Indoor Management Rule

The indoor management rule, also known as the Turquand Rule or the doctrine of indoor management, is a legal principle established in Royal British Bank v Turquand to protect third parties who transact with a company in good faith and without knowledge of any internal irregularities or breaches of the company's internal rules or procedures.

According to the indoor management rule, a person dealing with a company is entitled to assume that the company's internal procedures and rules have been properly followed. In other words, an outsider can presume that the company's officers or agents have the authority to act on behalf of the company and that their actions are binding on the company, even if there are irregularities or non-compliance with internal procedures.

The rationale behind the rule is to protect innocent third parties who rely on the apparent authority of the company's officers or agents. It recognises that it would be impractical for every person dealing with a company to investigate and verify the internal affairs of the company before entering into a transaction. Instead, the rule places the burden on the company to manage its internal affairs and deal with any internal irregularities.

However, there are certain limitations to the indoor management rule. It does not protect a person who had actual knowledge of the irregularities or breaches of internal procedures. Additionally, it does not apply in cases of negligence, fraudulent transaction, and the company director or officer acting outside the scope of apparent authority.