Ltak Investments Pty Ltd v Belzar Pty Ltd
[2023] SADC 174
•15 December 2023
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application for Review)
LTAK INVESTMENTS PTY LTD v BELZAR PTY LTD & ORS
[2023] SADC 174
Judgment of his Honour Judge Slattery
15 December 2023
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - EXTENSION
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - FORM AND CONTENT OF CAVEAT - GENERALLY
Application for extension of time for removal of a caveat. During 2020 the applicant commenced making short term cash loans to Matthew Trim, his company and other persons at very high interest rates. None of the loans made by the applicant have ever been repaid.
Remo Russo and Trim formed a company called Commercial Adelaide Pty Ltd (CAPL). Each became a director and shareholder of that company with the wife of Trim, Olivia Frances Trim.
The respondent company was registered on 16 November 2021. Remo Russo and Elizabeth Russo, who were husband and wife, were the founding directors and shareholders of that company. On 1 March 2022, the respondent company purchased a property at 8 Zephyr Terrace, Port Willunga (the land).
On 6 May 2022, CAPL, Trim and Remo Russo purported to enter into agreements for loans to CAPL, Remo Russo and Trim in the amount of $256,400. The document of 6 May 2022 records that this loan was actually made on 3 August 2020 and was amended on 12 December 2020, prior to the incorporation of the respondent.
The same agreement of 6 May 2022 records security for the 2020 loan included the land. The respondent’s directors had never resolved to make the land available as a security for the 2020 lending. Remo Russo was not separately authorised to act as an agent of the company and so bind the company’s assets in favour of the applicant.
In the same agreement of 6 May 2022, the amount secured included the first unpaid loan made to Trim dated 22 November 2021 and then two further loans made to CAPL, Trim and Russo on the same date in the amount of $45,000 and $105,000 respectively. All of these loans were short term loans and attracted extremely high compounding interest rates. None of these loans have ever been repaid.
Remo Russo is now an undischarged bankrupt, having been made bankrupt in 2022.
The respondent has never resolved to make its assets available to any other person or entity for the benefit of the applicant.
Whether the respondent is bound to observe any pre registration contract connected with any loan given to third parties by the applicant;
Whether the respondent authorised or acquiesced in the actions of Remo Russo to make the property of the respondent available as secured loans made to third parties;
Whether the respondent has ratified the actions of Remo Russo in purporting to provide its assets to secured loans made before and after its registration to other third parties;
Whether there is any basis to extend the time for the removal of the applicant’s affidavit.
Held:
1.The respondent did not through a promoter or by the manifestation of any form of acquiescence bind itself to any pre registration contract such as the loan agreement of 3 August 2020 as amended on 12 December 2020;
2.The respondent Remo Russo had no authority to enter into any contract to bind the assets of the respondent as security for any loans made by the applicant to any third party;
3.The respondent did not acquiesce in any action by Remo Russo in purporting to bind its assets in favour of the applicant to secure loans made by the applicant to any third parties;
4.The applicant has failed to demonstrate that it has any form of enforceable security against the assets of the respondent;
5. The applicant does not have a caveatable interest in the respondent's land;
6. The application for an extension of time to remove the caveat is dismissed.
Real Property Act 1886 (SA); Personal Property Securities Act 2009 (Cth); Bankruptcy Act 1966 (Cth); Uniform Civil Rules 2020 (SA); Corporations Act 2001 (Cth), referred to.
Official Trustee in Bankruptcy v P &R Alvaro Enterprises Pty Ltd (1992) 111 FLR 47, 1992 WL 1288536; Re Spencer; Hale (Caveator) (1904) 4 SR (NSW) 471; Cwalinski v Cwalinski Cwalinski v Cwalinski; Napier v Public Trustee (WA) (1980) 55 ALJR 1 ; Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57: [2006] HCA 46; Fei v Veritas Liberte Pty Ltd [2022] SADC 41 ; Brick & Pipe Industries v Occidental Life Nominees Pty Ltd [1992] 2VR 279 ; Perkins v National Australia Bank (1999) 74 SASR 68 ; Pope v Flinders Management Pty Ltd [2001] SASC 278 ; Colin R Price and Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75 at 146-147; Cahill v Kiversun Pty Ltd [2017] VSC 641 at [126] – [136]; Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147; Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2QB480 at 501 per Diplock LJ and Colin R Price and Associates Pty Ltd v Four Oaks Pty Ltd (2017) 251 FCR 404 and Cahill v Kiversun Pty Ltd; Molonglo Group (Australia) Pty Ltd v Cahill [ 2017] VSC 641 at [126] – [136].; Motor Yacht Sales Australia Pty Ltd T/Boutique Boat Company v Cheng [2021] NSW SC 1141 ; Barnes v Addy (1874) LR9Ch App244 ; Nexus Mortgage Securities v Mawson KLM Holdings and Starmaker (No.51) Pty Ltd (1997) 193 LSJS 474., considered.
