Commercial Finance

Paul Ali
LAWS2024
 Basic transaction
Primary
Obligation
Borrower Creditor

Positive and Negative

Title Covenants

Recourse:
Secured
(i) Title-based
Property
(ii) Encumbrance

Sale/Manufacture

Exchange
Product
Transplanting the basic transaction
 Varieties and combinations of security interests
 Financial markets collateralisation
 Creditor contests
 Security substitutes
- Guarantees
- Negative pledges
- Romalpa clauses
- Credit default swaps
 Extension to non-traditional or “exotic” assets
- Intellectual property rights
- High-value mobile assets
 Securitisation
- True sale
- Whole business
- Synthetic
 Class 2
General legal issues
 Corporate authority
 Corporate benefit
 Two key questions
Does the borrower have the requisite legal authority to
enter into the transaction?

 NO: Transaction is void

Have the directors of the borrower (in entering the

transaction or delegating entry into the transaction)
exercised their powers in good faith in the best interests
of the borrower and for a proper purpose?

 NO: At best, transaction is void (breach of good faith) or,

at best, voidable (breach of proper purpose)
 Void transactions

Borrower Creditor

Financing agreement has been executed and funds have been advanced
No performance by Borrower
-Total failure of consideration → recovery of principal advanced
Partial performance by Borrower
-Partial failure of consideration → recovery probable
Full performance by Borrower?
What about compensation for lost return?
 Key cases
Westdeutsche Landesbanke Girozentrale v
Islington LBC [1996] AC 669
Kleinwort Benson Ltd v Glasgow City Council
[1997] 4 All ER 641
Guiness Mahon & Co Ltd v Kensington & Chelsea
RLBC [1998] 2 All ER 272
Kleinwort Benson Ltd v Lincoln City Council [1999]
2 AC 349
 How do companies contract?

Indirect contract

Authority? Execution by Agent

Company Agent Lender

Direct contract – executed by Co

 Key questions
Direct contracts
- Has the Co authorised entry into the contract (ie
the performance of the transaction contemplated
by the contract)?
- Has the Co authorised execution of the contract?
Indirect contracts
- Does the agent have authority to bind the Co to
the contract?
 Direct contracts
What signifies a direct contract?
[1] Co has executed the contract in one of
the two ways envisaged by section 127
OR
[2] Co has executed the contract in the
manner specified in its constitution
– Co may specify other methods of execution in its
constitution: s 127(4)
 Section 127 execution
Method One - Common Seal
- Co affixes seal and the fixing of the seal is witnessed by:
(a) 2 directors;
(b) director and Co secretary; or
(c) sole director of Pty Co (if that person is also the sole secretary): s 127(2)
- Having a seal is optional: s 123(1)
Method Two - Execution without seal
- Document is signed by:
(a) 2 directors;
(b) director and Co secretary; or
(c) sole director of Pty Co (if that person is also the sole secretary)
s 127(1)
 Direct contracts (cont)
Non-complying execution  Co is not bound by
contract
BUT Proper execution (ie compliance with s 127 or
constitutional procedure for execution) alone is not
sufficient to bind the Co
Authority must also exist for the Co to enter into the contract
Northside Developments Pty Ltd v Registrar-General (1990) 170
CLR 146, at 202 (Dawson J):
“…authority to affix the seal is not the same thing as authority to determine
those documents to which the seal should be affixed”
 Two types of authority
Direct contracts require:
[1] Formal authority - authority to execute the document
[2] Substantive authority - authority to enter into the
contractual arrangements evidenced by the document, ie
authority to perform the transaction
 Board resolutions must authorise Co to enter into contract and
also authorise Co to execute the document in a specified way
The absence of substantive authority will mean that the Co
is not bound by a contract which, on its face, appears to
be a properly executed “direct contract”
 Company contracts indirectly via
agent
Principal Authority? Company Agency
costs

directors’
Contract duties
Agent Officer
Negotiation
and
execution
of contract
Third party “for and on Third party
behalf of”
Co

Officer of Co - as an agent of a principal - can only bind his/her Co, IF

OFFICER HAS THE AUTHORITY TO ACT FOR THE Co
 Indirect contracts
What signifies an indirect contract?
Contract has been executed “for and on
behalf of” the Co
Does the agent possess the requisite
authority to bind the Co?
Two types of authority:
[1] Actual authority
[2] Apparent or ostensible authority
 Actual vs apparent authority
Two types of authority that a person who acts on
behalf of a Co may have:
 Actual authority
– the Co has agreed that the officer can act on behalf of the
Co
 Apparent or ostensible authority
– does not require an agreement conferring authority to act
upon the officer
– officer binds the Co because the agent appears to have
the requisite authority
– officer may have apparent authority even if he/she does
not have actual authority
 Authority for agents
Authority?

