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Issues Involved:
1. Authority of Mr. Richards to bind Brayhead Ltd. to the contracts. 2. Impact of Lord Suirdale's failure to disclose his interest in the contracts. Detailed Analysis: 1. Authority of Mr. Richards to Bind Brayhead Ltd. to the Contracts: The primary issue was whether Mr. Richards had the authority to enter into the indemnity and guarantee contracts on behalf of Brayhead Ltd. The court analyzed both actual and ostensible authority. - Actual Authority: The court found that Mr. Richards had no express authority to enter into the contracts. However, the court concluded that he had implied authority, derived from his role and the conduct of the board. Mr. Richards was acting as the de facto managing director and chief executive, often making significant financial decisions without prior board approval. The board's acquiescence to this practice implied that he had the authority to enter into such contracts. The judgment states: "Mr. Richards acted as de facto managing director of Brayhead. He was the chief executive who made the final decision on any matter concerning finance. He often committed Brayhead to contracts without the knowledge of the board and reported the matter afterwards." - Ostensible Authority: Although the court primarily relied on actual authority, it also discussed ostensible authority. Ostensible authority is the authority an agent appears to have to third parties. The court noted that Mr. Richards' actions and the board's conduct could lead third parties to reasonably believe he had the authority to bind the company. The court referenced Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd., stating: "Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority." 2. Impact of Lord Suirdale's Failure to Disclose His Interest in the Contracts: The second issue was whether Lord Suirdale's failure to disclose his interest in the contracts rendered them unenforceable. - Non-Disclosure and Its Consequences: The court acknowledged that Lord Suirdale, as a director, had a statutory duty under section 199 of the Companies Act, 1948, and article 99 of Brayhead's articles of association to disclose his interest in the contracts. His failure to do so was a criminal offense and rendered the contracts voidable at the company's option, not void or unenforceable. The judgment clarifies: "Non-disclosure does not render the contract void or a nullity. It renders the contract voidable at the instance of the company and makes the director accountable for any secret profit which he has made." - Article 99 Interpretation: The court interpreted article 99 to mean that proper disclosure validates a contract, preventing it from being voidable and exempting the director from accountability for profits. However, non-disclosure merely made the contract voidable, not automatically void. The judgment states: "If he discloses his interest, the contract is not voidable, nor is he accountable for profits. But if he does not disclose his interest, the effect of the non-disclosure is as before: the contract is voidable and he is accountable for secret profits." - Timing and Avoidance: The court found that it was too late for Brayhead to avoid the contracts, as it was impossible to return the parties to their original positions. Thus, the contracts remained valid and enforceable. The judgment concludes: "Once that is held, everyone agrees that it is far too late to avoid it. It is impossible to put the parties back in the same position, or anything like it. The contracts are, therefore, valid and, I would add, enforceable." Separate Judgments: - Lord Wilberforce: Agreed with the findings on implied authority and the impact of non-disclosure. He emphasized that the contracts were within the scope of Brayhead's business and that Mr. Richards had implied authority to enter into them. He also agreed that non-disclosure rendered the contracts voidable, not void. He stated: "I, therefore, reach the conclusion, both on Mr. Richard's general position with regard to the financial conduct and management of Brayhead and in relation to the particular transactions with Perdio, that he had implied authority from the board to enter into the two documents in question." - Lord Pearson: Also agreed with the findings on actual authority and the impact of non-disclosure. He noted that the contracts were intended to assist in keeping Perdio alive and were within Brayhead's business scope. He reiterated that non-disclosure made the contracts voidable, not void. He stated: "The contract, though unenforceable by the director, is enforceable by the company. If the company chooses to enforce it, they must affirm the whole contract, performing their part of it as well as requiring performance by the director of his part of it." Conclusion: The appeal was dismissed, affirming that Mr. Richards had actual authority to bind Brayhead Ltd. to the contracts and that Lord Suirdale's failure to disclose his interest rendered the contracts voidable, not void. Since avoidance was no longer possible, the contracts were valid and enforceable.
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