De Baecque Johnsen Company Pty Ltd v JFS Hair Management Pty Ltd

[2020] NSWDC 476

District Court

New South Wales

Medium Neutral Citation:

De Baecque Johnsen Company Pty Ltd v JFS Hair Management Pty Ltd & Anor [2020] NSWDC 476

Hearing dates:

13-14 and 21 May; 6-7 August 2020

Date of orders:

26 August 2020

Decision date:

26 August 2020

Jurisdiction:

Civil

Before:

Smith SC, DCJ

Decision:

The orders of the Court are as follows:

1. Judgment for the plaintiff against the first and second defendants jointly and severally in the amount of $501,814.55.

2. The first and second defendants are to pay the plaintiff’s costs on an indemnity basis.

3. That the monies held by the Court as security for costs pursuant to orders made on 7 June 2019 and 28 February 2020 be released forthwith to the trust account of the plaintiff’s solicitor.

Catchwords:

CONTRACT – Authority to enter loan agreement – ostensible authority – implied actual authority – Corporations Act s 129 – liability of guarantor – fraudulent dealings – unpaid loan.

Legislation Cited:

Corporations Act 2001 (Cth), ss 127, 128, 129

Family Law Act 1975 (Cth), Pt VIII

Statute of Frauds 1677, s 4

Cases Cited:

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72

Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21

Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd [2007] VSC 158

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480

Junker v Hepburn [2010] NSWSC 88

Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA 144

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Re MF Global Australia Ltd (in liq); Hopper v Campbell [2015] NSWCSC 1409

Reade v Lowndes (1857) 23 Beav. 361; 53 ER 142

Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166

Category:

Principal judgment

Parties:

De Baecque Johnsen Company Pty Ltd as trustee for De Baecque Johnsen Trust – Plaintiff
JFS Hair Management Pty Ltd – First Defendant
Stephane Banasiak – Second Defendant

Representation:

Counsel:
Mr E Thompson – Plaintiff
Mr G Laughton SC – First Defendant
Solicitors:
Darley Legal – Plaintiff
DC Strategy Lawyers – First Defendant

File Number(s):

2019/47269

Publication restriction:

Nil

Judgment

Introduction

1. The plaintiff claims that it entered into a written agreement with the first defendant (JFS Hair Management), in which it agreed to lend the first defendant $400,000. The first defendant’s obligations were guaranteed by the second defendant, Mr Banasiak, a director of the first defendant.

2. On 5 April 2016 the plaintiff transferred $400,000 from its bank account to a bank account nominated by Mr Banasiak. The loan has not been repaid by either defendant.

3. The first defendant had two directors, Mr Carré and Mr Banasiak. However, the agreement was only signed by Mr Banasiak as director/secretary of the first defendant. The defendants say that Mr Banasiak did not have any authority to enter the loan agreement on its behalf and that the signatures of both directors were required. The plaintiff says that Mr Banasiak had implied, or alternatively, ostensible authority to bind JFS Hair Management to the agreement and that, pursuant to s 129(5) of the Corporations Act, the plaintiff was entitled to assume, amongst other things, that the loan agreement had been properly executed.

4. The conduct of JFS Hair Management was such that it held out Mr Banasiak as its agent with authority to enter into loan agreements such as that the subject of these proceedings. The plaintiff entered into this loan agreement and transferred the amount of $400,000 in reliance upon the conduct of JFS Hair Management. In those circumstances, Mr Banasiak had ostensible authority to bind JFS Hair Management as principle to the loan agreement. Mr Banasiak also had implied actual authority to enter into the loan agreement. In those circumstances, the plaintiff was entitled to assume that the loan agreement was properly executed and JFS Hair Management is liable to repay the loan together with interest. There is no real dispute that Mr Banasiak is also liable as guarantor for the repayment of the loan and interest. There will be judgment in favour of the plaintiff against both defendants.

Background facts

5. Mr Banasiak and Jean-Francois Thierry Benoit Carré were a couple and both French nationals who came together to live in Australia having lived together for some time in Tahiti. In 2008, they set up a hair salon franchise business together, Franck Provost. At relevant times, they were both directors and equal shareholders of a number of companies including JFS Hair Management (which conducted a hair salon in Macquarie Street, Sydney). The name of each company in the group commenced with “JFS” a combination of the initial letters of the first names of Mr Carré and Mr Banasiak.

6. Another member of the group was JFS Resorts Pty Ltd (formerly JFS Frenchs Forest Pty Ltd). At relevant times, a third company, JFS TC Pty limited held all the shares in JFS Hair Management and 98% of the shares in JFS Resorts. Mr Carré and Mr Banasiak were the sole directors of JFS TC. JFS Investments Pty Ltd was another company whose sole directors were Mr Carré and Mr Banasiak and whose shares were held by JFS TC.

7. In about 2010, the couple met and became close friends with Cyrille De Baecque and his then wife Hilde Johnsen who had just come to live in Australia. Mr De Baecque is the director of the plaintiff. The two couples regularly socialised in the French community in Sydney.

8. On a number of occasions, members of the JFS Group obtained finance for various purposes by way of loans from friends, or related entities, of Mr Banasiak and Mr Carré.

9. In April 2011, JFS Hair Management entered into a loan and option agreement with a Mr Even. [1] Only Mr Banasiak signed that agreement for JFS Hair Management and he also guaranteed the loan.

   1. Ex CB-1, pp 17-29.

10. In early March 2014, JFS Hair Management entered into a loan and option agreement with Mr De Baecque (first loan agreement). [2] Again, only Mr Banasiak signed that agreement for JFS Hair Management and he also guaranteed the loan. Mr Carré gave evidence that this agreement was later signed by him as well and that the version in evidence (signed only by Mr Banasiak) was a draft. For reasons I give later, I reject that evidence and find that only Mr Banasiak ever signed the first loan agreement.