Actual Apparent

Estoppel
Express Implied
 Actual authority
Actual authority  Co has given consent
to officer to act for Co
 Consent can be express or implied
 Express actual authority
Three sources
[1] Empowering provision in Corps Act
[2] Co’s constitution
s 198A(2)
– When the Board collectively exercises such powers (via
resolution), the Board is acting with the express authority
of the Co
[3] Delegation of authority to agent by Co’s directors
– Corps Act permits the Board to delegate all or any of its
powers to the Managing Director (s 198C(1)), a
committee of the Board (s 198D(1))
 Implied actual authority
Two sources
[1] Authority is implied from the position occupied
by the agent
– Managing Director/Chief Executive Officer
– Chairperson
– Other directors
– Co executives/employees (who are not also directors)
– Co secretary
[2] Co’s conduct ie Board has acquiesced to the
conduct of the agent
 Managing Director/CEO
In general, MD/CEO has sufficient implied actual
authority to bind the Co to the contract
– MD/CEO has the implied actual authority to do all things
that fall within the usual scope of that office: Hely-
Hutchinson v Brayhead Ltd [1968] 1 QB 549
– NOTE
[1] MD’s usual functions include day-to-day management of Co and
supervision of senior executives: Entwells Pty Ltd v National and
General Insurance Co Ltd (1991) 5 ACSR 424
[2] Implied actual authority does not extend to matters outside the
ordinary course of the Co’s business eg selling the entire business,
ceasing trading: Corpers (No 664) Pty Ltd v NZI Securities
Australia Ltd (1989) ASC 55-714
 Chair of Board
In general, the chairperson does not have
sufficient implied authority to bind the Co to the
contract
– Northside Developments Pty Ltd v Registrar-General
(1990) 170 CLR 146
– NOTE:
[1] Chairperson’s role is typically limited to chairing meetings of
the Board (and to use his/her casting vote to break deadlocks):
ASIC v Whitlam (2002) 42 ACSR 407; ASIC v Rich [2003]
NSWSC 186
[2] Board may nonetheless delegate powers to the chairperson:
s 198D(1)(b) (unusual for powers to be delegated to a non-
executive chairperson)
 Other directors
In general, a director (who is not the MD) does not
have sufficient implied authority to bind the Co to
the contract
– Northside Developments Pty Ltd v Registrar-General;
Brick and Pipe Industries Ltd v Occidental Life
Nominees Pty Ltd (1992) 10 ACLC 253
– NOTE
[1] Subject to Co’s constitution, powers of the Co are exercised
collectively by the Board, not by individual directors: s 198A(2)
[2] Board may nonetheless delegate powers to a director: s
198D(1)(b) (unusual for powers to be delegated to a non-
executive director)
 Executives/employees
Senior executives may have sufficient implied
authority to bind the Co to the contract
– senior executives (such as the Chief Financial
Officer, Chief Operating Officer, etc) have the
implied actual authority to do all things which fall
within the usual scope of their positions
– NOTE: Board can expressly delegate powers to
employees of the Co: s 198D(1)(c)
 Co secretary
It is very unlikely that the Company Secretary
will have sufficient implied authority to bind
the Co to the contract
– The Company secretary has limited implied
authority to discharge certain administrative
matters on behalf of the Co
• Panorama Developments (Guildford) Ltd v Fidelis
Furnishing Fabrics Ltd [1971] 2 QB 711; Re Tummon
Investments Pty Ltd (1993) 11 ACLC 1139
 Implied actual authority -
conduct
Person acts as if he or she has authority to bind the
Co AND Board of directors permits that person to act
in that manner
 Person will have sufficient implied actual authority to
bind the Co
EXAMPLE: de facto MD
[1] A director of the Co who – despite not having been appointed as the MD –
acts in the capacity of the MD with the acquiescence of the Board, will have
enjoy the same implied actual authority as a duly appointed MD to bind the
Co: Hely-Hutchinson v Brayhead Ltd
[2] a de facto MD/CEO is typically a director of the Co who assumes executive
control BUT a controlling shareholder can also be a de facto MD/CEO: Brick
and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd
 Apparent authority
Co may be bound by acts of a person even in the
absence of express or implied actual authority
– establishment of apparent/ostensible authority creates
an “agency by estoppel” ie Co is precluded from
denying that the agent lacked the requisite authority
Examples
[1] Co permits an agent to carry out acts beyond the scope of the
agent’s express or implied actual authority
[2] Co permits the agent to occupy a particular position - analogous to
de facto MD but encompasses a much wider class of persons
[3] Agent holds no position but Co permits agent to act as if he/she has
the requisite authority to act
 Pre-requisites
[1] Representation or “holding out”
- person must be represented or held out by
the Co as having the requisite authority to act
- NOTE:
[1] representation can be in the form of words or conduct
[2] the conduct which may give rise to implied actual
authority (as in the case of a de facto MD) can also
constitute a representation supporting the creation of an
agency by estoppel
 Pre-requisites (cont)
[2] Representation must be made by someone with
actual authority
- representation must be made by someone with actual
authority (express or implied) to manage Co’s business
OR in respect of the matters to which the agent’s act
relates
- representation by someone with apparent authority only is
NOT sufficient: Crabtree-Vickers Pty Ltd v Australian
Direct Mail Advertising Co Pty Ltd (1975) 133 CLR 72
- person with apparent authority can bind Co but cannot, by
his/her conduct, confer authority on another person to
bind the Co
 Transmission of authority

