In Re Qintex (No 2)
[1990] TASSC 32
•23 July 1990
Serial No 26/1990
List "A"
COURT: SUPREME COURT OF TASMANIA
CITATION: In re Qintex (No 2) [1990] TASSC 32; A26/1990
PARTIES: IN RE QINTEX (NO 2)
FILE NO/S: CWU 81/1990
DELIVERED ON: 23 July 1990
JUDGMENT OF: Underwood J
Judgment Number: A26/1990
Number of paragraphs: 21
Serial No 26/1990
List "A"
File CWU 81/1990
IN RE QINTEX (NO 2)
REASONS FOR JUDGMENT UNDERWOOD J
23 July 1990
This is an unusual interlocutory application. It arises in the following circumstances. By a petition filed on 29 March 1990 Pypym Nominees Pty Ltd, claiming to be a creditor of Qintex Ltd filed a petition for an order that Qintex Ltd be wound up. On 20 April 1990 Page Seager, Solicitors, entered an appearance for Qintex. Notice was filed (Rules of Court, Part VI, r16) that Lorrimor Telepictures Corporation, the State Bank of Victoria and Tricontinental Corporation Ltd would attend on the hearing of the petition. The hearing of the petition was adjourned Indebtedness is in issue. Before the hearing of the petition was resumed several interlocutory applications were filed. Before the Court can embark on the hearing of the petition it is necessary to determine the following interlocutory applications:
1Whether Lorrimor Telepictures Corporation should be joined as a co–petitioner.
2Whether the petition should be amended to add a new ground of petition.
3Whether foregoing two applications should be dismissed as an abuse of the process of the Court.
4Whether the petition should be dismissed on the grounds that it is an abuse of the process of the Court.
5Whether a provisional liquidator should be appointed.
6This application.
It was common ground that this application should be determined first. It is brought by Lorrimor Telepictures Corporation and seeks the following orders:
1A declaration that the solicitors Page Seager have not been duly retained by Qintex Ltd to act for them in these proceedings.
2That the summons of Qintex dated 13 July 1990 be struck out.
3Such further or other orders as the Court deems meet.
Evidence was given orally and by way of affidavit. I make the following findings of fact:
1Qintex Ltd is a public company.
2Its articles of association provide (inter alia) that:
(a)the directors shall be not less than three.
(b)a quorum of directors "for the transaction of business of directors may be fixed by the directors and unless so fixed shall be three".
(c)the directors may appoint one of their number to the office of managing director and may confer upon him or her any of the powers of the directors.
3The directors have not fixed any number for a quorum as provided by the article referred to above.
4At a meeting of three directors held on 15 February 1978 Mr Christopher Skase was appointed managing director.
5Mr Skase was the principal executive officer of Qintex Ltd at the date of this application and, by inference, has been the principal executive officer or managing director continuously since 1978 to that date.
6Since 28 December 1989, there have been only two directors of Qintex Ltd, Mr Christopher Skase and Sir Lennox Hewitt.
7On 18 April 1990, a secretary of Qintex Ltd, Mr Geoffrey Putland, instructed Brisbane solicitors, Henderson and Trout, to oppose the petition for an order of winding up.
8On 19 April 1990 Mr Skase also instructed Henderson and Trout to oppose the petition and to that end to instruct Hobart solicitors and to engage counsel to appear at the hearing.
9Subsequently, Jane MacDonnell, solicitor of Henderson and Trout instructed Hobart solicitors, Page Seager, to oppose the petition and instruct counsel to appear on the hearing.
10Mr Carter, solicitor of Page Seager, instructed Mr Colin Brown, a practitioner of this Court, to appear for Qintex Ltd and to oppose the petition.
11Mr Brown appeared upon the hearing of the petition, adjourned pending disposition of the interlocutory applications, and upon the hearing of this application.
On these facts, on behalf of the applicant it was submitted that Qintex Ltd has not instructed any practitioner to act for it in connection with the winding up proceedings and consequently the Court should not hear counsel on its behalf nor entertain applications made on its behalf. The gravamen of the submission is that, in the absence of a quorum of directors, the company is unable to act except perhaps by its directors appointing a director to fill a casual vacancy or to summon a general meeting as is provided for by article 86 or, by passing a resolution of the company in general meeting. In In re Greymouth Point Elizabeth Railway & Coal CompanyLtd [1904] 1 Ch 32 it was held that a resolution to give debenture security passed by a number of directors competent to transact the business of the company less than those required by the articles to form a quorum, was invalid. That decision was followed in Cox v Dublin City Distillery (No 2) [1915] IR 345. See also John Morley Building Company v Barras [1891] 2 Ch 386. In Newbiggin–By–the–Sea Gas Company v Armstrong (1879) 13 Ch D 310 it was held that where proceedings were brought by a company without its authority the proper course was for the court to dismiss the action so brought.
