Essay question

Explain the authority that the company secretary possesses to bind the company, and how the concept of apparent authority may protect third parties who contract on this basis.

Answer:

•   A private company is entitled to make an appointment of a secretary if it chooses to do so. A public company must have a (qualified) secretary.

•   The board of directors will choose the secretary (a power usually authorised in the company’s articles) and will usually determine the terms and conditions upon which the appointment is to be made, including the term of office.

•   The main role of the secretary is to undertake many of the administrative burdens that a limited company has to comply with as a result of its members enjoying limited liability status.

•   The secretary has the power to bind the company in contracts, even in the absence of any authority in this respect, where this relates to administrative proceedings such as employing staff and hiring transport.

•   This authority is associated with the usual authority of such a position (under agency) and will only extend that far. Where the secretary attempts to bind the company which would be obviously beyond his/her authority such as taking loans on the company’s behalf, register the transfer of the company’s shares and so on, as these would be powers vested in the directors rather than the secretary, the secretary enjoys no powers in this respect.

•   However, the law of agency applies in these situations and the company must ensure that third parties are not misled as to the authority possessed by the secretary (see Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd).

Note Freeman & Lockyer v Buckhurst Park Properties where the Court of Appeal outlined the conditions for ostensible authority to operate – a holding out by those with actual authority, the third party relies on this, and there are no restrictions in the company’s constitution regarding the authority of the person held out.