Company Agent Agent

Actual authority Apparent authority

Agent

Apparent authority
 Pre-requisites (cont)
[3] Reliance
- third party must have entered into the contract with the
agent in reliance on the representation of apparent
authority
- NOTE: the reliance must have induced entry into the
contract - the estoppel will not arise if the third party was
indifferent to the representation
- The leading authority for the above 3 pre-requisites is
Freeman and Lockyer v Buckhurst Park Properties
(Mangal) Ltd [1964] 2 QB 480
Much of this decision is not relevant to the issue of apparent authority
in Australia - s 125(1) has abolished the doctrine of ultra vires
 Curing defects
Can an outsider overcome the defects in
authority and enforce the contract as if it
were a valid contract against the Co?
[1] Yes – if statutory assumptions in s 129
apply
[2] Yes – if the common law “indoor
management” rule applies
 Statutory assumptions
Corps Act (s 129) contains “statutory
assumptions”
– Person (subject to qualifications in s 128) can contract
with Co as if these assumptions represent the true
state of affairs
– In certain circumstances, person does not need to
undertake due diligence to obtain evidence of (a)
express conferral of authority, (b) scope of authority of
corporate officers or (c) estoppel
– Assumptions operate independently of general law
principles (indoor management rule) on corporate
authority
 Key statutory assumptions
Constitution and Replaceable Rules
Compliance with constitution and RR: s 129(1)
Persons listed as directors and Co secretary in ASIC’s public records
Duly appointed: s 129(2)(a)
Customary authority: s 129(2)(b)
 Assumption of sufficient implied actual authority
Persons held out by Co to be an officer
Duly appointed: s 129(3)(a)
Customary authority: s 129(3)(b)
 Assumption of sufficient apparent or ostensible authority
Contracts made by Co
Duly executed: s 129(5) and (6)
Curing defects in formal authority
– direct contracts only
Three options for execution:
• with seal
• without seal
• constitutional procedure
Statutory assumptions: ss 128(1) and 129
[1] Co affixes seal - s 129(6)
- Person can assume contract has been duly executed if Co’s
seal appears to have been affixed and witnessed in accordance
with s 127(2)
[2] Co executes without seal - s 129(5)
- Person can assume contract has been duly executed if contract
appears to have been signed in accordance with s 127(1)
 Defects in formal authority
(cont)
[1] and [2] (cont)
- s 127 defines the proper procedure for execution of contracts by a Co
- s 129(5) and (6) permit persons dealing with the Co to assume that persons who (i)
affixed and witnessing fixing of seal to contract or (ii) signed contract have the
formal authority to do so
- Person held out as director or secretary (although not appointed as such) has
authority to witness fixing of seal: Brick and Pipe Industries Ltd v Occidental Life
Nominees Pty Ltd
[3] Co executes contract other than in accordance with Corps Act
procedure – s 129(1)
- Person can assume that procedure in constitution for execution of
contracts has been followed
 [1], [2] and [3] DO NOT provide substantive authority for
entry into the contract
 Other statutory assumptions
• s 129(2) and (3) can be used to:
[1] cure defects in substantive authority for
direct contracts
[2] establish sufficiently wide implied actual
authority or apparent authority for indirect
contracts
 Section 129(2)
Directors and secretary: s 129(2)
Counterparties can assume that directors and the
secretary have been duly appointed and are possessed
of the customary powers of such officers of similar Cos
NOTE
[1] s 129(2) does not require the counterparty to have seen the
information on ASIC’s public register
[2] s 129(2) will not cure defects in authority for either a direct or
indirect contract in the case of directors (other than the MD), the
chairperson and the Co secretary. Individual directors, the
chairperson and Co secretary DO NOT have implied actual
authority to bind the Co
[3] s 129(2) will cure defects in authority in relation to the MD
 Section 129(3)
Persons held out as officers: s 129(3)
Counterparties can assume that anyone who is held out by
the Co to be an officer (ie director, secretary or senior
executive: s 9) or agent has been duly appointed and are
possessed of the customary powers of such officers or
agents of similar Cos
NOTE
[1] s 129(3) will cure defects in authority in relation to a de facto MD
[2] It will also assist in relation to senior executives and agents
