Jodack Investments Pty Ltd v Mod Properties Pty Ltd
[2013] VCC 442
•26 April 2013
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Not Restricted |
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-11-06170
| JODACK INVESTMENTS PTY LTD (ACN 148 201 932) | Plaintiffs |
| DAVID CLARKE and JOSEPHINE HELEN CLARKE | |
| v | |
| MOD PROPERTIES PTY LTD (ACN 101 474 971) | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18-20 March 2013 | |
DATE OF JUDGMENT: | 26 April 2013 | |
CASE MAY BE CITED AS: | Jodack Investments Pty Ltd v Mod Properties Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2013] VCC 442 | |
REASONS FOR JUDGMENT
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GUARANTEE – whether bound company – whether executed by director or agent with authority Corporations Act 2001 ss 9, 126, 127, 128 and 129
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D Harrison | MAHONS with Yuncken & Yuncken |
| For the Defendant | Mr W Stark | Irongroup Lawyers |
HIS HONOUR:
1 The plaintiffs sue the defendant (Mod Properties) on a guarantee contained in a loan agreement for the sum of $260,752.07 or, alternatively $185,203.11. That loan agreement was dated 11 March 2011 and provided in clause 2:
“Advance
The Lender had advanced to the Borrower, and the Borrower acknowledges receipt from the Lender of the Advance on the terms and subject to the Provisions.”
2 The Lender defined in the description of parties to the loan agreement are the plaintiffs, each of whom signed it. The second and third plaintiffs are directors of Jodack. The Borrowers are described as Investment and Management Pty Ltd and Jeffrey George Nirens. Investment and Management is Mr Nirens’ private investment company.
3 The loan agreement was executed by Investment and Management “in accordance with Section 127 (1) of the Corporations Law” by Mr Nirens, who signed in his capacity as a director.
4 The description of parties that appears at the commencement of the agreement describes the defendant, MOD Properties and Rhonda Anne Nirens as guarantors. Mrs Nirens did not sign the document and is not sued and it is not suggested she is liable as a guarantor.
5 The guarantee was signed on behalf of MOD Properties by Mr Jeffrey Nirens, who signed as a director “in accordance with Section 127(1) of the Corporations Law”. Mr Nirens has never been appointed a director of MOD Properties. His wife, Mrs Rhonda Nirens, was the sole director, secretary and shareholder of MOD Properties.
6 The guarantee clause provides:
“10Guarantee
10.1The Guarantor covenants with the Lender and for the Guarantor and the executors, administrators and personal representatives of the Guarantor, as follows:
(a)to indemnify and keep the Lender indemnified from and against any and all costs, charges, claims, demands, suits and expenses arising out of this Guarantee; and
(b)if at any time and from time to time the Borrower shall default:
(i)the payment of any money payable by it to the Lender pursuant to this Agreement; or
(ii)in the performance or observance of any term or condition on the part of the Borrower to be performed or observed;
to immediately on demand by the Lender pay to the Lender the whole of the money which shall then be due and payable to the Lender upon the same covenants and declarations and in the same manner prescribed in this Agreement.
10.2The Guarantor declares that the guarantee and indemnity of the Guarantor in this Agreement shall be an unconditional and continuing indemnity and shall not be effected or released by:
(a)any waiver, neglect or forbearance on the part of the Lender in enforcing payment of any of the money payable pursuant to the Lender by the Borrower or in enforcing the performance or observance of any of the provisions in this Agreement to be performed or observed by the Borrower;
(b)any release, variation, exchange, renewal or modification made or any other dealing by the Lender with the provisions in this Agreement;
(c)any other guarantee or security which the Lender may now or in the future hold in respect of this Agreement or any judgment obtained by the Lender in relation to this Agreement;
(d)the transfer or assignment of the benefit of this guarantee and indemnity to any person in whole or in part; and
(e)the failure to give notice to us or our lack of consent before or after the happening of any of the acts or events as described in this Agreement or generally the making of any agreement between the Lender and the Borrower.
10.3The Guarantor waives each and every right of the Guarantor whether legal, equitable, statutory or otherwise which may at any time and from time to time be inconsistent with the Guarantor’s covenant and declarations or which may in any manner prejudice or limits the rights, remedies or recourse of the Lender against the Guarantor and the executors, administrators and personal representatives of the Guarantor.”
7 The Agreement contained a Schedule including:
“ITEM G - SECURITY
A third registered mortgage on the Title for the RAN Property.
A second registered mortgage on the Title for the MOD Property.”
8 The RAN Property was in Hoddle Street, Elsternwick. RAN are Mrs Nirens’ initials. The MOD Property was in Kooyong Road, Elsternwick.
