City Garden Australia Pty Ltd (in liq) v Meng Dai

Case •

[2024] NSWCA 238

•

30 September 2024

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: City Garden Australia Pty Ltd (in liq) v Meng Dai [2024] NSWCA 238
Hearing dates: 24-26 July 2024
Date of orders: 30 September 2024
Decision date: 30 September 2024
Before: Kirk JA at [1];
Stern JA at [2];
Basten AJA at [3]
Decision:

(1)   Dismiss the further amended notice of cross-appeal filed on 24 June 2024.

(2)   Dismiss the third cross-respondent’s motion filed 24 June 2024 and order that it pay the cross-appellant’s costs of the motion.

(3)   Otherwise order that the cross-appellant pay -

        (i)   the third and eighth cross-respondents’ and

(ii)   the fourth, ninth and tenth cross-respondents’ costs of the cross-appeal.

Catchwords:

CORPORATIONS – authority of company officers – statutory assumptions – Corporations Act 2001 (Cth), ss 128, 129 – loan agreements between property developer and multiple lenders – agreements signed by director without authority of company – agreements also signed by secretary not validly appointed by company – notification of appointment of secretary by ASIC agent of company – reliance on assumptions of authority – exception where party knew or suspected statutory assumptions were incorrect – whether knowledge of lenders’ solicitor was imputed to them for purpose of Corporations Act, s 128(4)

Legislation Cited:

Bankruptcy Act 1924 (Cth), s 95

Corporations Act 2001 (Cth), Pts 2B.1, 2B.2, ss 127, 128, 129, 198A, 204D, 204E, 205B, 1317H

Cases Cited:

Aidzan Pty Ltd (in liq) v K & A Laird (NSW) Pty Ltd (in liq) [2024] NSWCA 185

All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Limited (No 2) [2021] FCA 782; 154 ACSR 78

Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294

Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd [2013] NSWCA 459; 282 FLR 351

Beach Petroleum NL v Johnson (1993) 43 FCR 1

Bilta(UK) Ltd (in liq) v Nazir (No 2) [2016] AC 1; [2015] UKSC 23

Caratti v Mammoth Investments Pty Ltd (2016) 50 WAR 84; [2016] WASCA 84

Correa v Whittingham [2013] NSWCA 263; 278 FLR 310

Espin v Pemberton (1859) 44 ER 1380; 3 De G & J 547

Gallop Reserve Pty Ltd v Matton Developments Pty Ltd (2019) 1 QR 99; [2019] QSC 113

In re Hampshire Land Company [1896] 2 Ch 743

Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315

Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; [1966] HCA 21

Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40

Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068

Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722

Wood v Inglis [2008] NSWSC 1147; 68 ACSR 420

Vane v Vane (1873) 8 Ch App 383

Texts Cited:

P Watts and FMB Reynolds, Bowstead & Reynolds on Agency (23rd ed, 2024, Thomson Reuters)

S Degeling and J Edelman, Unjust Enrichment in Commercial Law (Lawbook Co 2008)

Category:Principal judgment
Parties: City Garden Australia Pty Ltd (in liq) as trustee for Ming Tian City Garden Unit Trust (Cross-Appellant)
Meng Dai (First Cross-Respondent) (unrepresented)
Gerrard Toltz Pty Ltd (Second Cross-Respondent)
Gemi 130 Pty Ltd (Third Cross-Respondent)
Bridge Street Capital No 2 Pty Ltd (Fourth Cross-Respondent)
Wallis Island Pty Ltd (Fifth Cross-Respondent) (unrepresented)
Maxmara Trinity Pty Ltd (Sixth Cross-Respondent) (unrepresented)
Lin Zhu (Seventh Cross-Respondent) (unrepresented)
Gemi Investments Pty Ltd (Eighth Cross-Respondent)
Weriton Finance No 2 Pty Ltd (Ninth Cross-Respondent)
Saddleback Mountain Estates No 2 Pty Ltd (Tenth Cross-Respondent)
Maxmara and JA International Pty Ltd (Eleventh Cross-Respondent) (unrepresented)
Representation:

Counsel:
F Lim (Cross-Appellant)
R Dick SC / M Hall (Second Cross-Respondent)
H Somerville / M McGirr (Third and Eighth Cross-Respondents)
M Young SC (Fourth, Ninth and Tenth Cross-Respondents)

Solicitors:
Francis Lim Barristers & Solicitors (Cross-Appellant)
Sparke Helmore Lawyers (Second Cross-Respondent)
Summer Lawyers (Third and Eighth Cross-Respondents)
VMV Lawyers (Fourth, Ninth and Tenth Cross-Respondents)
File Number(s): 2023/461689
 Decision under appeal 
Court or tribunal:
Supreme Court of New South Wales
Jurisdiction:
Equity
Citation:

[2023] NSWSC 1498

Date of Decision:
05 December 2023
Before:
Rees J
File Number(s):
2020/128125

HEADNOTE

[This headnote is not to be read as part of the judgment]

From early 2017, City Garden Australia Pty Ltd (City Garden) undertook a property development in North Rocks, Sydney. The directors of City Garden were Meng (Adam) Dai and (from July 2017) Jian Wei (Victor) Liang. The builder contracted by City Garden was a company controlled by Mr Dai. In October 2018, Mr Dai, without the authority of the directors, purported to appoint his wife, Lin (Julianne) Zhu, as secretary of City Garden. ASIC was notified of the appointment, which then appeared on the public records of the company. From late 2018, City Garden, through the agency of Mr Dai and without the approval of Mr Liang, entered into three loan agreements, ostensibly for the purposes of providing funds to complete the North Rocks development. The agreements were executed by Mr Dai and Ms Zhu on behalf of City Garden. Mr Dai diverted some of the funds to other projects.

When Mr Liang discovered the loan transactions, City Garden commenced proceedings in the Equity Division seeking declarations that Ms Zhu had not been validly appointed and that the three loan agreements were void and unenforceable against City Garden, on the ground that Mr Dai had no authority to appoint Ms Zhu as secretary, or enter into the agreements. It also sought damages from Mr Dai and its former solicitors, Gerrard Toltz Pty Ltd (Toltz Lawyers).

The trial judge declared that Ms Zhu was not validly appointed and awarded damages against Mr Dai and Toltz Lawyers. Relief was refused in relation to the disputed loan agreements. Toltz Lawyers appealed against this decision; the appeal has been addressed in a judgment delivered contemporaneously with this judgment.

City Garden cross-appealed from the trial judge’s refusal to make declarations regarding the unenforceability of the three disputed loan agreements. The principal issues on cross-appeal were:

  1. the application of assumptions as to the authority of company officers under s 128 and s 129 of the Corporations Act 2001 (Cth); and

  2. whether the lenders were precluded under s 128(4) from relying on the assumptions because they knew or suspected that the assumptions were incorrect.

The Court (Basten AJA, Kirk and Stern JJA agreeing), dismissing the cross-appeal, held:

As to (i)

  1. The lenders were entitled, in their dealings with City Garden, to rely on the power conferred on the company by s 127(1) of the Corporations Act for a director and the secretary to execute documents. The company’s ASIC agent having notified ASIC of the appointment of Ms Zhu as the company’s secretary, the lenders were entitled to rely on the assumption under s 129(5) of the Corporations Act that each of the relevant transaction documents had been executed by the company. City Garden was not entitled to assert in proceedings in relation to the dealings that any of the assumptions was incorrect: [30], [37].

