Facts[ edit ] A company called Fidelity plc, manufacturers of electrical equipment, was the target of a takeover by Caparo Industries plc.
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In the context of corporate liability, an oft-cited opinion is the 18th century expression of Baron Edward Thurlow L. While the corporation is legally separate and distinct from its members, it is ultimately an artificial creation and it acts through its servants or agents.
The decisions of a majority of its members in general meetings are regarded as the acts of the corporation. The Board of Directors, as a whole, is generally delegated all powers of the management and it may sub-delegate any of these powers to individuals directors or other servants and managers.
There is a relationship akin to agency between the corporation and its board as well as the servants or agents that are delegated with specific responsibilities. Traditional Approach to Corporate Liability- Directing Mind Theory Traditionally, the approaches through which corporations may be said to incur liability for the acts of its directors or other employees are vicarious liability, agency and directing mind theory.
The essence of the traditional directing mind theory is that it is necessary for those individuals, whose position or function in the corporation are such that they are deemed to be its directing mind, to have committed the acts or possessed the requisite knowledge in order for it to incur personal liability.
The notion of attribution is not a completely new concept. The idea is to identify the individual or individuals in a corporation whose conduct or state of knowledge is attributable to it where they are deemed to be the corporation whose conduct itself- its alter ego.
It seeks to address the same principles as that of the directing mind theory i. The question of attribution is fundamental to company law, as a corporation can neither act nor think on its own.
The damages and losses that result from the infringements or wrongdoings associated with corporations also reinforce the need to determine whether a corporation can undertake a prohibited action or entertain a culpable state of mind. At the same it is necessary to avoid the injustice of attributing to the corporation every act or omission of its servants or agents.
Under the traditional directing mind theory and principles of attribution, it is through identifying the relevant individuals in the corporation whose conduct or knowledge are attributed to it in order for corporate liability to be established. Nevertheless, it is here that the similarity ends.
The difference with the principles of attribution, as expounded by Lord Hoffman in the Meridian case, is that they seek to provide a more systematic and coherent approach to determining liability of corporations. Firstly, they recognize corporations as legal abstractions involving references to rules that determine its existence, powers and obligations.
Secondly, it is governed by its organs the board of directors and shareholders in general meetings.
Thirdly, the fact that the corporation acts through its servants or agents does not mean that the conduct or state of knowledge of those individuals should be attributed to it in every circumstance. The nature of criminal and regulatory offences as well as civil infringements or wrongdoings also advances the need for rules to ascertain the instances where the corporation may be charged with personal responsibility.
This is especially so since the claimant to satisfy the court that the corporation had caused a certain event or responsibility should be attributed to it for the existence of a certain state of affairs, and it had a defined state of mind in relation to the causing of the event or the existence of the state of affairs.
Therefore the directing mind theory and the attributive principles focus directors and officers running an enterprise making them liable for their acts. Hence the concept of directors liability is of ongoing interest in corporate circles. Director of a Company The expression "director" includes any person occupying the position of director, by whatever name called.
The Articles of a company may, therefore, designate its Directors as governors, members of the governing council or, the board of management, or give them any other title.
However, so far as the law is concerned, they are simple Directors. The law therefore, imposes upon them certain duties, which when, properly enforced, will, without driving away from the field competent men, materially reduce the chances of abuse.
And so provided that directors of British and Australian companies acted bona fide in the interests of the company as a whole, it was felt that the shareholders had little cause for complaint. The attractiveness of the proper purposes doctrine is that it introduces an objective element into the equation absent statutory interference.
It is however necessary to distinguish between an excess of authority and an act which pima facie is within the powers delegated to directors of British companies, but which they have abused by exercising for an improper purpose.
The following cases highlight how the proper purposes doctrine has evolved under the general law. The first is Fraser v. In the case, the directors had issued shares with special voting rights to the trustees of a scheme set up for the benefit of the company employees in an attempt to forestall a takeover bid.
The action was stood over and the allotment was later ratified. This decision had excited a measure of controversy in English and Australian Law. It is well established that the onus of showing that a director has not acted honestly in the exercise of his or her powers and the discharge of his or her office is upon the aggrieved party.
The point is well established in Hindle v.© Simpsons Solicitors Telephone: (61 2) Suite Facsimile: (61 2) Macquarie Street [email protected] Sydney NSW Australia.
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