Rolled Steel Products (Holdings) Ltd v British Steel Corp
Encyclopedia
Rolled Steel Products Ltd v British Steel Corp [1985] Ch 246 is a UK company law case, concerning the enforceability of obligations against a company.
. This was a purpose that did not benefit Rolled Steel Products Ltd. Moreover, Rolled Steel's director, Mr Shenkman was interested in SSS Ltd (he had personally guaranteed a debt to British Steel’s subsidiary Colvilles
, which SSS Ltd owed money to). The company was empowered to grant guarantees under its articles but approval of the deal was irregular because Mr Shenkman's personal interest meant his vote should not have counted for the quorum at the meeting approving the guarantee. The shareholders knew of the irregularity, and so did British Steel. Rolled Steel Products wanted to get out of the guarantee, and was arguing it was unenforceable either because it was ultra vires, or because the guarantee had been created without proper authority.
At first instance Vinelott J held British Steel’s knowledge of the irregularity rendered the guarantee ultra vires, void and incapable of validation with the members’ consent. British Steel appealed.
in the company’s internal management. Since British Steel ‘constructively knew’ about the lack of authority, they could acquire no rights under the guarantee. On ultra vires Browne-Wilkinson LJ said the following.
On the question of authority Slade LJ held that the Rule in Turquand's case, which would ordinarily entitle a person dealing with a company who to assume the company's own internal rules were complied with, did not apply when it came to someone breaching a rule to further their own personal interests.
Facts
Rolled Steel Products Ltd gave security to guarantee the debts of a company called SSS Ltd to British SteelBritish Steel
British Steel was a major British steel producer. It originated as a nationalised industry, the British Steel Corporation , formed in 1967. This was converted to a public limited company, British Steel PLC, and privatised in 1988. It was once a constituent of the FTSE 100 Index...
. This was a purpose that did not benefit Rolled Steel Products Ltd. Moreover, Rolled Steel's director, Mr Shenkman was interested in SSS Ltd (he had personally guaranteed a debt to British Steel’s subsidiary Colvilles
David Colville & Sons
David Colville & Sons was a Scottish iron and steel company. It was founded in 1871, and in 1967 it was nationalised as part of British Steel. The company's first plant was the Dalzell Steel and Iron Works in Motherwell, which was opened in 1872, and by World War I this plant was the largest...
, which SSS Ltd owed money to). The company was empowered to grant guarantees under its articles but approval of the deal was irregular because Mr Shenkman's personal interest meant his vote should not have counted for the quorum at the meeting approving the guarantee. The shareholders knew of the irregularity, and so did British Steel. Rolled Steel Products wanted to get out of the guarantee, and was arguing it was unenforceable either because it was ultra vires, or because the guarantee had been created without proper authority.
At first instance Vinelott J held British Steel’s knowledge of the irregularity rendered the guarantee ultra vires, void and incapable of validation with the members’ consent. British Steel appealed.
Judgment
The Court of Appeal held that the transaction was not ultra vires and void. Simply because a transaction is entered for an improper purpose does not make it ultra vires. He emphasised the distinction between an act which is entered into for an improper purpose (which is not beyond the capacity of a company, or void) and an act which is wholly outside a company's objects (and hence ultra vires and void). However, it was unenforceable because British Steel, with knowledge of the irregularity, could not rely on a presumption of regularityPresumption of regularity
The presumption of regularity is a presumption that forms part of the law of evidence of England and Wales.It is expressed by the maxim of law "omnia praesumuntur rite et solemniter essa acta donec probetur in contrarium", which may be shortened to "omnia praesumuntur rite et solemniter essa acta"...
in the company’s internal management. Since British Steel ‘constructively knew’ about the lack of authority, they could acquire no rights under the guarantee. On ultra vires Browne-Wilkinson LJ said the following.
On the question of authority Slade LJ held that the Rule in Turquand's case, which would ordinarily entitle a person dealing with a company who to assume the company's own internal rules were complied with, did not apply when it came to someone breaching a rule to further their own personal interests.
See also
- UK company law
- Capacity in English lawCapacity in English law--------Capacity in English law refers to the ability of a contracting party to enter into legally binding relations. If a party does not have the capacity to do so, then subsequent contracts may be invalid; however, in the interests of certainty, there is a prima facie presumption that both...
- Agency in English lawAgency in English lawAgency in English law is a component of UK commercial law, and forms a core set of rules necessary for the smooth functioning of business.-Authority:...
- First EU Company Law Directive 68/151/EEC
- Hartog v Colin & Shields [1939] 3 All ER 566
- Howard v Patent Ivory Manufacturing Co (1888) 38 Ch D 156
- Morris v Kanssen [1946] AC 459, a presumption of irregularity cannot be relied on by company officers