    Caratti v Mammoth Investments Pty Ltd (2016) 50 WAR 84; [2016] WASCA 84; Gallop Reserve Pty Ltd v Matton Developments Pty Ltd (2019) 1 QR 99; [2019] QSC 113; Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315 applied. Woods v Inglis [2008] NSWC; 68 ACSR 420 distinguished

As to (ii)

  1. The disentitlement in s 128(4) requires actual knowledge or actual suspicion that an assumption was incorrect: [47]. The knowledge of an agent with limited authority who is not the governing mind of the company is not within the actual knowledge of the company by imputation. Knowledge obtained by the solicitor in carrying out the authorised functions of the client can be imputed to the client: [64]. Whatever knowledge Toltz Lawyers had of the affairs of City Garden was not acquired in the course of acting for the lenders, and it had no duty to inform the lenders of that knowledge. In any event, the evidence did not establish that Toltz Lawyers had knowledge or a suspicion of a kind that satisfied s 128(4): [67], [80].

    Beach Petroleum NL v Johnson (1993) 43 FCR 1; In re Hampshire Land Company [1896] 2 Ch 743 applied; Correa v Whittingham [2013] NSWCA 263; 278 FLR 310 explained; Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40 distinguished

  2. The trial judge’s rejection of the submission that the directors of the lenders themselves knew or suspected facts inconsistent with the statutory assumptions revealed no error. That claim was not pleaded and was not the subject of evidence from the directors. As a result, attempts to cross-examine the directors to establish an evidential basis for such a case were rejected. An evidential basis for the challenge to the judge’s finding was missing: [79], [80].

JUDGMENT

  1. KIRK JA: I agree with Basten AJA.

  2. STERN JA: I agree with Basten AJA.

  3. BASTEN AJA: In 2017-2019, City Garden Australia Pty Ltd (City Garden), originally a company controlled by Meng Dai and his wife Lin (Julianne) Zhu, was engaged in a residential development at North Rocks. The builder was another company controlled by Mr Dai. In 2016 Mr Dai approached Jian Wei (Victor) Liang to join in the development as an investor. In July 2017 Mr Liang became a director of City Garden.

  4. In 2018 and 2019, City Garden, through the agency of Mr Dai, and without the approval of Mr Liang, entered into a series of three loan agreements providing funds, purportedly to allow it to complete the North Rocks development. However, City Garden later claimed that Mr Dai had no authority to enter into the loan agreements, and had misapplied the funds for his own purposes. At the time of the first loan, Mr Dai’s wife, had been appointed the secretary of City Garden, although not by a resolution of the directors, Mr Liang being ignorant of the appointment.

Procedural history

  1. In 2020, City Garden commenced proceedings in the Supreme Court seeking orders setting aside the appointment of Ms Zhu and the three disputed loan transactions and seeking damages from Mr Dai and its former solicitors, Gerrard Toltz Pty Ltd, which traded as Toltz Lawyers.

  2. On 5 December 2023, the trial judge (Rees J) delivered judgment in City Garden Australia Pty Ltd (in administration) atf Ming Tian City Garden Unit Trust v Meng Dai. [1] On that date the Court declared that Ms Zhu had not been validly appointed as secretary of City Garden and, on 31 January 2024, further ordered that Mr Dai pay City Garden $20,264,043.61 compensation pursuant to s 1317H(1) of the Corporations Act 2001 (Cth), and that Toltz Lawyers pay City Garden damages of $16,403,016.

    1. [2023] NSWSC 1498 (City Garden).

  3. Toltz Lawyers appealed, and that appeal has been addressed in a separate judgment, delivered contemporaneously with this judgment: Gerrard Toltz Pty Ltd v City Garden Australia Pty Ltd (in liq) atf Ming Tian City Garden Unit Trust. [2] Mr Dai did not appeal. However, City Garden cross-appealed from the judge’s findings with respect to each of the three disputed loan transactions. It sought declarations that the respective loan agreements, mortgages and security deeds were void and unenforceable, with consequential orders requiring that the lenders under the third agreement should be required to remove their caveats, registered mortgages and other security interests.

    2. [2024] NSWCA 232.

  4. A more complete account of the underlying disputes and the proceedings is contained in the judgment on the appeal by Toltz Lawyers, which need not be repeated here. However, it is necessary relevantly for the cross-appeal, to identify certain parties at the trial.

  5. At trial the first defendant was Mr Dai, the director of City Garden who controlled the builder engaged by City Garden.

  6. The second defendant was Gerrard Toltz Pty Ltd, against which City Garden alleged breaches of fiduciary duty, absent which City Garden claimed it would not have entered into the first disputed loan transaction, which it was required to refinance on two subsequent occasions, and as a result of which it had suffered loss and damage.

  7. The third and fourth defendants were Gemi 130 Pty Ltd (Gemi 130) and Bridge Street Capital No 2 Pty Ltd (Bridge Street), being the lenders under the third disputed loan transaction. The lenders in the first and second disputed loan transactions were also defendants (and cross-claimants) at trial. One of the lenders on the first disputed loan transaction, and the ninth defendant at trial, was Gemi Investments Pty Ltd (Gemi Investments).

  8. By the second further amended statement of claim, filed on 24 March 2023 (hereafter, statement of claim), City Garden had sought declarations of invalidity in respect of the first, second and third disputed loan transactions, together with an order that the third and fourth defendants remove a caveat over properties of the plaintiff secured by the third transaction. This relief was not granted, but the orders for compensation payable to City Garden were premised upon it being liable to the third and fourth defendants under the third disputed loan transaction. On 5 December 2023, (before final orders had been made) the trial judge made an order otherwise dismissing the “summons”, presumably being the proceedings brought by the plaintiff, and the cross-claims by the lenders, thereby refusing all relief sought against the lenders.

Issues on cross-appeal

  1. A further amended notice of cross-appeal, filed on 24 June 2024, identified 34 grounds, although 7 were abandoned in the cross-appellant’s written submissions in reply, filed on 15 July 2024. Some of the grounds related to all three transactions; others were specific to individual transactions. In the former category, there was a challenge to the trial judge’s finding that Ms Zhu had authority to execute each of the relevant transaction documents: grounds 12, 20 and 28. Two grounds challenged findings as to Mr Liang’s knowledge of the appointment of Ms Zhu: grounds 1 and 25. Five grounds concerned the validity of the lodgement of the form affirming the appointment of Ms Zhu with ASIC: grounds 6-9 and 33. Further, there was a ground in relation to each transaction challenging the judge’s finding that the lenders could rely upon the authority of Mr Dai in signing as a director of City Garden: grounds 11, 19 and 27. All of these grounds ultimately turned on the operation of certain assumptions provided by the Corporations Act 2001 (Cth) which will be addressed shortly.

  2. Those assumptions do not operate where a person has knowledge, or a suspicion, that the assumed facts do not represent the true situation. Several further grounds related to the lenders’ knowledge or suspicion that Mr Dai was acting without authority: grounds 5, 15 (first transaction), 17, 23 (second transaction), 26 and 32 (third transaction). In the same vein, the cross-appellant sought to challenge findings that the lenders’ solicitors’ knowledge could not be imputed to the lenders: grounds 10, 18 and 29. These grounds also turn on the operation of the Corporations Act.