LTAK INVESTMENTS PTY LTD v BELZAR PTY LTD & ORS
[2023] SADC 174
Application by the applicant under s 191(g) of the Real Property Act1886 (the RPA) for an order that the time for the removal of a caveat registered number 1398187 (the caveat) lodged by the applicant over the whole of the land comprised in Certificate of Title Register Book Volume 6174 Folio 292 (the land) be extended until further order. The application is opposed. The respondent contends for orders that the application be refused with effect that the caveat be lifted from the title; it contends that the applicant has no caveatable interest in the land. The respondent contends that on no view of the facts or law does a caveatable interest in the property exist. In effect, it contends for an order under UCR 144(2)(a).[1] I will proceed accordingly, accepting that there are no pleadings and the argument has proceeded upon the papers and upon oral submissions. For the avoidance of any doubt, the decision in this application does not determine the fate of this action. This decision reflects how in particular cases, a court may approach its decision about s 191 (g) RPA and whether in this action there should be an order for extension of time to remove a caveat.
[1] (2) The Court may, on application by a party, give summary judgment against an applicant—
(a) on a claim if there is no reasonable basis for prosecuting the claim;
The application for extension of time to remove the caveat is supported by an affidavit of Lori Trudy Ann Kambitsis (FDN 2) made on 4 September 2023 which was read without objection; there was no cross examination of the deponent. The application is opposed by Belzar Pty Ltd, the first respondent. In support of its opposition Belzar Pty Ltd filed an affidavit of Elizabeth Marie Russo sworn 22 September 2023 (FDN 8). This affidavit was also read without objection and there was no cross examination of the deponent. The respondent Mr Remo Russo is an undischarged bankrupt. He filed an affidavit of 26 September 2023 (FDN 9) but it is not necessary to refer further to that affidavit as it largely comprises commentary and hearsay. A second affidavit of Lori Trudy Ann Kambitsis made 11 October 2023 (FDN 10) has been filed. That further affidavit was read into evidence and there was no cross examination of the deponent.
A summary of the material facts is that LTAK Investments Pty Ltd (LTAK) is a private lender to borrowers who are involved in investment and other commercial activities. The sole director, secretary and shareholder of the company is and was at all material times Ms Kambitsis. It is not in contention between the parties that at all material times Ms Kambitsis was an admitted practitioner of the Supreme Court and was the principal of her own law firm.
The company CA Offices Pty Ltd (CAPL) formerly known as Commercial Adelaide Pty Ltd had as its director Mr Remo Russo between 13 March 2019 to 18 December 2021 and the third respondent Mr Trim, between 13 March 2019 and 23 July 2019. That company was placed in liquidation on 19 May 2023 and the liquidator is Mr Matthew Ormsby.
Belzar Pty Ltd is the registered proprietor of the land which is a residential property located at 8 Zephyr Terrace Port Willunga SA 5173, and is the land on which the caveat has been lodged by the applicant. The case of the applicant in support of the application for the extension does not involve a direct loan or any other form of financial accommodation provided to Belzar Pty Ltd. It appears that Belzar Pty Ltd has not had any direct dealings with the applicant.
In order to be able to understand the full background material facts in which this dispute arises, it is necessary to canvass a reasonably broad change of circumstances and events in chronological order. Under a written agreement dated 22 November 2021, LTAK lent the sum of $30,000 to the third respondent Trim, for a period of one month at a higher fixed interest rate of 30 % or a lower fixed interest rate of 15 %. The application of these interest rates depended upon the observance by Trim of the terms of the loan. The loan has never been repaid and so the higher interest rate applies. The loan agreement comprises pages 37 to 43 of Exhibit LK-1 to the affidavit of Ms Kambitsis sworn 04/09/2023 (FDN 2). Six months later, by agreement of 10 May 2022, LTAK purported to record a loan to CAPL in the amount of $256,400 made on ‘3 August 2020 amended on 11 December 2020’. The loan document is to be found at pages 44-61 of Exhibit LK- 1. There are some obvious peculiarities. The loan document is executed by Olivia Frances Trim as sole director and secretary of CAPL as borrower and as the guarantor. This agreement is also signed by Darren Trim and Remo Russo. The particulars of loan describe a date of loan of 3 August 2020 amended on 11 December 2020 for the sum of $256,400. It also purports to refer in schedule 1 clause 3.2 to the November 2021 loan to Matthew Trim of $30,000 and then to two further loans each dated 10 May 2022 to CAPL Remo Russo and Darren Trim in the amounts of $45,000 and $105,000 respectively. Each of these latter three agreements purport to bind as collateral assets the property at 8 Zephyr Terrace Port Willunga, owned by the respondent Belzar Pty Ltd. These arrangements are the genesis of this dispute. There is no contemporaneous document before the Court purporting to record a loan of more then $250,000 made in August 2020. There is no information or documentation about the amendment to such a loan in December 2020. There is no explanation about why the loan was not recorded until 10 May 2022 when the borrowers were in default on that and on the earlier loan of November 2021. On the same day, 10 May 2022 the applicant makes two further large loans to borrowers already substantially in default to it.
The third and fourth loan agreements are in largely identical terms and are to be found at page 62-81 of exhibit LR-1 to the first affidavit of Ms Kambitsis. It is appropriate that I consider each of these loan agreements separately and in detail.
