law case summaries

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CASE TOPIC SUMMARY

Royal BritishBank v

Turquand

turquand'srule: doctrineof

constructivenotice

Ashbury

Railway &Iron Co v

Riche

constitution The objects were to make and sell railway carriages. The directors made anultra vires contract to build a railway.

Eley v.Positive

GovernmentLife Security.

Assurance Co

constitution-contract to

only members

co's constitution: Eley should be solicitor for life. 11 months later Eley became member. Company then ceased to use him, he sued company for

breach of articles

Twycross v Grant

promotersone who undertakes to form a company with reference to a given projectand to set it going, and who undertakes the necessary steps to accomplish

that purpose

Pender v Lushington

powers of voting

Mr John Pender had bought 1000 shares. Company allowed one vote perten shares and not more than 100 shares. Mr Pender had split his votes

and registered the holders under the names of a number of nominees, andpassed a resolution. Chairman refused to count votes.

Erlanger v

New Sombrero

Phosphate Co

promoterfiduciary duty of

disclosure:disclosure toindependent

board

syndicate of Erlanger, promoters of New Sombrero Phosphate Co boughtland for 55000 and sold to compay for 110000. Made disclosure to board

but the board wasn’t independent: one never attended meetings, two

werent in town, one was puppet for agents, another trustee. Shareholderssued for profit made by Erlanger.



Kelner v Baxter

pre-

incorporation contracts

Baxter and two others agreed on behalf of a company yet to be formed to

purchase trade stock for its business. Later the company was formed andaccepted and used the trade stock, but failed to pay for the stock.

Wood v

Odessa WaterworksCo

constitution

The company declared a dividend and passed a resolution to pay it by

giving their shareholders debenture bonds bearing interest. The articlesprovided that the company declare a dividend to be "paid in cash"

Salomon v Salomon

legalpersonality

S transferred to his own company the business of making boots and shoes. The company bought the business for ™39,000 and issued shares and a

debenture for £10,000 secured by a floating charge on the assets. Thebusiness became insolvent and the trade creditors argued that the

company and Salomon were one and the same. As a consequence, they claimed, his debenture was void since a man cannot be a creditor of

himself.

Gluckstein v Barnes


disclosure:partial

disclosure

not enough

A syndicate bought property to sell. They bought it for £140,000 but atdiscount got for 120,000. They then sold it to the newly formed company,of which they had become directors, for £180,000. prospectus disclosed

40,000 profit but not 20,000. liquidator claimed the secret profit



Natal Land &ColonizationCo v Pauline

Colliery

Syndicate

pre-incorporation contracts

Automatic Self Cleansing

FilterSyndicate Co

Ltd v

Cuninghame

Distributionof powerbetween

BOD andGM-

majority view

mgt vested in directors. GM passed resolution of sale of asset but directorsrefused as they believed it was not in best interest of company

Salmon v Quinn &

Axtens Ltd

Distributionof power

betweenBOD and

GM-majority view

Axtens and Salmon, who were both appointed directors along with oneother person. The articles permitted either Axtens or Salmon to veto any

board decision. Salmon vetoed a decision,. GM was held and they passedsimilar resolutions.

Marshall's

Valve Gear Co v Manning

minority

view

marshall was major shareholder of company he had formed to exploitpatent of his invention.alledged that patent was being infringed by

Manning. Marshall wanted to bring order against him but the directorsoutvoted him because they had an interest in Manning's company. mashall

then instituted action as a majority shareholder



Hickman v Kent orRomney

Marsh Sheep

Breeders Assocn

constitution

The articles provided that disputes between members and the association

be resolved by arbitration. Hickman brought an action against thecompany in the courts.

Lennard'scarrying co v

Asiatic

Performanceco

organic

theory

Damler Co

Ltd v Continental Tyre andRubber Co

Judicial LTV-enemy

character

Dadoo v KrugersorpMunicipal

Council

legalpersonality-

property

statute prohibited Asiatics from buying land in Transvaal. Two asiaticsformed company and bought land to run bs.