  3. Finally, there were three grounds challenging the ultimate conclusion of the judge that City Garden had no entitlement to set aside the three loan transactions: grounds 16, 24 and 34. Those grounds again turn on the operation of the relevant provisions of the Corporations Act.

  4. Three incidental matters should be noted. First, the only connection between these grounds of the cross-appeal and the appeal was that, if successful on the cross-appeal, City Garden would not have suffered the loss which was the basis of its claim against Toltz Lawyers.

  5. Secondly, if the claims with respect to the completed contracts, that is the first and second disputed loan transactions each of which was repaid in full by the immediate subsequent transaction, were to be upheld, there would be a real issue as to the available relief (if any) with respect to those transactions. Because the cross-appeal fails in its entirety, that issue does not arise.

  6. Thirdly, although, on the appeal, City Garden seemed to rely solely on a general retainer of Toltz Lawyers, there must have been instructions given in respect of particular transactions. There is then a tension between City Garden’s cross-appeal, which asserts a lack of authority of Mr Dai to commit City Garden to the disputed loan transactions (and in particular the first disputed loan transaction), and its claims against Toltz Lawyers, which relied on the validity of Mr Dai’s authority to engage Toltz Lawyers to act for it on the first disputed loan transaction. Because the appeal by Toltz Lawyers is upheld on the basis that Toltz Lawyers did not act for City Garden on the first disputed loan transaction, this tension need not be explored.

Assumptions under Corporations Act

  1. It is convenient to start with the provisions of the Corporations Act dealing with the powers of a company and how they are exercised, dealt with in Pts 2B.1 and 2B.2. Consistently with s 198A of the Corporations Act, the constitution of City Garden provided that the “business of the company is to be managed by or under the direction of the directors”. Further, consistently with s 204D, the directors were empowered to appoint a secretary: constitution, cl 12.1. As to the effectiveness of acts of the secretary, the Corporations Act provides:

204E   Effectiveness of acts by secretaries

(1)   An act done by a secretary is effective even if their appointment, or the continuance of their appointment, is invalid because the company or secretary did not comply with the company's constitution (if any) or any provision of this Act.

(2)   Subsection (1) does not deal with the question whether an effective act by a secretary:

(a)   binds the company in its dealings with other people; or

(b)   makes the company liable to another person.

The company was required to lodge with ASIC a notice of the appointment of a secretary within 28 days after appointment, in the prescribed form: s 205B.

  1. Section 127(1) provides that a company may execute a document without using a common seal if the document is signed by, relevantly, “a director and a company secretary of the company”.

  2. The assumptions which can be made by a person in relation to the conduct of a company, in accordance with s 128, are set out in s 129:

129 Assumptions that can be made under section 128

Constitution and replaceable rules complied with

(1)   A person may assume that the company's constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.

Director or company secretary

(2)   A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:

(a)   has been duly appointed; and

(b)   has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.

Officer or agent

(3)   A person may assume that anyone who is held out by the company to be an officer or agent of the company:

(a)   has been duly appointed; and

(b)   has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.

Proper performance of duties

(4)   A person may assume that the officers and agents of the company properly perform their duties to the company.

Document duly executed without seal

(5)   A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that, if any person who signs the document states next to their signature that:

(a)   they are a director of the company--that is the case; or

(b)   they are the company secretary of the company--that is the case; or

(c)   they are the sole director of the company and that the company does not have a company secretary--that is the case; or

(d)   they are the sole director and sole company secretary of the company--that is the case.

…

(8)   Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section.

  1. Effect is given to those assumptions in the following circumstances:

128   Entitlement to make assumptions

(1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

…

(3)   The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.

(4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.

  1. With respect to Mr Dai, there was no doubt that he was at all material times a director of City Garden. On incorporation in March 2015, he and his wife, Ms Zhu, were the sole directors and shareholders, Mr Dai also being its secretary. Mr Dai was the sole director between August 2016 (when Ms Zhu resigned) and July 2017 (when Mr Liang was appointed as a second director). In October 2018 Mr Dai took steps to appoint Ms Zhu as the company secretary and arranged for a registered ASIC agent, SSA Tax Services Pty Ltd, to lodge the necessary form with ASIC.

Engagement of s 129(2) – appointment of Ms Zhu

  1. In its written submissions City Garden dealt together with the grounds concerning lodgement of notices with ASIC and reliance on s 129(2), being grounds 6-9, 11, 19 and 27. Grounds 6 and 7 dealt with the judge’s finding that “SWA was a duly appointed ASIC agent of City Garden” in circumstances where the purported appointment was of “SSA and not SWA”. City Garden took issue with the judge’s identification of the appointment as a “late contention”, on the basis that City Garden had not admitted in its pleadings or otherwise that “SWA was City Garden’s ASIC agent”.

  2. To the extent that there was an implication that SSA and SWA were different organisations, the implication was unfounded: SSA Tax Services Pty Ltd traded as “Smart Wealth Advisors” (SWA), as appears from correspondence between it and City Garden. As to the complaint with respect to the finding that it was a “late contention”, the trial judge explained what she meant by that, stating that Mr Liang had addressed it in his seventh affidavit, in reply, three weeks before the commencement of the hearing. The circumstances in which that occurred should be noted.

  3. So far as the pleadings were concerned, City Garden had alleged in its statement of claim that:

“49   On or about 12 November 2018 [Mr Dai] through an agent, SSA Tax Services Pty Ltd, lodged a document with [ASIC] purporting to record that [Ms Zhu] had been appointed as secretary of the plaintiff.”

As the judge noted, that statement contained an implicit acceptance of SSA’s role as the registered ASIC agent for the company.

  1. The defence filed by Gemi 130 and Gemi Investments, in relation to the pleading as to the first disputed transaction, contended that “these documents were executed by a duly appointed director and a duly appointed secretary of the plaintiff according to the records maintained by [ASIC]”. [3] City Garden’s reply filed on 12 July 2023 (two days after Mr Liang’s affidavit in reply) stated, in relation to the pleadings as to the first disputed transaction, that the plaintiff:

“denies the allegations in paragraph 48(c), and says that [Ms Zhu] was not a secretary, nor a director of the Plaintiff and she signed the General Security Deed allegedly as a director of the Plaintiff”.

Further, in denying that Ms Zhu had authority to bind the plaintiff, the reply stated: [4]

“a)   There was no resolution by the Plaintiff’s board of directors to appoint [Ms Zhu] as its Secretary.

b) [Gemi Investments] was not entitled to make the assumption under s 129(2) of the Act because the Form 484 notifying ASIC of [Ms Zhu’s] purported appointment as the Plaintiff’s Secretary was not provided by the Plaintiff.”