9 The body of the loan agreement contains no reference to Item G of the Schedule.
10 The issue in the proceeding is therefore whether MOD Properties is bound by the guarantee, because Mr Nirens had actual or ostensible authority to sign the loan agreement and the guarantee on its behalf, or it is bound by the guarantee by some other means.
11 Jodack alleges that Mr Nirens was an “authorised officer” of MOD Properties with authority to sign the guarantee on its behalf. It relies on a document dated 27 March 2003, purporting to be signed by Rhonda Nirens and addressed to:
“THE SECRETARY
MOD PROPERTIES PTY LTD
SUITE 11, PIER 35
263 LORIMER STREETPORT MELBOURNE. VIC, 3207.”
12 That document stated:
“Dear Sir
AUTHORISED OFFICER
I hereby appoint Jeffrey Nirens to be authorised officer of the company and provide the following information:
Full Name: NIRENS, JEFFREY
Residential Address: 31 HODDLE STREET ELSTERNWICK, VIC 3185
Date of Birth: 16 October 1951
Place of Birth: MELBOURNE, VIC.
RHONDA NIRENS”[1]
[1]Court Book (“CB”) 60
13 Jodack also argues that Mr Nirens was a shadow director of MOD Properties in accordance with the definition of “director” contained in s9 of the Corporations Act.
14 Jodack also argues that Mr Nirens had ostensible authority to sign the guarantee.
The Corporations Act
15 The relevant provisions of the Corporations Act are as follows.
16 Section 9 defines a director of a company or another body to mean:
(a) a person who:
(i) is appointed to the position of a director; or
(ii) is appointed to the position of an alternate director and is acting in that capacity;
regardless of the name that is given to their position; and
(b) unless the contrary intention appears, a person who is not validly appointed as director if:
(i) they act in the position of a director; or
(ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.
Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company body.”
17 The definition of “officer” in section 9 includes:
“(a) a director or a secretary of the corporation; or
(b) a person:
(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation’s financial standing; or
(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding 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 of the corporation); or …
18 Section 126 provides that:
“Agent exercising a company’s power to make contracts
(1) A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using a common seal.
(2) This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.”
19 Section 127 deals with the execution of documents, including deeds, by directors and a company secretary. It includes the following provisions:
“ (1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company;
(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).”
20 Section 128 states in relevant parts:
“ (1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
…
(3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
(4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.”
21 Section 129 provides in part that:
“(3)A person may assume that anyone who is held out by the company to be officer or agent of the company:
(a) has been duly appointed; and
(b) has authority to exercise the powers and performed the duties customarily exercised or performed by that kind of officer or agent of a similar company.
(4) A person may assume that the officers and agents of the company properly perform their duties to the company.
(5) A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127 (1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.”
The evidence
22 Mr David Clarke, a director of Jodack, gave evidence on behalf of the plaintiffs. He conducts a printing business in Elsternwick, which is located across Kooyong Road from the building in which Morrish Business Services Pty Ltd conducted an accountancy practice and provides business services. MOD Properties owned that building.
23 Mr Nirens said that Morrish Business Services Pty Ltd was an accounting practice and he was its the manager or principal and controlled its business. It employs a number of staff.
24 Mrs Nirens was the sole director of Morrish Business Services Pty Ltd.
25 Mr Clarke met Mr Nirens in about 2005/2006 and they became friends. Mr Nirens undertook some financial services for him through Morrish Financial Services.
26 Mr Clarke met Mrs Rhonda Nirens on about two occasions.
27 In mid-January 2007, Mr Nirens, knowing that Mr Clarke had sold another business and had some money available, told him that he had an opportunity to invest $75,000 into providing bridging finance to persons buying “high end” property. Mr Nirens charged such persons 15% interest. Mr Clarke agreed to lend that amount. That led to the first loan agreement. Mr Clarke drew a cheque on Jodack’s account payable to Morrish Business Services so that it could put it through its trust account. He gave it to Mr Nirens. The loan amount and interest, being a total of $86,250.000, were to be repaid by 17 February 2011.
28 Before that date, Mr Nirens approached Mr Clarke with two further proposals for him to lend money. As a result, Mr Clarke through Jodack advanced two further sums of $25,000 on 10 and 11 February 2011. Those loans were the subject of the second and third loan agreements. The cheques for those amounts were sent to Investment and Management Pty Ltd. The second loan was for a term of 45 days and thereafter on three months call unless agreed to otherwise, with an interest rate of 10%. The third loan was for a term of 30 days and thereafter on three months call unless agreed to otherwise, with an interest rate of 12.5%.
Thefourth loan agreement
29 Mr Nirens did not repay the loan moneys to Jodack. On 17 February 2011, Mr Clarke asked him where the money was. Mr Nirens gave him a cheque for the loan moneys, but it bounced. Further discussion occurred and that led to the negotiation of the fourth agreement, part of the terms of which are set out above. The fourth agreement was prepared by Mr Clarke’s solicitor.