Macaura v

Northern Assurance Co

legal

personality-property

M was a landowner who sold timber from his estate to a company of which he was the sole owner. he insured the timber that lay on his land in

his own name as the person insured under the policies issued by the

insurance company. A few weeks later the timber was destroyed by fire. Mclaimed on the insurance policy. Northern Assurance claimed that the

timber belonged to the company and as a consequence it was not properly insured.



Gilford Motor

Co Ltd v Horne

veil of

incorporation

Horne left the Gilford Motor Company in order to set up his own

business. When he left he agreed that he would not solicit any of hisformer employers customers. As a way around this restriction he set up acompany.

Gilford MotorCo v Home

judicial LTV-

due to fraudor improper

conduct

Home had been employed by Gilford Motor Company under a contract in

which he undertook not to compete with the company. He tried to evadethe covenant by getting his wife to set up a company. All the shares in the

company were held by Home's wife and an employee. The new company then carried on business in competition with Home's employer.

Shaw v Shaw

Peter, John and Percy Shaw had a company together. settlement formanagement of co: hand over financial affairs to 'independant

directors'.The independent directors resolved to bring a claim againstthem. Just before the hearing, an extraordinary general meeting was called,

where as the majority shareholders Peter and John procured a resolution

to discontinue the litigation. The company, and Percy, contended theresolution was ineffective.

Re FG FilmsLtd

judicialLifting the

Veil-company acting as

agency

American company wanted to register a film as British to avoid taxes. Setup company in Britain to prove it was made in Uk. No property or staff

was found to



Newborne v Sensolid (GB)

Ltd

pre-incorporation contracts

Tinned ham was sold to Sensolid under a contract headed "LeopoldNewborne (London) Ltd" and ending "Yours faithfully, Leopold

Newborne (London) Ltd" and signed by Leopold Newborne. Sensolidrefused to take delivery of the ham.

Rayfield v Hands

constitutionas contract,

fiduciary duties of

directors

Mr Rayfield sued the directors of Field Davis Ltd to buy his shares. Article11 of the company’s constitution said ‘Every member who intends to

transfer shares shall inform the directors who will take the said shares

equally between them at a fair value.’ The directors were refusing to follow

this rule, and Mr Rayfield sought an injunction.

Re El

Sombrero Ltd

impracticability of

meetings

company had 3 members and shareholders. Qourum for meeting: 2.

directors frustrated applicants effort to call an extraordinary GM by refusing to attend. Applicant gave special notice of intention to move

ordinary resolution to remove directors at next extraordinary GM. askedcourt to call meeting.

Lee v Lee Air

Farming Ltd

legal

personality-contracts

The husband of the plaintiff was the controlling shareholder and directorof a company formed by him. He was also employed by the company as apilot. The company had employer's liability insurance. He was killed in an

accident when flying a company plane on company business and his wifeclaimed compensation from the company (effectively claiming from the

insurers).



Jones v Lipman

judicial LTV-due to fraudor improper

conduct

Lipman agreed to sell house to Jones but later changed his mind. To avoidcontractual obligations, he made a company in which he was in full

control and sold the house to it. Jones sued for specific performance

Hogg v Cramphorn

Ltd

directorsfiduciary

duty directors issued shares to gain voting power to avoid a take over

Re Duomatic resolutions

company had 2 shareholders that were directors. Articles provided thatremuneration would be fixed in a GM that was never held. Directors

approved co acc by signing them in a meeting with co's auditors and thendrew certain sums as remuneration. liquidator sued sums as unathorized

withdrawals

Bamford v Bamford

Shares:Fiduciary duty of

directors-issue of

shares with

impropermotive

The directors of a company wished to fight a takeover bid. They allottedshares to a company which distributed their products because the

distributors agreed not to accept the takeover bid. A shareholder broughtan action claiming that the allotment was invalid, as it was not bona fide in

the best interests of the company .

