Hong Kong Company Law
Choi Ka Hei s00110302
Lam Kai Lung S00110311
Question 1 Please discuss whether the company is bound by Winnie’s actions and
that the architectural firm can sue to recover the proceeds.
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Winnie’s is bound for company action
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Legally is not the managing director of the company
There is no formal appointment
She is acting as a managing director with consent of the
broad of directors
That means she had apparent authority to act as
managing director
Even though she may be lack of actual authority
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Hely-Hutchison v Brayhead Ltd [1968]
1 QB 549
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It held that he did have authority because the fact
that the board had let Mr Richards continue to act
had in fact created actual authority.
Apparent authority
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Where the issue of a case whether a director
has, or deemed to have, authority to
represent the company as its agent
A company is bound by the actions of its
agent if they are with is apparent authority
Must arise from a representation that a
director had that authority
Whether the architectural firm can sue to
recover from proceeds?
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Outsider is possible to claim that the
company is liable for the contract even
though the director signed it may not have
actual authority
Freeman and Lockyer v Buckhurst Park
Properties Ltd (1964)
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This case law summarized that four situation must be
fulfilled by outsider to enforce against a company to
entitle the contract:
1. A representation was made to contractor and the
agent had authority to enter such contract
2. Representation was made by persons who had actual
authority to manage business
3. Contractor was induced by representation
4. Company was not deprived of the capacity to delegate
authority to an agent to make contract under the article
or memorandum
2. Is this a valid contract and if so why?
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valid contract
Companies ordinance section 32
A contract made between individuals are
required to be in writing and under seal must
be made on company behalf
Signed by anybody on his authority on behalf
of the company
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Frederick got the resolution from broad to
negotiate contract on behalf of the company.
Frederick has signed the contract, and the IT
company CEO is also represented and signed
it as well. The contract has the consent of both
company’s managing director agreement,
therefore it is valid contract.
If Frederick signed contract without further consultation with broad and sign
$1.2M per 4 year period contract, will company bound for contract?
 Bound
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by the contract
if a transaction is within the power of the
company, the company will be bound by the
director’s action anyway even if it’d in his
authority or not.
A transaction that is within the power of the
company, rather than director may
nevertheless be enforced by third party by
virtue.
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It’s know as the “indoor management rule” which
claim a person outside the company is not
required in their dealings to a company to inquire
internal management and may assume necessary
internal requirement has already been complied
with.
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Although Frederick didn’t get authorization
from the broad, the IT company is right to
assume Frederick got it, so IT company can
enforce the contract.
If the memorandum and article of association contained clause that all contract exceed $1M
must be approved by broad director and that company can only conclude contracts directly
relate to the purchase of mining property? Will company bound for contract
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?
not bound by the contract
The indoor management rule, established in the
turquand case, does not comply if the third party has
actual notice or constructive notice of the fact that
the director is acting outside his authority
If the article really include clause prohibit director to sign
such contract, the IT company cannot enforce this
contract because they should have known the restriction
by seeing the memorandum
Irvine v Union Bank of Australia
(1877) PC
It was held that the bank cannot recover the full
amount of the loan.
if the bank had looked at the articles, they would
have known that director are acting without his
authority
They could have avoid these
They can’t enforce the indoor management rule
Company not liable for contract
Question 3
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The rule in Turquand case refers to a third-party
dealing with a company is entitled to presume
the person acting on behalf of the company has
the necessary authority to enter into contract.
It offered protection to third parties in case the
company claimed the director is not acting on behalf
of company
Royal British Bank v Turquand (1856)
6 E&B 327
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The main question is whether the bond was
legally binding when the two directors don’t
have power to decide how much the company
could borrow?
The court held that the bond was binding,
notwithstanding the director’s failure, because the
bank was entitled to assume directors got the
permission from the broad
Mahoney v East Holyford Mining Co.
(1875) LR7 HL869
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The court held that the problem in the director
appointment is only a matter of internal management, the
third party who received those cheque was entitled to
presume the directors had been properly appointed and
cash the cheque.
The End