30 The principal sum referred to in the fourth loan agreement was $143,125.00, together with any unpaid interest and costs, and the term was 30 days. The interest rate was 15% payable at the expiration of the term.
31 Before the fourth loan agreement was signed, Mr Clarke went to Mr Nirens’ office and asked him if he had authority to sign the document. He said that he did have that authority and he produced the document of 27 March 2003, which is set out above and gave it, or a copy of it, to Mr Clarke. Mr Clarke said that the document gave him a lot of comfort.[2]
[2]Transcript (“T”) 41
32 Mr Nirens also gave Mr Clarke a copy of the internet page of the tax agent portal of the Australian Taxation Office relating to MOD Properties, which he said “shows that I’m the authorised officer from the taxation point of view.”[3] In fact, the document showed that he was the current contact for MOD Properties.[4]
[3]T 46
[4]CB 174
33 At a later point after this proceeding had commenced, Mr Clarke again visited Mr Nirens’ office and obtained a copy of the “authorised officer” document of 27 March 2003, and had it certified to be a true copy of the original document by an accountant who worked for Morrish Business Services.[5]
[5]T42
34 During the discussions that preceded the signing of the fourth loan agreement, Mr Nirens told Mr Clarke that if he could not pay him back, he could have the building over the road, i.e. the Kooyong Road building from which Morrish Financial Services conducted its business. [6]
[6]T39
35 The documents, including the guarantee, were signed on 11 March 2011 at Mr Clarke’s business premises. Mrs Nirens was overseas for six weeks and was unaware of the loan agreement.
36 Mr Nirens also signed a mortgage to the plaintiffs over MOD Properties’ Kooyong Road property as security for the loan.
37 Mr R Hagart, who is a print manager in Mr Clarke’s business, gave evidence concerning the signing of the fourth loan agreement. Mr Clarke asked him to be a witness to the signing of the document. I accept his and Mr Clarke’s account of the events of that occasion. Their evidence was that Mr Clarke, Mr Nirens and Mr Hagart sat around a table. Mr Clarke asked Mr Nirens if he had authority to sign the loan agreement. Mr Nirens said, yes that he did, and he signed the document.
38 Mr Clarke said that if Mr Nirens had not signed the document, he would have taken every legal course open to him to recover the moneys loaned. [7]
[7]T45
39 Mr Nirens did not repay the loan. The plaintiffs attempted to lodge the mortgage which was one of the security documents, but the first mortgagee would not consent to that occurring.
40 Jodack entered a default judgment against Investment and Management Pty Ltd and Mr Nirens. Mr Nirens has been declared bankrupt.
41 Jodack and Mr and Mrs Clarke lodged a caveat on the title of MOD Properties Kooyong Road property. In September 2011, MOD Properties entered into a contract to sell the Kooyong Road property. Following the issuing of Supreme Court proceedings later in 2011 by MOD Properties against Jodack and the Clarkes the Court ordered the removal of that caveat upon undertakings by which a sum of money would be paid into a separate interest bearing account until the determination of the amount (if any) payable by MOD Properties to Jodack and the Clarkes or the written agreement of the parties or the order of the court. Jodack and the Clarkes undertook to commence a proceeding to seek to establish their claim.
42 Morrish Business Services was placed into liquidation by Mrs Nirens on 28 November 2011.
The establishment of MOD Properties Pty Ltd
43 Mr P Cain, the defendant’s solicitor, gave evidence. He was the initial director and secretary of MOD Properties. It was incorporated in order that the Nirens could purchase the property in Kooyong Road. Mr Cain purchased the property at auction, where he received his instructions from Mr Nirens by phone. Mrs Nirens was present with Mr Nirens while he gave those instructions.
44 On 27 March 2003, Mrs Nirens replaced Mr Cain as director of MOD Properties. She signed a number of documents that day relating to MOD Properties, including the “authorised officer” document.[8] They included a consent to act as secretary and director, notification of change to officeholders and memorandum of resolutions of directors.
[8]CB 93-102
45 Mr Nirens did not recall if he was present when Mrs Nirens signed the documents.
46 Mr Nirens gave evidence that he did not become director and secretary of MOD Properties in order to ensure family asset protection. He had been declared bankrupt previously and later was to be convicted of fraud and jailed.
47 Although, Mr Cain received instructions from Mr Nirens and did so until the commencement of these proceedings, it was always intended that Mrs Nirens would become director.
48 MOD Properties leased the property to Morrish Business Services and made a small profit. It repaid the mortgage over the property. It had a bank account of which Mrs Nirens was the signatory.
