Evajade Pty Ltd v National Australia Bank Ltd (No 2)

[2005] SASC 229

SUPREME COURT OF SOUTH AUSTRALIA

(Appeal from a Master: Civil)

EVAJADE PTY LTD v NATIONAL AUSTRALIA BANK LTD (NO 2)

Judgment of The Honourable Justice Gray

5 July 2005

PROCEDURE

APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - STAY OF PROCEEDINGS

Appeal from order of Master ordering a permanent stay of proceedings - application by non-party to represent plaintiff company - application made under Rule 36.11 of the Supreme Court Rules 1987 (SA) - consideration of Rule 36.11 and inherent jurisdiction of the Court - consideration of section 127(1) of the Corporations Act 2001 (Cth) - neither Rule 36.11, section 127(1) of the Corporations Act or the inherent jurisdiction of the Court allow non-party to represent Evajade in the circumstances - no error in Master's approach - appeal dismissed.

Supreme Court Rules 1987 (SA) r 36.11; Corporations Act 2001 (Cth) s 127, s 206, referred to.
Industrial Mutual Liability Pty Ltd & Ors v International Vineyards Pty Ltd (No 1) [2005] SASC 153; Evajade Pty Ltd v Cockatoo Ridge Wines Pty Ltd [2005] SASC 152; Radford v Freeway Classics Ltd [1994] 1 BCLC 445, considered.

EVAJADE PTY LTD v NATIONAL AUSTRALIA BANK LTD (NO 2)
[2005] SASC 229

Appeal from a Master

1. GRAY J                 This is an appeal from a decision of a Master ordering a stay of proceedings.  The order was in the following terms:

   That this action be permanently stayed, other than to give effect to paragraph 2 below, unless and until a solicitor files a notice of acting for the plaintiff in accordance with R 11.

   The plaintiff to pay the defendant’s costs of the action up to and including this order to be taxed or agreed as between solicitor and own client.

   Fit for counsel.

2. On 24 January 2005 these proceedings were commenced in the District Court by Evajade Pty Ltd.  They were subsequently transferred to this Court. 

3. Evajade, by its statement of claim, alleged that National Australia Bank Limited wrongfully refused to accept a bill of exchange.  The underlying transaction related to an attempted purchase in January 2005 of two motor vehicles, a Maseratti and a Range Rover, from Walkerville Prestige Cars.  It is said that Andrew Morton Garrett, on behalf of Evajade, attempted to purchase both vehicles with a bill of exchange for $600,000.  National Australia Bank was the banker for Walkerville Prestige Cars.  The bank refused to negotiate the bill when it was presented for payment.  Evajade sought relief including pre-action discovery and damages.

4. Evajade pursued its claim in two capacities, as the trustee of two trusts: the Andrew Garrett Family Trust, and the Andrew Garrett Family Trust No. 2.  The summons was signed by Mr Garrett pursuant to an alleged power of attorney from Evajade.  No solicitor is on the record as acting for Evajade.

5. On 1 April 2005 National Australia Bank applied to strike out the summons and statement of claim on the grounds that the action had not been properly instituted by Evajade and that Evajade was not represented by a solicitor as required by the District Court and Supreme Court Rules.  It was claimed that the action did not comply with the rules of pleadings, disclosed no reasonable cause of action, had a tendency to cause embarrassment, and was scandalous and vexatious. 

6. On 21 April 2005 the learned Master made an order permanently staying the action unless and until a solicitor filed a notice of acting for the plaintiff in accordance with rule 11 of the Supreme Court Rules.  The present appeal is against this order and a consequential costs order.

7. On the hearing of the appeal Mr Garrett made submissions in support of the appeal.  It is not entirely clear as to whether he was doing so on his own behalf, on behalf of Evajade or both.  No objection was taken to Mr Garrett presenting argument on the appeal.  Full submissions were made. 

8. Andrew Kenneth Sandow, the person said to be the sole director of Evajade, was present in Court throughout the hearing.  Mr Sandow did not seek to speak on behalf of the company, to represent the company or to take any part in the proceedings. 