On the present application it was not suggested that the two remaining directors or the company in general meeting had resolved that the company would oppose the petition. The resolution to do so and the act of instructing solicitors to appear for the company was the resolution and act of Mr Skase, the managing director. The question is whether the company has, by the act of its managing director instructed solicitors and ultimately therefore authorised Mr Brown to appear on its behalf on and in relation to the winding up proceedings.
I do not accept the submission put by learned counsel for the applicant that when the number of directors is less than that prescribed by the articles for a quorum, the company is unable to act at all except by resolution passed at a general meeting. The absence of a quorum of directors would not invalidate any earlier resolution of the directors passed in accordance with the articles at a meeting of directors at which a quorum was present. For example, if at such a meeting it had been resolved that, in the event of a petition for winding up being presented, Mr Skase is authorised to instruct solicitors to oppose the order sought, implementation of that resolution, even after the number of directors was less than the requisite number for a quorum, would be a valid act of the company. However, in the present case there is no evidence of any such resolution having been duly passed.
Mr Brown relied upon the following arguments to sustain the proposition that he had been instructed by the company to appear on these proceedings:
1Mr Skase, in his position as managing director, in fact had authority to give the instructions.
2Mr Skase, in his position as managing director, had ostensible authority to give the instructions.
3If Mr Skase's act of giving instructions to the solicitors was not authorised by the company the applicant cannot rely upon the absence of that authorisation by virtue of the provisions of the Companies Code, s68.
4By virtue of the Code, s80(1) Mr Skase's act of instructing solicitors was the act of the company.
1 The articles empower the directors to confer on the managing director all or any of the powers of the directors.
However, there is no evidence that the directors did confer on Mr Skase any of the powers of the directors. Mr Skase was merely appointed managing director. It was submitted that instructing solicitors to engage counsel to appear on behalf of the company and to oppose the petition was an act within the authority of a managing director. This submission involves the proposition that Mr Skase, by implication, in fact had the requisite authority.
There is authority for the proposition that the appointment of a director or managing director carries with it by implication the authority to act on behalf of the company in certain circumstances. Willmer LJ adverted to this in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd& Anor [1964] 2 QB 480 when he said at p488:
"Actual authority might, of course, be either express – for example ... – or it might be implied – for example, if [the director] had been appointed to some office which carried with it authority to make such a contract on behalf of the defendant company."
Actual authority may be implied where the act in question is one within the usual authority of a person appointed to a particular office. See Watteau v Fenwick [1893] 1 QB 346; Ryan v Pilkington& Anor [1959] 1 WLR 403; Burt v Claude Cousins & Co. Ltd & Anor [1971] 2 QB 426 at pp445, 446. Actual authority may be implied by the principal holding its agent out as having authority. See Freeman & Lockyer (supra); Hely–Hutchinson v Brayhead Ltd [1968] 1 QB 549.
There is no evidence on this application of the business of Qintex Ltd There is no evidence of the role played by Mr Skase in the business of the company since his appointment as managing director. There is no evidence that Mr Skase has at any time prior to the filing of the petition for winding up acted or purported to act on behalf of Qintex Ltd In short, there are no facts from which the extent of the authority of the managing director to bind the company can be inferred or implied other than that which might be inferred from the appointment to the office itself. It might be argued that such office usually carries with it the authority of the company to exercise some of its powers of management in the ordinary course of business, but in the absence of evidence of the grant of express authority or evidence from which an inference of the grant of authority could be drawn, it could not be said that the appointment to the office of managing director carried with it the authority to make critical decisions following the presentation of a petition to wind the company up including the decision to appoint solicitors with instructions to oppose the petition.