DHN FoodDistributors v

Tower

HamletsLondon

BoroughCouncil

Judicial LTV-ignoring

groups of

companiesor

subsidiariesand treating them as one

DHN was a holding company which ran its business through two wholly owned subsidiaries: Bronze Investments Ltd and DHN Food TransportLtd. Bronze owned the premises from which the business was conductedand Transport ran the business. The Council compulsarily purchased the

land. Compensation could be paid under two heads: (a) the value of theland, and (b) disturbance of business. The Council was prepared to pay for

the value of the land but refused to pay for disturbance of businessbecause neither DHN or DHN Food Transport had any rights of ow

nership in the land.



Lategan v Boyes

judicial LTV-due to fraudor improper

conduct

Cane v Jones resolutions chairman had casting vote. Shareholders signed resolution in differenttimes and places to remove chairman's casting vote.

Silverston (pty)Ltd & Anor v Lobatse Clay Works (pty)

Ltd

judicialLifting the

Veil-corporatepersonality

must beupheld

Barron v Potter

board isdeadlocked

two directors in company. Qourum:2. however, Barron refused to attendmeetings, therefore no decisions could be taken. "meeting" held by

defendant at railway station where plaintiff ignored him. Potter casted vote

for appointment of two directors.

Alexander

Ward v Samyang

Navigation

board isdeadlocked

company's shareholders sued to recover money owed to company. Action was brought on behalf of company. The defendant claimed that the

shareholders sued and not the co's directors.

Foster v Foster

board isineffective

company had 3 directors, qourum: 2. however, a director couldn’t vote on

matters of his interest. 2 directors had an interest in matter brought tothem and therefore the board was deemed ineffective. The matter was of

appointment of a Managing Director of the company



Grant v Switchback

Rvs

directors

have acted inexcess of

their powersand

shareholderscan ratify thetransaction

The company’s articles prohibited any director from votingon a

transaction in which he was interested; but they entered into a contrac in which all but one were interested. therefore, as it stood, thetransaction was

voidable. However, a general meeting was called, which an ordinary

resolution approving and adopting the transaction,

Irvine v UnionBank of

Australia

directorshave acted in

excess of their powers

andshareholderscan ratify thetransaction

Percival v Wright

Fiduciary duty of

directors

Re W & M

Roith Ltd

Fiduciary

duty of directors: actbonafides

directors altered company' constitiution to pay widow of worker thepension of a retired employee

Abardeen Rly Co v Blaikie

Bros

Fiduciary

Duty of directors: when

directorscontract withcompanies

where a company entered into acontract to purchase chairs from apartnership when, at the time, one of its directors was a partner in the

partnership. Conflict of interest as director of Abardeen's duty ws to buy chairs at lowest price but his personal interest was to buy chairs at highest

price possible from Blaikie Brothers, where he was a partner



North-west

Transportation v Beatty

if director isshareholder

in company,he is free to

use shares asshareholderand vote to

ratify contract

director (Beatty) sold steamer to N.W transportation. Then he used his

votes as a majority shareholder to ratify the contract in the GM. Oneshareholder challenged the ratification

Cook v Deeks

directorshould not

have conflictof interestand duty/majority touse powerbona fides

The Toronto Construction Co had four directors. It helped inconstruction of railways in Canada. The first three directors wanted to

exclude Mr Cook from the business. Each held a quarter of the company's

shares. Deeks, Deeks and Hinds took a contract with the Canadian PacificRailway Company (for building a line at the Guelph Junction andHamilton branch) in their own names. They then passed a shareholder

resolution declaring that the company had no interest in the contract. MrCook claimed that the contract did belong to the Toronto ConstructionCo and the shareholder resolution ratifying their actions should not be

valid because the three directors used their votes to carry it. cook excludedfrom voting