Under the first loan agreement in writing dated 22 November 2021, the borrower was Matthew Trim, the loan was for the amount of $30,000 for a period of four weeks which was to be finally repaid on 17 December 2021. The interest rate was 30 % fixed. There was no guarantor to that agreement. This loan agreement was not secured.
The second loan agreement of 10 May 2022 is described as the PPSR loan agreement. The sub heading describes the loan agreement as :-
‘…loan agreement with right to register as a security interest on the PPSR and lodge a Caveat over real estate assets…’
The lender and secured party is the applicant LTAK. The borrower is CAPL care of Bretnalls.[2] The recitals to the agreement identify that the secured party, LTAK has agreed to provide financial accommodation to the grantor CAPL which enters into the deed in consideration of receiving financial accommodation and permits the lender to register its interest as a secured party. The grantor is obligated to provide security or guarantees of the performance of the grantor, CAPL. That company acknowledges the receipt of the principal sum for the term and at the guarantors request and upon the collateral described as set out in the schedules. Clause 13 of the second agreement governs the guarantor who is defined as the director of the grantor, in this case Olivia Frances Trim. There is no evidence that Ms Trim has executed any separate guarantee in favour of LTAK. She has executed the second agreement as the sole director and secretary of Commercial Adelaide Pty Ltd (viz ss 127, 129 Corporations Act (CA) 2001 (Cth)).
[2] Bretnalls is a firm of chartered accountants.
The grantor agrees to charge the collateral with payment to LTAK as the secured party of monies owing and the performance of the guarantor’s obligations under the agreement and under any other security arrangement. The grantor then charges its real estate assets including but not limited to those listed in the schedule with the payment to the secured parties of the monies owing in the performance of the grantor’s obligations.
A further security in the nature of a security interest as defined under the Personal Properties Security Act 2009 (Cth) (PPSA) is granted and a caveatable interest in the real estate collateral is granted. The real property is charged with repayment of the secured loan advance and any other money payable. Permission is granted to the secured party to register a caveat on the title of any real property presently owned or in the future acquired by the borrower.
The powers of the secured party are set out and Under Clause 11 ‘DEFAULT’. These include the usual powers of the right to enter and take possession of the collateral, to exercise the powers of a receiver, to convert liquidate and reduce any part of the collateral into money including to sell any part of it. Clause 14 is the usual power of attorney clause under which the grantor irrevocably appoints the secured party and any receiver as the grantor’s attorney to exercise in the grantor’s name all rights, powers and remedies of the secured party expressed or implied in the agreement.
There is a schedule attached to this agreement. The secured party is LTAK, the grantor is CAPL and the PPSR collateral is described in paragraph 2.1. The real estate collateral is then described in paragraph 2.2 as following:-
‘2.2Real Estate collateral[3]
(a)30 Strangways Terrace Hayborough SA 5211 [CT VOL 5674 Folio 455]
(b)8 Zephyr Terrace Port Willunga SA 5173 [CT VOL 6174 Folio 292]
(c)39 Leabrook Drive Rostrevor SA 5073 [CT VOL 5707 Folio 88]
[3] See FDN2, page 60, Schedule 1.
The date of this loan is 3 August 2020 – amended on 10 December 2020, and the principal amount of the loan is $256,400. The term of the loan is three months, the date of repayment is 3 October 2020 and interest is fixed at a rate of 24 % compounding monthly. Repayments are required on the 3rd of every month. This loan was not repaid in November 2020 or in March 2021.
The other agreements are defined to be loan agreements between LTAK and Trim of 22 November 2021 ($30,000), a loan agreement between LTAK and CAPL, Russo and Trim of 10 May 2022 ($45,000) and thirdly, a loan agreement between LTAK and CAPL, Russo and Trim of 10 May 2022 ($105,000). The document is then executed on behalf of LTAK, CAPL, Remo Russo, and Matthew Trim. It is not executed by the owner of the property at 8 Zephyr Terrace Port Willunga, the first respondent Belzar Pty Ltd.
The third loan agreement is described as a loan agreement with a guarantee between LTAK Investments and the borrowers who are named as Remo Russo and Matthew Darren Trim. The guarantors are described as CAPL, Remo Russo and Matthew Trim. The document records a loan in the amount of $105,000 on a draw down date of 13 May 2022, with a repayment date of 17 May 2022, at an interest rate fixed at 42 % for the first month and 21 % monthly thereafter. The default interest rate is 37% per month. The loan document, on page 2 refers to ‘the property’ which is defined to mean the property set out in item 12. Under Clause 5 of the agreement, the borrower and the guarantor acknowledge that the loan agreement shall entitle the lender to an equitable interest in ‘the property’ and consents to the investor noting its interest in the property by a registered caveat. The expression ‘property’ is defined in item 12 to include 30 Strangways Terrace Hayborough, 8 Zephyr Terrace Port Willunga and 39 Leabrook Drive Rostrevor. In the result, this third agreement as for the second, purports to bind the property belonging to Belzar Pty Ltd and to grant to LTAK a security interest in that property which is described as an equitable interest. The principal contention of the applicant LTAK is that without any formal execution by Belzar Pty Ltd of first, the second and third agreements, the applicant has been granted an equitable interest in the property of Belzar Pty Ltd.
