Promoter

Who is a promoter?
Twycross v Grant (1877) 2 CPD 469
Cockburn CJ:
A promoter, I apprehend, is one who
undertakes to form a company with
reference to a given project and to set it
going, and who takes the necessary steps to
accomplish that purpose.
 Tracey v Mandalay Pty Ltd (1953) 88 CLR 215
Dixon CJ, Williams & Taylor JJ:
As used in connection with companies the
term promoter involves the idea of exertion for
the purpose of getting up and starting a company
(of what is called floating it) and also the idea of
some duty towards the company imposed by or
arising from the position which the so-called
promoter assumes towards it
 S 4(1) for the purpose of liability on a prospectus.
The person who undertakes the formation of a company by
carrying out the procedure necessary for incorporation is a
promoter.
A person who floats a company with the objective of
selling particular property to the company and arranging
for the shares of the company to be taken up by others.
Excluded: those acting merely in a professional capacity
on behalf of a promoter. S 4(1)
Included: partner (incl. sleeping) of a promoter.
 Duties of promoters
A promoter is in a fiduciary relationship
with the company.
A promoter must make a full-disclosure of
his interest in any contract entered into by
the company.
Erlanger v New Sombrero Phosphate Co
(1878) 3 App Cas 1218
Gluckstein v Barnes [1900] AC 240
 Whaley Bridge Calico Printing co v Green
& Smith (1879) 5 QBD 109
Habib Abdul Rahman v Abdul Cader
(1808-1890) 4 Ky 193
 Remedies for breach of promoters
duties
Rescission of the contract for breach of promoters
fiduciary duties
a. The company did not affirm the contract and no
unjustified delay
b. The parties cannot be restored to their original position
Lagunas Nitrate co v Laguna syndicate [1899] 2 Ch 392
c. 3rd parties have acquired rights that cannot be defeated
Re Leeds & Hanley Theatres of Varieties Ltd [1902] Ch
809
 Recovery of the promoters secret profit eg
in Gluckteins case
Damages for breach of duty or for deceit eg
Re Leeds case
 Pre-Incorporation Contracts
Enabling the proposed company to start
business immediately after its incorporation
Eg: geological exploration, feasibility
studies, acquisition of land use rights
 Pre-incorporation contract
Liability of the company
At Common law, a company cannot be
bound by nor enforce contracts entered into
prior to its incorporation
Newborne v Sensolid (Great Britain) Ltd
[1954] 1 QB 45
Black v Smallwood (1966) 117 CLR 52
 Ratify?
Brett LJ in Jones v Hope
Nobody can ratify a contract purporting to
be made by an agent except the party on
whose behalf the agent purported to act
 Liability of the promoters
Kelner v Baxter (1866) LR 2 CP 174
promoters will be liable if they acted as
principal

Black v Smallwood
 Pre-incorporation contracts under
s 35 CA 1965
S 35(2) in the absence of express
agreement to the contrary
Phonogram Ltd v Lane (1982) 1 QB 938
Clear words would be required before
personal liability was excluded
Cosmic Insurance Corporation Ltd v Khoo
Chiang Poh [1981] 1 MLJ 61
 Development Finance Corp NZ v McSherry
in liq (1987) 3 NZCLC 99,998 HC
No ratification unless there is a conscious
intention to ratify
Some deliberate act shall have been done
for the purpose
 Liability of the promoter
Where the company choose to ratify the
contract, the liability of the promoter is not
greater than that of agent who acted outside
the scope of his authority.
Quantum: amount that the 3rd party would
have recovered; not what would have been
awarded v the principal
Kelner v Baxter Nominal damages for an
insolvent company
 Questions
1. What is the main issue of a pre-incorporation
contract?
2. What is the solution brought about by s 35 CA
1965?
3. What are the duties of a promoter?
4. During pre-incorporation, who are the parties
that the law seeks to protect?
 Pre-incorporation contract
65. (1) A contract or transaction that purports to be made by or
on behalf of a company at a time when the company has not been formed
has effect as a contract or transaction made with the person purporting to
act for the company or as agent for it, and he is personally liable on the
contract or transaction accordingly.