    2. Ex CB-1, pp 51-62.

11. Between January and August 2015, Mr Banasiak alone signed three further loan agreements in his capacity as director and secretary of JFS TC and JFS Investments. [3]

    3. Ex CB-2, pp 1-39.

12. In each case, the loans were repaid.

13. In February 2016, Mr De Baecque incorporated the plaintiff company and it was appointed the trustee of the De Baecque Johnsen Trust. The loan agreement between Mr De Baecque and JFS Hair Management was then novated, replacing Mr De Baecque with the plaintiff as the lender. [4] This agreement was signed by both Mr Carré and Mr Banasiak as directors. On 14 March 2016 JFS Investments Pty Limited repaid the money outstanding under the first loan agreement.

    4. Ex CB-1, pp 64-75.

14. On 19 March 2016 Mr Banasiak sent an email to a number of friends of his and Mr Carré’s including Mr De Baecque. The email related to a proposed development of a resort in the Maldives and asked if anybody might be interested in investing in the development of that resort. [5] In the brochure, it was said that Mr Carré, Mr Banasiak and a third person “an entrepreneurial and successful founding team with strong experience in the hotel industry, guest services and retail will manage the on-going development process until the opening of the resort.” [6]

    5. Ex CB-1, p 83ff. There was an issue about the correct version of this brochure, but it is of no importance to the resolution of these proceedings.

    6. Ex CB-1, p 104.

15. Mr De Baecque says that he had a telephone conversation with Mr Banasiak and Mr Carré [7] in which they explained to him that they urgently needed funds for their Maldives project and requested a short term loan. He agreed, but requested that the loan be documented. Mr De Baecque’s evidence is corroborated by Ms Johnsen. [8]

    7. Affidavits of Cyrille De Baecque dated 28 February 2020 at [19]; dated 1 May 2020 at [11]-[12].

    8. Affidavit of Hilde Johnsen dated 28 February 2020 at [5]-[6]; Tcpt, 14 May 2020, p 111 (31-39).

16. For reasons that I give later, I find that this conversation did occur and that the text messages I refer to immediately below also took place.

17. Mr Banasiak and Mr Carré both deny that this conversation occurred. Mr Carré said that he was at an industry function that night and probably went out for a drink with his colleagues afterwards.

18. There is no question that Mr Banasiak reached out to Mr De Baecque to ask for money for the Maldives project: there is a series of text messages which are set out below that establish that. The defendants’ denial is supported by a series of text messages between Mr Banasiak and Mr De Baecque on 4 April 2016. [9]

    9. Ex SB-1, pp 69-70.

19. The first of these was from Mr Banasiak outlining a difficulty he had with the Maldives government and the urgent need for $500,000. He asked for a loan at 10% interest per annum to help out for a few weeks. Mr De Baecque replied that it was possible but that he needed a contract and could lend him $400,000 for one month, but needed the money after that because they (he and his wife) were looking for a house to buy. Mr Banasiak agreed, asked whether the loan contract was to be in his name, or the trust, and was told that it was the trust. [10]

    10. The original correspondence between the parties was almost exclusively in French. Although there was no formal translation in evidence, or agreed, there was no real dispute as to the translation.

20. Importantly, Mr De Baecque’s email was addressed in the plural (“vous”). [11]

    11. There was also no issue that the word “vous” in French, in this context, means “you” in the plural.

21. At 9.52pm on 4 April 2016 Mr Banasiak sent an email to Mr De Baecque, with a copy to Mr Carré, [12] attaching the proposed loan agreement and asking Mr De Baecque to have a look at it to see if it was in order. The draft agreement was between the plaintiff, JFS Hair Management and Mr Banasiak (as guarantor).

    12. Ex CB-1, pp 108-127.

22. At 11.57pm on 4 April 2016 Mr De Baecque replied, stating that he was reading the contract and asking for clarification on two points. The first was “votre” (i.e. “your” plural) last EBITDA. [13] The second was asking what the fall-back position was in case the other investor did not come up with funds.

    13. Earnings before interest, tax, depreciation and amortisation.

23. Mr Banasiak replied at 7:51am the following morning, again copied to Mr Carré. He said that he would send the 2014 tax return for JFS Hair Management sometime in the morning and that, for the “fallback”:

“… nous avons plusieurs securites: … et nous personellement on debloque des fonds avec la banque dans les 2 semaines prochaines.

(… we have several securities: … and we personally will have funds available in the bank in 2 weeks …)”

(Emphasis added)

24. Mr De Baecque replied to this at 7:58am, copying in Mr Carré.

25. Mr Carré said[14] that, when he saw this correspondence, he spoke to Mr Banasiak and told him not to use the Frank Provost loan agreement or bank account for the Maldives project and that Mr Banasiak said that he would change the agreement to be with JFS Resorts. Neither of them said anything about this to Mr De Baecque.

    14. Affidavit of Jean-Francois Thierry Carré dated 15 April 2020 at [36].

26. At 8:38am on 5 April 2016 Mr Banasiak sent Mr De Baecque the profit and loss statement of JFS Hair Management. [15] He added that Mr De Baecque should not forget that he (Mr Banasiak) was personal guarantor and that this includes JFS Investment and “our” apartment. This email was not copied to Mr Carré.

    15. Ex CB-1, pp 137-141; 143.

27. At 10:10am, Mr Banasiak sent an email to Mr De Baecque with the account details for the transfer, giving the name “JFS Hair Management”.

