The Gazette 1985

JANUARY/FEBRUARY 1985

GAZETTE

a resolution authorising that which on the face of the document appeared to be legitimately done. 21 The decision in Re Hampshire Land Co. 22 is also germane. There it was held that a lender is protected where directors are empowered to borrow not more than a specified total amount on their own initiative, and further to borrow in excess of that amount with the consent of a general meeting. In such a case the lender may assume that any necessary consent has been given, even if he is aware that the directors have already borrowed up to the limit set for them personally. Having regard to these decisions, it seems that the reservation expressed by Kenny J. in Re Burke Clancy Ltd. runs against a strong current of authority and might safely be disregarded. However, persons will no doubt, ex abundanti cautela, continue to insist on proof of the necessary resolutions. Re Burke Clancy Ltd. must also be read today in the light of paragraph 6(1) of the European Communities (Companies) Regulations 1973. 23 This statutory instrument provides that, in favour of a person dealing with a company in good faith, any transaction entered into by any organ of the company including, inter alia, its board of directors shall be deemed to be within the capacity of the company and any limitation on the powers of that organ, whether imposed by the memorandum or articles of association or otherwise, may not be relied upon as against any person so dealing with the company. Any such person is presumed to have acted in good faith unless the contrary is proved. This provision treats conditions which must be fulfilled before directors can borrow in excess of a specified amount as a restriction on the directors' powers to enter into any transaction within the company's capacity. The other party to the transaction is able to disregard these restrictions provided that he acts in good faith. The 1973 regulations were enacted in compliance with Ireland's obligations to give domestic effect to the provisions of the First Company Law Directive of the EEC. 24 The phrase " go od faith" has not been subjected to judicial exegesis in this jurisdiction. However, in relation to the comparable English provision, Lawson J. in International Sales and Agencies Ltd. -v- Marcus 25 was of opinion that a company could only prove lack of good faith by showing that the third party had actual knowledge that the transaction was ultra vires the company or the board of directors as the case may be, or could not in view of all the circumstances have been unaware of it. By way of comment, it must be said that this is an interpretation of " go od faith" in the spirit of the First Directive's requirements ut res magis valeat quam pereat. The 1973 regulations remain fairly controversial in the realm of Irish Company Law since they trespass on territory already covered in part by section 8 of the Companies Act 1963. 26 Leaving aside the question of the relationship between the two provisions as irrelevant to this paper, one is still left with a difficult problem as to the effect of the statutory instrument on the rule in Turquand's case. Some points should be made. Firstly, the statutory provision applies only to companies, including unregistered companies, having limited liability. 27 Secondly, the provision is limited to circumstances where the person is dealing with the company in good faith. According to Lawson J. in the Marcus 28 case, a person who received company money in satisfaction of a private

debt could not be said to be dealing with the company, but with the director concerned, even though payment was by cheques drawn on the company. Thirdly, for the statutory regulations to apply, the transaction must be entered into by any organ of the company, being its board of directors or any person registered under the regulations as a person authorised to bind the company. There is provision elsewhere in the regulations for the voluntary registration of a person authorised to bind the company, for example, a managing director. 29 Finally, the statutory provision confers more extensive protection in a certain respect. Under the rule a person transacting business with the company is presumed to have read the public documents of the company and to have ascertained that the proposed transaction is not inconsistent therewith. 30 Section B of the Companies Act 1963 abolished this doctrine of constructive notice insofar as the objects clause in the company's memorandum of association is concerned. The European Communities (Companies) Regulations go further and protect a person dealing with a company against absolute prohibitions in the memorandum or articles, and against infringements of restrictions on the powers of its directors which entry into the transaction necessarily entails. 31 Conclusion The rule in Royal British Bank -v- Turquand embodies an important principle. It is designed to alleviate the lot of the hard-pressed business community who might find it unduly burdensome to delve behind the public documents of a company. While the underlying rationale of the rule has not been judicially considered to any great extent in this jurisdiction, the function it fulfills is of appreciable significance. Having regard to these factors, it is disheartening to note that in one of the few cases in which it occasioned comment in Ireland — Re Burke Clancy Ltd.. Kenny J. viewed the rule very restrictively. •

Footnotes I.S.I. No. 163 of 1973. 2. (1855) 5 E. and B. 248; on appeal (1856) 6 E. and B. 327. 3. Gloucester County Bank -v- Rudry Merthyr Steam and House Colliery Co. [1895] 1 Ch. 629 per Lindley L.J. at 636.

4. [1982] ILRM 57. 5. [1895] I Ch. 629. 6. Ibid, at 636. 7. [1982] ILRM 57 at 65. 8. Ibid, at 66.

9. A person dealing with a company cannot claim protection if he knows that there has been some failure to comply or if he knows facts which would lead a reasonable man to inquire further and thus discover the failure to comply. See generally Howard -v- Patent Ivory Manufacturing Co. [1888] 38 Ch. D 156; and also E.B.M. Co. -v- Dominion Bank [1937] 3 All E.R. 555 and A.L. Underwood-v- Bank of Liverpool [1924] 1 KB 775 which deal with apparent authority of agents of a company.

10. [1901] 2 K.B. 314. II. [1915] 1 ER. 345. 12. [1904] 1 Ch. 32. 13.[1915] 1 I.R. 345 at 371.

14. In Morris -v- Kanssen[ 1946] A.C.459 LordSimonds said that it is the duty of directors, and equally of those who purport to act as directors, to look after the affairs of the company. To admit in their favour a presumption that that is rightly done which they have themselves wrongly done is to encourage ignorance and condone dereliction from duty.

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