The final loan agreement is also dated the 10th May 2022. It is in identical terms to the third agreement. It relates to a loan agreement for sum of $40,000 borrowed by CAPL, Remo Russo and Darren Trim, with the same guarantors. The drawdown date is 13 May 2022, the repayment date is 19 September 2022 and the interest rate is 37 %. The default interest rate is 45 % per month on the total loan amount.
The loan agreements are all exhibits to the first affidavit of Ms Kambitsis made on 4 September 2023 (FDN 2). In her affidavit (paragraph 12), Ms Kambitsis avers that the loans have all expired and nothing has been paid under them. At paragraph 13.2, Ms Kambitsis deposes that the borrowers including Remo Russo have charged in favour of LTAK, a beneficial interest in the property of Belzar Pty Ltd as security for the repayment of the amounts outstanding under the loans two, three, and four. Remo Russo is alleged to have consented to LTAK noting its equitable interest in the property by the registered caveat.
At paragraph 14 of her affidavit, Mr Kambitsis concedes that Belzar Pty Ltd is not a party to loans two, three or four but she contends that the loan agreements were executed by Remo Russo at a time when he was a director of Belzar Pty Ltd. She understood Remo Russo to be charging the property of Belzar Pty Ltd with the repayment of loans. On that basis, the company LTAK Investments Pty Ltd seeks an order extending the time for the removal of the caveat.
A responding affidavit of Elizabeth Marie Russo (FDN 8) affirmed on 22 September 2023 has been filed. In her affidavit Ms Russo deposes that Belzar Pty Ltd, was not registered until 16 November 2021.[4] Thus Belzar Pty Ltd was not registered until after the agreement of 3 August 2020 (amended on 11 December 2020) was allegedly made. The property was not purchased by Belzar until 1 March 2022.
[4] Affidavit of Elizabeth Marie Russo affirmed 22 September 2023, paragraph 8: Exhibit EMR-002.
The caveat document[5] describes the following claim:-
‘An equitable estate or interest as mortgagee over the whole of the land described pursuant to an agreement (or mortgage) made between the caveator and the cavate dated 3 August 2020’.
[5] EMR-001 to the affidavit of Ms Russo.
The first affidavit of Lori Kambitsis (FDN 2) makes no mention of any loan agreement of 3 August 2020 and it is not before the court. Similarly, there is no information about a mortgage. I have described the known loan agreements in detail earlier in these reasons. It does not appear to be in contention that none of these loans were advanced to or were made for the benefit of the first respondent and there is no evidence of any loan agreement between the applicant and the first respondent of 3 August 2020. Ms Russo contends that there is no basis to sustain the caveat as claimed on the basis of any loan agreement of 3 August 2020.
Ms Russo also avers that the property at 8 Zephyr Terrace at Port Willunga was not purchased by Belzar Pty Ltd until 1 March 2022. Exhibit EMR-003 to her affidavit discloses that the property was transferred to Belzar Pty Ltd. on 1 March 2022 She contends that absent any decision or agreement by Belzar Pty Ltd as the proprietor to lend its assets as a form of security for the benefit of a third party, it not possible for any one else to bind that asset in the form of a security under a covenant by some informal method. I turn to that issue below.
Schedule 1 to the second loan agreement called the PPSR loan agreement dated 10 May 2022 identifies the particulars of loan dated 3 August 2020, as amended on 10 December 2020 for the principal sum of $256,400. The term was for a period of three months and the repayment was to be made on 3 October 2020.
The affidavit of Ms Russo satisfies me that at the time that this alleged loan agreement was made in 2020, Remo Russo was not a director of Belzar Pty Ltd. He was a company director during the period between 16 November 2021 and terminating on 16 June 2022. He is now an undischarged bankrupt. I am similarly satisfied that at the time that the second, third and fourth loans were entered into, no financial arrangements had been made between LTAK and Belzar Pty Ltd. There is no evidence of any other form of financial accommodation made available by LTAK to Belzar Pty Ltd, or between those companies as a form of 3rd party security.
In her second affidavit of 11 October 2023 (FDN 10) Ms Kambitsis informs the court that arrangements for loan number two were made on 3 August 2020 following an approach by Remo Russo and Trim. She was told that funds were needed immediately, that a failure to be able to borrow those funds would cause them serious consequences and that they would provide security for repayment of any loan in due course. Paragraph 6.3 of that affidavit provides as follows:-
‘Those earlier arrangements are referred to in Schedule 1 to the loan agreement for Loan 2 (see page 60 of Exhibit LK-1 to Kambitsis1). Remo Russo and Trim advised me on 3 August 2020 that they would provide security for repayment of any loan made in due course and the arrangements were to be later documented due to the urgency referred to in paragraph [6.2] herein. LTAK caused the amount of $254,000 to be transferred by bank cheque for a cash amount on 3 August 2020 as requested by Remo Russo and Trim. A true copy of a bank document evidencing this transfer is found at page 7 of Exhibit LK-2 to this my affidavit.’
