Hino Group Pty Ltd v Singh and Anor

[2024] NSWDC 124

District Court

New South Wales

Medium Neutral Citation:

Hino Group Pty Ltd v Singh and Anor [2024] NSWDC 124

Hearing dates:

14 March 2024

Date of orders:

19 April 2024

Decision date:

19 April 2024

Jurisdiction:

Civil

Before:

Weber SC DCJ

Decision:

See Orders

Catchwords:

CONTRACT –– Application of s 127 of the Corporations Act - Execution of a document where there is more than one director – Where a director is also the company secretary – Ratification of a contract

Legislation Cited:

Corporations Act 2001

Evidence Act 1995

Cases Cited:

Boz One Pty Ltd v McLellan (2015) 105 ACSR 325

Celthene Pty Limited v WKJ Hauliers Pty Limited [1981] 1 NSWLR 606

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

Gorji Property Investment Pty Limited [2018] NSWSC 1671

Hewlett-Packard Aust Pty Limited v Exeed Pty Limited [2004] FCA 135

Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103

Leybourne v Permanent Custodians Limited [2010] NSWCA 78

Prime Constructions Pty Ltd v Westbridge Investments Pty Ltd (2004) 22 ACLC 1390

Robinson v Becata Pty Limited (2004) 12 BPR 22,699; [2004] NSWSC 310

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

Texts Cited:

Richie's Uniform Civil Practice Note

Category:

Principal judgment

Parties:

Plaintiff: Hino Group Pty Ltd
First Defendant: Kulwant Singh
Second Defendant: Kiran Sarao

Representation:

Counsel:
Plaintiff: Mr J Horowitz
Defendants: Mr D Klineberg

Solicitors:
Plaintiff: Sun Lawyers
Defendants: Addisons

File Number(s):

2023/123762

Publication restriction:

None

JUDGMENT

Introduction

1. These proceedings concern a contract for the sale “off the plan” of an apartment in Barangaroo. The consideration for the purchase was $7.1 million. The contract was dated 10 February 2023. It was executed on the plaintiff's behalf by Mr Damon Wan. Mr Wan was both a director of the plaintiff, and its company secretary.

2. At the time of execution of the Contract, the other director of the plaintiff was Mr Wan’s mother, Ms Huang. The evidence was that Ms Huang became a director so that she could execute documents on the company's behalf in the event that her son was overseas. She says that it was her belief that a single director could sign documents of the company's behalf.

3. A holding deposit of $17,750 was paid by the defendants to the plaintiff. This left the balance of the contractual deposit of $692,250 outstanding. The parties thereafter entered into a series of negotiations which led to extensions of time within which the defendants were to make the payment of the balance of the deposit. There was also agreements for the defendants to pay the balance of the deposit in instalments.

4. None of these arrangements for payment of the balance of the deposit were met by the defendants. The last arrangement provided for payment as follows:

1. the balance of 5% deposit (being $337,250) by 24 March 2023; and

2. the balance of 10% deposit (being $355,000) by 6 April 2023.

5. The first instalment payment of 5% of the deposit was not made on the due date.

6. Accordingly, on 27 March 2023, the solicitors for the plaintiff by email issued a Notice of Termination on the defendants. Under cover of the same email, the plaintiff also served a Letter of Demand for the balance of the deposit. The letter of demand required payment of the balance of the deposit by close of business on 11 April 2023.

7. The defendants failed to pay the outstanding balance by that date, and on 18 April 2023, these proceedings were commenced.

The Defendants’ Case

8. The defendants allege that they are not bound to pay the balance of the purchase price as the contract for sale upon which the plaintiff relies never in fact came into existence. This argument revolves around the proposition that the execution of the contract for sale was not in accordance with either the Corporations Act or the Company's Constitution.

The Corporations Act Submissions

9. Section 127(1) of the Corporations Act is in the following terms:

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 - that director, if:

(i)   the director is also the sole company secretary; or

(ii)   the company does not have a company secretary.

10. The defendants’ case was that the plaintiff had two directors at the time of the execution of the contract, and as such either both of the directors, or a director and the company secretary were required to sign the contract. The plaintiff however says that as Mr Wan was both a director and the company secretary, the execution of the contract by him alone was in conformity with s 127(1)(b). The defendants’ on the other hand contended that the execution of a document by one person is limited to companies of which there is a sole director (s 127(1)(c).

11. In support of this contention, the defendants relied upon the decisions of Young CJ in Eq in Prime Constructions Pty Ltd v Westbridge Investments Pty Ltd (2004) 22 ACLC 1390; [2004] NSWSC 861. They also relied on the decision of Black J in Gorji Property Investment Pty Limited [2018] NSWSC 1671.