28. At around midday that day, Mr De Baecque met Mr Banasiak at a bank on George St in the Sydney CBD and asked the teller to arrange a transfer of $400,000. Mr Banasiak filled out the account details on the transfer slip and the funds were transferred in accordance with that direction. The account to which the funds were transferred was in the name of JFS Frenchs Forest, the company whose name was changed to JFS Resorts.

29. Later that day, Mr Banasiak signed the agreement (second loan agreement) in the signature block “JFS HAIR MANAGEMENT PTY LTD” under the words “director/secretary”. He did not sign in the place for the guarantor’s signature and Mr Carré did not sign the document.

30. The second loan agreement was in substantially the same terms as the first loan agreement.

31. In June 2016, JFS Hair Management entered into another loan and option agreement, this time with the trustee of the Pajim Trust. [16] Mr Banasiak alone signed this agreement for JFS Hair Management and also as guarantor.

    16. Ex CB-1, pp 6-16.

32. The plaintiff was not repaid the loan money within a month, as promised, or at all. After repeated unsuccessful demands for repayment, the plaintiff served a creditor’s statutory demand for payment of debt on JFS Hair Management on 27 July 2018. [17] This prompted an email from Mr Carré, who first wrote to Mr Banasiak and then, on 1 August 2018 to Mr De Baecque stating that JFS Hair Management did not consider itself bound by the second loan agreement. [18]

    17. Affidavit of Cyrille De Baecque dated 28 February 2020 at [45].

    18. Ex JF-1, pp 209-210.

33. On 23 August 2018 the plaintiff entered into an agreement (further guarantee agreement) with Mr Banasiak whereby Mr Banasiak admitted the second loan agreement, and agreed to pay the principal sum under that agreement and an additional $30,000 by 15 September 2018.

34. Mr Banasiak has in fact paid some amounts towards the interest owing on the second loan agreement, but, in spite of admitting his liability under the further guarantee agreement, has failed to pay any amounts under that agreement. The plaintiff has now obtained judgment against Mr Banasiak in respect of that agreement.

The witnesses

35. There are a handful of factual issues that require an analysis of the credit of the witnesses. I take into account the fact that each witness was giving evidence about events that took place over four years ago and that there are, in any event, many reasons beyond untruthfulness for the recollection of events to be different and even completely inconsistent. For that reason, I have been careful in my analysis of credit not only to use the advantage of having seen each witness and to make notes of the way in which he or she gave evidence, but also to use the background of contemporaneous documents and other uncontested facts.

Mr De Baecque

36. Mr De Baecque generally impressed me as a witness. Although, from time to time he gave answers that went beyond what the questions required, I did not get the impression that he was constantly advocating his own cause, but rather, doing his best to give truthful evidence.

37. Mr Laughton SC, who appeared for JFS Hair Management, argued that Mr De Baecque should not be accepted as truthful at all. A large part of the reason for this submission [19] concerned a conversation which Mr Banasiak said took place. The conversation had very little to do with the critical issues in the case, even though it was about the Maldives. I do not accept that Mr De Baecque’s acceptance, on the one hand that some of these matters may have been discussed and his denial, in an affidavit that particular conversations did not take place is either inconsistent or, even if it were, had any negative impact on his general credit.

    19. See First Defendant’s submissions at [48] – [59].

38. The other main attack on Mr De Baecque’s credit arises from the original statement of claim [20] in which the 3 April 2016 telephone conversation was different from the version contained in Mr De Baecque’s affidavit. Again, although the versions are different, I do not place any weight on that. It is often the case that recollections of events change over time, particularly, as in litigation and especially during the preparation of affidavits and in preparation for giving oral evidence, when certain matters are given closer attention and surrounding documents are considered afresh.

    20. Ex 1.

39. The third main attack on Mr De Baecque’s credit centred on the telephone conversation of 3 April 2016 and was based on an analysis of Mr De Baecque’s telephone records of the time. It is true that there is no obvious record of a telephone call from Mr Banasiak to Mr De Baecque in the evening of 3 April 2016; however, the records are not readily understandable and without some evidence from an expert or the service provider to explain what inferences may be drawn from them, I am unable to be satisfied of what they mean.

40. Perhaps the strongest attack on Mr De Baecque’s credit comes from the 4 April text messages. It appears odd that a message from Mr Banasiak would be sent the evening after a conversation in almost identical terms and not make any reference to that earlier conversation. By the same token, it seems odd that anyone, even a close friend, would ask someone for a loan of $500,000 by text. These are people who saw each other and spoke by telephone regularly.

41. There appear to be three reasonably available possibilities: first, the conversation took place on 3 April 2016 and was followed up by the text on 4 April 2016; secondly, the 3 April 2016 conversation did not take place and it was either fabricated by Mr De Baecque and Ms Johnsen or, at least their recollection of the conversation was mistaken for the text message; and thirdly, the 4 April 2016 text message from Mr Banasiak was fabricated by him. None of these is unrealistic. The 3 April conversation is not inconsistent with the 4 April text. The 4 April text was in very similar terms to the conversation recalled by both Mr De Baecque and Ms Johnsen. Finally, Mr Banasiak has admitted to forging other documents for the purpose of these proceedings and it is not a difficult thing to create a false series of text messages.

42. The resolution lies in the timing: 4 April 2016 was a Monday. In his text, Mr Banasiak says that he received confirmation of the grant of the islands “last week” from the Maldives government and that he had to pay a deposit of $500,000 tomorrow (i.e. on 5 April 2016). Even though this request for a loan appears quite desperate, there were a number of days (at least) that had gone by since Mr Banasiak had found out that the deal in the Maldives was going ahead and that a deposit was required very soon. Also, the likelihood of that amount of money being available to an ordinary person overnight seems very low. That suggests that it is more likely that Mr Banasiak first asked for a loan before the evening of the day before it was required. Adding that to the oddness of asking for $500,000 by text without notice, figuratively speaking, at one minute to midnight, I consider it more likely that a conversation occurred the night before and that the text message did occur, but was in writing to make sure of the agreement and its terms.

