Indoor Management Rule

1. Indoor management rule. Royal British Bank v Turquand; A rule was formulated to the effect that while a third party who dealt with the company was taken to be aware of the contents of that company’s public documents, they were not bound to ensure that the company’s internal proceedings were properly carried out. See Morris v Kanssen [1946]AC 459 at 474. “A person dealing with a company in good faith may assume that acts within its constitution have been duly performed and are not bound to inquire whether acts of internal management have been regular.”

2. Northside Developments Pty. Ltd v Registrar-General (1990) 170 CLR 146; Northside mortgaged its land to Barclays, the mortgage was executed
Thus attention was directed to the conduct of the company itself. There was fault of the managing director of another company which managed the ship on behalf of the shipowner. He knew or ought to have known of the ship’s unseaworthiness, but did nothing to stop it going to sea. Held: The fault of the manager-company’s managing director was imputed to the ship owning co. so that it was not entitled to the exemption. Viscount Haldane said, “A corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is the directing mind and will of the corporation, the very ego and centre of the personality of the corporation”.

6. Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279
All shares in Brick and Pipe Ltd had been taken over by a company belonging to a group of companies controlled by an entrepreneur, G. Brick and Pipe became a wholly owned subsidiary co. of G’s company. The board of Brick and Pipe remained with the same directors and G and his associate F were added to the Board. To make the takeover, G and F had borrowed large sums of money. In rearranging the loan and to meet requirements of the lenders for more security and guarantees, G, without the