Mr Clarke’s evidence about his knowledge of the conduct of the business
49 Mr Clarke said that he was unaware that Mr Nirens was not a director of MOD Properties.[9] He said that he trusted Mr Nirens and did not know that he had been to jail when he signed the fourth loan agreement. Mr Nirens said that he was aware of that fact at that time, but I accept Mr Clarke’s evidence.
[9]T53
50 Mr Clarke said that he regularly visited Morrish Business Services office to have a cup of coffee with Mr Nirens or to have a drink after work. He said that he never saw Mrs Nirens there.
51 He said that he knew that Mr Nirens had electronic access to Morrish Business Services’ bank account and he gave the following evidence in that regard:
“Q. Yes, correct, so if Mr Nirens was accessing that, you don’t know that he was actually authorised to do that, do you?---
A. I knew that Jeffrey and Rhonda were married to each other, and whatever arrangements they had, I would assume that he was authorised to do whatever was needed to run the business.”[10]
[10]T 50-51
Mr Niren’s evidence
52 Mr Nirens said that Mrs Nirens had little involvement in the running of MOD Properties, but agreed that his wife wanted to be in charge of its finances. She signed the cheques and refused to sign some cheques on occasions. He was not authorised to undertake internet banking on MOD Properties’ accounts, but did it without her authority. She refused to make him signatory to the company bank accounts.
53 She did not attend the premises that often, only irregularly, whereas he was at the business every week day and sometimes at weekends.
54 He took a folder of cheques home to Mrs Nirens at the end of each week. She would look at them and usually sign them, but not if he could not explain what they were for. [11] Some of those cheques would have related to Morrish Business Services and some to MOD Properties.
[11]T157
55 He considered that the document of 27 March 2003 gave him the authority to sign the fourth loan transaction. However, he had never entered into any other loan transaction on behalf of Mod Properties.[12] The fourth loan agreement was signed behind Mrs Nirens’ back.
[12]T193
56 Mrs Nirens found out about the loan agreement from the Bank. Thereafter, the Nirens separated in 2011 after 25 years of marriage. They continued contact by emails that were in evidence, but they did not throw much light on the issues in the proceeding.
57 Mr Nirens agreed in cross-examination that he had been made bankrupt in 1996 and also jailed for fraud. In November 2012, he was convicted of taking a $44,000 refund cheque payable to Ms Matthews or a company associated with her. She was his personal assistant whose evidence is referred to below.[13]
[13]T155,171
58 Mr Nirens gave evidence that he also used the authority to arrange other loans on the property. Although the evidence was not clear on the point, he appeared to refer to two such instances.
59 The first concerned correspondence with companies associated with Mr B Hall, whom he gave evidence owed his companies a considerable amount of money. An arrangement was reached to pay that debt off over a period of time. He directed that one such payment of $100,000, that was to be made on 1 August 2009, be paid directly to Efron & Associates’ trust account. They were a firm of solicitors and through Livinia Pty Ltd held a mortgage over MOD Properties’ Kooyong Road property for a loan they had advanced to it. . The correspondence relating to the repayment of $100,000 consisted of two letters written in July 2009. One was on the letterhead of Morrish Business Services. The other was on the letterhead of MOD Properties and bore a signature over the printed names of “Mod Properties Pty Ltd Rhonda A Nirens Director.”
60 The money was to be used to discharge a mortgage owed by MOD Properties.[14]
[14]T118-122 and 166
61 There was also a suggestion, but no proof, of a separate mortgage over MOD Properties’ Kooyong Road property for a loan of $100,000 from Mr Efron. Mrs Nirens gave evidence that the loan was to repay money wrongly taken by Mr Nirens from Mrs Nirens’ aunt. Mrs Nirens signed the mortgage given to MOD Properties to obtain the loan from Mr Efron to repay her aunt.[15] Mr Nirens declined to answer some of the questions on this issue relying on his rights under s 128 of the Evidence Act.[16]
[15]T233,284 and CB 123
[16]T162 -164
62 The evidence suggested that MOD Properties had given only one mortgage additional to the initial mortgage which financed the purchase of the Kooyong Road property. That was the mortgage given for a loan to repay Mrs Nirens’ aunt.
63 There was no evidence of Mr Nirens purporting to sign a mortgage over MOD Properties’ property save that given as part of the fourth loan transaction on 11 March 2011.
64 In view of Mr Nirens’ criminal and financial history and his failure to repay Jodack and the Clarkes, his evidence of his understanding of his authority does not carry great weight.
Preparation of company resolutions
65 Mr Nirens gave evidence about a number of resolutions for MOD Properties that he prepared for Mrs Nirens to sign. These included the resolution of directors signed on 1 October 2003 to transfer shares in MOD Properties from Mr Cain to Mrs Nirens and another resolution of 25 July 2004.