Robinson v Randfontein

director

should nothave conflict

of interestand duty

Robinson was chairman of co. co asked him to purchase land for the co.Robinson in his personal capacity, purchased land at 60,000 and then soldit to company at 275,000 and never disclosed his interest. Company sued

for secret profit

Peso SilverMines v Cropper

directorsfiduciary

duty

Re City Equitable FireInsurance Co

Ltd



Dovey v Cory

Diretctorsduty to

exercise careand skill

where a director relied on the judgment and advice of the chairman andgeneral manager of the company when he assented to the payment of

dividends and to loans from the company’s funds. He had no reason to

doubt the balance sheets presented to board meetings nor did he have any reason to doubt the competence of the general manager. In fact, thedividends were paid out of capital and the loans were made without

proper security.

Percy v Mills

directorexcercisespowers for

proper

purposes

Treasure Trove

Diamonds Ltd v Hyman

directorexcercisespowers for

properpurposes

Directors of company issued shares to an Investment Corporation.

Shareholders were informed that the shares were deferred in matter of dividends but not voting powers. They were interested in the InvestmentCorporation as one of co's directors was chairman and other secretary of IC. company was not in need of extra capital. purpose of scheme: gain

control of company

Burland v Earle

director and

shareholderduties. Duty of majority

Burland sold land to the company for 60,000 and made profit of 38,000.

He was both a shareholder and Director in company. The contract was voidable but by using his powers as a majority shareholder, he ratified the

contract; a minority shareholder sued for secret profit

Daten TinplateCo v Hanelly

Steel

member'sduties:

expropriation of othermembers

property



MacDougall v Gardiner

membersduties:

internal mgtprinciple in

foss v harbottle

Gardiner was a director in Emma Silver Mining co. at a GM, a vote was

requested on a matter and Gardiner ignored this request from theshareholder and adjourned the meeting. McDougall went to court against

Gardiner, seeking a declaration that Gardiner's conduct was improper

Trevor v

Withworth

rulesgoverning

maintanenceof capital

Foss v Harbottle

member'sduties:

harbottle, director, sold land to the company, Victoria Park Company.Foss was a shareholder in the company and sued the director to compelthem to make good the loss sustained on transaction on grounds that the

directors had paid themselves a price in the land

Lipchitz No v UDC Bank

Ltd

rulesgoverning




Lewis v Oneanate Pty

Ltd

rulesgoverning


Re ExchangeBanking Co(Fletcrofts

case)

dividendsmay not bepaid out of

capital

director presented in GM reports that misrepresented the financial affairs

of the co. f/ss showed apparent profit when there was no real proft.Shareholders relied on the fss and passed a resolution approving a

dividend. Liquidator demanded director repay amount of dividends paidout of capital

TomkwaneSawmill Co

Ltd v Filmater

auditorsduties

Re London &General Bank

auditorsduties

appalent auditor of Bank. Co made out certain loans and some wererealisable. When preparing balance sheet, auditor entered loans as assets

when he was aware of their status, stated in opinion: value of assets in bsdependant on realization. Based on this, shareholders declared dividends which were paid out of capital,. co went into liquidation, liquidator sued

auditor



Re KingstonCotton Mill

auditorsduties

co's MD falsified co's acc. He wanted the affairs to appear better than they actually were. Deliberately overstated the value of stock. Auditor adoptedentries made by MD and inserted them in Bs. If auditor had done further

investigation, would have realized falsification. nothing on face of acc,auditor acted honestly. based on BS, shareholders declared dividends

which was paid out of capital. capital went into liquidation and liquidator

sued auditor for breach of duty

Re ThomasGerrard and

Sons

auditorsduties

Co's MD falsifisied acc in many ways including alteration of invoices. Auditor accepted explanation of MD on matter, didn’t investigate further.