3. Further amended defence, filed 5 July 2023, par 48(c).

4. Reply, par 48(d).

  1. The last particular referred only to reliance by Gemi Investments because it was the lender on the first transaction.

  2. Apart from the pleadings, the evidence that the appointment of SSA was made by Mr Dai on 12 October 2018 without Mr Liang’s knowledge or approval came only in Mr Liang’s affidavit in reply of 10 July 2023. There was no error in the judge describing this as a “late contention”. Nor was there error in the judge attaching “little weight to Mr Liang’s late evidence” given that Mr Liang had continued to use SSA “for more than a year without comment on this subject”, after he had taken responsibility for the company’s accounts out of Mr Dai’s hands in September 2019. [5]

    5. City Garden at [240], [392].

  3. In any event, as a challenge to the scope of the assumptions available under s 129 of the Corporations Act, grounds 6 and 7 were misconceived. They contended that the information available to the public from ASIC had not been “provided by the company” for the purposes of s 129(2). That contention was erroneous for two reasons. First, there was no doubt that Mr Dai appointed the agent on behalf of the company. If the appointment were invalid because there had been a failure to comply with the company’s constitution in that both directors had not made the appointment, then the assumption in s 129(1) would override the challenge. Secondly, there is no doubt that SSA was held out by the company to be its agent, so that the assumption that it had been duly appointed was available under s 129(3). What SSA did in filing documents with ASIC was an exercise of the duties customarily performed by that kind of agent. Accordingly, Mr Liang’s knowledge or approval of the appointment was immaterial.

  4. However, there is an underlying misconception as to the operation of s 129 which infected a majority of the grounds and may usefully be identified in this context. In relation to these grounds, City Garden relied upon reasoning of Barrett J in Wood v Inglis. [6] In that case a company with two directors, A and B removed B at a general meeting and replaced her with C. Barrett J noted:

“78   …[T]there was on 31 December 2007 no quorum and therefore no meeting capable of proceeding to business and passing valid resolutions.

79   But, as I have said, there was in reality no meeting at all. The organ of the company having authority to change the composition of the board of directors pursuant to articles 31 and 33 did not function.”

6. [2008] NSWSC 1147; 68 ACSR 420.

  1. The result was that director B was not removed and director C was not appointed. It followed that the retainer of solicitors by the company, on its face effected by A and C, was not a retainer by the company and, to the extent that it was a retainer by A alone “and thus by a person validly in office as a director”, Barrett J concluded that “there was no retainer by the company”, stating that “[t]his is because, under article 37, the management of the business of the company is, in the usual way, confided to the directors”: at [88]. The judge concluded that as at the date of the retainer, A and B were the only directors who were capable of executing the retainer and they did not do so: at [89].

  2. Barrett J then turned to the entitlement under s 128 of the Corporations Act to rely on the s 129 assumptions. Curiously, the discussion commenced:

“90 It is necessary to mention briefly the entitlement that [the solicitors] had under s 128 of the Corporations Act. That section says that a person is ‘entitled to make the assumptions in section 129 in relation to dealings with a company’.”

  1. The judge set out subss (2) and (3) of s 129, but not subss (1) and (8), and noted that a company search showed that, as at the date of the retainer, ASIC records available to the public showed A and C to be the only directors of the company. The reasoning continued:

“92   It must be inferred that the information given to ASIC that caused the records to be in that state was given by or at the direction of [A] and [C]. They had purported to act as the directors of the company after 31 December 2007, relying on the validity of the supposed resolutions …. Lodgement with ASIC of a notice of change in officeholders may be presumed to have been among the actions they took or procured to be taken.

93   The lodgement with ASIC and the notification it conveyed suffered from the same vice as the making of the retainer agreement with [the solicitors]. It was not something done by [the company] which, at the time, was capable of acting only through a board of directors consisting of [B] and [A]. Anything purportedly done by the company that was not traceable to the authority of that board of directors was not done by [the company].

94 It follows that the information available from ASIC as to the particulars of the company’s directors, as already described, was not ‘information provided by the company’ as referred to in s 129(2). It was information provided without the authority of the company duly given. It follows that, on 8 May 2008, [the solicitors] were not entitled to make any assumption by virtue of that section that [C] was a director and [B] was not a director.

95 The position is the same under s 129(3). To the extent that there may have been any holding out to [the solicitors], it was a holding out by [A] and [C] and not a holding out ‘by the company’.”

  1. This reasoning could have startling consequences. It has the potential to render nugatory circumstances which might otherwise fall within s 129(2) and (3). A person seeking to rely upon the authority of persons purporting to act for the company will be unable to do so unless satisfied that those persons have in fact been duly appointed by the company. However, it appears from the hesitant start to the reasoning at [90] that the operation of s 129 was not fully addressed by the parties.

  2. In any event, the reasoning is flawed by the absence of reference to s 129(1) and (8), which appear not to have been raised in that case. Subsection (1) states that a person may assume that the company’s constitution has been complied with; pursuant to subs (8) that assumption may be applied in determining the validity of the information provided by the company for the purposes of s 129(2). Thus, it should have been assumed that A and C were appointed for the purposes of communicating with ASIC. Alternatively, it might have been assumed that A (who was a director) had been validly authorised to communicate the information to ASIC.

  3. There is, however, a more fundamental problem with the approach adopted by City Garden. It is sufficient for the lenders’ purposes that s 129(5) is engaged. That is, that each of the relevant transaction documents “appears to have been signed in accordance with s 127(1)”, namely by a director and the company secretary. The company is then not entitled to assert in proceedings in relation to the dealings that any of the assumptions is incorrect: s 128(1). That construction was accepted by Buss JA in Caratti v Mammoth Investments Pty Ltd: [7]

“396 In my opinion, on a proper construction of the first sentence of s 129(5), after considering the context in its widest sense including ss 127, 128, 129 and 130 as a whole, the assumption in the first sentence of s 129(5) can be made if the document, on its face, appears to have been signed by, relevantly, two directors of the company or a director and a company secretary of the company. The trial judge's conclusion in relation to Issue 1 was correct. My reasons are as follows.

…

400 Fourth, s 130 states that a person is not taken to have information about a company merely because the information is available to the public from ASIC. That points against the existence of a requirement that the assumption in the first sentence of s 129(5) can only be made if, relevantly, the person claiming to be entitled to make the assumption has ascertained, or could have ascertained, from information provided by the company that is available to the public from ASIC, that, relevantly, the signatures on the document appear to be those of directors (or a director and a company secretary) of the company (s 129(2)).

…

402 Sixth, … by virtue of s 129(8) the assumptions in s 129 may, in a particular case, operate cumulatively. It may be inferred from s 129(8), in the context of s 129 as a whole, that a person may, in a particular case, rely on one of the assumptions in s 129 without being entitled to make another assumption. If, however, in a particular case, a person is entitled to make two or more of the assumptions, those assumptions may operate cumulatively. Section 129(8) is expressed to operate ‘[w]ithout limiting the generality of [s 129]’. The substantive provision of s 129(8), which may enable the assumptions in s 129 to operate cumulatively, in a particular case, does not overcome the absence of a connection between s 129(5) and (6), on the one hand, and s 129(2) or s 129(3), on the other.”

7. (2016) 50 WAR 84; [2016] WASCA 84 (Newnes and Murphy JJA agreeing at [627]).

