Protection of TP/Contractors/Outsiders - Section 40 CA 2006 - Good Faith

5 important questions on Protection of TP/Contractors/Outsiders - Section 40 CA 2006 - Good Faith

Section 40(2)(b)(i)

It is reinforced that a party to a transaction with a company has no duty to enquire whether there is any limitation on the powers of the board of directors to bind the company or authorise others to do so.

When a person invokes section 40 to validate an irregular transaction of a company, it cannot be said that section 40 does not apply because the circumstances were such that the person ought to have enquired about the matters specified in section 40(2)(b)(i).

Wrexham Association Football Club Ltd v Crucialmove Ltd [2006]

However, section 40 does not protect against a failure to enquire about other matters which circumstances suggest should be asked about, for example, where the dealing has not been with the board of directors.

Criterion Properties plc v Stratford UK Properties LLC [2006]

TP knows or has reasons to believe that the transaction is contrary to the commercial interests of the plaintiff.
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Barclays Bank Ltd v TOSG Trust Fund Ltd [1984]

A person acts in good faith if he acts genuinely and honestly in the circumstances of the case, but in order to show that he acted in good faith, it is not necessary to show that he acted reasonably.

Harrison v Teton Valley Trading Co Ltd [2004], Sir William Aldous:

Bad faith includes dishonesty but is a wider concept. Bad faith is a mental state and must be judged by a combined subjective/objective test: there is bad faith when there is realisation (subjective element) that reasonable persons applying the correct standard (objective element).

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