Internal/Indoor Management Rule

1. Internal/Indoor Management Rule Turquand’s Rule Constructive Notice Doctrine Corporate Agency

2. The ‘Indoor Management’ Rule • Palmer’s Company Law: ‘…while persons dealing with a co are assumedto have read the public documents of the co and to have ascertained that the proposed transaction is not inconsistent therewith, they are not required to do more; they need not inquire into the regularity of the internal proceedings.’

3. Royal British Bank v. Turquand[1856] 6 E&B 327 • A co incorporated by Act of Parliament had power to borrow. However, the co. cd only borrow such sums as were authorized by a general resolution of the co.The co borrowed $. When sued, they pleaded that a proper resolution had not passed. Held: the co was bound. On reading the co’s deed of settlement, the party dealing with the co would see that the co cd borrow. He was entitled to infer that when they did, all matters of internal management had been complied with.

4. The rule is based upon a general presumption of law ~ presumption of regularity • Applied together with the rules on apparent authority ~Turquand’s rule as a sub-set of apparent authority rules; albeit in its narrow form only applies to procedural irregularities. ~ the actual authority of the agent is an internal matter. ~ The third party deals in good faith / bona fide.

5. Eg of application of Turquand’s rule • Hew Sook Ying v Hiw Tin Hee [1992]: • Pekan Nenas Ind. Sdn Bhd v Chang Ching Chuen & Ors : power of court to validate improperly-called meetings.

6. Rolled Steel Products (Holdings) Ltd v British Steel Corp & Ors (1985): Turquand’s rule is not an absolute & unqualified rule of law. It is a rule which only applies in favour of persons dealing with the co in good faith.

7. If the contracting party knows or should know of the agent’s lack of authority ~ cannot claim being misled & no estoppel in his favour • If an examination of the MoA / AoA wd have made it plain that the agent’s authority is limited ~ he’ll be put on notice as to the agent’s authority • The nature of transaction may be such as to put the third party on inquiry as to the agent’s authority ~ he must make reasonable inquiry.

8. Knowledge of Agent’s Lack of Authority • If 3rd party knew: no estoppel arises. • Usually when the contracting party is an ‘insider’ (by virtue of his position, he sd know of the absence of authority). • Howard v. Patent Ivory Manu Co (1888) Dirs lent $ to the co on the security of debbentures. AoA provided that the co cd only borrow up to a certain limit, & this limit has been exceeded. Dirs sought to enforce the dbntr. Held: refused to allow. They were all dirs. Of the co; as the dir knew or sd have known of the limitation on borrowing. T’fore, they cd not rely upon the indoor management rule.

9. KL Engineering Sdn Bhd v Arab Malaysian Finance Bhd: held Form 49 giving particulars of change of dirs was a public document & accordingly there is a constructive notice of who the dir of the co are. • T’fore, if a person contracts through someone who claims to be a dir but is not, the contract is not binding on the company.

10. Moa or AoA putting 3rd party on Notice • 3rd party notified of agent’s lack of authority via MoA or AoA. ~only applies if it is clearly spelt out that the agent could not be authorized/ from some reason he should have been suspicious. ~no pleading of not reading MoA or AoA: constructive knowledge. ~no estoppel arise.

11. 3rd Party put on Inquiry by Nature of Transaction • Suspicious circumstances about the transaction that wd put the 3rd party on inquiry, he cannot just assume that e’thing is in order & rely on the assumption of regularity. • Northside Dvlpm Pty Ltd v Registrar-General

12. Agency and Company’s Contract • Actual authority • Apparent/ostensible authority • 3rd party’s notice on agent’s lack of authority: estoppel.

13. Actual authority -Express authority conferred by the MoA/AoA: eg. Art 73-78 of Table A; delegation of agent’s duties -Implied authority:not expressly stated; implied by the circumstances; comes with the actual authority given or with the job; can be restricted by the express authority. ~ to do whatever is reasonably incidental for the achievement of the task that he is expressly authorised to do. ~commonly via position held : ‘usual authority’ ~ by acquiescence of his superiors.

14. Apparent/ostensible authority Freeman & Lockyear v. Buckhurst Park Properties (Mangal) Ltd & Anor (1964) Chew Hock San & Ors v Connaught Housing Dvlpment Sdn Bhd [1985] • Representation by a person in authority Armagas v Mudogas SA [1986] British Bank of Middle East v Sun Life Ass Co of Canada [1983] • Reliance by Third Party.