ABSTRACT
This article examines the decision of the New Zealand Court of Appeal in Bishop Warden Property Holdings Ltd v Autumn Tree Ltd. The Autumn Tree case reaffirms the danger of relying on the ability of one director (on a board of more than one) to contract on behalf of a company. The decision also helpfully clarifies the interpretation of the proviso to s 18(1) of the Companies Act 1993 dealing with the knowledge of third parties. The result is to provide more protection to innocent third parties contracting with a company.
The Court of Appeal decision, however, risks a wrong turn in its application of the law of apparent authority in so far as it applies to companies. In particular, the Court’s approach to the question of whether there is a sufficient ‘holding out’ of authority to create apparent authority is not correct. The Court’s approach fails to focus on what the party contracting with the company has in fact seen and relied on.
The Court of Appeal decision does also add comments of interest in relation to the validity of transactions entered into in breach of the rules relating to major transactions (s 129) or in breach of the director’s duty to act in the best interests of the company (s 131). In relation to the former, the decision in Autumn Tree helpfully suggests that it is only s 18 (and not s 17) that can be used to protect a transaction entered into in breach of s 129. In relation to the latter, the decision in Autumn Tree is a reminder that transactions entered into in breach of a fiduciary duty to the company will be voidable (unless the third party is innocent).
Land, John, Company Contracting in New Zealand after Autumn Tree (October 17, 2018), New Zealand Business Law Quarterly, volume 24, December 2018; The University of Auckland Faculty of Law Research Paper Series.
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