2 Except in so far as ostensible authority is evidence of actual authority, the company cannot rely on the doctrine of apparent authority to establish that Mr Skase's acts of instructing solicitors was one authorised by the company. The doctrine of ostensible authority relies on estoppel. It prevents a principal from denying the grant of authority to an agent thus binding the principal in circumstances where the principal has acted as if that authority had been given. In Freeman & Lockyer (supra) Diplock LJ said at p503:
"An 'apparent' or 'ostensible' authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract." [My emphasis]
3 As is expressed by the Code, s66C, the object of ss67 and 68 is to abolish the doctrine of ultra vires in relation to its application to companies. Section 67 provides that a company shall have the powers of a natural person. Section 68 provides in part that where the articles of a company impose a restriction on the exercise of a power and acts in breach of that restriction or, an officer of the company knowingly is concerned in the company so acting, only those persons specified in subs(6) can rely on that breach. It was correctly submitted that the applicant is not one of those persons. The argument was that the article which requires a quorum of three directors to transact the business of the company is a restriction on the exercise of a power within the meaning of s68(1). Without deciding whether that article is such a restriction, the argument must fail. Section 68 is concerned with acts by a company. It only operates when a company has acted contrary to its rules. It is not applicable in circumstances where the company has not acted at all.
4 Finally, the provisions of the Code, s80(1), are of no assistance in the present case. The subsection deals with the "formalities of making, varying or discharging a contract" made by "a person acting under the express or implied authority of a company". The section does not touch the issue on this application namely, whether the company, by the act of Mr Skase, made a contract in the first place.
Accordingly, on the material put before me on this application I find that Qintex Ltd did not instruct solicitors to act on its behalf on the hearing of this petition and accordingly, Mr Brown's appearance is without the authority of the respondent company.
Mr Brown also submitted that the applicant was not a person entitled to make this application, not being a person who will be properly aggrieved by the uninstructed appearance of counsel for the respondent company. He relied on Hubbart v Phillips 13 M & W 703. Although customarily an application such as this is brought by the party who has been joined in litigation without his or her authority (see for example Fricker v Van Grutten [1896] 2 Ch 649) Hubbart v Phillips is clearly not authority for the proposition that only that party is entitled to make an application such as this.
Although the Court has power to grant relief by way of declaratory order (Rules of Court, O28, r5), described by Barwick J. in The Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at p305 as "large and most useful" jurisdiction, whether it will do so calls for the exercise of judicial discretion. I am inclined to the view that an interlocutory proceeding such as this is not an appropriate occasion for the making of a declaratory order. The matter is best dealt with by the exercise of the Court's inherent jurisdiction over its procedure and officers. In Myers v Elman [1940] AC 282 Lord Wright said at p318:
"The cases of the exercise of this jurisdiction to be found in the report are numerous and show how the courts were guided by their opinion as to the character of the conduct complained of. The underlying principle is that the court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Abinger CB in Stephens v Hill (1842) 10 M & W 28. The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor's duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction."
There is a note to the report of V Neptune [1919] Probate p17 dealing with an application on behalf of the owners of the Neptune with respect to an appearance having been entered on behalf of those owners by solicitors without the owner's authority. The order made was that all proceedings taken without the authority be set aside and the solicitors ordered to pay the plaintiff's costs. The note reads:
"In making the order Hill J said that he had no doubt that Messrs Stokes and Stokes believed that they had authority because they had received instructions from the underwriter's representatives, Messrs WK Webster & Co and he had also no doubt that the latter believed they had authority because they had received from instructions from the underwriters. There had really been a chain of warranties and authority, ...".
That note is particularly apposite to the present proceedings. See Udall v Capri Lighting Ltd [1987] 3 All ER 262 at pp268, 269.
In consequence of my ruling that Mr Brown is not instructed to appear on behalf of Qintex Ltd on the hearing of the petition to wind up that company, the Court will not permit him to appear on the company's behalf. With respect to the interlocutory proceedings instituted by Page Seager it is ordered that they be struck out. I reserve liberty to apply with respect to this order and any consequential matter arising therefrom or from my rulings and grant leave to Mr Brown to be heard on any such application.
After delivering the above reasons I heard further from counsel including Mr Brown and in result made the following orders:
1The notice of appearance dated 20 April 1990 filed by Page Seager be struck out.
2Leave be given to the petitioner to amend the Rule 17 notice to delete therefrom the name Qintex Ltd.
3That the summonses dated 13 April 1990 and 18 April 1990 filed by Page Seager be struck out.
4The affidavits filed by Page Seager be removed from the file but not leave the custody of the Court.
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