When can directors and agents be personally liable - A cautionary tale from Tattersalls Ltd v McMahon

Bloodstock auction (auctions for horses that have been bred for racing[1]) sales are a common means of selling thoroughbred horses - the thunder of racing hooves is often foreshadowed by the crack of the gavel. It was such an auction that gave rise to proceedings in Tattersalls Limited v McMahon[2] in which the High Court examined agency law, the Companies Act 2006[3] (CA 2006), the application of the auction house’s conditions of sale, and credit agreements in an auction context.

Key points

• A company director who placed winning bids at a bloodstock auction on behalf of his company was held jointly and severally liable for the non-payment of the relevant lots.
• Section 40 (powers of the director to bind the company) and Section 43 (company contracts) of CA 2006 do not support an argument that company directors acting on a company’s behalf are not agents, if they fulfil an agent’s role.
• There is a distinction between director’s actions that bind a company and agent’s actions on behalf of a company. However, company directors can act as agents whilst binding their companies and the common law of agency will apply to their actions where relevant. This should be a consideration when directors of, inter alia, football and cricket clubs enter into negotiations for the purchase of assets.
• Parties bound by conditions of sale remain bound by their financial obligations under such conditions regardless of whether the relevant purchase is also subject to a credit agreement.