43. For those reasons, even though I have some reservations about it, I am satisfied on balance that there was a telephone conversation between Mr Banasiak and Mr De Baecque on 3 April 2016. I would add that, in arriving at this conclusion, I have also had regard to the evidence of Mr De Baecque, Ms Johnsen, Mr Carré and Mr Banasiak and the view I take of their credit generally.

44. I also accept that Mr Carré was part of the telephone conversation and, for that reason, he was well aware of the request for the loan and its purpose. That much is consistent with the fact that Mr Carré was copied into the email messages between Mr Banasiak and Mr De Baecque on the evening of 4 April 2016.

36. Overall, I accept Mr De Baecque as a witness whose evidence is reliable.

Ms Johnsen

46. Ms Johnsen is no longer married to Mr De Baecque. She does have an interest in the proceedings to the extent that the assets of the plaintiff may impact on any property orders made under Part VIII of the Family Law Act 1975 (Cth). I have taken that into account in assessing her credit.

47. Some of Ms Johnsen’s answers varied but only by a matter of degree. English was clearly not her first language (although that does not set her apart from the other witnesses) and I give those differences little weight. I found that she was an honest witness who made every effort to answer questions truthfully and without elaboration. It is clear, as Mr Laughton SC submitted, that her recollection of some events in 2016 had faded; however, I accept that she did recall the telephone conversation on 3 April 2016. She frankly admitted that she did not hear the substance of that call, but the substance was not the real issue. The real issue was whether it took place and, if so, who was involved in it. For the reasons I have given, the surrounding circumstances suggest that it did take place.

Mr Banasiak

48. Mr Banasiak is a self-confessed liar and fraud. The only question is whether anything he said, apart from anything that was against the interests of the defendants can be accepted. I do not think so. He was aware that the fact that he alone had signed loan agreements on behalf of JFS Hair Management over a period of time was against the interests of JFS Hair Management and an important issue in the proceedings. Knowing this, he forged a loan agreement (or had it fraudulently altered) so that the signatures of both him and Mr Carré appeared on the document. [21] He then forwarded it to Mr Carré for use in the proceedings. The explanation was to be that this was the real, final version of a document signed, initially, only by him.

    21. Ex 2.

49. He ultimately admitted that the document was a forgery. This might be seen as an admission of wrongdoing that could be favourable to his credit – a lightning bolt moment where he sees the error of his ways. The problem is that he kept lying. When it was suggested that he had provided the document as a deliberate attempt to mislead the Court into thinking that this was a genuine copy of a loan agreement, he replied that he did not. [22] That was a bald-faced lie. He sent the document by email to the solicitor for JFS Hair Management. [23] In it, he said (without correction):

“I forgot to send you this document.

In Cyril Affidavit, there is this contract, but not the signed one.

It may be important to show that the contract they use for their defense has been signed by JF and Myself.”

22. Tcpt, 6 August 2020, p 200 (23).

23. Ex 4, tab 7.

50. This shows that he intended that this document be used to counter the effect of the evidence relied on by Mr De Baecque. He sent this knowing that it was false and intending it to be believed as an authentic document. His denials suggest that, rather than changing his ways by first confessing to his misdeeds, he kept on lying.

51. This document, and Mr Banasiak’s evidence about it, will have some impact on Mr Carré’s credit. He, too, must have realised that it was a forgery and yet he allowed it to be used and put forward in an attempt to mislead the Court.

52. In addition to this document, there is the remarkably serendipitous coincidence that any document he says exists can no longer be found and important text conversations took place on an online platform (Viber) that deletes messages after a specified time. He went so far as to say that he especially used Viber for business conversations so that there would be no record of them. The only rational reason for wanting business conversations to be deleted is that they involved some level of dishonesty. I do not accept any of that evidence. He could not produce documents or records of conversations because they never existed.

Mr Carré

53. Mr Carré was a confident witness. His recollection of the business affairs of the JFS companies in 2016 was crisp and he gave the general impression that his recollection of other events, too, was fresh and accurate. However, I do not accept critical aspects of his evidence. In general, he was more concerned in his evidence to give explanations for events that appeared to be unfavourable to the first defendant. Although he ultimately accepted a number of propositions put to him, his answers were often so padded that he gave the impression of trying to avoid giving the answer.

54. Secondly, the unresponsive explanations he gave were, in a number of respects, uncorroborated or when he attempted to corroborate them from documents, his explanations did not fit comfortably with the facts.

55. One important example of this was his evidence about the 6 March 2014 loan agreement between Mr De Baecque personally and JFS Hair Management. [24] This was a very important document: Mr Carré was well aware of it. Indeed, he said that he made sure that the loan was repaid in full with good interest. However, Mr Banasiak was the only signatory on behalf of JFS Hair Management. Mr Carré never was. On its face, this supports the conclusion that Mr Banasiak had authority to execute loan agreements for JFS or, at the least, it was the basis for the assumption that he did.

    24. Ex CB-1, p 51.

56. Mr Carré agreed that JFS Hair Management approved this transaction. [25] However, he sought to amend the consequences of this answer as follows [26] :

“Q.   And if you turn over to page 62, you will see that this document has been signed by Mr Banasiak in the company execution block, correct?

A.   Correct, but I note that this was a temporary copy because the three others met in person on 14 March 2016 to sign the hard copy together.  So this is not the final version of this initial agreement.  I still have the emails and SMS between myself and Mr de Baecque, confirming that we were meeting on that night.”