It is significant that in this paragraph there is no mention of what security arrangements would be made, with whom or what, and on what basis and whether these would purport to include a corporation yet to be incorporated. There are a number of other issues arising from these facts. Trim and Remo Russo were obviously distressed borrowers. They needed funds in connection with an obligation that involved them and their company CAPL. A promise was made by Trim and Remo Russo that the loan, once made, would be secured. The obvious inference is that the loan would be secured by them both. As Belzar Pty Ltd did not exist at that time it could not have been in the contemplation of any of the parties that it would provide security, still less over a property not purchased until 2 years after the loan was made.
Ms Kambitsis also does not inform the court when security was to be provided, by whom or what, of what type and in what amount. As well, LTAK was in an extraordinarily exposed position having made such a large unsecured loan, to two such distressed borrowers. The level of such distress may be measured by the terms of the loan itself.
In submissions, the applicant relied upon the second affidavit of Ms Kambitsis about the arrangements made in 2020 connected with the loan sought by the named individuals. In light of the fact that Belzar Pty Ltd had not been incorporated nor had the property at 8 Zephyr Terrace Port Noarlunga been purchased, I understood that the submission made by the applicant was that the relevant arrangements being made were in the nature of what was once described as a pre incorporation contract (now pre registration contract) and that, in time, there was a ratification of that contract by Belzar Pty Ltd after registration. The weakness of those submissions are immediately apparent.
ss 131, 132 and 133 of the Corporations Act 2001 (Cth)(CA) provide:-
131 Contracts before registration
(1) If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:
(a) within the time agreed to by the parties to the contract; or
(b)if there is no agreed time—within a reasonable time after the contract is entered into.
(2) The person is liable to pay damages to each other party to the pre registration contract if the company is not registered, or the company is registered but does not ratify the contract or enter into a substitute for it:
(a) within the time agreed to by the parties to the contract; or
(b)if there is no agreed time—within a reasonable time after the contract is entered into.
The amount that the person is liable to pay to a party is the amount the company would be liable to pay to the party if the company had ratified the contract and then did not perform it at all.
(3) If proceedings are brought to recover damages under subsection (2) because the company is registered but does not ratify the pre registration contract or enter into a substitute for it, the court may do anything that it considers appropriate in the circumstances, including ordering the company to do 1 or more of the following:
(a) pay all or part of the damages that the person is liable to pay;
(b)transfer property that the company received because of the contract to a party to the contract;
(c) pay an amount to a party to the contract.
(4) If the company ratifies the pre—registration contract but fails to perform all or part of it, the court may order the person to pay all or part of the damages that the company is ordered to pay.
132 Person may be released from liability but is not entitled to indemnity
(1) A party to the pre—registration contract may release the person from all or part of their liability under section 131 to the party by signing a release.
(2) Despite any rule of law or equity, the person does not have any right of indemnity against the company in respect of the person’s liability under this Part. This is so even if the person was acting, or purporting to act, as trustee for the company.
133 This Part replaces other rights and liabilities
This Part replaces any rights or liabilities anyone would otherwise have on the pre—registration contract.
Under s 131CA it is necessary to identify a person (usually called a promoter) who enters into a contract on behalf of or for the benefit of a company before it is registered. There is no evidence before the court that anything done by Mr Remo Russo or any other person was done in the process of entering into or purporting to enter into a contract on behalf of Belzar Pty Ltd before it was registered. Accepting only for the sake of discussion that such a person can be identified and those circumstances can also be identified, a company not yet incorporated will become bound by the contract and therefore entitled to its benefit and burden if it is registered and ratifies the contract. It must ratify the contract within the time agreed to by the parties to the contract or, if there is no time agreed, within a reasonable time after entry into the contact.
I am satisfied that Belzar Pty Ltd was not a registered company at the time that this alleged contract was made. There is no evidence before the court that a contract was made for the benefit of or for the obligation of Belzar Pty Ltd at anytime during 2020. In the usual course, when reference is made to an agreement being made:… ‘on behalf of or for the benefit of…’ the contracting party, the promoter usually would intend to act as an agent for the company yet to be incorporated. Thus, the operation of ss 131 and 132 CA depend upon a company in respect of which the person purported to act, coming into existence at a specified time or within a reasonable time and being reasonably identifiable with the company for whom the agent purported to enter into the contact. It is necessary for there to be evidence before the court sufficient to satisfy me that the promoter intended to contract for a particular company. There is no evidence before the court of any such an intention. All that is said is that something would be done in the future to give security to the lender. There is no evidence that such an intention involved a company yet to be incorporated and an asset yet to be purchased by that company.
I consider that it is clear enough that the intention of ss 131 and 132 CA is that the company not yet registered must be sufficiently described or identified at the time of the taking of the steps by the promoter to enter into the contract on behalf of that company. Thus, a company to be registered in the future must be identifiable with the obligation of that company before it was registered.
Then, it is necessary for there to be an active ratification. (s 131(1)(a) and (b) CA). The ratification must occur within the time agreed or within a reasonable time after the contract is entered into. The common law requirements are that in order for ratification to occur, there must be a manifestation of the intention of the principal (Belzar Pty Ltd) to be bound by the contract made by the promoter. That may be expressed or implied by conduct of the company Belzar Pty Ltd. In order to ascertain whether there has been ratification, it is necessary to keep in mind the whole of the terms of the contract about which it is said ratification has occurred.
