Corporations Law Assignment: Authority, Third Parties, and Estoppel

This essay delves into the application of agency principles within the context of corporations, examining the authority of individuals to bind companies in contracts, even in the absence of explicit authority. It explores the "doctrine of indoor management" and how it protects third parties who interact with companies in good faith. The essay investigates the extent to which the Corporations Act 2001 modifies the estoppel doctrine in Australian law, which can hold a company liable for the actions of its agents. Key case laws, including Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd and Northside Developments Pty Ltd v Registrar General, are analyzed to illustrate the complexities of authority and the protection afforded to third parties. The report also references Royal British Bank v Turquand. The essay examines the implications of sections 126, 127, 128, and 129 of the Corporations Act, which outline the legal framework for signing company documents and the assumptions that third parties can make regarding the authority of company representatives. The conclusion summarizes the balance struck between protecting companies and safeguarding the interests of third parties in contractual dealings, while also addressing the challenges in determining the category a case falls into.

LLB452
3/18/2020

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Contents
Introduction.................................................................................................................................. 2
Discussion with the help of case laws..........................................................................................2
Corporations Act 2001.................................................................................................................6
Conclusion................................................................................................................................... 7
Bibliography................................................................................................................................. 9
Case laws................................................................................................................................ 9
Legislation................................................................................................................................ 9
Books/Journals......................................................................................................................... 9
Other Resources......................................................................................................................9

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Introduction
It is well known to everyone that a corporation is an artificial entity and cannot deal with the third
parties as an individual. Directors, managers, and employees of the company work on behalf of
the same and in this manner have authority to do the same. The topic of authority is related to
agency where management of the company consider as an agent of the company and make the
principle i.e. company liable for the acts that they do on its behalf. This authority decide which
person can do what but it is a matter of company and the third party often remain unaware of
such authority. The rule is known of “doctrine of indoor management” and in such a situation,
law protects the rights of third parties that deal with the company in good faith1. The objective of
this report is to develop an understating on the application of agency principles in case of
corporations. The report would focus on the arguments in favor and against of the fact that
Corporations Act 20012 do only little to modify the estopple doctrine in Australian law that bind
the principle even in those situations where the agent lack actual authority.
Discussion with the help of case laws
Before moving to the discussion over related propositions first the type of authorities are
required to understand here. Under corporations, people are granted with actual authority where
they know what is expected from them and what powers they have. Such authority is granted to
them in clear manner. Another kind of authority is apparent authority where no clear dealing are
made between parties. Such authority arises where the law proves the same and principle is not
required to give consent. For instance, in the case of “Crabtree-Vickers Pty Ltd v Australian
Direct Mail Advertising & Addressing Co Pty Ltd3” a person was director of the company and
after the bankruptcy of the entity continued as employee of the same. During this period he has
entered into some contracts as later on third party sued the company. When the matter went
into the court, it was decided that neither actual nor apparent authority was there as the third
party was aware of the fact that the contract formation was not associated with the title of
current job i.e. employee. In this sense, it is clear that the principle of ostensible authority does
not work in cases where the third party is likely to have knowledge of true situation i.e. of the
fact that the agent lacks actual authority. “The indoor management doctrine” protects third
parties more than the principal in a contract. The doctrine of indoor management has been
1 Len Sealy and Sarah Worthington, Sealy & Worthington's Cases and Materials in Company Law (OUP
Oxford, 2013), 124.
2 Corporations Act 2001 (Cth)
3 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd - [1975] HCA 49