25. Tcpt, 6 August 2020, p 207 (41).

26. Tcpt, 6 August 2020, p 208 (3).

57. That answer was not responsive to the question. In any event, he was taken to the relevant emails later in his evidence (which were in March 2014 not 2016). Mr Carré said that he was unable to find the agreement signed by himself and Mr Banasiak for JFS Hair Management. [27]

    27. Tcpt, 6 August 2020, p 212 (18).

58. Mr Carré then said [28] that “we agreed to meet in person to sign the original contract”. It was suggested to him that the emails at the time were not consistent with that. He denied that, translating from the emails [29] :

“A.    No it's not.  I'm sorry with all respect Cyril replies, "Hi guys, have...this is possible".  And that's where Stephane replies, "Yes, I have the original contract with me", and later, "We agree when...the original together".  So basically I say, "Hello Cyril, let's...should we say".  And Cyril replies, "Hi Guys, tomorrow...in Kings Cross", and then I reply, "Okay for us...on your way", and I have the text messages confirming that we make--"

There are no text messages confirming this in evidence.

28. Tcpt, 6 August 2020, p 212 (41).

29. Ex JF-1, pp89-90; Tcpt, 6 August 2020, p 213 (11).

59. The emails do not, in fact support what Mr Carré says. The original version (with translation is as follows):

12.3.14 De Baecque to Banasiak

“vous avez bien reçu le second virement ?

(have you (plural) received the second contract?)

il faut aussi que je récupère l’original du contrat signé et je vous en signe une copie…

(I also have to get the original signed contract and sign a copy…)

Dites moi quand c’est possible.

(Tell me when it is possible)

La bise (Kisses)”

12.3.14 at 4:32pm Banasiak to De Baecque

“Salut Cyril,

(Hi Cyril,)

Yes, le 2eme virement est bien arrive. Merci.

(Yes, the 2^nd instalment has arrived. Thanks)

J’ai l’original du contract avec moi, Je te le remets des qu’on se voit.

(I have the original of the contract with me. I will give it to you when we see each other)

Bises

(Kisses)”

12.3.14 17:55pm De Baecque to Banasiak

“Bah on se voit surement samedi soir mais je sais pas si c’est le bon moment pour ça

(Well, we will definitely see each other on Saturday night but I’m not sure it’s a good time for that)

Sinon on peut se croiser vendredi pour un verre?

(If not we can catch up for a drink on Friday?)”

(Emoticons removed)

13.3.14 1:32am Carré to De Baecque

“Hello Cyril,

OK on n’a qu’a aller se prendre un verre apres le boulot demian? On pourrait aller au rooftop du Sugarmill a KX par exemple ou ca l’arrange mieux allieurs? On dit quelle heure?

(Ok, we could just have a drink after work tomorrow? We could, go to the rooftop of the Sugarmill KX for example, or would somewhere else be more suitable? What time? Will we say?)

Bise, a+

(Kisses, see you later)

JF”

13.3.14 De Baecque

“Hello les garçons,

(Hello boys)

Demain soir ça me va, je pense pas sortir très tot du boulot et je suis a velo donc le temps de rentrer ă la maison me doucher et revenir en voiture, il sera probablement 19h-19h30. KX pas …

(Tomorrow is ok for me, I think I won’t leave work too early and I will be by bike so by the time I return home, shower and return by car it will probably be 7-7.30pm [not transcrible])”

60. There is nothing in this exchange about re-executing the document together. The only further signature mentioned is of a copy by Mr De Baecque. These messages simply show that the contract had already been executed by JFS Hair Management (that is, by Mr Banasiak alone) and Mr De Baecque was keen to get the original. Mr Carré’s explanation was inconsistent with the messages and I do not accept it. Given the importance of this document, the falsity of this evidence critically undermines his credibility.

61. I note that Mr Carré said that in several respects that there were documents that supported his version of events. Remarkably, just like Mr Banasiak, in spite of notices to produce requiring production of those documents, none were produced. The one document [30] that did support Mr Carré’s version of events turned out to be a forgery. He denied knowing that it was a forgery at the time it was produced to the Court [31] and said that he had not produced any correspondence between Mr Banasiak and himself about it because it had been by Viber. [32] That may have been the case, but the most plausible reason for using that platform in connection with the proceedings is so that it could not be accessed by the plaintiff for use in Court. Taking into account the seriousness of this matter, I am satisfied that Mr Carré knew full well that the document was a forgery and that he sat by in Court, with this knowledge, and watched Mr De Baecque being cross-examined at length in respect of it.

    30. Ex 2.

    31. Tcpt, 6 August 2020, p 226 (9).

    32. Tcpt, 6 August 2020, p 226 (17).

62. Further, given the importance of the documents that were called for and not produced, and the fact that other, less favourable documents were able to be found, I conclude that these other documents never existed and that Mr Carré’s evidence about this was deliberately false. Overall, I do not accept Mr Carré’s evidence where it conflicts with that of Mr De Baecque.

63. I find that he knew at all times that Stephane Banasiak executed documents for the JFS companies and indeed authorised him to do so.

Consideration

Claims against JFS Hair Management

64. The plaintiff argues that JFS Hair Management is bound by the terms of the second loan agreement on three alternative bases: ostensible authority, implied authority and s 129(5) of the Corporations Act.

65. Before I deal with each of those bases, it is convenient to deal with one argument made by JFS Hair Management. It argues that, by reason of the agreement between the plaintiff and Mr Banasiak on 23 August 2018, Mr Banasiak became the primary debtor and that this extinguished the liability of JFS Hair Management under the second loan agreement.

