Two companies formed a partnership. Fearing that their company would be taken over, directors of first company (C) signed ‘poison pill’ agreement with second company (D) stating that in event of C being taken over, D would have right of favourable buy-out. Takeover did not materialise, but D refused to rescind agreement. C applied to have agreement set aside, on grounds that its directors had acted improperly when entering agreement (as the agreement was to commercial disadvantage of C) and that D had known this was the case.
In Court of Appeal, was held that use of powers by C’s directors was improper and that as D had known this, it would be unconscionable for them to rely on agreement. Held in HL:
· Issue is not one of unconscionability.
Ø Rather when third party seeks to uphold contract, question is always whether the agent had authority or not
Ø Whether it would be unconscionable for T to rely on contract is irrelevant
· Where third party knows that contract is contrary to commercial interests of company, is almost never ostensible authority.
Ø i.e. as here, T cannot claim with any credibility he thought director had actual authority.
· On facts, unclear whether there was ostensible authority or not.