Co paid dividends from capital and went into liquidation. Liquidator suedto recover sum paid as dividends



HELD

people transacting with companies areentitled to assume

that internalcompany rules arecomplied with, even

if they are not. Check only publishedcompany doc:

constitution andspecial resolutions

Contract could notbe valid even if it

were subsequently approved by theshareholders ingeneral meeting

he sued in capacity of solicitor not memberso the constitution as

a contract was notbinding on company

meaning of promoter

company member'sright to vote may not

be interfered with,because it is a right

of property

contract rescinded

and disclosure toindependent board



The company wasnot liable as it could

not ratify a preincorporationcontract with

retrospective effectto a date before thecompany existed.Baxter and friends were therefore

unable to recovertheir money

The words meantpaid in cash and in

consequence a

shareholder couldrestrain the company

from acting ultra vires

It is possible for the

sole owner of acompany to assert

rights against it as asecured creditor,

because the company is a separate legal

person distinct from

its members.

liquidator claim'sheld



common law:company cant by

adoption orratification obtainbenefit of contractpurporting to have

been made on itsbehalf beforeincorporation

based on

construction of thearticles that unless

directions were giventhrough special

resolution, then it was impossible for a

mere majority tooverride the views of

the directors

Salmon as a memberhad the right to

enforce the

provisions of thearticles and to

prevent the company acting unconstitutionally -

he sued as a member,not as a director

majority shareholderhad right to bring

action as company had been formed to

exploit the company



association wereentitled to have theaction stayed as thearticles constituted a

contract betweenHickman and the

association in respectof their rights as

members.

faults of MD of company were faults

of company

LTV as Germancompany had nolocus standi in Uk

courts

since company hadseparate legalpersonality,

legislation didn’t

prohibit Asiatic cofrom owning land

The timber belongedto the company andnot to M. As a result

his claim failed as hedid not have an

insurable interest inthe property.



Horne left theGilford Motor

Company in order toset up his own

business. When he

left he agreed that he would not solicit any of his former

employers customers. As a way around thisrestriction he set up a

company.

Home's company barred from

competing with

Gilford Motors.Home's device a

mere device to helpHome breach

contract.

shareholderresolution invalid.

Cant usurp powers

British company came into existancedeliberately for thepurpose of making the American filmpass for a British

film. Sham



Neither the thenunincorporated

company nor MrNewborne personally

could sue on the

contract. as thecompany was not inexistence when thecontract was signedthere never was a

contract, and MrNewborne cannotcome forward and

sav: "Well, it was mv contract."

granted theinjunction and heldthe article imposedan obligation on the

directors

directors in breach of statutory duty by not

holding GM

Lee and thecompany hadseparate legal

personalities and thedeceased could, as

director, enter into acontract on behalf of

the company between the

company and himself as an employee.



company was sham,mere mask formedfor defendant toavoid contractual

obligations

new shares issued areinvalid. Shares should

only be issued toraise capital

sums authorized.Directors were

shareholders and hadinformally and

unanimously agreed

to payments

The allotment of shares was valid. It

was an improper useof the directors'

powers, but was not

ultra vires, thereforethe members couldratify the directors'actions by ordinary

resolution in generalmeeting.

Lord Denning pierced the veil of

incorporation to treatDHN as the ownersof the land, which

entitled them topayment of

compensation. Hefelt that the group of

companies was asingle economic

entity.



LTV whenfraudulent use is

made of corporatelegal personality

resolution valid as it was an unanimousagreement

LTV done to fixliability elsewhere for what are obsensibly acts of the company.

LTV done whenelements of fraud,

dishonesty orimproper conduct areavailable in co affairs

there was nomeeting. Sincedirectors weredeadlocked,

shareholders couldtake the decision

since the company had no directors at

that time, it wasproper for

shareholders at theGM to sue to recover

the debts of thecompany that wereindirectly owed to

them.

since only 1 director was left to vote, theshareholders couldtake the decision



ratification valid

company in GM

could ratify thedirectors borrowing in excess of the limit

in the company'sarticles.

directors owe theirfiduciary duties not

to shareholdersindividually but

collectively

130(5)

BOD wasshortsighted and

werent acting for the

best interests of thecompany as a whole.