9. This appeal was heard with two other appeals which raised substantially similar issues.[1]  In the course of submissions relating to one of those appeals, Mr Garrett sought to put a number of documents before the Court.  The documents had not been tendered before the Master.  The documents were marked for identification.  Initially the documents were not received, as their relevance was unclear.  Although their relevance is marginal at best, the documents have been received as material for consideration in the present proceedings and the other two appeals.[2]

   [1] Appeals lodged in Supreme Court Action No 247 of 2004 and No 257 of 2005

   [2] A1 – Email from Andrew Garrett to John Hart dated 18 May 2005 with attached Deed of Company Arrangement; A2 – Facsimile from Andrew Garrett to David Proudman and Scott Evans dated 5 May 2005; A3- Application to Court to Manage Corporation completed by Andrew Garrett dated 6 May 2005; A4 – Letter from ASIC to Andrew Garrett dated 10 May 2005; A5 – Affidavit of Andrew Morton Garrett dated 20 April 2005 with attached exhibits; A6 – Document entitled ‘The Andrew Garrett Group Structure’; A7 – Facsimile from Griffin Hilditch to Evajade dated 14 April 2005; A8 – Letter to the Supreme Court of South Australia from Andrew Garrett dated 4 May 2005.

10. Counsel in the three appeals agreed that the submissions made in respect of each appeal were to be considered as submissions in respect of each of the other appeals and that the documents were to be treated as exhibits in each appeal. 

    The Master’s Reasons

11. The Master delivered reasons for his order granting a permanent stay.[3]  In those reasons he adopted reasons published in the two other applications.[4]  These other applications are the subject of the other two appeals earlier referred to in these reasons.[5] 

    [3] Reasons of Judge Lunn delivered 21 April 2005 in Supreme Court Action No 164 of 2005.

    [4] Industrial Mutual Liability Pty Ltd & Ors v International Vineyards Pty Ltd & Ors [2005] SASC 153 and Evajade Pty Ltd v Cockatoo Ridge Wines Pty Ltd [2005] SASC 152.

    [5] Judgments in those other appeals are respectively [2005] SASC 237; [2005] SASC 238.

12. Rule 36.11 of the Supreme Court Rules 1987 (SA) provides:

    (1)A company may apply for leave to act in an action in person and to appear in Court or in Chambers by a managing or governing director or other person in whom by the articles of association of the company the powers of the board of directors are vested between board meetings if he is authorised by a resolution of the company so to do.

    (2)Where a company seeks to issue a summons other than through a solicitor such summons shall be filed together with an application for leave under subrule (1), but the summons shall only be issued if the Court gives leave under subrule (1) upon a hearing of the application.

    (3)     On the hearing of an application the company must satisfy the Court:

    (a)     that the person seeking to represent the company is authorised by the company to do so and has power to bind the company;

    (b)     that that person has authority to make admissions and give undertakings which will bind the company;

    (c)     that that person has power on behalf of the company to sign originating process or notices to defend or set aside process as the case may be;

    (d)     that it is otherwise proper that the order be made.

    (4)Any signature to any process or document filed in the Registry by a person in whose favour an order is made under subparagraph (1) hereof shall be valid and shall bind the company.

    (5)Any document filed under this Rule shall state the capacity in which the party signed the document signs it and that he has the authority of the company to do so.

13. Rule 36.11(1) empowers this Court to permit a company to act in person and to appear in court by a managing or governing director. The rule also empowers the Court to permit a person in whom, by the articles of association of the company, the powers of the board of directors are vested between board meetings if that person is authorised by a resolution of the company to do so.

14. Mr Garrett was declared bankrupt on 24 September 2004. He remains an undischarged bankrupt. By section 206B(1) of the Corporations Act 2001 (Cth) Mr Garrett is disqualified from acting in the management of any company by reason of his bankruptcy. That section provides:

    (1)     A person becomes disqualified from managing corporations if the person:

    (a)     is convicted on indictment of an offence that:

    (i)concerns the making, or participation in making, of decisions that affect the whole or a substantial part of the business of the corporation; or

    (ii)concerns an act that has the capacity to affect significantly the corporation’s financial standing; or

    (b)     is convicted of an offence that:

    (i)is a contravention of this Act and is punishable by imprisonment for a period greater than 12 months; or

    (ii)involves dishonesty and is punishable by imprisonment for at least 3 months; or

    (c)     is convicted of an offence against the law of a foreign country that is punishable by imprisonment for a period greater than 12 months.