In this case, there has been no factual assertion of any act of ratification by Belzar Pty Ltd and it is only said that the person who became a director, Mr Remo Russo, had expressed or implied powers to bind the company. That of course is not possible in circumstances where Mr Russo acted as an agent/promoter for a company yet to be registered. Leaving that matter aside, it becomes necessary to identify conduct by Belzar Pty Ltd which manifests the intention of that company to be bound to an agreement that it would lend its assets to secure a loan made two years earlier, to Mr Trim and others. Considered in light of that background, it is necessary for there to be a clear manifestation of the intention of Belzar Pty Ltd to be bound to such a contract. There is no evidence of such conduct, and there is no evidence of any time agreed to by the parties to the contract within which the ratification should occur. As there is no agreed time, it is necessary to identify a reasonable time within which such ratification may occur.
Belzar Pty Ltd was not incorporated until November 2021. It did not purchase the property until 1 March 2022. There is no evidence that the company ratified any alleged contractual obligations to LTAK or to anyone else. The company was not made a party to any contract after November 2021. If the company property was to be bound into such an obligation as a surety, it was necessary for a promoter (if it be Mr Remo Russo) to identify the company, to purport to enter into a contract of guarantee by a company of the obligations of himself to LTAK, that the company would be incorporated and that there would be ratification of the obligation within a reasonable time. None of this occurred. I am also satisfied because it is so obvious that it goes without saying, that the period of two years between the time between the entry into the debt of 3 August 2020 and the time of the incorporation of the company was not a reasonable time.
I am satisfied on the evidence that Belzar Pty Ltd did not resolve or otherwise agree to enter into any form of collateral or security arrangements to guarantee the debt of Mr Russo to LTAK, nor did it agree to enter into any agreement by which it bound itself to such an obligation. It did not ratify any contract purported to have been entered into on its behalf by Mr Remo Russo. In those circumstances, Mr Remo Russo remains personally liable to pay the debt to LTAK. There is no basis in fact or in law under s 131(3) CA for the obligation to fall upon Belzar Pty Ltd.
Although I do not need to make a particular finding on the point, a proper reading of the second affidavit of Ms Kambitsis indicates that any undertaking given to her by Trim and Mr Russo was personal in nature. It was not until the agreement of 10 May 2022 that Belzar Pty Ltd had been incorporated and that the property at 8 Zephyr Terrace Port Willunga had been purchased. From time to time, Mr Russo was a director of that company with Ms Russo. He was a director on 10 May 2022.
The grantor under the arrangements is separately or together with other borrowers, the company CAPL. It is not the owner of the property at 8 Zephyr Terrace Port Willunga. On 3 August 2020, Belzar Pty Ltd did not exist and it did now own the property at 8 Zephyr Terrace Port Willunga. So much is conceded by the applicant.
The applicant contends that an inference arises from the terms of the agreement made by Remo Russo that the intention of the parties executing these documents was, in effect, to grant an interest in the collateral that was referred to in clause 2.2 of schedule 1 of the PPSR Loan agreement of 10 May 2022. I have proceeded on the basis that this argument is secondary to and connected with any pre registration of company contract argument. This argument appears to depend upon an alleged express or implied authority of a director of a company.
The applicant also contends that such an inference must arise from the documents themselves and from the conduct of the parties. But the agreement does not include any undertaking given by Belzar Pty Ltd which is collateral to the undertaking and obligations of CAPL. Belzar Pty Ltd did not directly or as a party contractually bind itself to making available its real estate collateral at 8 Zephyr Port Willunga for the benefit of CAPL or for the benefit of LTAK.
The applicant contended that the obligation of Belzar Pty Ltd to provide real estate collateral is to be inferred from the proper construction of each of the second, third and fourth agreements of 10 May 2022. The reasons are first that both Mr Russo and Mr Trim have personally executed the documents. The obvious flaw in that argument is that both of them have executed the documents in their personal capacities. Mr Russo has not purported to execute the document in any corporate capacity.
The second contention of LTAK is that due weight must be given to the fact that there is a reference to Belzar Pty Ltd present in the documents in circumstances where the grantor did not own the relevant property. The weakness of that argument is that Belzar Pty Ltd is not a party to any agreement. There is no evidence of any resolution by Belzar Pty Ltd to offer any of its assets as a collateral security to LTAK. There is no evidence of any consideration by Belzar Pty Ltd, in the corporate sense, of the benefit to it of offering any of its assets as collateral security to LTAK for a loan given to CAPL. There is no evidence of any consideration by Belzar Pty Ltd of the commerciality of the arrangement between LTAK and CAPL.
Notwithstanding, the applicant contends that these matters may be relied upon to support the contention that the arrangement gives rise to an inference that Mr Russo, on behalf of Belzar Pty Ltd, agreed to grant an interest in the property owned by Belzar Pty Ltd in favour of LTAK which, in due course, enabled the applicant to register its caveat against that property. In order to completely address all of the aspects of this argument it is first necessary to analyse the corporate history of Belzar Pty Ltd.