  1. In Gallop Reserve Pty Ltd v Matton Developments Pty Ltd,[8] Holmes CJ followed Wood v Inglis in relation to the availability of the assumption in s 129(2) where the information had been provided to ASIC by a single director without the authority of the company. [9] However, the Chief Justice accepted that other assumptions, including that under s 129(5), were available in circumstances where the documents appeared to have been signed in accordance with s 127(1). [10] A similar conclusion was reached by Osborn J in Oris Funds Management Ltd v National Australia Bank Ltd: [11]

“112 However, s 129(1) should not be read as requiring the person dealing with a company to have knowledge of the constitution. It should be taken to mean that a person dealing with a company can assume that action taken by the company is in accordance with its constitution.”

Osborn J further stated:

“116 The assumptions in s 129 are cumulative, and therefore in making the assumption that the constitution had been complied with, [the person] was also entitled to assume that [the director] had properly performed his duties to the company (s 129(4)).”

8. (2019) 1 QR 99; [2019] QSC 113.

9. Gallop Reserve at [80].

10. Gallop at [81].

11. [2003] VSC 315.

  1. Although, in my view, the reasoning in Wood v Inglis was erroneous, that resulted from circumstances in which subss (1) and (8) of s 129 were not relied upon. In any event, other assumptions were available, relevantly under s 129(5), which rendered the cross-appellant’s reliance on matters to do with the appointment of Ms Zhu and the authority of Mr Dai immaterial. Ground 6-9, 11, 19, 27 and 33 should be rejected.

Dealings with City Garden

  1. The second matter addressed by the cross-appellant, under the heading “no relevant dealings under s 128(1)”, relied on grounds 5, 13, 17, 21, 22, 26 and 30-31. Of these, only grounds 5, 17 and 26 were ultimately pressed. Each was in similar form, namely an allegation of error on the part of the trial judge in finding that the relevant lenders had dealings with City Garden “although the dealings were with a director” (Mr Dai) who the lenders knew “was acting in breach of his fiduciary duties”.

  2. There was an ambiguity in the formulation of those grounds, which was continued in the written submissions. They opened by stating that these grounds were not directed at knowledge or suspicion under s 128(4), but the absence of “dealings” with City Garden. [12] Nevertheless, the rest of the submissions were directed to knowledge or suspicion.

    12. Cross-appellant’s written submissions, par 16.

  3. A second category of grounds (grounds 10, 18 and 29) identified error on the part of the trial judge in failing to accept that Mr Toltz’s knowledge or suspicion, being that of the solicitor acting for the lenders, should be imputed to the lenders. [13] Three grounds challenged the judge’s finding that “there is no evidence that [the lenders] actually knew or suspected that Mr Dai did not have authority to enter into the [relevant] transaction”. [14] These grounds challenged findings of fact. It is convenient to deal together with the question of “dealings with a company” (being an element of s 128(1)) and whether the lenders “knew or suspected” that the relevant assumption was incorrect (the focus of s 128(4)).

    13. Cross-appellant’s written submissions, pars 22-28.

    14. Grounds 14, 21 and 31 also relied upon in the written submissions, were withdrawn.

  4. Before doing so, it is appropriate to note that the remaining grounds identified in the opening summary of submissions (grounds 1-4, 25 and 33) were said to relate to “common law estoppel”. However, the submissions did not identify any finding by the trial judge based on common law estoppel and these grounds were withdrawn in the course of oral submissions. [15] (The relevant written submissions were retained as a response to a notice of contention filed by Gemi 130 seeking to rely on common law estoppel to uphold the judgment, but which was abandoned at the hearing in this Court.) In fact, the issues raised by those grounds concerned a factual finding, namely whether, and if so when, Mr Liang became aware of Ms Zhu’s appointment as secretary. The direct challenge to Ms Zhu’s appointment has already been addressed; its rejection renders the contention inutile.

    15. CA Tcpt, 25/07/24, p 104(31).

Dealings with the company – general principles

  1. In Soyfer v Earlmaze Pty Ltd, [16] Hodgson CJ in Eq stated:

“82   In fact, some protection to the company is given by the requirement that the person must be engaged in dealings with the company in the first place; which in my opinion means that there must be dealings (in the sense of negotiations or other steps in relation to a contemplated transaction) with someone on behalf of the company which are dealings authorised by the company, and the document in respect of which the assumptions may be made must be a document which is ‘in relation to’ those authorised dealings (and I take this to extend to a document arising out of authorised negotiations or other steps). I note that in Story [17] at 733, Gleeson, CJ suggested that the concept of having dealings with a company must embrace purported dealings, because if the provisions only applied where the person representing the company had actual authority, they would be largely unnecessary. I take this as meaning that it is not necessary that the person representing the company have authority from the company to commit the company to the relevant transactions or execute the relevant documents; but in my opinion, it is necessary that the person have authority to undertake some negotiation or other steps, so that the dealings, in relation to which the document is executed, are properly considered to be dealings with the company.”

16. [2000] NSWSC 1068.

17. Referring to Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722.

  1. It is well-established that actual authority is not required and authority to complete a transaction is not required. As explained by Newnes and Murphy JJA in Caratti v Mammoth Investments:

“592 Thirdly, whilst, as noted earlier, the word ‘dealings’ has been liberally construed, it has also been held that for there to be dealings by the outsider ‘with a company’ for the purposes of s 128(1), the person with whom the outsider has the dealings must be at least a person with the actual or ostensible authority of the company to undertake (relevantly for present purposes) some negotiation. However, that person is not, in addition, required to have actual or apparent authority to enter into the transaction the subject of the negotiation: Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd. [18] ”

18. [2013] NSWCA 459; 282 FLR 351 at [44]-[45], [50].

  1. There was no doubt that Mr Dai had authority to conduct negotiations with respect to the three disputed loan transactions: accordingly, the suggestion, not developed in the submissions, that the lenders did not have “dealings with” City Garden must be rejected.

Section 128(4) – knowledge or suspicion

General principle

  1. The remaining issues concern the operation of s 128(4). Again, it has been accepted since Soyfer (in 2000) that the reference to knowledge or suspicion in s 128(4) requires actual knowledge or actual suspicion that the assumptions were incorrect. [19] The concept of “actual suspicion” has been explained by adopting the language of Kitto J in Queensland Bacon Pty Ltd v Rees [20] :

“A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion, but without sufficient evidence’ ….”

19. Soyfer at [70]; Correa v Whittingham [2013] NSWCA 263; 278 FLR 310 at [123] (Gleeson JA), (Barrett JA and Tobias AJA agreeing); Caratti v Mammoth Investments at [377] (Buss J), [591], (Newnes and Murphy JJ).

20. (1966) 115 CLR 266 at 303; [1966] HCA 21 (dealing with s 95(4) of the Bankruptcy Act 1924 (Cth)).

Attribution of knowledge of solicitor

  1. The principal submission for City Garden was that the knowledge of the lenders’ solicitors was to be imputed to the lenders. The trial judge held that that did not constitute actual knowledge or actual suspicion but merely imputed knowledge, relying on Correa v Whittingham at [168(d)]. That authority, being a judgment of this Court, was directly in point. There was no submission at trial that it should not be followed.

  2. The primary judge dealt with the issue as to the solicitor’s knowledge in a single brief passage, rejecting City Garden’s claim:

“245 Whilst the plaintiff relied on the solicitor’s knowledge said to have been imputed to the lenders, a solicitor’s knowledge should not be imputed to their client for the purpose of section 128(4), because the provision ‘requires actual knowledge or actual suspicion that the relevant assumption is incorrect, not imputed knowledge’: Correa v Wittingham at [168(d)]. It follows that the focus of the inquiry in this case should be on what the lender knew.”

