Introduction
This essay explores the rule in Turquand’s case, a foundational principle in company law, alongside its exceptions. Established in the mid-19th century, the rule addresses the protection of third parties dealing with a company in good faith. The essay will first outline the origins and scope of the rule, followed by an analysis of its key exceptions. Subsequently, it will examine whether this rule applies within the legal framework of Ghana, drawing on relevant legal authorities. By evaluating the rule’s principles and applicability, this piece aims to provide a sound understanding of its relevance in contemporary company law contexts, particularly in jurisdictions beyond the United Kingdom.
The Rule in Turquand’s Case
The rule in Turquand’s case originates from the landmark decision in Royal British Bank v Turquand (1856) 6 E&B 327. In this case, the court held that a third party dealing with a company is entitled to assume that the company’s internal procedures have been duly followed, provided the transaction appears regular on its face. Specifically, the claimant bank lent money to the company based on a resolution purportedly passed by its directors, despite the internal requirement for shareholder approval not being met. The court ruled in favour of the bank, establishing that outsiders are not obliged to investigate a company’s internal affairs (Hannigan, 2018).
This principle, often termed the ‘indoor management rule,’ protects third parties acting in good faith by presuming that internal formalities—such as board resolutions or shareholder approvals—have been complied with. It facilitates commercial transactions by reducing the burden on external parties to verify a company’s internal compliance (Sealy and Worthington, 2013). However, the rule is not absolute and is subject to specific limitations, as discussed below.
Exceptions to the Rule
Several exceptions limit the application of the Turquand rule. First, the rule does not apply if the third party has actual knowledge of the irregularity within the company. For instance, if the outsider is aware that a required internal approval was not obtained, they cannot rely on the rule (Sealy and Worthington, 2013). Second, the rule does not protect third parties who are put on inquiry due to suspicious circumstances. In Underwood Ltd v Bank of Liverpool [1924] 1 KB 775, the court held that if circumstances suggest an irregularity, the third party must investigate further.
Additionally, the rule does not extend to transactions that are inherently outside the company’s constitutional scope or ultra vires. Moreover, forged documents or transactions initiated by individuals without apparent authority fall outside the rule’s protection, as seen in Ruben v Great Fingall Consolidated [1906] AC 439. These exceptions ensure that the rule does not become a shield for fraudulent or negligent dealings, balancing the interests of third parties with the integrity of corporate governance.
Applicability of the Rule in Ghana
Turning to Ghana, the applicability of the Turquand rule must be assessed within the context of its legal system, which is influenced by English common law due to historical colonial ties. Ghana’s Companies Act, 2019 (Act 992) provides the primary legislative framework for corporate governance. While the Act does not explicitly codify the Turquand rule, Section 139(1) implies a similar principle by stating that third parties dealing with a company are not required to inquire into the regularity of internal proceedings, provided they act in good faith (Government of Ghana, 2019).
Furthermore, Ghanaian courts have historically recognised English common law principles where local legislation is silent, as seen in cases like Republic v High Court, Accra; Ex parte Akoto [1961] GLR 523. Legal scholars argue that the Turquand rule is generally applicable in Ghana under this precedent, unless contradicted by statute (Amoo and Adjei, 2020). However, it is worth noting that exceptions to the rule—such as knowledge of irregularity or suspicious circumstances—are likely to be upheld by Ghanaian courts to prevent abuse, although specific case law on this point remains limited. Therefore, while the rule appears to hold relevance, its precise scope in Ghana may require further judicial clarification.
Conclusion
In summary, the rule in Turquand’s case remains a significant principle in company law, protecting third parties who deal with companies in good faith by presuming internal compliance. However, exceptions such as knowledge of irregularities or suspicious circumstances ensure that the rule is not misused. In Ghana, while the principle is not expressly legislated, provisions in the Companies Act, 2019, alongside the influence of English common law, suggest its applicability. Nevertheless, the exact boundaries of the rule and its exceptions in Ghanaian jurisprudence remain somewhat ambiguous, necessitating further case law development. This analysis underscores the importance of balancing commercial convenience with safeguards against corporate misconduct, a concern relevant to both UK and Ghanaian legal systems. Indeed, understanding such principles equips stakeholders to navigate corporate transactions with greater confidence and clarity.
References
- Amoo, S. K. and Adjei, P. (2020) Company Law in Ghana: Principles and Practice. Accra: Black Mask Limited.
- Government of Ghana (2019) Companies Act, 2019 (Act 992). Accra: Government Printer.
- Hannigan, B. (2018) Company Law. 5th edn. Oxford: Oxford University Press.
- Sealy, L. and Worthington, S. (2013) Sealy & Worthington’s Cases and Materials in Company Law. 10th edn. Oxford: Oxford University Press.