Belzar Pty Ltd is a private limited company. It now has only one director, Elizabeth Marie Russo. It previously had two directors. The second director was the respondent Remo Russo. He ceased to be a director on the 16th June 2022. Each of Elizabeth Russo and Remo Russo were appointed on the 16th November 2021, the date of registration of Belzar Pty Ltd. Remo Russo is an undischarged bankrupt. At the relevant time in 2022, there were two directors of Belzar Pty Ltd.
It is well settled that if a company has several directors, then a director acting individually has no usual authority to bind the company: Northside Developments Pty Ltd v Registrar-General.[6]
[6] (1990) 190 CLR 146 at 205; Brick & Pipe Industries v Occidental Life Nominees Pty Ltd [1992] 2VR 279 at 303; Perkins v National Australia Bank (1999) 74 SASR 68; Pope v Flinders Management Pty Ltd [2001] SASC 278 at [52].
In a company where there is more than one director, then one director must join with the other director or directors in making a resolution to bind the company. In that sense, the resolution becomes a resolution of the board of directors of the company. It is possible, in very limited circumstances, for a director to have the power, as a single director, to bind the company. In order to have that power, a director must be placed in the position of an agent of the company which would require the express empowerment of that director by the board of the company to act as its agent. Thus, it would be necessary for the company to delegate the power to that single director to bind the company. The director will not have any power unless expressly empowered to do so by the board of the company.
There have been exceptions to this rule but these generally turn upon their peculiar facts. An example is Junker v Hepburn.[7] This case involved a two director company where one of them was held out to have both actual and implied authority to bind the company. The question for decision was whether or not a director was authorised by the company to give a direction to lenders to pay part of borrowed funds into his personal bank account. The court held that Hepburn had apparent authority from the company to give a direction to lenders to pay funds because the company had held out Hepburn as having the authority to give a direction to pay that money. Therefore, the case turned upon the conduct of the company and the empowerment of Hepburn. That is not this case.
[7] (2010) 28 ACLC 10-009; [2010] NSWSC 88.
This is also not a case of there being acquiescence in the act of a person who was not otherwise authorised. Where a person purports to act on behalf of a company without a specific grant of authority by the relevant organs of the company, it would only be if there was ratification of the presumption of authority and of the unauthorised act of the agent that the company would become a party to the transaction and will be bound.
A question which arises here is whether, where there were two directors of the company Belzar Pty Ltd, Elizabeth Russo had conferred any form of actual implied authority upon Remo Russo to bind the company to the financial obligation he owed to LTAK. There appear to be at least two lines of authority. The first is that the mere act of acquiescence in the conduct of the second director is not sufficient to lead to the company being bound: Colin R Price and Associates Pty Ltd v Four Oaks Pty Ltd.[8] Differently, in Cahill v Kiversun Pty Ltd[9]: Molonglo Group (Australia) Pty Ltd v Cahill.[10] the court held that one director conferred implied actual authority upon the other director to enter into a contract on behalf of the company based upon acquiescence in the conduct of the second director. Also there is an as yet an unresolved difference in approach in relation to whether (or not), if there is acquiescence, it is necessary for there to be some form of communication of that acquiescence: Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd.[11] In later cases such as Motor Yacht Sales Australia Pty Ltd T/Boutique Boat Company v Cheng[12] the court held that even though it did not accept that communication of acquiescence was necessary, there was, in that case, evidence that communication of the acquiescence occurred.
[8] [2017] FCAFC 75 at 146-147.
[9] [2017] VSC 641 at [126] – [136].
[10] [2018] VSCA 147.
[11] [1964] 2QB480 at 501 per Diplock LJ and Colin R Price and Associates Pty Ltd v Four Oaks Pty Ltd (2017) 251 FCR 404 and Cahill v Kiversun Pty Ltd; Molonglo Group (Australia) Pty Ltd v Cahill [2017] VSC 641 at [126] – [136].
[12] [2021] NSW SC 1141 at [141] – [146].
In the case at bar, there is no evidence of any communication of any such authority in Remo Russo. To the contrary the only evidence is that in 2020 Remo Russo purported to promise to the applicant that, at some unspecified date in the future, he would in some unspecified way, provide some form of unspecified security to the applicant in order to secure the debt owed by CAPL to the applicant. Thus, there is no evidence of the empowerment of Remo Russo as a director of the company; there is no evidence of the company through its board authorising Remo Russo to enter into any transaction on behalf of the company; in the absence of any authority on the part of Remo Russo, there is no evidence of any form of acquiescence (communicated or not) of the actions of Remo Russo in purporting to bind Belzar Pty Ltd’s assets to secure a debt which he had incurred with the applicant two years earlier.
Similarly, the applicant has given no consideration to the actual position of Remo Russo as a director by which he purported to bind the company assets after the event to secure a loan made to him personally by the applicant which, on any view, amounted to an abrogation of the duties of Remo Russo as a director of the company. Arguably, this conduct constituted a fraud on his power as a director and upon the assets of the company. Although the matter was not argued I did raise with counsel the possibility of the application of equitable principles affecting the conduct and position of LTAK. I consider that there is significant evidence of conduct upon which the principles of Barnes v Addy[13] may have application. I refer in particular to the evidence pointing to a breach of fiduciary duty as a director by Remo Russo. However, as the funds have not been received, I will leave that matter to one side.
