltd v Robson Rhodes
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* cf Smith v Eric S Bush –not reasonable to exclude liability for negligence under UCTA 1977
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*The protection of the veil of
incorporation (only pursue limited company not the directors/shareholders) – Salomon v Soloman & Co
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5) – joint liability in tort of d with the company
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*Standard Chartered Bank v Pakistan National Shipping
Corporaton – liability of a company director in the tort of deceit
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Unincorporated: no legal difference between the business and the owner! non-business and business types; does not have a separate legal identity; unlimited liability; few
formalities – flexible, but could lack clarity
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*Formalities – no special regulations, no duty to disclose accounts, just have to comply with statue including employment laws, health and
safety, income tax, etc
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*Name?- ST have to comply with requirements of business names - 1200-1206
Companies Act
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*Disadvantages –unlimited liability; have to provide all the finances and bear all the risks
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Rights and duties between partners set out in the PA 1890 eg division of profits will be split equal, which applies by default if
nothing in the partnership agreement
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*Unlimited liability for debts, except if there is a
limited partnership
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*To overcome this problem, the
partnership may take on as many Sleeping (or Silent) Partners as they wish - these people will provide finance for the business to use, but will not have any input into how
the business is run
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*Minimum partners – 2
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*Single venture partnerships – Mann v
Darcy*When does a partnership come into existence? –Khan v Miah – does not matter if business is yet to be opened
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Cannot link your name to government, bank, etc or similar to an existing name, or could be subject to passing off proceedings – Ewing v Buttercup Margarine ltd;
Croft v Day*Same rule applies with domain name – check with ‘nominate
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*Specific duties- PA 1890 ss28-30 – s28: duty to disclose (Law v Law); s29: duty to account (Bentley v Craven); s30: duty not to compete (Don King Productions
Inc v Warren)
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Ending a Partnership*Expelling a partner (PA 1890 S25) ie express provision – Bliseet v Daniel; Kelly v Denman – partners must exercise in good faith
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LIMITED PARTNERSHIPS *The Limited Partnerships Act 1907 - a partner can have limited
liability provided they don’t withdraw their funds until partnership comes to an end and their role is limited
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*Restrictions on
choice of name same as before and has to say it is a limited partnership in its name
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*Distinctions from a General Partnership or Limited Partnership – it is a legal entity, but liability of its member are limited
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*Advantages – LLP is flexible and no formalities like partnerships; internal working is private; income tax
rather than corporate tax
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*Members right will cease upon death, agreement with members, or giving reasonable notice
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*LLPA 2000 and 2009 Regulations – equal share in capital and profits, indemnity of members, management rights, payment for participation, introduction of new
members, changes to type of business, availability of books and records at place of business, provision of accounts and information, disclosure of any benefit/connections,
expulsion
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NB Novation and buying a company ‘off the shelf’, which can ratify contracts
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PUBLIC LIMITED COMPANIES – PLC - In order to start up as a PLC have to have 2 directors and company secretary, have an allocated
share capital of at least £50k; separate certification of incorporation confirming PLC status; offer shares to public; shareholders have interest in value of
shares
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*Choosing a name- Part 5 CA
2006 (restrictions) – ss58/59,ss54/55
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*Formalities a company must comply with – annual return, audited accounts (criminal offence not to file), provision of company name and address, filing obligations
with Companies House- change of name/directors
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*Corporate entity –
separate legal personality –Salomon v Salomon & Co; Lee v Lee’s Air Farming
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Along with a common seal, it is one of features defining a corporation’s legal existence as a separate from those of its owners
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Judicial Veil Lifting *Can be lifted where need to be interpret statute or document
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*The court is not free to disregard the principle of Salomon
v A
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Our law, for better or worse, recognises the creation of subsidiary companies, which though in
one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which
would normally attach to separate legal entities
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Re Lo-Line Electric Motors Ltd – would include governors and managers
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TYPES OF DIRECTORSExecutive director –have been appointed and management responsibilities; extensive executive powers; board of directors
exercise management of company, even if against wishes of shareholders; may be delegated to specific individual directors; usually full time; employment states
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De Jure Directors – formally and validly appointed subject to the articles of association by ordinary resolution or