(2) Notwithstanding subsection (1), a contract or transaction referred

to in that subsection may be ratified by the company after its
incorporation and the company shall be bound by the contract or
transaction as if the company had been in existence at the date of the
contract or transaction and had been a party to the contract or
transaction.
S 150 Contracts Act 1950
Ratification may be expressed or may be
implied in the conduct of the person on whose
behalf the acts are done
Express ratification e.g. passing a resolution
adopted by:
directors: Cosmic Insurance Corporation Ltd
v Khoo Chiang Poh (1981)
the company: Ahmad bin Saleh & Ors v
Rawang Hill Resort Sdn Bhd (1995)
Implied: Chung Yoke Onn v CS Khin
Development Sdn Bhd (1985)
S 65(1) 2016 Act :
No exclusion of liability is provided for
Not clear for the liability of the person who
signed after the ratification by the company
S 149 of the Contracts Act 1950
Where acts are done by one person on behalf of
another but without his knowledge or authority, he
may elect to ratify or to disown the acts. If he ratifies
them, the same effects will follow as if they had been
performed by his authority.
Also in S 179 Contracts Act 1950
Contracts entered into through an agent, and
obligations arising from acts done by an
agent, may be enforced in the same manner,
and will have the same legal consequences as
if the contracts had been entered into and the
acts done by the principal in person.
S 183 of the Contracts Act 1950
In the absence of any contract to that effect,
an agent cannot personally enforce contracts
entered into by him on behalf of his principal,
nor is he personally bound by them
 Therefore, the company (principal) and not
the agent who will become bound if it
ratifies. Unless the contract provides
otherwise.
 Provisional contract
S 190
(5) Any contract made by a company before
the date on which it is entitled to
commence business shall be provisional
only and shall only be binding on the
company to commence business.
What happen after the company commences
business?
 Commence business
Public company lodge statutory
requirements
Notice of registration
Due diligence expected from the third party
dealing with provisional contract
 Contract after the company
commences business
Company contracts

64. (1) A contract may be made

(a) by a company, in writing under its common seal;

(b) on behalf of a company, by a person acting under its authority, express or

implied; or

(c) on behalf of a company, orally, by any person acting under its authority, express
or implied.

(2) Any formalities required by law in the case of a contract made by an individual shall
apply, unless the context otherwise requires, to a contract made by or on behalf of a
company.
 Execution of documents
66. (1) A document is executed by a company
(a) by the affixing of its common seal, subject to the conditions or limitations in the constitution; or
(b) by signature in accordance with this section.

(2) A document is validly executed by a company if it is signed on behalf of the company

(a) by at least two authorized officers, one of whom shall be a director; or
(b) in the case of a sole director, by that director in the presence of a witness who attests the signature.

(3) A document signed in accordance with subsection (2) shall have the same effect as if the document is
executed under the common seal of the company.

(4) A document or proceeding requiring authentication by a company may be signed by an authorized officer
and need not be made under the common seal.

(5) For the purposes of this section, authorized officer means

(a) a director of the company;
(b) a secretary of the company; or
(c) any other person, approved by the Board.
 Execution of deeds
67. (1) A document is validly executed by a company as a deed if
(a) it is duly executed by the company; and
(b) it is delivered as a deed.

(2) For the purposes of paragraph (1)(b), a document is presumed to be delivered

upon it being validly executed under subsection (1), unless a contrary intention is proved.

(3) Notwithstanding subsection (1), a company may, by instrument executed as a

deed, empower a person, either generally or in respect of specified matters, to execute deeds
or other documents on its behalf.

(4) A deed or other document executed by the person referred to in subsection (3)
shall have effect as if the deed or document is executed by the company.