[3] Only a person with actual authority can hold a person out as an officer
for the purposes of s 129(3): Brick and Pipe Industries Ltd v Occidental
Life Nominees Pty Ltd
[4] No requirement for reliance
 What about s 129(1)?
Constitution and Replaceable Rules: s 129(1)
Counterparty may assume that there has been
“compliance” with Constitution and RR
Interpreted as relating to procedural matters only (ie
formal authority)
 CANNOT be used to cure defects in substantive
authority or provide authority for an agent
NOTE: The potential authority to exercise a power (eg s 198A(2)
as varied or supplemented by the Constitution) cannot be
treated as actual authority to exercise that power: Northside
Developments Pty Ltd v Registrar-General
 Limitations re use of s 129
Counterparty cannot rely on assumptions if he/she (s 128(4)):
[1] knew assumption was incorrect
• subjective test
• actual knowledge
[2] suspected assumption was incorrect
• subjective test
• “a feeling of actual apprehension or mistrust”: Queensland Bacon Pty Ltd v Rees (1966)
115 CLR 266
• NOT:
– an “idle wondering”
– awareness of risk
– awareness of a “reasonable or prudent person in the position of the outsider”
– “put on inquiry” (cf Northside Developments case)
– “ought to have known”
 Objective vs subjective test?
EM, Company Law Review Act 1998, para 8.7
“This objective test is stricter than the [former] law and makes it
clear that the common law ‘put on inquiry’ test has no
application to the statutory provisions.”
BUT
Difficult to see how “knew or suspected” is an objective test
– both appear to relate to a person’s actual state of mind
Will the courts imply a requirement for “reasonableness”?
– ie proof of knowledge or suspicion can be established by reference to the
behaviour of a hypothetical reasonable person
“knew or suspected” is narrower than the exceptions recognised at
general law (see discussion on indoor management rule)
 Fraud
Statutory assumptions are available to persons
dealing with the Co even where there has
been fraudulent conduct on the part of the
person representing the Co: s 128(3) (subject
to “knew or suspected” exception)
NOTE: This is to be contrasted with the
common law exception of “fraud” to the indoor
management rule
 Indoor management rule
Rule in Turquand’s case (1856) 6 EL & BL 327:
persons dealing with a Co can assume the Co has duly
exercised its powers in compliance with its constitution
principally, a rule of “procedural convenience” (outsiders do
not need to undertake extensive due diligence of the Co’s
minute book, etc)
 BUT it can also be used to establish substantive authority
as regards: (a) contracts made directly by the Co; and (b)
implied actual or apparent authority for agents
NOTE s 129(1) is a partial codification of IM rule; it applies only to
procedural matters unlike IM rule which can be used to establish
substantive authority
 IM rule (cont)
Three principal examples
Under the IM rule, person dealing with Co can assume:
Directors have been duly appointed
– applies to invalidly appointed directors as well as persons who are held out as
directors
– BUT: individual directors (other than the MD) have limited implied authority
Board meetings have been properly called and held:
– absence of quorum or failure to comply with formalities for passing resolutions
authorising execution of, and entry into, the contract is not fatal
Board/Shareholder approvals required by the Corporations Act or Co’s
constitution have been obtained
– implied actual authority (can assume that authorisation to act has been granted even
though in reality it may not have been)
– NOTE: wider than s 129(1)
 Limitations re use of IM rule
Person dealing with Co must act in good faith
Person must not have “actual knowledge”
– If person has actual knowledge of the absence of express actual authority (or that
such authority is too narrow), the person cannot use the IM rule to establish implied
actual authority or apparent authority, so as to cure the defect in express actual
authority
“put on inquiry” exception
– would a reasonable person have been put on inquiry and investigated? Northside
Developments Pty Ltd v Registrar-General
– NOTE: wider than the subjective “suspected” exception in s 128(4)
– BUT counterparties no longer have constructive notice of Co’s constitution: s 130(1)
Fraud
– ie the contract or the signatures to the contract have been forged Northside
Developments Pty Ltd v Registrar-General
 Northside Developments case
R Sturgess (director) Cos owned by R
Sturgess