    The offences covered by paragraph (a) and subparagraph (b)(ii) include offences against the law of a foreign country.

    (2)The period of disqualification under subsection (1) starts on the day the person is convicted and lasts for:

    (a)     if the person does not serve a term of imprisonment—5 years after the day on which they are convicted; or

    (b)     if the person serves a term of imprisonment—5 years after the day on which they are released from prison.

15. Mr Garrett could commit a criminal offence under section 206A(1) of the Corporations Act if he were to act as a manager of Evajade.  This section provides:

    A person who is disqualified from managing corporations under this Part commits an offence if:

    (a)     they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

    (b)     they exercise the capacity to affect significantly the corporation’s financial standing; or

    (c)     they communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation:

    (i)knowing that the directors are accustomed to act in accordance with the person’s instructions or wishes; or

    (ii)intending that the directors will act in accordance with those instructions or wishes.

16. The Master concluded that Mr Garrett was not a managing or governing director of Evajade.  The Master further concluded that Mr Garrett was not a person in whom, by the articles of association of a company, the powers of the board of directors were invested between board meetings.  The Master also concluded that Mr Garrett was not empowered by the company articles to act for the company, nor was he authorised by resolution of the company to act in the action or to appear in Court.

17. Mr Garrett accepted that he was not a managing or governing director of Evajade. He accepted that the articles of association did not on their terms vest the powers of the board of directors in him between board meetings. However, he contended that he was the donee of a power of attorney granted by Evajade, which in substance authorised him to act or appear for Evajade in these proceedings in terms that brought him within rule 36.11(1). The Master rejected this submission.

18. The Evajade power of attorney was in the following terms:

    ENDURING POWER OF ATTORNEY

    (Pursuant to Section 6 of the Powers of Attorney and Agency Act 1984)

    THIS ENDURING POWER OF ATTORNEY is made pursuant to Section 6 of the Powers of Attorney Act 1984, this 4^th of December, 2004 by EVAJADE PTY LTD, ACN; 007 954 154, in its own capacity and in its Capacity as Trustee of “The Andrew Garrett Family Trust” & “Andrew Garrett Family Trust No 2” of BDO Accountants & Advisors, 248 Flinders St, Adelaide, SA 5000

    1.HEREBY APPOINTS; ANDREW MORTON GARRETT of “Springwood Park Homestead”, Lot 3, Mt Barker Rd., Leawood Gardens, SA 5150 to be my attorney and to do on my behalf anything that I may lawfully authorise my Attorney to do.

    2.AND BY THIS DEED, I authorise and agree to ratify whatever the attorney shall lawfully do or cause to be done on my behalf by virtue of this Deed and the attorney shall be entitled to assume the validity of this power of attorney until otherwise advised.

    3.The authority of my attorney is not subject to any conditions, limitations or exclusions.

    4.I DECLARE that this is an Enduring Power of Attorney and will continue to operate and have full force and effect notwithstanding that I may subsequently become incapable.

    SIGNED SEALED & DELIVERED [Signed [Averil Gay Garrett]]

    EVAJADE PTY LTD

    In the presence of the following two witnesses

    [Signed Andrew Kenneth Sandow and Michael S Hegarty ]

    …

    I, ANDREW MORTON GARRETT, the person appointed to be the Donee of the Power of Attorney created by the instrument on which this acceptance is endorsed accept the appointment, and acknowledge

    (a)that the power of attorney is an enduring power of attorney and will continue in force notwithstanding the subsequent legal incapacity of the donor; and

    (b)that I will, by accepting this power of attorney, be subject to the requirements of the Powers of Attorney and Agency Act 1984

    Signed [Andrew Morton Garrett]

    [Donee of the Power of Attorney]

19. An affidavit of Michael Hegarty, a solicitor before whom the Evajade power of attorney was signed, was before the Master.  Mr Garrett did not challenge the contents of the affidavit.  Mr Hegarty deposed inter alia as follows:

    I am a solicitor admitted to practice in the Supreme Court of the State of South Australia.