66 He agreed that these documents were not controversial and there was no reason for his wife to query them.
Ms Matthews’ evidence
67 The plaintiffs also called Ms C Matthews, who was Mr Nirens’ personal assistant in the Morrish Business Services business and who worked four days a week.
68 Ms Matthews stated that Mrs Nirens was not a regular attendee at the business because she was running her own funeral service business. However Ms Matthews’ office was at the back of the premises and she may not have seen her every time that she attended. She considered that Mr Nirens ran the MOD Properties business. Each week, Mr Nirens told her which cheques to prepare and she then put them in a folder for Mr Nirens to take home for Mrs Nirens to sign.
Mrs Nirens’ evidence
69 Mrs Rhonda Nirens was the only witness called by the defendant. Her evidence was as follows.
70 She had never seen the fourth loan agreement at any relevant time and had never been asked to sign the guarantee that formed part of it. She had not authorised Mr Nirens to conduct internet banking on MOD Properties’ accounts. She was involved in the purchase of the Kooyong Road property. She was a funeral director in her own business and that took much of her time. She visited Morrish Business Services’ office once or twice a week and spoke to her husband and staff about any concerns that they might have. At times, she discussed company matters with Ms Matthews and Mr Nirens. Every Friday, Mr Nirens brought home a blue folder with cheques and invoices and gave her a statement of income. She would often ask what they were relevant to.[17] She refused Mr Nirens’s frequent requests that he be appointed a director.
[17]T231, 291 and 209
71 In early 2011, Ms Matthews insisted that she seek independent accounting advice. When she did, she discovered the activities of her husband. She then confronted him and asked him to leave the house. The marriage came to an end. Eventually, through Mr Cain, she arranged for the sale of Morrish Business Services’ business and its liquidation.
72 Mrs Nirens said she did not recall the “authorised officer” document of 27 March 2003. She said that it could contain her signature, but she did not know. She swore an affidavit in the proceeding stating that the signature was a forgery, but at trial said that she was unable to say if it was her signature.
73 She was cross-examined about a number of documents and whether she had signed them. In respect of a number of them, she agreed that the signature appeared similar to hers. However, she was reluctant to admit that her signature appeared on documents.
74 Mrs Nirens said that she did not authorise the setting up of the internet banking. If she had appointed Mr Nirens to be an authorised officer of MOD Properties, it was to do the day to day running of its business and not to sign contracts, loans agreements or mortgages.
75 She was asked about a letter from Hall & Wilcox, who were the solicitors for Sandhurst Trustees who had provided finance to MOD Properties to purchase the Kooyong Road property and which was written to the plaintiffs’ solicitors. It recorded her statement that the “authorised officer” document had only been intended to be activated during her incapacity. The letter conveyed Sandhurst Trustees’ refusal to consent to the plaintiffs’ registering their mortgage and stated:
“ As previously advised, following receipt of your request, Mrs Rhonda Nirens informed our client that the letter signed in March 2003 was only to be invoked if she was incapacitated. Mrs Nirens is not incapacitated. Furthermore, Mrs Nirens informed our client that she did not have any knowledge of the loan to our clients, the mortgage or the guarantee, nor did she consent to the transaction.”[18]
[18]CB 178
76 Mrs Nirens said that she did not recall making that statement and said that it would have been incorrect. At that time, she was having significant surgery. She agreed she had a poor memory and has been on medication because of a medical problem which had required her to have considerable surgery in the last decade.
77 Mrs Nirens was asked about the purchase of a Travelex card for her overseas trip. It was suggested that it was purchased using part of the moneys advanced by the plaintiffs to Mr Nirens and his company. Mrs Nirens denied that she was aware that it had been so purchased.[19]
[19]T279
78 She let her husband run MOD Properties on a day to day basis, as she was too busy to do so. However, its only business activities were collecting rent and signing cheques.
79 Apart from the mortgage to Mr Efron, she was not aware of any other loans that MOD Properties had obtained. That money was to repay her aunt $100,000 for money that Mr Nirens had wrongly taken from her.
80 She signed the revocation of authority dated 6 June 2011 after her solicitor had organised it. It was written on a copy of the “authorised officer” document. the document and stated:
“ I RHONDA A NIRENS
REVOKE APPOINTMENT OF
JEFFREY NIRENS AS AUTHORISED
OFFICER OF MOD PROPERTIES PTY LTD”
The plaintiffs’ submissions
81 The plaintiffs submitted that MOD Properties was bound by Mr Nirens’ signature of the guarantee for the following reasons. First, he signed it pursuant to the written authority dated 27 March 2003 given to him by Mrs Nirens.
82 Secondly, Mr Nirens was a director or shadow director within the meaning of the Corporations Act 2001 at the time the fourth loan agreement was executed.