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developed in the case of Royal British Bank v Turquand4. The law protect to third party that
deals with a company but cannot check that whether the company is complying with internal
rules or not as the working of company and affairs often remains private. To discuss facts of the
case this is to state that a director of the company has issued a bond without authority to the
bank whereas the company denied repaying the loan afterwards. In the decision of the case,
court held the company liable as being a third party the bank could not check the level of
authority that direct had as it was a matter of internal management5. Bank could not check
whether a resolution grating authority to director for signing the bond has been passed or not.
To discuss the doctrine further this is to mention that it protects third parties where they deal
having good faith and a lack of sense of irregularity. A lack of actual authority does not matter in
this sense.
In Australia, it has always been doubtful whether the doctrine of indoor management should be
understood as exception of agency law principles or should be consider as special rule of
company law in respect to use of common seal. The issue has been addressed in the case of
“Northside Developments Pty Ltd v Registrar General6”. While discussing application of agency
principles and authority, this case needs to be study as it clarifies all the possible confusion.
Further, the decision of the case does also seems able to answer the research question likely to
be discussed hereby. In this case a company named Northside Developments Pty Ltd was
formed in 1965, with the object of having a land in NSW. There were three directors of the
company namely “John Less”, “Robert Strugess” and “Robert Ellis”. These three directors were
also the shareholders of the same. On 14th November 1979, the office of company secretary
has been replaced by Gerard Strugess, son of Robert Strugess7. The statutory return for these
changes was signed on 20th November 1979 and two days after it was sent to corporate
commission affairs. The other two directors were not even aware of this appointment. Since the
directors were not aware, they have not provided their authority to the respective appointment
and the same was invalid.
The issue of the cases started where a company named “Barclays Credit Corporation Holdings
Pty. Ltd” provided a secure loan to Northside worth $1.4 million and created a mortgage over
4 Royal British Bank v Turquand (1856) 6 E&B 327
5 Andreas Cahn and David C. Donald, Comparative Company Law: Text and Cases on the Laws
Governing Corporations in Germany, the UK and the USA. (Cambridge University Press, 2010).
6 Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146
7 Stephen Bottomley, Kath Hall, Peta Spender and Beth Nosworthy, Contemporary Australian Corporate
Law (Cambridge University Press, 2017)

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the property of the company. Barclys initiated to sell the mortgage property when North side
failed to repay the loan. As a result, Northside initiated a claim against Registrar general that
registered the said mortgage. The common ground in the case was no knowledge of other
directors and the mortgage was not authorized from the company. The seal of the company was
affixed on mortgage document by Robert Sturgess and his son. As per art 56, the directors of
the company were expected to have safe custody of seal and the seal could not be used without
the authority of directors. Further, the seal could only be placed in the presence of at least one
director and company secretary of the company. The appointment of Robert’ son as company
secretary was not valid as they same was not approve by other directors and Robert did not
have to appoint company secretary of the company. In this manner, Gerald Sturges had no
authority to act as company secretary as his appointment was not valid. The main issue of the
case was to check that whether Barclays was liable to make inquiry into the matter of validity of
the mortgage document or whether the same could rely upon common seal affixed at
Northside’s agreement.
In the decision of the case, the court stated that a person dealing with the company cannot rely
on the fact that the affixation of seal has been done in an appropriate manner if there were
certain grounds of making further inquiry. A person seems liable to make an inquiry where the
transaction is not related to the business of the company. In the case, there was not
representation from any director confirming that the seal has been affixed with authority. In this
manner, the transaction done in the case executed without actual or apparent authority.
Out of the decision of the case, some propositions are there which needs to be discuss here.
The first proposition state that every person even when the same does not have a special
relation with company may be put upon inquiry if nature of transaction demands so8.
It was forward to argue that the rule of Turquand rule cannot apply on case of forgery. It can
only apply to the irregularities that can affect genuine transactions. Many times, it is believed
that a principle must be held liable for wrongdoings of agent whether or not doing for benefit of
principle but it was given in the decision of “Ruben v. Great Fingall Consolidated”, it was given
that in the fraud committed not in the favour of company was not necessary for the decision
8 iknow.cch.com.au, Northside Developments Pty. Ltd. v. Registrar-General., Supreme Court of New South Wales,
26 February 1987 (Wolters Kluwer) < https://iknow.cch.com.au/document/atagUio386410sl10538762/northside-
developments-pty-ltd-v-registrar-general>.