This finding related to the first transaction; the primary judge made similar findings with respect to the second transaction, at [369], and with respect to the third transaction, at [424]. As will be noted below, that was an end of City Garden’s claim in practical terms because it did not plead any other basis of knowledge or suspicion of the lender, and was not permitted to run an unpleaded case during the trial.

  1. The passage in Correa was brief and read as follows:

“168   The primary judge was correct, in my view, to reject the appellants' submission that it should be inferred that Mr Whittingham formed a positive opinion amounting to a suspicion, that there was something irregular about his appointment. It is sufficient to note the following matters:

…

(d) contrary to the appellants' submissions, the knowledge of Mr Cruikshank (Mr Whittingham's solicitor) of the terms of the Club's constitution should not be imputed to Mr Whittingham, because s 128(4) requires actual knowledge or actual suspicion that the relevant assumption is incorrect, not imputed knowledge;

…”

  1. The solicitor in relation to the first and third transactions, acting for Gemi Investments and Gemi 130, was Toltz Lawyers; the lenders in the second transaction had a different solicitor. Because of the centrality of this issue to City Garden’s case, some further discussion of principles of attribution was warranted. That is not a criticism of the primary judge: the cross-respondents were content to rely upon the statement in Correa, while City Garden did not directly address the issue.

  2. On the cross-appeal, City Garden contended that Correa should not be followed because the lenders were corporate entities which acquired knowledge and operated “through their officers and agents”, submitting that “[i]t would be unreasonable to assume that the legislature would exclude the imputation of knowledge of its officers and solicitors, on a corporate entity”. [21] Later in the submissions, Toltz Lawyers was described, with respect to the third transaction, as “the Lender’s alter ego”, because it carried out due diligence on the transaction. [22]

    21. Cross-appellant’s written submissions, 17 June 2024, par 23.

    22. Ibid, par 26.

  3. Leaving the last sentence aside, there is force in the cross-appellant’s submission. However, it is implausible that a few words in Correa were intended to be read in this way. Gleeson JA in Correa was dealing with an individual, not a corporation. Further, there is a distinction between the actual knowledge (or suspicion) of an individual and the knowledge of an agent. The same is true of a corporation: the knowledge of its governing mind (for example, a managing director) may be described as its knowledge, but that of an agent with limited authority as imputed knowledge. The statement in Correa at [168(d)] should not be understood as referring to the governing mind of a corporation.

  4. No doubt the relationship between “actual knowledge” and “imputed knowledge” is fraught. The concept of imputation is similar to attribution. Imputed knowledge may be contrasted with constructive knowledge. As Peter Watts has observed the “the relationship between imputed knowledge and constructive knowledge” is “very confusing”: [23]

“At one level, both are types of ‘deemed knowledge’. But they are different deemings. Imputed knowledge is concerned with deeming a principal to know that which an agent actually knows. Constructive knowledge is concerned with deeming a person to know facts which neither she nor her agents know, but which she ought to know.”

23. S Degeling and J Edelman, Unjust Enrichment in Commercial Law (Lawbook Co 2008), Chapter 21, Watts, “imputed knowledge in restitutionary claims – rationales and rationes”, p 431.

  1. The imprecision of the language is illustrated by the authority referred to by Watts for that last proposition, namely the following passage from the judgment of Lord Chelmsford in Espin v Pemberton: [24]

“The notice which a client is supposed to receive through his solicitor is generally treated as constructive notice. I think it would tend very much to clearness in these cases if it were classified under the head of actual notice …. I should therefore prefer calling the knowledge which a person has, either by himself or through his agent, actual knowledge; or if it is necessary to make a distinction between the knowledge which a person possesses himself, and that which is known to his agent, the latter might be called imputed knowledge.”

24. (1859) 44 ER 1380; 3 De G & J 547, 554.

  1. All knowledge of a corporation is, in one sense, imputed knowledge. The use of the phrase “alter ego” to describe a person who is, metaphorically, the controlling mind of the corporation may be intended to avoid the drawing of a distinction between actual knowledge and imputed knowledge. That analysis would support the reliance placed by City Garden upon the following passages from the judgment in the High Court in Sargent v ASL Developments Ltd. [25] The first was from the reasons of Stephen J, with whom McTiernan ACJ agreed: [26]

“Again, where a vendor so arranges matters that his solicitor undertakes on his behalf the carrying out of a conveyancing transaction as a whole he thereby not only authorizes his solicitor to perform all necessary steps but also places the solicitor in the position of acquiring at first hand knowledge of relevant facts, at the same time depriving himself of the opportunity of acquiring such first hand knowledge.”

25. (1974) 131 CLR 634; [1974] HCA 40.

26. Sargent at 649.

  1. The second passage, from the judgment of Mason J, including a little more of than the segment relied on by City Garden, read: [27]

“Whether the knowledge of a solicitor is to be attributed to his client arises in the Turnbulls’ case. As against a third party the law imputes to a principal knowledge gained by his agent in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal, under such circumstances that it is the duty of the agent to communicate it to the principal. In the words of James LJ in Vane v Vane [28] ‘the actual knowledge of the agent through whom an estate is acquired is … equivalent to the actual personal knowledge of the principal’. In my view this principle applies to information acquired by a solicitor in the course of acting for his client in a conveyancing matter. … The solicitor is to be regarded as the alter ego of the client and the rights of the other party to the contract cannot be made to depend upon the diligence or lack of diligence exhibited by the solicitor in his dealings with his client.”

27. Sargent at 658-659.

28. (1873) 8 Ch App 383 at 399.

  1. The context was important: Sargent involved a conveyancing transaction pursuant to which (curiously) both parties had a right of rescission if the land were affected by a planning scheme and no planning certificate had been annexed to the contract. Those conditions being satisfied, the vendors had an election as to whether to rescind or affirm the contract. As explained by Stephen J, “[w]here election is in question between contracting parties and, as in these appeals, the contract itself confers the inconsistent rights there can be no question whether a party had knowledge of his choice of rights”. [29] Further, “all that need be established in order for the doctrine of election to apply is knowledge by the vendors of the facts giving rise to inconsistent legal rights”. [30]

    29. Sargent at 645.

    30. Ibid.

  2. Two of three vendors had no solicitor but knew of the zoning before acting inconsistently with the right to rescind. The third had employed a solicitor who knew the land was affected because he actually had a copy of the planning certificate, but failed to annex it to the contract. The first way in which Stephen J found that an election had taken place was expressed as follows: [31]

“Election as between inconsistent contractual rights does not call for any conscious choice as between two sets of rights, it being enough that there should be intentional and unequivocal conduct together with knowledge of the facts giving rise to the legal rights. … Now where, as in this case, a vendor employs a solicitor to attend to the carrying out of the legal aspects of a sale he necessarily authorizes that solicitor to attend to all the usual aspects of conveyancing practice; that authority will here extend to the obtaining of the necessary planning certificate and the solicitor's knowledge, gained from that certificate, may properly be imputed to his clients since it was acquired both for the purpose of that transaction and in the course of it ….”