83 Thirdly, Mr Nirens had ostensible authority to sign it.
84 The words “authorised officer” in the document of 27 March 2003 meant authorised by the corporation to do anything necessary to carry out his duties.
85 It was of no consequence that Mr Nirens purported to sign the guarantee as director. It was sufficient if he had authority to sign the document, even if when signing the document, he misstated the basis of that authority.
86 As Mr and Mrs Nirens were husband and wife, it was entirely possible and plausible that Mrs Nirens would give her husband such authority.
87 The Court should find that Mrs Nirens signed the document of 27 March 2003 and gave it to Mr Nirens. Her signature looked like the signatures on the other documents that were in evidence. She had revoked the authority.
88 Mr Nirens ran MOD Properties from the time it was incorporated until at least April 2011 and acted as a director. For those reasons too, he was a shadow director.
89 The Court should give Mrs Nirens’ evidence little weight. She said that she did not lie, but refused to accept that she signed the “authorised officer” document. She swore an affidavit stating that it was a forgery. She changed her position in giving evidence on whether her signature appeared on a number of the documents that were shown to her.
90 Alternatively, Mr Nirens had ostensible authority to sign the guarantee. Mrs Nirens’ representation consisted in signing the document of 27 March 2003 and making it available to Mr Nirens for use in his management of the business of MOD Properties. It was a representation to whomever Mr Nirens needed to show the document in the course of his duties.
91 The plaintiffs were entitled to rely on the assumptions contained in s129(3) of the Corporations Act so far as formalities, such as execution of the document and the existence of consideration were concerned.
92 The plaintiffs disputed the defendant’s arguments about the effect of the guarantee not being signed by Mrs Nirens and about Item G not being referred to in the body of the fourth loan agreement.
The defendant’s submissions
93 The Court should not accept that Mrs Nirens gave Mr Nirens the authority or that Mr Nirens gave it to Mr Clarke.
94 Mrs Nirens’ evidence was that her husband did not have authority to sign the guarantee. He knew that his wife would never agree to him signing it.
95 Mr Nirens signed the guarantee as a director purporting to act under s 127 (1) of the Corporations Act. He was not an actual director. Unless he was a shadow director, his signature purporting to be a director had no effect. Mr Nirens was not a shadow director, as Mrs Nirens was not acting at his direction.
96 The document of 23 March 2003 did not give Mr Nirens authority to sign the guarantee. The term “authorised officer” was meaningless as it did not state what he was authorised to do. The document was an internal company document describing him as an authorised officer and not a director. The document did not state that he could enter into agreements on behalf of MOD Properties. The word “authorised” meant authorised to do day to day management tasks such as preparing accounts and tax returns, but not to pledge the company’s property. Sandhurst Trustees did not consider the document authorised the mortgage.
97 MOD Properties did little more than buy the Kooyong Road property and rent it. Mrs Nirens made her own decisions independently and she signed all the cheques. She required to be informed about the purpose of the cheques and she exercised her own independent decisions about signing them.
98 Mr Nirens had no ostensible authority to act on MOD Properties’ behalf.
99 The guarantee must be construed strictly. It was not enforceable because an intended co-surety did not sign it. The parties intended that other property would be provided as part of the loan agreement as security for the debt. But that had not occurred.
100 Item G of the schedule to the fourth loan agreement was meaningless. It was intended to be part of the loan agreement but was not referred to in the body of that agreement. That failure affected the validity of the agreement.
101 The plaintiffs had not proved the amount that was claimed. here was no consideration for the agreement of 11 March as the moneys had already been advanced on 9 March 2011.
Conclusions
102 The plaintiff has proved that it advanced the sum of $143,125 pursuant to the fourth loan agreement and that it has not been repaid. There was evidence from Mr Clarke and Mr Nirens that Jodack had advanced the principal sum and it had not been repaid.
103 I accept Mr Hagart’s and Mr Clarke’s account of the meeting with Mr Nirens on 11 March 2011. I also accept Mr Clarke’s evidence that Mr Nirens showed him the “authorised officer” document of 27 March 2003 before the signing of the fourth agreement and told him that he had authority to sign it.
104 I find that Mrs Nirens did sign the “authorised officer” document of 27 March 2003. It was probable that it was kept in the Kooyong Road office with the other documents signed that day. It was one of a series of documents connected by MOD Properties. They appear to be a standard set of documents that might be prepared and executed in connection with the change in the formal control of a small company i.e. from Mr Cain to Mrs Nirens. There was no evidence that the “authorised officer” document was given great attention or significance at the time.