12. The decision in Gorji in turn referred to the decision of the South Australian Full Court in Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103.

13. Knight Frank was referred to with evident approval by the Victorian Court of Appeal in Boz One Pty Ltd v McLellan (2015) 105 ACSR 325; [2015] VSCA 68 at [222] (a unanimous judgment of Whelan, Santamaria and Kyrou JJA).

14. In my view however, the defendants’ contention in relation to s 127 (1)(b), confronts a formidable obstacle in the New South Wales Court of Appeal decision in Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166.

15. In my view, this decision can only be understood as the Court of Appeal accepting that a director, who is also a company secretary of a multi-director company could validly execute a document on the company's behalf conformably with s 127(1)(b). That is to say on my reading of Zhang, the Court of Appeal supports the plaintiff's construction of s 127(1)(b).

16. Smith SC DCJ considered Zhang in De Baecque Johnsen Company Pty Ltd v JFS Hair Management Pty Ltd [2020] NSWDC 476.

17. In that matter his Honour stated that in the absence of authority, his view would have been that s 127(1)(b) was not satisfied in the case of a multi-director company, if a single director signed a document, and that person was also the company secretary. His honour considered however that the question was not free of authority [90].

18. His Honour went on to conclude that Zhang must be understood as having decided to the contrary, and as such a single director who was also the company secretary could validly execute a contract conformably with s 127(1)(b).

19. His Honour stated:

[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.

20. I respectfully agree with his Honour's conclusion, and like his Honour consider myself bound to follow Zhang.

21. Mr Klineberg of counsel, who appeared for the defendants, argued that Zhang had no application to the present circumstances as that case involved consideration of s 129 of the Corporations Act, which the present case does not. He sought to categorise Zhang as being “the other side of the coin”. He contended that Zhang should be limited to its facts.

22. I do not accept these submissions. Conformably with the decision of Smith SC DCJ, I consider that I am bound by Zhang, and as such find that the contract for sale was executed by Mr Wan in conformity with s 127(1)(b).

23. This conclusion is determinative of the defendants’ case in so far as it relies on the manner of execution of the contract, as such I shall only briefly deal with the parties other contentions on this issue.

Clause 112 of the Plaintiff’s Constitution

24. The plaintiff also relied on clauses 112 and 113 of its Constitution as permitting the execution of the contract in the manner in which it was executed by Mr Wan.

25. Clause 112 of the Plaintiff’s Constitution provides as follows:

“Any 2 directors of the company, or director and company secretary, or 1 director who is a sole director or who is both a director and company secretary, may sign, draw, accept, endorse or otherwise execute a negotiable instrument or other documents.”(my emphasis)

26. Clause 113 of the Constitution provides as follows:

“At any time, the director(s) may determine that a negotiable instrument or other documents may be signed, drawn, accepted, endorsed or otherwise executed in a different manner.”

27. The plaintiff submitted that to clause 112 authorised the signing of the document in the way in which it was signed by Mr Wan.

28. The defendants downplayed the effect clause 112 stating that it merely restated s 127(1) of the Corporations Act. I do not believe that this is the case. The defendants’ argument in relation to the proper construction of s 127(1), in my view gained strength from the structure of that section. This structure arguably draws a distinction between a sole director company on the one hand, and other types of companies on the other. The former being governed by s 127(1)(c), the balance by s 127(1)(a) and (b).

29. Clause 112 of the Plaintiff’s Constitution however does not have this structure, and to my mind is to be construed differently from the manner in which the defendants submit that s 127(1) should be construed. In my view, the words in cl 112 being “or who is both a director and company secretary” are not to be interpreted as being confined to sole director companies.

30. As such in my view the execution by Mr Wan was in conformity with the company's constitution.

Clause 113 of the Plaintiff’s Constitution

31. Next Mr Horowitz, who appeared for the plaintiff, relied upon cl 113 of the Plaintiff’s Constitution.

32. In paragraph 11 of her affidavit of 16 August 2023, Ms Huang gave evidence of a conversation that she had with Mr Wan in or about early August 2022:

Huang:   “Since you are going away, and there are procedures to be done later on, why don’t I become a director as well – so that when you are away, if there are things to be done, I can sign for you?”

Damon:   “Okay.”

33. Ms Huang became a director following this conversation.

34. Mr Horowitz submitted that this conversation constituted a determination for the purposes of cl 113 of the Constitution. He submitted that by this conversation, Ms Huang conveyed to Mr Wan, and he agreed, that only one director would be required to sign documents.