Made ultristicdecision

172

the contract couldbeavoided by the

company.



ratification valid

company was entitled

to benefit of contract. Majority'sattempt to ratify

contract wasineffective. Contractinvalid for directors

130/131

director's interestconflicts with duty.

Compnay canrecover secret profit.

Director violatedfiduicary duty of

disclosure

A director can takeover a corporate

opportunity that hasreasonably beenconsidered and

rejected by thecompany in bona

fides



Director notnegligent. Justified toput faith in officers

of company

130and158

breach of directors’

fiduciary duties tomake allotments of shares to maintain

control of the

company

company or to defeatthe wishes of an

existing majority of shareholders

Burland, in his

capacity as majority shareholder, had

right to vote

such a power on thepart of the majority to expropriate the

shares of any member at the

majorities will orpleasure was not for

the benefit of the

company as a wholebut tailored to be of

the benefit of themajority



if the wrong

complained of what was in respect of

something which themajority of the co

was entitled to do orif the thing

complained could beregularized by a

majority view, thenthere will be no pointin litigating about it.

co cant purchase

own shares since thatresults in capital loss 65

alledged wrong had

been done to thecompany and there

was nothing toprevent it from suing.

The action wasn’t

maintainable as it

wasn’t brought

forward by thecompany itself

a co which has givenfinancial assistance

out of profit forpurpose of purchase

of own sharesbecomes poorer and

is adversely affectedby the transaction



rationale for notgiving fin assistance

in purchase of shares:protection of

creditors of co who

have right to look topaid up capital of co

as fund from whichdebts will be paid

directors were held

liable to pay. They had breached

fiduciary duty of careand skill

If auditor fails toaudit the co's booksin required manner,the co may sue forbreach of contract

and recover damagesfor any losses

incurred

auditor has duty otbe honest. Mustcertify what he

believes is true andmust take reasonable

care and skill beforehe what believes that what he certifies istrue. Auditor failedto discharge duty,liable to reimburse

co.



not auditor's duty totake stock.justified in

relying on honesty and accuracy of MD

auditor negligent.Exhaustive enquiry



Twycross v Grant

promoters

one who undertakes to form acompany with reference to a

given project and to set it going,and who undertakes the necessary steps to accomplish that purpose

meaning of promoter

Erlanger v New

SombreroPhosphate

Co


disclosure:

disclosure toindependent

board

syndicate of Erlanger, promotersof New Sombrero Phosphate Co

bought land for 55000 and sold tocompay for 110000. Made

disclosure to board but the board

wasn’t independent: one neverattended meetings, two werent intown, one was puppet for agents,

another trustee. Shareholderssued for profit made by Erlanger.

contract rescindedand disclosure to

independent board

Gluckstein v Barnes


disclosure:partial

disclosure notenough

A syndicate bought property to

sell. They bought it for £140,000but at discount got for 120,000. They then sold it to the newly formed company, of which they

had become directors, for£180,000. prospectus disclosed40,000 profit but not 20,000.

liquidator claimed the secretprofit

liquidator claim'sheld: fulldisclosure

FIDUCIARY DUTY OF DISCLOSURE

PROMOTERS

PRE INCORPORATION CONTRACTS



Kelner v Baxter

pre-incorporation

contracts

Baxter and two others agreed on

behalf of a company yet to be

formed to purchase trade stock for its business. Later thecompany was formed and

accepted and used the tradestock, but failed to pay for the

stock.

The company wasnot liable as it

could not ratify a

pre incorporationcontract with

retrospectiveeffect to a date

before thecompany existed.Baxter and friends were therefore

unable to recover

their money

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