DOCTRINE OF CONSTRUCTIVE NOTICE AND INDOOR MANAGEMENT

MOHAMED FARVACE BA0140034

ABSTRACT

The company law Indoor Management Rule is a rule which was created as a result of the
notion of business convenience. It states simply that an outsider dealing with a company
ought to be able to make certain assumptions about the regularity of the internal affairs of the
company. The Indoor Management Rule has been developed as Australian law having its
origins in English common law. The most significant case to consider the common law rule in
Australia is the case of Northside Developments v Registrar-Central. The Corporations Law
currently contains provisions for the operation of the Indoor Management Rule. The purpose
of this paper is to consider the application of the recent appeal decisions in Bank of New
Zealand v Fiberi Pty Ltd and Story v Advance Bank Australia Ltd in the context of the
previous case decisions in the area.

INTRODUCTION

At common law, a person dealing with a corporation assuming that he or she is acting in
good faith and without knowledge of any irregularity need not inquire about the formality
of the internal proceedings of the corporation, but is entitled to assume that there has been
compliance with the articles and bylaws.

This principle, known as the 'indoor management rule', was authoritatively laid down in the
19th century case of Royal British Bank v Turquand and eventually codified in Section 19 of
the Ontario Business Corporations Act and Section 18 of the Canada Business Corporations
Act.

This update provides a survey of the law in respect of the indoor management rule. It begins
by reviewing the common law origins of the indoor management rule (or the "rule
in Turquand's case") and then examines the codified version of the indoor management rule
under the Ontario Business Corporations Act and the Canada Business Corporations Act. The
update also provides examples of the court's application of the rule.

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RESEARCH OBJECTIVE

To understand the concept of constructive notice and indoor management.

To analyse why the concept of indoor management is an exception to the doctrine of

constructive notice.

RESEARCH METHODOLOGY

This project is primarily analytical and doctrinal in nature and is based on prescriptive
jurisprudence. It shall rely on research and explanation of these two doctrines under corporate
law.

The scope of the project is to analyse the logic behind indoor management being an exception
to constructive notice.

RESEARCH QUESTIONS

What are the theories that are used to explain the rationale behind these two doctrines?

Is there any recent change to these doctrines?

TENTATIVE CHAPTERISATION

INTRODUCTION

CONSTRUCTIVE NOTICE AND ITS APPLICATION

INDOOR MANAGEMENT RULE AND ITS APPLICATION

CASE LAWS RELATED TO THESE TWO DOCTRINES

CONCLUSION

BIBLIOGRAPHY

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PRIMARY SOURCES

(1) Royal British Bank v Turquand (1856), 6 EL & BL 327.

(2) Business Corporations Act, RSO 1990, c B16.

(3) Canada Business Corporations Act, RSC 1985, c C-44.

(4) Dickson Co v Graham (1913), 23 OWR 749, 9 DLR 813, 1913 CarswellOnt 19 at para
19.

(5) B Liggett (Liverpool), Limited v Barclays Bank, Limited, [1928] 1 KB 48.

(6) Brooks Ltd v Claude Neon General Advertising Ltd, [1931] 2 DLR 743, 1931
CarswellOnt 126

SECONDARY SOURCES

1. Gower and davies, Principles of corporate law

2. H.K.Saharay, Company law, (5th edition,2008), Universal Law Publishing co. New
Delhi

3. S.R. Myneni, Company Law, (1st edition, 2014), Asia Law House, Hyderabad