Introduction
This essay examines the Turquand Rule, a significant principle in company law derived from the landmark case of Royal British Bank v Turquand (1856). The rule addresses the protection of third parties dealing with a company in good faith, focusing on the assumption that internal procedural requirements have been duly followed. The purpose of this assignment is to explain the essence of the Turquand Rule, outline its various exceptions, and evaluate whether this principle applies within the legal framework of Ghana. The discussion will incorporate relevant cases and statutes to provide a comprehensive analysis of the rule’s scope and limitations. By exploring these aspects, the essay aims to contribute to a broader understanding of how company law balances the interests of third parties and corporate entities, while considering jurisdictional variations in its application.
Understanding the Turquand Rule
The Turquand Rule, established in Royal British Bank v Turquand (1856), is a foundational doctrine in company law that protects third parties transacting with a company. In this case, the court held that a third party dealing with a company in good faith could assume that all internal procedures and formalities required by the company’s constitution had been complied with, even if they had not been. Specifically, the directors of the company had issued a bond without the necessary resolution required by the company’s articles of association. Nevertheless, the court ruled that the bank, as the third party, was entitled to assume compliance with internal rules and was not obliged to investigate the company’s internal management (Jervis CJ in Royal British Bank v Turquand, 1856).
The rationale behind the rule is to facilitate commercial transactions by ensuring that third parties are not burdened with the task of verifying a company’s internal processes. It operates under the doctrine of constructive notice, partially mitigating the harshness of the rule that third parties are deemed to know a company’s public documents. The Turquand Rule, therefore, provides a pragmatic exception, presuming that internal requirements, such as board authorizations, have been met unless there are clear indications to the contrary (Sealy and Worthington, 2013). This principle is crucial in promoting trust and efficiency in business dealings, particularly in situations where third parties cannot reasonably access or scrutinize internal corporate decisions.
Exceptions to the Turquand Rule
While the Turquand Rule offers significant protection to third parties, it is not absolute. Several exceptions limit its application, ensuring that it is not misused or applied in situations where third parties act in bad faith or with negligence. Firstly, the rule does not apply if the third party has actual knowledge of the irregularity in the company’s internal processes. For instance, if a third party is aware that a necessary board resolution has not been passed, they cannot rely on the Turquand Rule to enforce a transaction (Howard v Patent Ivory Manufacturing Co, 1888). This exception emphasizes the importance of good faith as a prerequisite for invoking the rule.
Secondly, the rule does not protect third parties who fail to act reasonably or who are put on inquiry due to suspicious circumstances. In cases where the transaction is unusual or extraordinary, courts may expect third parties to investigate further. This principle was illustrated in Liggett (B) v Barclays Bank (1928), where the court held that a third party could not rely on the rule when the transaction raised reasonable suspicions about the authority of the company’s agents. Additionally, the rule does not apply to transactions that fall outside the scope of the company’s constitution or objects, as third parties are expected to be aware of limitations outlined in publicly available documents (Ashbury Railway Carriage and Iron Co Ltd v Riche, 1875).
Furthermore, the rule is inapplicable in cases of forgery. In Ruben v Great Fingall Consolidated (1906), the House of Lords ruled that a forged document could not bind the company, even under the guise of the Turquand Rule, as forgery represents a nullity rather than a procedural defect. These exceptions collectively underscore that while the rule aims to protect bona fide third parties, it also seeks to prevent abuse by imposing a duty of reasonable diligence and good faith.
Applicability of the Turquand Rule in Ghana
Turning to the applicability of the Turquand Rule in Ghana, it is necessary to examine the country’s company law framework, primarily governed by the Companies Act, 2019 (Act 992). Ghana’s legal system, rooted in English common law due to its colonial history, generally adopts principles established in English case law unless explicitly modified by local statutes or judicial decisions. The Turquand Rule, as a principle of English company law, is thus arguably relevant in Ghana under the common law tradition. However, specific provisions in the Companies Act, 2019, and judicial interpretations shape its practical application.
Section 139 of the Companies Act, 2019 (Act 992) in Ghana provides some protection to third parties dealing with a company, stating that a company is bound by acts of its directors or agents within their apparent authority, regardless of internal restrictions, unless the third party had knowledge of such limitations. This provision mirrors the essence of the Turquand Rule by prioritizing the protection of third parties acting in good faith. However, there is no direct reference to the Turquand Rule by name in the statute, and Ghanaian courts have had limited opportunities to explicitly apply or interpret this rule in case law.
In the absence of specific Ghanaian judicial precedent directly addressing the Turquand Rule, it can be inferred that the principle is implicitly recognized through the broader adoption of common law doctrines and statutory provisions like Section 139. Nevertheless, exceptions akin to those in English law—such as knowledge of irregularity or suspicious circumstances—are likely to apply, given the alignment of Ghanaian company law principles with English common law (Bainbridge, 2015). For instance, Ghanaian courts would presumably not protect a third party acting in bad faith, consistent with cases like Howard v Patent Ivory Manufacturing Co (1888).
It is worth noting that while the rule’s core principles appear compatible with Ghanaian law, the lack of specific local case law makes it challenging to definitively confirm its application. Scholars suggest that further judicial clarification in Ghana is needed to establish the precise scope and limits of the rule in this jurisdiction (Adjei, 2016). Until such precedents emerge, reliance on the Turquand Rule in Ghana remains largely theoretical, guided by statutory provisions and inherited common law principles.
Conclusion
In conclusion, the Turquand Rule remains a cornerstone of company law, offering vital protection to third parties dealing with companies in good faith by allowing them to assume compliance with internal formalities. Established in Royal British Bank v Turquand (1856), the rule facilitates commercial transactions while being moderated by exceptions such as actual knowledge of irregularities, suspicious circumstances, and instances of forgery. In the context of Ghana, the rule appears to be implicitly applicable through the common law tradition and provisions of the Companies Act, 2019 (Act 992), particularly Section 139. However, the absence of definitive local case law limits a conclusive determination of its practical scope and exceptions in the Ghanaian jurisdiction. The implications of this analysis highlight the need for judicial clarification in Ghana to ensure certainty for third parties and companies alike. Ultimately, while the Turquand Rule serves as a pragmatic tool for balancing interests in company law, its application must be carefully delineated to prevent misuse, both in the UK and in jurisdictions like Ghana where its adoption remains somewhat nascent.
References
- Adjei, D. (2016) Principles of Company Law in Ghana. Accra: Academic Press.
- Bainbridge, S. M. (2015) Corporate Law. 3rd ed. St. Paul: Foundation Press.
- Sealy, L. and Worthington, S. (2013) Sealy & Worthington’s Cases and Materials in Company Law. 10th ed. Oxford: Oxford University Press.
- Ghana Companies Act, 2019 (Act 992). Government of Ghana.
(Note: Case law references such as Royal British Bank v Turquand (1856), Howard v Patent Ivory Manufacturing Co (1888), Liggett (B) v Barclays Bank (1928), Ashbury Railway Carriage and Iron Co Ltd v Riche (1875), and Ruben v Great Fingall Consolidated (1906) are cited within the text as they are standard legal precedents widely discussed in academic literature. Specific page numbers or online links are not provided as these cases are typically accessed through legal databases like Westlaw or LexisNexis, which require institutional access.)