by decision of the directors; decision taking as a board, as a sub-committee of the Board, as individuals
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Public co: min 2 directors (s154)
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Min age – 16 (s157)
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Acts of
directors are valid notwithstanding defects in their appointment (s161)De Facto Director – directors as a matter of fact
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*The director must be shown to have undertook functions over and above a managerial role – Re Hydrodam (Corby) Ltd*Factors taken into consideration (SoS for
Trade and Industry v Tjolle): whether or not the company held the individual out as a director; the individual was in a position to commit the co to major obligations on the
basis of access to management accounts; use the title of ‘director’; whether they took part in management decisions at board level and made corporate decisions and was
this individual part of a corporate governing structure?Shadow Director – s251(1) a person in accordance with whose directions or instructions the directors of the
company are accustomed to act
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*Ultraframe(UK) Ltd v Fielding – shadow directors will not
automatically owe a fiduciary duties to the company
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*Minimum numbers – stated in articles of association; board can’t act if minimum not there; default CA provides
minimum of 2 if A of A do not mention this
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TERMINATION OF
OFFICE*Removal – CA168(1) shareholders have power to remove a director before expiration of his period office
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This cannot be excluded
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Director has a right to attach a statement
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*Resignation – can occur at any time
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*Vacating office – as required by
the articles/statute eg bankruptcy
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DIRECTORS’ DUTIES*Sources of directors’ duties – equity, common law, statute*s170(1)- the general duties specified in s171-177 are owed by a director of a co to the
co – Percival v Wright
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*s170(2)- a person who ceases to be a director continues to
be subject to the duty in s175/176
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*s171– a director of a co must:
act in accordance with the co’s constitution and only exercise powers for the purposes for which they are conferred
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s17 includes
articles of association and decisions taken in accordance with the articles (shareholder resolutions)
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* Extrasure Travel Insurances Ltd v Scattergood – identify the: power whose exercise is in question; proper purpose for which that power was delegated to the
directors; substantial purpose for which the power was in fact exercised; decide whether purpose was proper
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*The power of directors to issue shares may be exercised for reasons other than raising
capital provided those reasons relate to a purpose benefiting the co as a whole
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*Reassertion of ‘shareholder primacy’
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2 elements: acting in good faith and in doing so have regard to the other factors
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*Re Smith & Fawcett ltd – directors must exercise their discretion bona fide in what they consider, not what they court may consider, is in the interests of the
co
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*Emphasising need for disclosure & loyalty
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Duty to exercise independent jment –s173*This duty is not infringed by his acting in accordance with an agreement duly entered into by the co that restricts the future
exercise of discretion by its directors or in a way authorised by the co’s constitution
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This means that the directors will not use
powers conferred under the AA to help a TP
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Prevention of delegating powers unless AA allows for this
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*Duties apply equally to executive and non-executive directors*Object test – Dorchester Finance v StebbingDuty to avoid conflicts of interest – s175*This
applies to exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, info or opportunity) –
Regal Hastings ltd v Gulliver*This duty does not apply to conflict of interests arising to a transaction or arrangement with the company
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*Boardman v Phipps –
Fiduciary will only be liable were a reasonable man looking at the relevant facts and circumstances would think that there is a real and sensible possibility of conflict
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*Industrial Development Consultants Ltd
v Cooley – s177 must declare the nature and extent of that interest to the other directors
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*Tito v Waddell –the self-dealing rule is that if a trustee sells the trust property to himself, the sale is voidable by any beneficiary ex debito justitiae, however fair
a transaction
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Cases within more than one of the general duties*The way in which the duties are framed results in an overlap between
them
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It is therefore necessary for directors to comply with every duty that may be triggered eg
the duty to promote the success of the co (s172) will not authorize the director to breach his duty to act within powers (s171), even if he considers that would be most likely
to promote the success of the co
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*Secret profit can be claimed by the co
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*Co can seek an injunction*Joint and several liability of the directorsCONCEPT OF
CORPORATE SOCIAL RESPONSIBILITY*Companies manage the business processes to produce an overall positive impact on society – about making money in the
right way (moral/ethics)

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