Loans
Mortgage
Northside Barclays
Developments Bank

-Northside constitution: (a) Board can delegate powers to a committee; (b) seal must
be witnessed by (i) 2 directors, (ii) director plus secretary, or (iii) director plus person
appointed by directors
-R Sturgess (director) approved the execution of the mortgage - fixing of seal was
witnessed by R Sturgess and G Sturgess (purportedly as Co secretary)
-Northside Board had neither approved the mortgage nor delegated powers to R
Sturgess AND G Sturgess had not been appointed Co secretary
-Sturgess Cos defaulted and Barclays enforced the Mortgage
 IM rule vs stat assumptions
Limitations on use of statutory assumptions
“knew”: s 128(4) = “actual knowledge” exception to IM
rule
“suspected”: s 128(4) - subjective test, unlike the
wider, objective “put on inquiry” exception to IM rule:
– IM rule exception applies in the absence of subjective
suspicions ie where a reasonable person would have made
inquiries
No express “good faith” requirement - but male fides
may connote refusal to act on suspicions
No “fraud” exception: s 128(3)
Duty to act in good faith in the
best interests of the Co
Duty = directors must act honestly having
regard to the best interests of the Co
Objective test
General law: equitable duty?
– generally characterised as an equitable duty
• BUT leading commentators believe that it should more
properly be characterised as a common law duty: Austin
Statute: s 181(1)(a), Corps Act
 Duty to act in good faith, etc
Objective test
Would a reasonable person, in the director or
officer’s position, acting in good faith believe
the act to be in the best interests of the Co?
ASIC v Adler (2002) 41 ACSR 72
– Hutton v West Cork Railway Co (1883) 23 Ch D
654: "Bona fides cannot be the sole test, otherwise
you might have a lunatic conducting the affairs of
the company, and paying its money with both hands
in a manner perfectly bona fide yet perfectly
irrational."
 Duty to act in good faith, etc
Objective test  An honest belief that what you
are doing is in the best interests of the Co is
not a defence
Can have a breach of the GF duty (at general law and
also under s 181(1)(a)) even if the director honestly
believes that he/she is acting in the best interests of
the Co
NOTE: the subjective element is not entirely
irrelevant: intentional disregard of the Co’s
interests will constitute a breach of the GF duty:
Marchesi v Barnes [1970] VR 434
 Best interests of Co
What are the Co’s interests?
Stakeholders in the Co:
[1] Shareholders
[2] Companies in the same corporate group
[3] Creditors
 Interests of Co (cont)
General rule: interests of Co = collective interests of
existing shareholders
– Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286; Ngurli
Ltd v McCann (1953) 90 CLR 425; Parke v Daily News Ltd
[1962] Ch 927
Body of shareholders
Directors are required to have regard to the interests of existing
shareholders as a whole (not severally), taking into account
their future as well as present interests
Individual shareholders
Generally, interests of Co  interests of individual shareholders
 Interests of Co (cont)
What happens when shareholders have disparate
interests?
An act which benefits one class or group of shares may
adversely affect another class or group, for example:
– selective capital reduction
– selective buy-back
– issue of shares
Cannot say “interests of Co” = collective interests of existing
shareholders
 Directors must act fairly as between the different classes
or groups of shareholders: Mills v Mills (1938) 60 CLR 150
 Interests of Group Cos
Co is a member of a corporate group
General rule: each Co in a group has its own
interests and the directors of the Co have a
duty to act in good faith and in the best
interests of that Co
BUT: Courts recognise that decisions by the
directors of a group Co are likely to be taken
having regard to group interests
 “Charterbridge test”
 Group Cos (cont)
Charterbridge test
Would an intelligent and honest person in the position of
the director of the group Co have reasonably believed
that the director’s acts are for the benefit of the Co?
– Charterbridge Corp Ltd v Lloyds Bank Ltd [1970]
Ch 62
– modified objective test (ie reference to reasonable
person in the position of director of group Co)
represents the position in Australia
– Farrow Finance Co Ltd v Farrow Properties Pty Ltd
(1997) 26 ACSR 544
 Group Cos (cont)
BUT
Walker v Wimborne (1976) 137 CLR 1
– different test applied: directors must consider the
interests of the Co alone and disregard the
interests of the group
Equiticorp Finance Ltd v BNZ (1993) 32 NSWLR 50;
Maronis Holdings Ltd v Nippon Credit Australia Pty
Ltd (2001) 38 ACSR 404
– reservations expressed but the Charterbridge test
was eventually applied
 Equiticorp Finance v BNZ