31. Sargent at 648-649.

  1. There are three aspects of this explanation which are critical and distinguish the circumstances from the present case. First, the authority given to the solicitor as identified by Stephen J was “to attend to all the usual aspects of conveyancing practice”. That does not include authority to sign the contract, unless expressly conferred. Secondly, only the knowledge obtained by the solicitor in carrying out the authorised functions is “imputed” to the clients. Thirdly, the circumstances addressed as a question of general law in relation to a contractual election do not necessarily govern the requirements of the Corporations Act as to knowledge or suspicion attributed to the lender.

Principles of attribution

  1. The attribution of knowledge or some related state of mind to a company appears to have been a topic on which the primary judge obtained no assistance and as to which this Court obtained very little assistance. It has recently been thoroughly canvassed by Meagher JA in Aidzan Pty Ltd (in liq) v K & A Laird (NSW) Pty Ltd (in liq). [32] The focus of that judgment was on the difficult aspect of attribution of knowledge of a fraudulent director in a claim arising out of the fraudulent conduct: it considered whether there was a “fraud exception” to a more general rule governing the attribution of knowledge to corporations. Meagher JA noted the following observations of the UK Supreme Court in Bilta (UK) Ltd (in liq) v Nazir (No 2): [33]

“34   Lords Toulson and Hodge viewed the ‘fraud exception’ as ‘simply an instance of a wider principle that whether an act or a state of mind is to be attributed to a company depends upon the context in which the question arises’ (at [181]). Lord Neuberger (at [9]) and Lord Mance (at [37]-[44]) agreed, the former framing the overarching principle to be applied in the form of an ‘open’ question:

[W]hether or not it is appropriate to attribute an action by, or a state of mind of, a company director or agent to the company or the agent’s principal in relation to a particular claim against the company or the principal must depend on the nature and factual context of the claim in question.”

32. [2024] NSWCA 185 (30 July 2024) (Ward P and Adamson JA agreeing).

33. [2016] AC 1; [2015] UKSC 23.

  1. In Anderson v Canaccord Genuity Financial Ltd [34] this Court observed:

“255   … It is to be steadily borne in mind that the rules of attribution are context-dependent. The circumstances in which a company is treated as liable by reason of the conduct and knowledge of the natural persons through whom it acts depends upon the particular statute or rule of common law or principle of equity.”

A similar approach was adopted by Allsop CJ in All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Limited (No 2). [35] Critically, von Doussa J in Beach Petroleum NL v Johnson [36] in a passage applied by this Court in Anderson stated:

“Provided that the director is acting within the scope of his or her authority, in civil proceedings the state of mind of a director ordinarily will be attributed to the company where there is a duty on that director to communicate his or her knowledge to the company.”

34. (2023) 113 NSWLR 151; [2023] NSWCA 294 (Gleeson, Leeming and White JJA).

35. [2021] FCA 782; 154 ACSR 78 at [167]-[168].

36. (1993) 43 FCR 1 at [22.34].

  1. City Garden’s case was strongest if Toltz Lawyers were acting for the borrower and the lenders. But in that case long-established principle, as stated by Vaughan Williams J in In re Hampshire Land Company, [37] dealing with a common agent of two parties, states the test to be applied: [38]

“First, was it within the scope of the duty of the officer to give notice to the other company of the information he had got; and, secondly, was it within the scope of his duty, as the officer of the company sought to be affected by notice, to receive such notice?”

37. [1896] 2 Ch 743.

38. Hampshire Land Co at 749.

  1. The issue is hypothetical because the Court has found (on the appeal) that Toltz Lawyers was not acting for City Garden on the disputed transactions. Nevertheless, applying the same principle stated in In re Hampshire Land Company to a solicitor, the state of mind of the solicitor, including his or her knowledge, will only be attributed to a client if the knowledge were obtained in the course of acting for that client and within the scope of his or her authority from that client, and where there was a duty to communicate the knowledge to the client. [39] No case was run by City Garden which met those criteria. Whatever Mr Toltz knew about City Garden’s affairs was not acquired in the course of acting for the lenders; Mr Toltz had no duty to inform the lenders of what he knew whilst acting in another capacity, and indeed may well have had a duty not to communicate information if it were the subject of lawyer-client privilege. Accordingly, whether or not the knowledge of a solicitor was to be imputed to the lender, for the purposes of s 128(4) of the Corporations Act, the evidence did not establish that Mr Toltz had knowledge or held a suspicion of the kind which would satisfy s 128(4) which could be attributed to the lenders.

    39. Mason J in Sargent set out at [57] above; P Watts and FMB Reynolds, Bowstead & Reynolds on Agency (23rd ed, 2024, Thomson Reuters), 8-211, 8-212.

  2. There was no dispute that the principals of Gemi Investments and Gemi 130 were George Fleming, Michael Cooper and Hamish Tweedy, and the state of mind of each would be the knowledge of the corporation. Each might appropriately have been described as the “alter ego” of the respective lender. It was not contended that that was true of Mr Toltz, but rather that he was an “agent” of the lenders.

  3. The last proposition was true, but was unhelpful without clarification of the scope of his agency. Mr Toltz swore several affidavits in the proceedings and was cross-examined by counsel for City Garden. The thrust of Mr Toltz’ evidence was that he was retained by a Gemi company to act on its behalf in relation to the two loan transactions involving Gemi companies. He denied that he had a retainer from City Garden which covered that work. The cross-examination by counsel for City Garden was directed to establishing the incorrectness of the latter proposition. No questioning suggested that he had any greater role with the Gemi companies than he had suggested, namely acting as a retained solicitor which respect to the two loan transactions. His affidavit evidence was consistent with him acting as a solicitor in that capacity.

  4. There was no suggestion that he had authority from the directors of the Gemi companies to act as their general agent. He did not sign contractual documents on their behalf and the evidence did not suggest that he negotiated the terms of the transactions on their behalf. It would not have been appropriate to describe him as the “alter ego” of the Gemi companies, nor to describe his authority as extending to the exercise of the commercial functions of the companies, beyond the authority which would have fallen within the ordinary course of the retainer of a solicitor to document loan transactions. That ordinary authority would have extended to drafting loan agreements and undertaking appropriate searches. Arguably knowledge that Mr Toltz acquired on behalf of the Gemi companies in those capacities would have been imputed to his clients in some circumstances and for some purposes. However, that proposition identifies relevant questions, but not the answers to them. Both as a matter of law and fact, City Garden could not rely on the knowledge or suspicion of Mr Toltz as precluding reliance by the lenders on the statutory assumptions.

Actual knowledge of lenders

  1. There remains the challenge to the factual finding that the relevant officers of the lenders in respect of each transaction did not have actual knowledge or actual suspicion that Mr Dai did not have authority, with Ms Zhu, to conclude the transaction, being the assumption provided by s 129(5) in combination with s 127(1)(b).

  2. Grounds 15, 23 and 32 alleged that the lenders knew or suspected the relevant assumption was incorrect. As developed in written submissions, these grounds appeared to assert a state of actual knowledge or actual suspicion on the part of the governing minds of the lenders, namely, in respect of the Gemi companies, Messrs Fleming and Cooper. These grounds raised three issues:

  1. how was the matter run at trial with respect to the knowledge of the directors;

  2. what assumption was known or suspected to be incorrect; and

  3. what was the basis of the knowledge or suspicion?