105 I am not persuaded by Mrs Nirens’ uncertainty about whether she signed the document. She agreed that she had a poor memory, which was contributed to by medication. Her position on whether the document was genuine, and whether she had signed it and other documents, changed from statements that she had made before the trial to evidence that she gave at the trial.
106 There was no evidence from Mr Nirens or Mrs Nirens or Mr Cain about why the document of 27 March 2003 appointing Mr Nirens as an authorised officer was created. The authority does not state what activities or powers he was authorised to engage in or undertake for MOD Properties. Nor was there evidence about the intended use of the document. There is nothing in the document or, in the use of the phrase “authorised officer” which explains the powers or functions that were to be exercised by Mr Nirens.
107 The term “authorised officer” has no particular legal meaning and must be read in context. It is often used in modern statutes to empower a person to carry out some public function for a public body such as carrying out a step in an investigation or, commencing legal proceedings.
108 I do not consider that that document expressly gave Mr Nirens authority to sign the loan agreement and guarantee.
109 Nor do I consider that the “authorised officer” document gave him implied power to sign the document. The authors of Ford’s Principles of Corporations Law[20] describes the implied actual authority attached to the position of managing director to be:
“ A managing director of a trading company has no usual power to enter a transaction that cannot be characterised as an ordinary trading transaction.
A managing director of a trading company may pledge the company’s credit and give security over the company’s property in the course of normal trading activities.
But, borrowing, giving security and giving guarantees in order to finance the company outside the ordinary course of conducting the company’s day-to- day business are outside the usual authority of a managing director.” (authorities omitted)
[20]Austin and Ramsay, Ford’s Principles of Corporation Law 14 th ed p826
110 These observations apply equally to the position of an “authorised officer”.
111 On the evidence, I find that Mr Nirens conducted the day to day business of Morrish Business Services.
112 Mr Nirens also controlled the limited day to day tasks associated with MOD Properties. It had very little activities part from acting as landlord to the related company, Morrish Business Services. He had to ensure that insurance and rates and utility bills were paid in respect of the building and prepare documents such as tax returns.
113 However, Mrs Nirens retained the important role of approving and signing cheques in respect of both MOD Properties and Morrish Business Services.
114 The assumptions available under s129(3) of the Corporations Act do not take the plaintiffs’ case further. I do not consider that signing a guarantee was the exercise of a power customarily exercised or performed by “an authorised officer” of a similar company. I adopt the reasoning in Ford’s Principles of Corporation Law set out above in support of that conclusion.
115 I have taken into account in reaching my conclusion about implied authority, that MOD Properties was a small business owned by Mrs Nirens and run by her husband, Mr Nirens. On one view, MOD Properties might have been seen as connected to Morrish Business Services. However, Mr Nirens was still only acting as the manager of the business and was a manger without authority to sign a cheque.
116 Mr Nirens did not act in the position of a director prior to the events of 11 March 2011[21] The fact that he could not implement any decision affecting MOD Properties that required the spending of money without Mrs Nirens’ approval, meant that his actions were more those of a day to day manager than a director. He was not carrying out actions which might reasonably be regarded as a being the responsibility of a director of MOD Properties.[22]
[21]Cf Grimaldi v Chamelon Mining NL (No 2) (2012) 200 FCR 296 at 321-325
[22]Grimaldi’s Case Supra at p 323 [70]
117 Nor do I consider that the plaintiffs have proved that Mr Nirens was a shadow director of MOD Properties. He did not dictate the actions of the director Mrs Nirens. She was not accustomed to acting in accordance with his instructions. She made the important decisions involving the expenditure of money by deciding whether to sign cheques.[23] Mr Nirens was more involved in MOD Properties’ activities when it purchased the Kooyong Road property, but that was before Mrs Nirens became the sole director, secretary and shareholder.
[23]As to shadow directors see Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233
118 I also accept the defendant’s submission that the guarantee is not valid because Mr Nirens purported to sign it “in accordance with Section 127 (1) of the Corporations Law” as a director. He was not a director. He did not purport to sign as an “authorised officer”. I do not consider that this is a minor matter analogous, as the plaintiffs submitted, to a witness placing their signature in the wrong section of the signing clause of a document and thereby inadvertently wrongly describing the capacity in which he or she signed the document. Mr Nirens had declared by his signature that he was signing as a director, when in fact he was not a director.
119 The next question is whether MOD Properties through Mrs Nirens had given Mr Nirens ostensible authority to sign the guarantee (and loan agreement document).
120 In order to establish ostensible authority, the plaintiffs have to establish:
(a)that a representation was made to Mr Clarke that Mr Nirens had authority to enter on behalf of MOD Properties into a contract of the kind sought to be enforced;
(b)that such representation was made by Mrs Nirens who had ‘actual’ authority to manage the business of MOD Properties either generally or in respect of those matters to which the contract relates (I having found that Mr Nirens had no actual authority to make such a representation);
(c)that Mr Clarke was induced by such representation to enter into a contract, that is, that he in fact reasonably relied upon it; , and
(d)that under its Memorandum or Articles of Association MOD Properties was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind.[24] There was no such evidence in this case and no reference to the indoor management rule.