66. The argument relies on a decision of Romilly LJ as the Master of the Rolls in Reade v Lowndes (1857) 23 Beav. 361; 53 ER 142. In that case, Mr Reade had patented an invention and assigned his patent to a third party, Mr Lines, for a share in the profits from the invention. Mr Lines then formed a partnership with another gentleman of the same name and the plaintiff’s brother in order to work the patent and borrowed money from the defendant, Mr Lowndes, in order to establish the business. Mr Reade was, in essence, one of the guarantors of that loan together with Mr Lines and his partners.

67. The enterprise did not succeed and money remained outstanding to Mr Lowndes. A series of deeds were then entered into, the relevant effect of which was that Mr Reade was liable as surety for £6,000 and as principal for one fourth of the losses of the firm. Subsequently, Mr Lowndes brought an action against Mr Reade to recover the £6,000 under one of the later deeds together with interest. Mr Reade and Mr Lowndes entered into whereby, relevantly, judgment was entered into for £6,613, 3s which amount was to be reduced to £4,000, the amount of life policies the premiums for which were to be paid by Mr Reade. The second part of this arrangement was the execution of a deed on 27 April 1852 concerning the payment of £4,000 which involved other parties. This deed recited the fact of the judgment against Mr Reade in favour of Mr Lowndes.

68. In the following year, Mr Lowndes obtained judgment for £13,440 plus interest and costs against the two Mr Lines. The two Mr Lines presented a petition in insolvency but were discharged upon agreement with Mr Lowndes on certain terms. The question for the Court was how this affected the agreement with Mr Reade. More particularly, the question was whether “this discharge of the two Lines relieve the Plaintiff from the effect of the agreement entered into by him on the 27^th April 1852?”

69. The Court found that it did not because the 27 April 1852 agreement made Mr Reade a principal debtor rather than a guarantor. For that reason, the doctrine that the release of a principal debtor will release a guarantor had no application. The agreement had, in fact, abrogated the previous relationship between the parties and placed them on a new and distinct footing in which all parties stood towards each other in relation as principals.

70. That case has no application here. The agreement of 23 August 2018 was based on the ongoing relationship between Mr Banasiak and the plaintiff as lender and surety and added a further component of an obligation on Mr Banasiak to pay a certain sum in order that the plaintiff refrain from suing under the second loan agreement for a particular time.

i.   Ostensible authority

71. The principles governing the ostensible authority of an agent to bind a company derive from estoppel. [33] There are three elements involved:[34]

1. there has been a representation that the agent had authority to enter into a contract on behalf of the company of the kind sought to be enforced against the company;

2. the representation was made by a person or persons who have “actual authority” to manage the business of the company either generally or in relation to the matter to which the contract relates[35] ;

3. the contractor was induced by the representation to enter the contract.

   33. Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480 per Diplock LJ at 503; Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA 144 at [51].

   34. Re MF Global Australia Ltd (in liq); Hopper v Campbell [2015] NSWCSC 1409 at [69] – [71]; see also Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72; and Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451.

   35. See Pacific Carriers v BNP Paribas at [36]; Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd [2007] VSC 158 at [203].

72. The first loan agreement with Mr De Baecque clearly involved a representation by JFS Hair Management that Mr Banasiak had authority to bind it to that type of agreement: it was signed by him alone and was discussed in emails in the same month with both Mr Banasiak and Mr Carré. The fact that the novation agreement was made with the signatures of both Mr Carré and Mr Banasiak does not change that: signature by both directors does not, without more, negate the authority of one director to bind the company, especially if there has been no intervening complaint by the other director (as there was not in this case).

73. Secondly, both Mr Banasiak and Mr Carré were involved in a conversation with Mr De Baecque on 3 April 2016. This set the basis for the loan being for JFS Hair Management but with Mr Banasiak taking the lead.

74. Thirdly, the email correspondence that followed were all copied to Mr Carré and there was no complaint by Mr Carré about Mr Banasiak’s conduct. This silence took place in circumstances where, as a director of JFS Hair Management, it would be expected for something to be said if Mr Banasiak did not have authority to engage in the conduct of obtaining loans for JFS Hair Management. The loan agreement was, on its face, expressed to be with JFS Hair Management. Thus, the silence continued and fortified the representation by the company that Mr Banasiak had the relevant authority.

75. Fourthly, the fact that Mr Banasiak was readily able to access loan templates constituted a further representation that he had the authority to bind JFS Hair Management to this type of agreement.

76. Mr De Baecque clearly relied on these representations as director of the plaintiff. He had had dealings with JFS Hair Management before and had had his loan repaid with interest. He sought some proof of the ability of JFS Hair Management to repay the loan by asking for the latest EBITDA of the company. He said[36] , and I accept, that if JFS Hair Management was not bound by the agreement he would not have had the plaintiff enter the agreement. He was provided with the financial records of JFS Hair Management and given its banking details.

    36. Affidavit of Cyrille De Baecque dated 28 February 2020 at [35].

77. There is no reason why he would have been on notice that Mr Banasiak was not authorised to enter into this transaction: he was not told by either Mr Banasiak or Mr Carré that that was the case. Mr Banasiak and Mr Carré were partners in both life and business and very close friends; he had been sent a brochure about the Maldives that refers to both of them as being involved. The fact that this loan was for the Maldives project rather than for a hair dressing salon makes no difference: the couple were entrepreneurs who had successfully set up a business in Australia and were, to any reasonable onlooker, developing plans for a further business.

78. In any event, I do not accept the argument that Mr Carré had no interest in the Maldives project: it was being run through a company whose shares were owned by the trustee of a trust of which he was a beneficiary. This was essentially the same scheme as for the entire JFS Group and why it can properly be called a group: all of the businesses were essentially run for the benefit of the two men whose initials formed the name of each company in it.