    1. The various lender respondents took issue with these grounds on the basis that they had not been run below. In that, somewhat curiously, they were supported by Toltz Lawyers.

    2. The cross-respondents’ submissions commenced by referring to the pleaded case in the statement of claim. In relation to the first transaction the critical pleading identified a number of factual elements which were said to be known to Mr Toltz and thus imputed to Gemi Investments. [40] The fact that no claim was pleaded based upon the knowledge of the directors led to the directors putting on no evidence as to the state of knowledge each had at the relevant time. Consistently with that course, objection was taken when the cross-examination of the directors sought to expose the knowledge of each individual as to the circumstances relied upon as facts inconsistent with the statutory assumptions.

      40. Statement of claim, pars 65, 66 and 68A.

    3. When the cross-examination of Mr Fleming turned to his knowledge of Mr Liang’s role in City Garden, counsel took objection: [41]

      41. Tcpt, 08/08/23, p 393(40).

    “I object. We’re now talking about matters of knowledge in terms of what’s put against my client, which are not pleaded …. The allegations of knowledge in the pleading are very confined.”

    1. The judge then requested that counsel take her to the pleading and was taken to par 65. Counsel noting: [42]

      42. Tcpt, p 394(29).

    “That’s the knowledge of [Gemi Investments], as pleaded at 65 above. That’s the imputation of knowledge point. That is not an allegation of direct knowledge … or actual knowledge on the part of the officers of Gemi. It’s confined to an allegation, so far as the knowledge of Mr Toltz is concerned.”

After hearing from the solicitor-advocate for City Garden, the judge: [43]

43. Tcpt, p 396(8).

“I’m going to admit this evidence as going to the credit of the witness.”

  1. Shortly thereafter a second objection was taken to cross-examination of Mr Fleming as to whether he asked Mr Dai why City Garden required $2 million when there were sufficient funds to complete the project, to which counsel again took objection as the matter was “well outside the pleading” and “it can’t go to credit”. [44] The lawyer for City Garden again affirmed that he was “setting out to attack his credit”. [45] The objection was renewed shortly thereafter on the basis that the questioning “is so far away from being about credit and so far away from the pleaded case” that it was not permissible. [46] The judge accepted the objection, telling City Garden’s lawyer that “you seem to be trying to build another case altogether”, a matter which was denied. [47]

    44. Tcpt, p 401(17).

    45. Tcpt, p 401(27).

    46. Tcpt, p 407(20).

    47. Tcpt, p 407(25).

  2. The second issue concerned the facts relied upon to demonstrate knowledge or a basis for suspicion. These were stated in relation to the first transaction as: [48]

    48. Cross-appellant’s submissions – cross-appeal, filed 17 June 2024, par 33.

“(a)   The loan was not for [City Garden’s] benefit or for the purpose of its business.

(b)   The entire loan amount was paid to MTRP by Gemi Investments.

(c)   Dai acted in breach of his fiduciary duties owed to [City Garden].”

  1. Whilst these may have been the matters relied upon, knowledge of those matters was not addressed in the cross-examination of any of the officers of Gemi Investments or Gemi 130. MTRP was Mr Dai’s building company, Ming Tian Real Property Pty Ltd. Paragraph (b) contained an elision. The loan amount was transferred at the direction of Mr Dai, a director of City Garden, to an account in the name of City Garden and not MTRP, as was demonstrated by the settlement documents. However, despite the name, it was an account operated by MTPR, but there was a further question as to whether the lenders knew that. The basis for the first proposition, namely that the loan was not for City Garden’s benefit, appeared to have turned upon the correctness of the second proposition. Unless the knowledge of the lenders as to (b) was established, (a) was not made good. Even had it been shown that the money was paid to the builder, it did not follow that there was a basis for suspicion that it was not paid for the benefit of City Garden. A lender would not usually be suspicious of a direction by a director of the borrower, where the loan is apparently obtained for the development being carried out by the borrower, for direct payment to the borrower’s builder.

  2. Finally, none of those facts, albeit not proven, would have contradicted the statutory assumption that the transaction had been approved by City Garden in accordance with its constitution.

  3. In opening at trial, counsel for Toltz Lawyers noted: [49]

    49. Tcpt, 31/07/23, p 51(16).

“… Notwithstanding some of the things that were said in opening by Mr Lim [for City Garden], the only pleaded allegation against the lenders is that they’re attributed [with?] the knowledge of knowing or suspecting something that it is said my client knew or suspected.”

  1. The relevant knowledge or suspicion must have been directed to the assumption under s 129(5), that the loan transaction documents were duly executed by City Garden in accordance with s 127(1), namely by a director and a company secretary of the company. There is no doubt that Mr Dai was a director; the factual issue concerned the appointment of Ms Zhu in accordance with the terms of the constitution. Nothing which was raised on the cross-appeal in respect of the knowledge of the directors (had that been pleaded) demonstrated any reason to doubt the appointment of Ms Zhu, let alone knowledge that she had not been properly appointed.

  2. Indeed, the evidence, including the cross-examination of Mr Toltz, failed to provide a factual basis for an allegation that the directors or he knew or suspected that Ms Zhu was not properly appointed.

Conclusions and relief

  1. For the reasons given above, the cross-appeal should be dismissed. However, it is convenient to note that had a different conclusion been reached the question of relief would have remained a large issue. With respect to the third transaction, a declaration that the security documents were unenforceable would have led to consequential orders with respect to the registration of the securities. Those would have had their own difficulties. However, the declarations sought in relation to the first and second transactions appear to have no consequence because the loans were paid out and there was no basis upon which it was suggested that City Garden could recover moneys from the lenders under the first and second transactions.

  2. There is an issue as to the appropriate costs orders. The cross-appellant must pay the costs of the primarily affected cross-respondents, which were the Gemi companies and Bridge Street (which was represented jointly with two other lenders). Toltz Lawyers made submissions, limited to allegations as to its knowledge and suspicion. However, no relief was sought against it and, indeed, it could have benefited from success of the cross-appellant in avoiding the loss for which it had been held responsible by the trial judge. It should bear its own costs of the cross-appeal.

  3. The notice of motion filed for Gemi 130, seeking to adduce evidence relevant to the proposed contention based on estoppel (abandoned, as noted above), should be dismissed. Gemi 130 must pay City Garden’s costs of the motion.

  4. The orders sufficient to dispose of the cross-appeal are:

  1. Dismiss the further amended notice of cross-appeal filed on 24 June 2024.

  2. Dismiss the third cross-respondent’s motion filed 24 June 2024 and order that it pay the cross-appellant’s cost of the motion.

  3. Otherwise order that the cross-appellant pay (i) the third and eight cross-respondents’ and (ii) the fourth, ninth and tenth cross-respondents’ costs of the cross-appeal.

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Endnotes

Decision last updated: 30 September 2024

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Cases Cited

6

Statutory Material Cited

2

Gallop Reserve Pty Ltd v Matton Developments Pty Ltd [2019] QSC 113
Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315
Gallop Reserve Pty Ltd v Matton Developments Pty Ltd [2019] QSC 113