Out of the ordinary?
It’s not unusual to find in contracts an undertaking by a business not to do something “other than in the ordinary and proper course of business.”
For example, when there is a gap between exchange and completion in a business or share purchase.
The High Court has recently provided guidance on what that phrase might mean. The court was asked to rule on whether the company in question could incur certain expenditure having undertaken not to incur expenditure other than in the ordinary and proper course of business.
The judge said that the court should consider:
- what an objective observer, with knowledge of the company, would conclude was in the ordinary and proper course of its business.
- what the parties could have intended, on the proper interpretation of the undertaking.
- that just because proposed expenditure is unprecedented or exceptional does not, of itself, preclude it from being regarded as being made in the ordinary and proper course of business.
- that if the proposed expenditure would give rise to a breach of fiduciary duty by directors then it might not be in the ordinary and proper course of a company’s business.
He allowed two items as being within the company’s ordinary and proper course of business: payment to PR advisers and remuneration to its CEO (up to a specific limit).
Point number 3 is probably the most interesting – and the guidance should prove useful when assessing the “ordinary and proper course of business” in the future.Back to Legal Updates →