    Prior to a date in mid December 2004, I did not know and had no contact with the person now known to me as Andrew Morton Garrett (Mr Garrett).

    My recollection is that I did not meet him until just prior to Christmas 2004 when he attended my office seeking a solicitor to witness affidavits prepared by him.

    This attendance was not recorded.

    My office is located next door to the offices of Andrew Sandow Business Services, offices used by Mr Garrett.

    I was on leave from 24 December 2004 until 10 January 2005.

    My records show that Mr Garrett attended my office on 24 January 2005.

    It is my recollection that on that occasion Mr Garrett had with him a bundle of documents drafted by him which included Powers of Attorney.

    Mr Garrett asked me to witness the execution of the Powers of Attorney and he proceeded to sign them in front of me.  After witnessing his signature I then signed the Powers of Attorney and applied my stamp to each.

    …

    Later that day Mr Garrett attended with a person now known to me as Averil Gay Garrett (Mrs Garrett).

    On this occasion I witnessed Mrs Garrett sign a Power of Attorney in her own name as donor appointing Andrew Morton Garrett as donee.

    Mrs Garrett also signed a Power of Attorney on behalf of Evajade Pty Ltd appointing Andrew Morton Garrett as donee.

    I noted the signature of Andrew Kenneth Sandow had previously been applied to both of the above Powers of Attorney and was not witnessed by me.

    …

    I do not now act and have never acted as a solicitor for either Andrew Morton Garrett or Averill Gay Garrett.

    I have never rendered an account to Mr Garrett for any services provided to him.

    I have no knowledge of the business affairs of Mr or Mrs Garrett other than information I have read in passing from intermittent media reports seen by me.

20. Mr Hegarty’s affidavit also included as an exhibit a letter of 10 March 2005 from himself to Mr Garrett.  That letter is in the following terms:

    During January this year you attended at my office to execute a number of Powers of Attorney drafted by you.  I witnessed you signing those Powers of Attorney.

    I have been informed that the above Powers of Attorney have been provided to the Courts as evidence of certain matters and I will be called to give evidence as to the date of their execution.

    I advise the following:

    -A relationship of solicitor and client does not exist between us and you are not covered by legal professional privilege;

    -I will be required to give evidence to the Courts in respect of the Powers of Attorney;

    -I will be advising the Court the Powers of Attorney were executed in January 2005 and not on the dates shown on the documents.

    Please advise your position within 24 hours of receipt of this letter.

21. Both before the Master and on appeal Mr Garrett asserted that an earlier power of attorney had been executed by Evajade in similar terms to the Evajade power of attorney.  He asserted that the Evajade power of attorney executed before Mr Hegarty was in substantially the same terms as that earlier version.  No earlier version of the Evajade power of attorney has been produced or tendered.  No explanation has been given as to why the earlier power of attorney has not been produced.

22. The Master observed that the Evajade power of attorney, although recording that it was executed as being signed, sealed and delivered, had not in fact been sealed.  The Master reasoned that the absence of a seal suggested that execution of the power was incomplete and therefore ineffectual.  On the hearing of the appeal Mr Garrett accepted that this was an inference that could be drawn.

23. The Master in his reasons then addressed section 127(1) of the Corporations Act.  That section provides:

    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.

    The Evajade power of attorney bears three signatures apart from that of Mr Hegarty.  One is Mr Garrett’s, the donee.  Mrs Garrett’s signature appears, presumably as a director of Evajade.  The third signature is that of Mr Sandow, presumably as a witness.  The power of attorney is not signed by two directors or a director and a company secretary.