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Corporations Act 2001
To discuss what Current law says about it, provisions of Corporations Act 2001 are need to
have a look upon. Section 126 and 127 of the company outline the manner in which documents
of the company can be signed in a legal and authenticated manner. Further section 129 of the
act states some A person having authority from company can sign, discharge, or deal in any
other manner with company’s contract or dealings9. Even without using company seal, company
can deal with the contracts.
Section 127 (1) states that a company can execute a document where the same is signed as
follow:-
 2 directors of the company;
 1 director and company secretary
 In case of proprietary company the director of the same, who may also be the secretary
of the company10.
If any document is executed in the said manner then a third party dealing with the company can
assume that the document is duly executed under as mentioned section 129 (5)11.
Section 127 (2) says that a company that has common seal can execute a contract when the
seal is affixed in the presence of
 2 directors of the company;
 1 director and company secretary
 In case of proprietary company the director of the same, who may also be the secretary
of the company12.
The above-mentioned manner is only prescribed by CA 2001 and companies may also decide
some other manner for document execution if some other law demands so.
9 legislation.gov.au, Corporations Act 2001 (Australian Government)
<https://www.legislation.gov.au/Details/C2017C00328>.
10 wipo.int, Corporations Act 2001 (wipo,) <https://www.wipo.int/edocs/lexdocs/laws/en/au/au196en.pdf>.
11 Austlii.edu.au, Commonwealth Consolidated Acts (Austlii, 25 March 2020) <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s129.html>.
12 Johnson Winter & Slattery, Putting pen to paper – execution under section 127 (lexology, 6 July 2015) <
https://www.lexology.com/library/detail.aspx?g=cf057ecb-0d7e-4ec2-be21-c833666e0173>.

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In addition to sub section 5 and 6 of the company, sub section 1 to 4 also mentions some
assumptions. According to these sections an outsider dealing with the company can assume
that all appointment of all the directors and officer are appointed properly and they are
complying with all the formalities and compliance.
Section 128 (3) of the act is an important section to discuss here. The section says that the a
third party can also make the assumption where an officer or agent of the company act in
fraudulent manner. The next section i.e. 128 (4) states that a person cannot rely on the
assumptions of section 129 if the same has reason to belief that the assumption is incorrect13.
In this manner the provisions of corporation act seems to be developed based on the decision of
the cases discussed above.
Conclusion
After the above-mentioned discussion, it is clear that in general it is to believe that directors and
officers of the company needs to have actual authority in order to bind the company but the
case is not so in reality where some assumptions are allowed to the third parties under act.
These assumptions are developed based on the rule of indoor management, according to that a
third party cannot assume to check whether a person dealing on behalf of the company actually
has certain authority or not. In this manner, these assumptions clause provide a security to the
third party. Nevertheless, in addition to the same also limit the right of assumption in those
cases where the third party could check the reality or had no reason to rely on assumptions. In
real cases it becomes hard to determine that under what category a case does actually fall.
Hence conclusively to state that
13 dwfoxtucker.com.au, Company Contracts (DWFOXTUCKER, 31st October 2017) <
https://www.dwfoxtucker.com.au/2017/10/company-contracts/>.

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Bibliography
Case laws
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd - [1975]
HCA 49
Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146
Royal British Bank v Turquand (1856) 6 E&B 327
Legislation
Corporations Act 2001 (Cth)
Books/Journals
Bottomley, Stephen , Kath Hall, Peta Spender and Beth Nosworthy, Contemporary Australian
Corporate Law (Cambridge University Press, 2017)
Cahn, Andreas and David C. Donald, Comparative Company Law: Text and Cases on the Laws
Governing Corporations in Germany, the UK and the USA. (Cambridge University Press, 2010).
Sealy, Len and Sarah Worthington, Sealy & Worthington's Cases and Materials in Company
Law (OUP Oxford, 2013), 124.
Other Resources
dwfoxtucker.com.au, Company Contracts (DWFOXTUCKER, 31st October 2017) <
https://www.dwfoxtucker.com.au/2017/10/company-contracts/>
iknow.cch.com.au, Northside Developments Pty. Ltd. v. Registrar-General., Supreme Court of
New South Wales, 26 February 1987 (Wolters Kluwer) <
https://iknow.cch.com.au/document/atagUio386410sl10538762/northside-developments-pty-ltd-
v-registrar-general>
Johnson Winter & Slattery, Putting pen to paper – execution under section 127 (lexology, 6 July
2015) < https://www.lexology.com/library/detail.aspx?g=cf057ecb-0d7e-4ec2-be21-
c833666e0173>.