The Turquand Rule (the “Rule”) allows a third party dealing with a company in good faith to presume the authority of a person acting on behalf of a company. The common law based Rule is recognised by our courts and is partially entrenched in the Companies Act (the “Act”).
The Rule entails that a person dealing with a representative of a company in good faith is entitled to presume that the company, in making any decision, has complied with all of the prescribed and procedural (internal) requirements. In the event the requirements have not been fulfilled, the company may find itself to be bound to the terms of the agreement concluded with the third party.
Note that the Rule does not allow for the person dealing with the company to make any assumptions with respect to the representative of the company. The Rule only entitles the person to presume that all requirements are fulfilled by the company. If the person or entity knew or reasonably ought to have known of any failure by the company to comply with any such requirements, such person will not enjoy any relief provided for by the Rule.
The Rule is applicable to any person dealing with any company other than a director, prescribed officer or shareholder of the company.