EHL

Gtee

Equiticorp Group Cos

Uruz EFL EFSA

$200m loan
Credit support - $50
m deposit

BNZ
 Equiticorp case (cont)
HELD (majority):
No breach by directors of EFL and EFSA
Expressed reservations about the Charterbridge test
Preference for a subjective test: did the director honestly
believe that his/her actions were in the best interests of
the Co?
BUT: Charterbridge test applied: no breach:
– provision of $50 million credit support essential to maintaining
funding from BNZ
– otherwise, BNZ would have demanded repayment of the Uruz
loan under EHL’s guarantee; this would have adversely affected
the entire Equiticorp group (including EFL and EFSA)
 Group Cos (cont)
Safe-harbour for directors of wholly-owned subsidiaries: s
187
A director of a Co that is a wholly-owned subsidiary will be deemed to
have acted in good faith and in the best interests of the Co where:
– Co’s constitution expressly permits director to act in best
interests of Co’s “holding company”; AND
– Director acts in good faith in the best interests of HC; AND
– Co is not insolvent at the time the director acts and does not
become insolvent because of the act.
 CAN’T sacrifice the group Co for the good of the HC or the group
 Defence re statutory AND general law duties of good faith
 Interests of creditors
General rules
[a] While Co is solvent, “interests of Co” = collective
interests of existing shareholders
[b] If Co is insolvent, directors must also take into account
the interests of creditors (whether secured or unsecured)
– Walker v Wimborne
– Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722
BUT
Directors do not owe a separate fiduciary duty to the creditors
– Sycotex v Baseler (1994) 13 ACSR 766
– Spies v R (2000) 201 CLR 603
 PP duty
Objective test
Would a reasonable person, in the director or officer’s
position, believe the exercise of the power to be for a
proper purpose?
Adler v ASIC (2003) 46 ACSR 504
Can have a breach of the PP duty (at general law and also under s
181(1)(b)) even if the director believes that the exercise of the
power is for a proper purpose
– “honest or altruistic behaviour does not prevent a finding of improper
conduct”: Permanent Building Society Ltd v Wheeler (1994) ACSR 109
NOTE: subjective element also remains relevant: a deliberate exercise of a
power contrary to the purposes for which the power was conferred will
constitute a breach of the PP duty
 GF duty vs PP duty
[1] Two separate duties
PP duty is wider than the GF duty
Directors may breach the PP duty even if they comply with the GF
duty
– Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478
– Howard Smith Ltd v Ampol Petroleum Ltd [1972] 2 NSWLR 850
– Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285
[2] One composite duty
An exercise of a power is valid if exercised by the directors in
compliance with the GF duty
– Cayne v Global Natural Resources Plc (1982, unrep, UK Ch)
– Teck Corp v Millar (1973) 33 DLR (3d) 288
– Darvall v North Sydney Brick & Tile Co Ltd (1987) 12 ACLR 537
 GF duty vs PP duty (cont)
Comments
The better view is that the requirement imposed on
directors to exercise their powers for a proper
purpose is distinct from the duty to act in good faith
and in the best interests of the Co
Different origins of the two duties. One lies in equity
(PP) while the other lies in common law (GF)