79. The fact that Mr Carré was not copied into the final few emails from Mr Banasiak also did not put Mr De Baecque on notice that Mr Banasiak had no authority. There was little time for ensuring the contract was in place and that the borrower was financially viable. It was not unreasonable for him to focus on the content of the emails rather than to be concerned that Mr Carré was no longer copied in. Further, Mr Carré had been involved in the emails all along and had said nothing contrary to the arrangement.

80. Mr De Baecque was not on notice that he was transferring money to a company other than JFS Hair Management and, even if he did, that was insufficient to put him on notice of any lack of authority: cl 3 of the agreement provided that the plaintiff was to pay the money as directed.

72. For those reasons, I conclude that Mr Banasiak was held out by JFS Hair Management to have authority to enter into the second loan agreement and Mr De Baecque relied on that holding out. JFS Hair Management cannot now resile from that position and so is bound by the second loan agreement.

ii.   Implied actual authority

82. A person will have actual, as opposed to ostensible, authority if the company has expressly or implied given him or her that authority. There is no evidence that Mr Banasiak was expressly given authority.

83. Implied authority will arise where the board of directors has permitted a person (including a director) to engage in a course of conduct consistent with a grant of authority to enter into transactions on the company’s behalf. [37] As such, the facts relevant to implied authority often overlap with the facts required to establish ostensible authority. One difference that is applicable here is that the acts leading to the implied grant of authority need not be known to the person who contends that there is authority.

    37. Junker v Hepburn [2010] NSWSC 88 at [43].

84. Here, JFS Hair Management entered into a number of loan transactions with third parties in which the contracts were signed by Mr Banasiak alone. Nevertheless, Mr Carré knew about these loans and, on his own evidence, ensured that all the loans were repaid. This amounted to acquiescence in Mr Banasiak’s execution of the loans if not prior to the execution then, at the very least, after it.

85. There was nothing in the company’s Constitution that prohibited this and, indeed, the Constitution expressly allowed for the delegation of authority. [38]

    38. Ex JF-1, cll 4.2 and 7.1.

86. For those reasons, I conclude that there was an implied grant of authority to Mr Banasiak that entitled him to execute loan agreements on behalf of JFS Hair Management and, as a consequence, that his execution of the second loan agreement bound JFS Hair Management.

iii. Corporations Act s 129

87. Given my conclusion about ostensible and implied authority, it is strictly unnecessary to deal with the argument based on the assumptions that arise under s 129 of the Corporations Act. In any event, I will do so briefly.

88. Section 127 of the Act provides:

127  Execution of documents (including deeds) by the company itself

(1)   A company may execute a document without using a common seal if the document is signed by:

(a)   2 directors of the company; or

(b)   a director and a company secretary of the company; or

(c)   for a proprietary company that has a sole director who is also the sole company secretary—that director.

…

(4)   This section does not limit the ways in which a company may execute a document (including a deed).

(Emphasis in original)

89. A person is entitled to make the assumptions in s 129 in relation to dealings with a company and a company is not entitled to assert in proceedings in relation to those dealings that any of those assumptions is incorrect: s 128(1). The assumptions that can be made under s 128 pursuant to s 129 include that a person may assume that a document has been duly executed by the company if a document appears to have been signed in accordance with s 127(1): 129(5).

90. If the matter were free from authority the plain words of s 127(1) would, it appears to me, be inconsistent with the argument of the plaintiff that a company may execute a document by the signature of one director in the circumstances where that company has two directors but where the person signing is both a director and a company secretary. First, a company secretary need not be a director of the company; secondly, sub-pars 127(1)(a) and (b), which relate to companies with more than one director, are contrasted in s 127(1)(c) with a company which only has one director and one company secretary. The company executes documents by the signature of the single director. However, the matter is not free from authority.

91. In Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 one of the issues was whether the company was bound by a supply agreement in circumstances where that company had two directors but the agreement was only signed by one of the directors who was also a company secretary of that company.

92. At trial the plaintiff, being the other party to the supplier under the agreement, relied on two principal contentions: first, that the agreement was executed by the company in light of the fact that the person who was the director and company secretary signed the document: s 127(1)(b). The second contention was that the director who signed the agreement was entitled to exercise the company’s power to make contracts as he was acting with the company’s express or implied authority: see [20].

93. It was argued by the defendant before the primary judge that the agreement was not executed in accordance with s 127(1)(b) because that provision could not be satisfied by the signature of one person who was wearing both hats.

94. The primary judge, Mahoney SC DCJ, found that the agreement had been signed by the defendant’s director as a director who clearly had both implied and ostensible authority to do so. He also found that, given the history between the parties, s 129(5) of the Act entitled the plaintiff to assume that the agreement had been duly executed.

95. On appeal the second of two grounds that were ultimately relied upon was that the primary judge had erred in finding that the appellant had executed and was bound by the agreement having regard to s 127: see [29]. McColl JA noted, at [37], that the appellant argued that his Honour the primary judge was wrong to rely on s 127 of the Act because, as it had been argued below, it was not sufficient for a single director who was also a secretary to execute a document. It was further argued that there could be no reliance on s 129(5) because, on a proper reading of s 127(1), where there was more than one director it was necessary for all directors to execute a document.

96. Justice McColl, with whom Ward and Sackville JJ agreed, held that the appellant’s argument concerning s 127 of the Act should be rejected: [66].