35. I agree with this contention.

36. Mr Klineberg argued that the conversation could not constitute a determination for the purposes of clause 113 as other clauses in the Constitution required recording of such determinations in writing. In that regard he referred to clauses 93, 95, 96 and 97 of the Plaintiff’s Constitution.

37. Clause 93 of the Plaintiff’s Constitution provides as follows:

“All business and all activities of the company shall be managed by or under the direction of the board of directors, whose names are in Schedule 1. No management by the directors shall be otherwise than in accord with the Corporations Act and with lawful resolutions of the company. All powers of the company may be exercised by the board, except where the Act or this constitution requires such powers to be exercised in general meeting.

38. Clauses 95. 96 and 97 state:

“95. The directors of the company are permitted to delegate any of their powers. Such delegation must be recorded in the company's minute book. The delegate must exercise the power in accordance with the directions of the relevant director. The directors may continue to exercise those powers themselves. The exercise of that power shall be as effective when exercised by a delegate as if it were exercised by the relevant director, including the power to sub-delegate that power.

96. Delegation of powers, whether by power of attorney or otherwise, may be to any of the following persons:

a committee of directors;

another director of the company;

an employee of the company; or

any other person.

97. All negotiable instruments, and all receipts of money paid to the company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, where there is one director, by that director, and where there are two or more directors by any two directors or in such other manner as the directors determine.”

39. I do not consider Mr Klineberg’s arguments to be correct. In my view, there is no reason why a requirement of writing should be imported into the determination process referred to in Clause 113.

40. I do not see Clause 93 as having any application to this case, and Mr Klineberg did not articulate one.

41. In my view, Clauses 95 and 96 do not have any application as the determination pursuant to Clause 113 was not a delegation.

42. Finally, as to Clause 97, this clause in my view has no application as the contract for sale was neither a negotiable instrument, nor a receipt of money.

43. Mr Klineberg submitted that the evidence upon which the plaintiff relied in its Clause 113 argument was not available to it for that purpose. This contention arose from the fact that paragraph 11 of Ms Wan's affidavit was the subject of a restriction on its use, arising out of a direction which I gave pursuant to section 136 of the Evidence Act. That restriction limited the use of paragraph 11 to non-hearsay purposes.

44. Mr Klineberg submitted that the plaintiff was attempting to put the paragraph in evidence for hearsay purposes.

45. I do not accept this submission. In my view, the fact of the conversation occurring is sufficient for the purposes of the plaintiff's submissions. The truth of what was said is not required by the plaintiff in order to support its contention. Thus, in my opinion there is no hearsay element in the use to which the plaintiff wishes to put the evidence.

Ratification

46. In the course of preparing these reasons, I came to the view that the issue of ratification may also be of relevance to the determination of the matter. As this question had not been the subject of submissions by the parties, I invited written submissions on the issue. Both parties availed themselves of the opportunity to make such submissions.

47. The defendants argued that the doctrine of ratification had no application in the present circumstances. He said that in signing on the contract, Mr Wan was not purporting to be affixing the signature of an agent of the company, but rather it purported to be the signature of a director.

48. I do not accept this submission. The defendants’ case revolved around the proposition that Mr Wan did not in fact have the authority of the plaintiff to sign the contract in the manner in which he did, either as provided for by the Corporations Law or its Constitution.

49. In my view it follows inexorably that on the defendants’ own case, Mr Wan, albeit a director, in signing the contract was an unauthorised agent of the company for the purposes of the law relating to ratification.

46. In any event the distinction between a director and an agent which the defendants draw in the present purposes is an illusory one. This is so as there is authority for the proposition that a director’s invalid execution of a document may be the subject of ratification by the company concerned (Hewlett-Packard Aust Pty Limited v Exeed Pty Limited [2004] FCA 135).

47. It seems to me therefore that even if the defendants’ contentions as to the invalidity of the execution of the contract be correct (which I do not consider to be the case), then the plaintiff’s continued pressing of the defendants for payment of the deposit payable pursuant to the contract, and indeed more fundamentally the commencement of the proceedings, provide clear and unequivocal evidence of acts of ratification taken by the company.

48. In my view there can be no doubt that suing on a contract can constitute a ratification of it: Celthene Pty Limited v WKJ Hauliers Pty Limited [1981] 1 NSWLR 606 at 615. Indeed in Leybourne v Permanent Custodians Limited [2010] NSWCA 78, the Court of Appeal stated that suing on a transaction brought about by an agent acting beyond authority will also ordinarily mean ratification of the unauthorised transaction: the reason is obvious…”

49. Finally, the defendant argued that I should not permit the question of ratification to be raised as it had not been pleaded by the plaintiff, by way of reply. I do not accept this contention.