24. Mrs Garrett was declared bankrupt on 24 December 2004 and consequently could not have signed the power as a director in 2005. As discussed earlier, section 206B of the Corporations Act disqualifies an undischarged bankrupt from acting in the management of a company.  If Mr Sandow were to be treated as signing the Evajade power of attorney as a director then it would follow that the power of attorney was signed without a common seal and by only one officer of the company.

25. The Master reasoned that each of the foregoing considerations, and in particular their cumulative effect, raised serious and substantial doubts about the validity of the Evajade power of attorney.  The Master also considered it to be significant that there was no evidence from any current office holder of the company deposing to Mr Garrett’s authority to act for Evajade.  That remained the position on the hearing of this appeal. 

26. Having regard to these considerations the Master concluded that he was not prepared to find on the balance of probabilities that Evajade had given a valid and effectual power of attorney that would authorise Mr Garrett to act on its behalf in this action. 

27. On appeal Mr Garrett accepted that the findings of fact made by the Master were correct.  He accepted the validity of each of the considerations identified by the Master.  However, he challenged the Master’s ultimate conclusion that it was more likely than not that an invalid and ineffectual power of attorney had been given to Mr Garrett.  Mr Garrett contended that the application and this appeal should be considered against the background of the wide-ranging fraud allegations that he and the other Garrett interests seek to pursue against National Australia Bank.  It was Mr Garrett’s case that the application was simply an illegitimate attempt by National Australia Bank to frustrate his efforts to have the Court determine the efficacy of the bill of exchange tendered to Walkerville Prestige Cars.

1. Counsel for National Australia Bank suggested that one purpose of having Mr Garrett represent Evajade was to avoid possible exposure to costs on the part of Mr Sandow.  Attention was drawn to the following observations of Bingham MR in Radford v Freeway Classics Ltd:[6]

   It is worthy of note that the provisions which I have cited from the rules which require corporations to appear through solicitors are not merely rules for the sake of having rules but rest on a basis of fairness and good sense which indeed, as I understand, Mr Corry understood and accepted.  A limited company, by virtue of the limitation of the liabilities of those who own it, is in a very privileged position because those who are owed money by it, or obtain orders against it, must go empty away if the corporate cupboard is bare.  The assets of the directors and shareholders are not at risk.  That is an enormous benefit to a limited company but it is a benefit bought at a price.  Part of the price is that in certain circumstances security for costs can be obtained against a limited company in cases where it could not be obtained against an individual, and another part of the price is the rule that I have already referred to that a corporation cannot act without legal advisors.  The sense of these rules plainly is that limited companies, which may not be able to compensate parties who litigate with them, should be subject to certain constraints in the interests of their potential creditors.

   Although it is not possible to make any finding as to the motive behind the proposed representation, it remains a possibility that the purpose is related to the avoidance of an exposure to costs on the part of Mr Sandow, the sole director of Evajade.

   [6] [1994] 1 BCLC 445 at 448.

2. The Master was correct to conclude that Mr Garrett was not within the class of persons identified in Rule 36.11(1). Even assuming that Mr Garrett was within the class of persons who could be given, on application of the company, leave to act and appear for Evajade, it does not follow that leave should be granted. Section 206A(1) of the Corporations Act provides that it is an offence for an undischarged bankrupt to make or participate in making decisions that affect the whole or a substantial part of the business of a corporation. There is a possibility if not a probability that Mr Garrett, in representing Evajade, would participate in the making of decisions that would affect a substantial part of the business of Evajade. That business is to act as a trustee for two Andrew Garrett Family Trusts. Mr Garrett submitted that Evajade was in substance part of the Garrett interests and that he should be allowed to represent Evajade along with all other Garrett interests. The terms of the power of attorney referred to earlier provide evidence, or suggest the involvement, of Mr Garrett in the general management of the affairs of Evajade. The exercise of such powers may well lead to a breach of section 206A(1) of the Corporations Act. It would be inappropriate to grant leave under Rule 36.11 where there was potential, that a person appointed, would or may commit a breach of section 206A(1). Even if Mr Garrett was a person within Rule 36.11(1) a grant of leave should not be made in his favour on the material before this Court.