[24]Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 505-506 applied in Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] VR 607, 614, appeal to the High Court dismissed (1975) 133 CLR 72.
121 I accept and act on the basis that a principal can make a representation to a class of persons without knowing the identity of the precise who may act upon it. I also accept that it was not necessary that any representation be made by Mrs Nirens directly communicating to Mr Clarke. A representation by the conduct of a principal may establish ostensible authority e.g. from a course of dealing, from the principal equipping an agent with a particular title, status and facilities, or the principal arming the agent with a document for signature.[25]
[25]These last sentences are taken from, and based on, Dal Pont, Law of Agency, 2nd ed, p 524.
122 The plaintiffs do not prove their case by relying on Mr Nirens’ statements that he had authority to sign the guarantee. It is probable that Mr Clarke placed some weight on Mr Nirens’ own assurances about his authority, as they were friends.
123 I do not consider that the signing of the document which is addressed to MOD Properties itself was a representation that Mr Nirens had authority to sign a guarantee on its behalf. Signing a guarantee is a step or function of great significance to a corporation, not least a small corporation. Describing a person as an “authorised officer” could not be seen as giving them the authority to sign a guarantee.
124 The other issue is whether Mrs Nirens’ actions in allowing Mr Nirens to run the day to day affairs of Morrish Business Services and MOD Properties amounted to a representation that could be relied on to prove that he had ostensible to sign the guarantee.
125 I do not consider that it did. There is a considerable difference between running the day to day affairs of a business and being able to give a guarantee that in effect pledged its only property.
126 The other occasions on which Mr Nirens said that he had acted on behalf of MOD Properties in dealing with loans from Mr Efron were inconclusive and did not add much to the plaintiffs’ case. In any event, Mr Clarke did not know of those loans.
127 In addition, Mr Clarke’s evidence, relevant to the issue of ostensible authority mainly related to the activities of Morrish Business Services, which ran its business from the building that was across the road from Jodack’s business. Morrish Business Services was the visible presence. However, it is essential to keep in mind that the question is whether Mr Nirens’ had MOD Properties’ ostensible authority.
128 There is no evidence of a representation made by Mrs Nirens to Mr Clarke about her husband’s authority to bind MOD Properties.
129 Therefore the plaintiffs’ claim that Mr Nirens had ostensible authority to sing the guarantee, which was contained in the fourth loan agreement, has not been established.
130 For those reasons, the plaintiffs’ claim on the guarantee against the defendant cannot succeed.
The defendant’s other submissions
131 It is strictly unnecessary for me to consider the defendant’s other arguments but I will state my conclusions in respect of them briefly.
132 If I had found that MOD Properties had validly executed the guarantee, the defendants relied on the argument that it was not enforceable because the giving of the guarantee by MOD Properties was subject to Mrs Nirens executing it. In effect it was argued that it was a term of the loan agreement that the guarantee would only take effect if signed by Mrs Nirens. The defendant submitted that the guarantee had to be construed strictly.[26]
[26]The defendant relied on the High Court decision in Gattellaro v Westpac Banking Corporation (2004) 204 ALR 258
133 This argument seems artificial because Mrs Nirens did not know of the guarantee and was overseas and Mr Nirens purported to execute it on behalf of MOD Properties. Mr Nirens knew that Mrs Nirens would never sign it and never intended that she would.
134 It is true that the guarantee was drawn in a form that envisaged that Mrs Nirens would be a co-surety. But viewing the circumstances objectively, neither the plaintiffs or Mr Nirens required Mrs Nirens’ signature. I would not have accepted this argument by the defendant.
135 I reach a similar conclusion in respect of the failure to obtain security over Mrs Nirens’ Hoddle Street property. Again, viewing the circumstances objectively, neither party to the loan agreement intended that it be a requirement that such other property be provided a security.
136 The absence of a reference to Schedule Item G in the body of the loan agreement cannot alter the clear terms of the guarantee contained in clause 10.
137 There was consideration for the fourth loan agreement. It is to be construed against the circumstances existing when it was signed, including the failure of Mr Nirens’ company to repay the moneys loaned under the first three agreements. The plaintiffs had not enforced their rights to recover the money due under those agreements and they gave up those rights in consideration of the making of the fourth loan agreement. There was a consideration for the fourth loan agreement. It does not matter that no further moneys were advanced. The moneys previously loaned were reloaned.
Conclusion
138 The plaintiffs’ proceeding is dismissed.
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