50. The learned authors of Richie's Uniform Civil Practice Note at [14.4.10] state that:

Reply There is an implied joinder of issue on defence: r 14.27. For that reason, there is no need for a reply unless the plaintiff intends to rely on particular factual allegations in response to matters raised in the defence. But a plaintiff must respond to a cross-claim with a specific defence and cannot simply join issue with factual allegations pleaded in the cross-claim: Benbow v Low (1880) 13 Ch D 553; Green v Sevin (1879) 13 CH D 589 at 595

55. In my view, the implied joinder of issues constituted by the serving of the defence leads to the conclusion that there are no factual allegations requiring a reply. In my view the ratification issue was solely a question of law, which did not require pleading by way of reply.

56. In summary therefore, in my view even if Mr Wan failed to comply with the Corporations Law and the Plaintiff’s Constitution, in the manner in which he executed the contract, the plaintiff has unequivocally ratified the unauthorised execution of the contract.

The Validity of the Letter of Demand and Notice of Termination

57. The Notice of Termination was attached to an email dated 27 March 2023 sent by the plaintiff’s solicitors, to the defendants’ solicitors(Ex XHH-1 p 175). The email also enclosed a letter dated 24 March 2023 from the plaintiff’s solicitors by which the plaintiff demanded payment of the deposit by 11 April 2023 ( Ex XHH-1 p 176).

58. The principles applicable to the validity of the Notice of Termination are well-established and were not in dispute. Campbell J in Robinson v Becata Pty Limited (2004) 12 BPR 22,699; [2004] NSWSC 310 at [49], stated that to be effective, a notice must be:

… one which conveys its message (whatever that message might be) clearly and distinctly to a reasonable reader in the position of the recipient of the notice. Being “in the position of the recipient” involves, in particular, having the knowledge of the circumstances surrounding the transaction in which the notice is given which the recipient has or ought to have.

59. The defendants’ argument in relation to the invalidity of the Notice of Termination is that by serving the Letter of Demand together with the Notice of Termination a reader of the two documents was entitled to believe that the combined effect of the two documents was to extend time to pay the balance of the deposit to 11 April 2023. I do not accept this argument.

60. Clauses 10 and 11 of the Notice of Termination were in the following terms:

“10. As a result of your failure to pay for the deposit on the mutually agreed dates, we give you notice that the contract is terminated and is entirely at an end.

11. The vendor is entitled to the entire deposit stated on the Contract front page, being the amount of $710,000.00. Please find enclosed a copy of Letter of demand. The vendor will retain the deposit and take action for the recovery of damages resulting from your default.

61. The Letter of Demand in turn was in the following terms:

“RE:   Hino Group Pty Ltd Sale to SINGH & SARAO

Property: Apartment 21D/88 Barangaroo Avenue, Barangaroo NSW 2000

We refer to the above-mentioned matter.

We refer to the Contract between Hino Group Pty Ltd and Kulwant SINGH and Kiran SARO dated 10 February 2023.

We are writing to inform you that the deposit is still outstanding. The amount outstanding to be paid and transferred is $692,250.00.

We will require the $692,250.00 to be paid to our office's trust account immediately:

(Account details omitted)

We demand that the $692,250.00 to be paid by COB, 11 April 2023.

Please be advised that your failure to pay the deposit (clause 2) has constituted a default under the Contract under clause 9 that entitles our client to take recovery actions.

Our client reserves all rights.

Yours faithfully

Sun Lawyers”

62. In my view, on no fair reading of these documents, read either singularly or together, could lead to a conclusion that what was being offered by the vendors was a further extension within which of time to pay the deposit. What the letter of demand provided was a conventional period of time for payment of the monies claimed before proceedings for the recovery of the sum outstanding were commenced.

63. The Notice of Termination at paragraph 10 makes it quite clear that it was the failure to pay the deposit on the mutually agreed dates that had led to the termination of the contract.

64. By its paragraph 11, the Notice also makes clear that notwithstanding the termination of the contract the vendor requires the balance of the deposit to be paid, failing which proceedings would be commenced.

65. I do not consider that the defendants’ arguments in relation to the Notice of Termination and Letter of Demand have any validity.

Conclusion

66. For these reasons there should be judgment and verdict for the plaintiff in the sum sought in the Amended Statement of Claim. Costs should follow the event.

Orders

1. That there be judgment and verdict for the plaintiff against the defendants in the sum of $692,250.

2. Interest thereon at the rates pertaining from time to time pursuant to the provisions of s 100 of the Civil Procedure Act 2005.

3. The defendants pay the plaintiff's costs of the proceedings.

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Decision last updated: 19 April 2024