3. The Master also considered the inherent jurisdiction of the Court as a possible basis for allowing Mr Garrett to act and appear for Evajade.  In that respect he observed:[7]

   There is some authority that over and above the Rules the Court has an inherent jurisdiction to permit a corporation to carry on proceedings other than by duly retained legal representatives, but it is confined to exceptional circumstances:  Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (1986) 8 NSWLR 104; Arbuthnot Leasing International Ltd v Havelet Leasing Ltd [1991] 1 All ER 591; Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (2000) 22 WAR 372. Assuming for present purposes that there is such an inherent jurisdiction in this Court, it is not to be exercised in favour of Mr Garrett because he has not shown sufficient exceptional circumstances. The mere fact that a company cannot afford legal representation is not in itself a sufficient exceptional circumstance: Radford v Freeway Classics Ltd [1994] 1 BCLC 445. In any event such inherent jurisdiction could not be exercised in Mr Garrett’s favour unless he showed he was duly authorised by each company to represent it. For the reasons given above he has not shown this.

   (There is some authority that the discretion of the Court to allow a non lawyer to represent a company by dispensing with a rule to the contrary can be exercised where sufficient reason is shown and it is in the interests of justice to do so, and it is not necessary to show exceptional circumstances: Alice Springs Abattoirs Pty Ltd v Northern Territory (1996) 111 NTR 9. Even if the test was this low, for the reasons stated I would not have found on the evidence before me that there was sufficient reason, or that it was in the interests of justice, that Mr Garrett should be allowed to represent, or speak for, the four companies.)

   [7] Industrial Mutual Liability Pty Ltd & Ors v International Vineyards Pty Ltd & Ors [2005] SASC 153 at [20].

4. The Master was correct to refuse to exercise any inherent jurisdiction of the Court that may exist.  The reasons that militate against the exercise of any such assumed jurisdiction include the following:

   -the lack of any satisfactory evidence before this Court that Evajade has authorised Mr Garrett to represent it.

   -the absence of any satisfactory explanation before this Court as to why the person said to be the sole director of Evajade, Mr Sandow, should not represent Evajade.

   -Mr Garrett is an inappropriate person to represent Evajade by reason of his personal involvement in the underlying facts raised in the proceedings.  His personal credit is directly in issue in these proceedings.  Circumstances of a potential conflict arise.  This factor supports the conclusion that he is an inappropriate person to represent Evajade.

   -any representation of Evajade is likely to involve Mr Garrett in participating in the making of decisions that could affect a substantial part of the business of Evajade. If this were to occur, as Mr Garrett is an undisclosed bankrupt, he would be exposed to committing a breach of section 206A(1) of the Corporations Act.

5. As earlier observed, on the hearing of this appeal Mr Garrett did not challenge the factual findings of the Master nor his essential reasoning. The real substantive challenge was to the adverse exercise of the Master’s discretion under Rule 36.11(1), if it applied, or alternatively under the inherent jurisdiction of the Court.

6. No error of principle has been shown in the Master’s approach.  It has not been demonstrated that the Master overlooked any material fact or failed to have regard to any relevant material.  No basis has been shown to interfere with his discretion to order a permanent stay.  Further, the review of the material confirms that the order made was the appropriate order.

7. During the hearing of this appeal Mr Garrett referred to an application pursuant to section 206G of the Corporations Act seeking leave that he be authorised to manage the affairs of Evajade.  No application has yet been made let alone determined.  It appears, however, that Mr Garrett has written to ASIC advising of an intention to make such an application.  ASIC has responded advising that the forms by which he has given notice were inappropriate and advising him of the appropriate process to follow.  Were Mr Garrett to pursue such an application successfully, grounds might arise for a lifting of the stay.

8. There is one aspect of the Master’s order that causes concern and should be varied. The present stay should be conditioned on terms broader than those ordered by the Master. In the event that Mr Garrett, in changed circumstances, or some other person is qualified to represent Evajade within the terms of Rule 36.11 or within the inherent jurisdiction of the court, it may be appropriate to discharge the permanent stay order.

9. Subject to this variation of the order of the Master, this appeal is dismissed.