LNOC Ltd v Watford Association Football Club Ltd

A company may delegate wide-ranging authority to a de facto managing director, and must accept the consequences of that delegation. A director’s actual authority is limited by the statutory duty to act in the way he honestly considers most likely to promote the company’s success. The test is subjective. A transaction is not invalid merely because it was objectively unwise or negligent.

For statutory apparent authority under the Companies Act 2006, “good faith” does not impose a general duty of inquiry or constructive notice. The relevant question is whether the counterparty’s belief in the signatory’s authority was dishonest or irrational, including by turning a blind eye or acting recklessly.

LNOC lent approximately £2.62 million to Watford Association Football Club Ltd through two football-finance transactions. About £900,000 remained unpaid. The Club argued that its de facto managing director, Laurence Bassini, lacked actual and apparent authority because the transactions were contrary to the Club’s interests and exposed it to sanctions under The Football League Regulations 2011-2012.

LNOC relied on the signed transaction documents and, alternatively, statutory protection for a purchaser acting in good faith under section 44(5) of the Companies Act 2006. The central issues were whether Bassini had actual authority, whether LNOC could rely on apparent authority, and whether the Club’s counterclaim for sums already paid should succeed.

1. Actual authority. The Club’s defences based on lack of actual authority failed. Authority to manage a company’s affairs is vested in its board, but may be expressly or impliedly delegated. A person permitted to act as a de facto managing director has the authority ordinarily attached to that office: Hely-Hutchinson v Brayhead [1968] 1 QB 549.
2. The statutory duty in section 172(1) of the Companies Act 2006 is subjective. A director cannot have actual authority to act in a way which he does not honestly consider to be in the company’s interests. Mere negligence, poor judgment or hindsight does not invalidate the transaction. The Club had not proved that Bassini lacked an honest belief that the transactions were in its interests. The approach in Extrasure Travel Insurances Ltd v Scattergood [2002] AllER (D) 307 was preferred.
3. The formulation in Hopkins v Dallas Group Limited [2004] EWHC 1379 (Ch) required qualification. It arose in a context where the agent was knowingly pursuing personal interests at the companies’ expense. It did not displace the subjective requirement that the director honestly consider the transaction to be in the company’s best interests.
4. Apparent authority and section 44(5). The court adopted the approach in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (in liquidation) [2010] HKCFA 64. Good faith is concerned with authority, not general moral scrutiny. A purchaser may rely on apparent authority unless its belief in the signatory’s authority was dishonest or irrational. Mere circumstances which might have led a reasonable person to ask questions do not suffice.
5. The relevant documents were signed by a director and company secretary, both authorised signatories under section 44(3). The court found that LNOC, acting through Mr Weiss, genuinely and rationally believed that Bassini had authority. The Club’s counterclaim and its alternative argument in unjust enrichment therefore failed. Judgment was given for LNOC, with the precise order and costs directions to follow.