97. Her Honour gave her reasons as follows:

“70. Section 127(1) is not mandatory, as is apparent from s 127(4). [46] Persons dealing with ZHH were entitled to assume that the company’s constitution had been complied with and that a director had been duly appointed and had authority to exercise the powers customarily performed by a director of a similar company. [47] The primary judge held that Hui had ostensible authority to act on behalf of ZHH, a finding of fact Hui did not challenge. To persuade the primary judge that Mr Lee was not entitled to make the s 129(5) assumption, Hui had to establish that, as at 1 April 2010, Mr Lee actually knew or suspected that assumption was incorrect. [48] It was not necessary that BM establish that Mr Lee had actually made any of the assumptions in s 129.

71. Hui submitted that BM was not entitled to make the s 129(5) assumption because Mr Lee had been on notice since BM obtained a search of ZHH in 2007 that the latter was a two director company. [50] The primary judge accepted BM’s submission that there was no evidence to that effect, not least, it would appear, because no such proposition was put to Mr Lee in cross-examination. [51] Hui did not advance any submission on appeal challenging his Honour’s finding in this respect.

72.   In my view, the primary judge did not err in holding that, in the circumstances, BM was entitled to assume that the 2010 Agreement had been duly executed by ZHH, given the history of dealings between it and Hui.”

98. Although the reasoning in Zhang is very concise, it is clear enough that the Court of Appeal unanimously rejected the argument that it was not possible for a director who is also a company secretary to sign a document thereby binding the company under s 127(1)(b) of the Act. On that authority, and as I accept (for the reasons I have given in respect of ostensible authority) that Mr De Baecque neither knew nor suspected that there was a deficiency in the execution of the agreement, the plaintiff must succeed on this basis as well.

99. In argument, the plaintiff narrowed his reliance on Zhang, saying that the Court’s conclusion relied on the anterior finding of the primary judge that there was ostensible authority. I am not certain that is correct. If there were ostensible authority, then, given that s 127 does not limit the ways in which a company can execute a document, there is no need for the plaintiff to resort to the presumptions in s 129(5). Alternatively, though, if the plaintiff’s argument about the limits of the reasoning in Zhang is accepted, that would provide an alternative basis for concluding that the second loan agreement was properly executed and so JFS Hair Management was bound by its terms.

100. For each of those reasons, JFS Hair Management is liable for monies outstanding under the second loan agreement.

Claim against Mr Banasiak

101. There are two claims against Mr Banasiak: first, in respect of his guarantee of JFS Hair Management’s obligations under the second loan agreement; and secondly, in respect of the further agreement. As I have mentioned, judgment has been entered against Mr Banasiak in respect of the 23 August 2018 agreement and the only remaining issue is whether he was ever liable under the second loan agreement.

102. This issue only arises because Mr Banasiak did not sign the second loan agreement in the place indicated for the guarantor to sign, but only where the company’s name was. On one view, he can be taken to have signed the document in both capacities. However, there is no requirement in New South Wales that a contract of guarantee be in, or evidenced by writing, and so there is no need to engage in the debates that arise from the operation of s 4 of the Statute of Frauds 1677 and its equivalents. [39] The only question, then, is whether the objective evidence establishes that there was an agreement by Mr Banasiak to guarantee JFS’ obligations under the second loan agreement.

     39. See, for example, Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21.

103. The answer to that issue is that there was. First, in the email to Mr De Baecque on 5 April 2016 he said that he would be guarantor. [40] Secondly, he made a number of interest payments under the second loan agreement. [41] Thirdly, in the further guarantee agreement, he expressly acknowledged his liability as guarantor under the second loan agreement. [42]

     40. Ex CB-1, pp 241-245.

     41. Affidavit of Stephane Banasiak dated 26 April 2020 at [106], [101]-[102]; Tcpt, 6 August 2020, p 183 (35) – p 184 (15).

     42. Ex CB-1, pp 246-252.

Orders

1. Amount of principal owing

104. The loan was for $400,000. None of that has been repaid.

1. Interest

105. Mr Banasiak has paid $48,500 of the interest owing under the agreement (which accrues at the rate of 10% per annum). The following table sets out the amount of interest that has accrued, has been paid and what is outstanding.

Period	Principal outstanding	Interest accrued	Interest paid	Interest outstanding
5.4.16 – 4.4.17	$400,000	$40,000	$20,000	$20,000
5.4.17 – 4.4.18	$400,000	$40,000	$18,500	$21,500
5.4.18 – 4.4.19	$400,000	$40,000	$10,000	$30,000
5.4.19 – 4.4.20	$400,000	$40,000	$0	$20,000
5.4.20 – 26.8.20	$400,000	10,314.55	$0	$10,314.55
TOTAL	$101,814.55

Costs

106. Clause 3 of the second loan agreement required JFS Hair Management to repay and indemnify the plaintiff against all costs, losses, expenses, liabilities, damages, fees and disbursements (including all reasonable legal costs on a solicitor and own client basis) paid or incurred by the plaintiff of or incidental to, inter alia, a breach of or default under, the second loan agreement by JFS Hair Management or Mr Banasiak.

107. The plaintiff seeks an order that it be allowed further time to adduce evidence of its actual costs and then to have the matter set down for further hearing on the question of costs. Given the caseload of the Court this would mean that the question of costs would have to be heard some time next year. That is not in the interests of justice. In my view the defendants’ liability under cl 3 of the second loan agreement may equally be met by an order for costs against each of them on an indemnity basis.

Conclusion

108. For the preceding reasons there will be judgment for the plaintiff against the defendants jointly and severally in the amount of $501,814.55. The defendants are to pay the plaintiff’s costs on an indemnity basis. There will be an order that the monies held by the Court by way of security for costs pursuant to orders made on 7 June 2019 and 28 February 2020 be released forthwith to the trust account of the solicitor for the plaintiff.

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Endnotes

Decision last updated: 26 August 2020