The Duomatic principle is a principle of English company law relating to the informal approval of actions by a company's shareholders (and, potentially, directors). The principle is named after the decision in which it was first recognised: Re Duomatic Ltd [1969] 2 Ch 365, although in that case Buckley J was approving an older statement of the law from the decisions in In re Express Engineering [1920] 1 Ch 466 and Parker and Cooper Ltd v Reading [1926] Ch 975. It origins lie in the obiter dictum comments of Lord Davey in Salomon v Salomon & Co Ltd where he stated that 'the company is bound in a matter intra vires by the unanimous agreement of its members'.
Contents
The principle will apply even if the articles of association specifies a particular procedure in relation to the subject matter of the decision.
It has been noted that although the principle is normally referred to as the Duomatic principle, the actual rule predates that case by several decades.
Re Duomatic
The decision in Re Duomatic concerned whether certain payments made to directors of a company were valid even though none of the directors had contracts of service with the company, and no resolution had ever been passed authorising them to receive the payments. The company went into liquidation and the liquidator made an application for repayment of the money. The court held that the payments were to be regarded as properly authorised because they had been made with the full knowledge and consent of all the shareholders. Buckley J explained:
The broad principle has never been serious questioned by the courts since. In EIC Services Ltd v Phipps [2003] EWHC 1507 Neuberger J stated:
Requirements
The application of the Duomatic principle contains two core requirements:
Furthermore, subsequent cases indicate that there must be some outward manifestation of the consent, either in the form of a document, a statement or by conduct. A mere "internal decision" on the part of the shareholders is not sufficient by itself. In Rolfe v Rolfe [2010] EWHC 244 Newey J stated:
Expansion
In subsequent cases courts have expanded the general principle to also apply to a wider array of situations.