[13] (1874) LR9Ch App244
The applicant also conceded that the position in relation to agreement two was the same in relation to agreements three and four. The first respondent is not a party to loans three and four. The applicant agreed that if it be said that Mr Russo has some form of authority to bind Belzar Pty Ltd, no consideration appears to have been given by LTAK to the question of whether or not, in the whole of the circumstances, Mr Remo Russo was purporting to take advantage of his position as a fiduciary to materially and deleteriously affect the assets and financial position of the company. It is common ground that the director of LTAK is a solicitor and at the least, she was potentially on notice of the breaching conduct of the director, Remo Russo, if it be contended that he had the capacity to bind Belzar Pty Ltd. The loan was entered into on 3 August 2020, and an agreement made on 10 May 2022 is in effect a ‘catch up’ post fact security. Particular care needed to be taken before any form of collateral security owned by a non-party to the transaction could be understood to be bound into the security for a transaction which occurred two years earlier.
The applicant contends that although the position for loans three and four is replicated, the position is slightly different because Mr Russo is named as an individual borrower and executes the agreements. I am unable to accept those submissions for the same reasons. The primary obligation of Remo Russo was personal and he gave his contractual promise to repay the amount of the loans made to him. This did not happen in 2020 as the debts were to be repaid within a month of 3 August 2020. More than a year later Belzar Pty Ltd was registered and it had two directors. That company did not resolve to borrow funds from the applicant, allow the applicant to take any form of security over its assets and it did not enter into form of obligation with the applicant. At the same time the applicant continued to lend more funds to the borrowers.
Belzar Pty Ltd did nothing to communicate any acquiescence to an arrangement to bind itself as guarantor nor did it in any way infer such acquiescence. The applicant knew all of this, knew of the breach of every loan covenant by Remo Russo but continued lending to him on his personal covenant.
The applicant also addressed the content of the caveat and the claims of the caveator of an interest as mortgagee in the land arising pursuant an agreement between the caveator and the caveatee of 3 August 2020. The issue for consideration is actual wording of the claimed interest in land as described in the caveat. As I earlier pointed out, there is no evidence of the registration by LTAK as mortgagee of any interest in the land of Belzar Pty Ltd as mortgagor. There is no evidence of any mortgage. At its highest the loan documents purport to create an interest of LTAK in the land of Belzar Pty Ltd. There is no evidence of an agreement made by Belzar on the 3 August 2020. There is an obvious misdescription by LTAK in the wording of the caveat. The issue is whether the caveat should be read as claiming a form of caveatable interest, even if imperfectly.
The applicant contended that my approach to the consideration of that issue is governed, at least to an extent by the decision of Judge Burley, a Master of the Supreme Court, in Official Trustee in Bankruptcy v P Alvaro Enterprises Pty Ltd.[14] For the reasons that follow, I am unable to accept that submission in this case. In Alvaro the plaintiff was the trustee of the bankrupt estates of Paul Alvaro and Rosina Alvaro, formerly of Collinswood South Australia. Through a family trust, the bankrupts contributed the sum of almost $94,000 to the purchase of property at Grange on 31 January 1984. The bankrupts personally supplied all of the purchaser’s funds from their own personal resources. The Alvaros became bankrupt on 18 February 1991. They were the sole directors and shareholders of the defendant trustee. A caveat lodged by the trustee in bankruptcy claimed an estate or interest in fee simple over the land by virtue of the bankrupts having purchased the land by payment to the defendant in the amount of $94,000.
[14] (1992) 111 FLR 47, 1992 WL 1288536.
The defendant company contended that the caveat did not refer to an equitable interest based upon the operation of s 121 of the Bankruptcy Act, which renders void a disposition of property made before or after the commencement of the Act with the intention of defrauding creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith.
The Alvaro company relied upon a number of authorities. The first a decision of the Full Court of the Supreme Court of NSW in Re Spencer; Hale (Caveator)[15] where a caveat claiming ‘… an estate or interest in fee simple in all of that piece of land containing…’ was found to be deficient. This was because a claim for an interest in property under the old system of Land Title (by possession) may have been made under a documentary title showing a direct chain of title from the original grantee. Alternatively, it may be made under a statutory title by possession and antagonistic to those claiming under the grantee. Because the caveatee did not know in which of those two ways the caveator claimed his fee simple, the caveat was bad. That case is not on point because of the peculiarities of the then applicable registration of the title system in NSW. It turn on its own facts.
[15] (1904) 4 SR (NSW) 471.
The next authority relied upon by the Alvaro respondent was the decision of Burbury CJ in Cwalinski v Cwalinski[16] concerning a caveat claiming an estate or interest by virtue of the sum of £700 provided by the caveator: ‘… for or towards the purchase by one owner Cwalinski…my wife…of (the land)…’. The claimant had supplied the full purchase price for the land. It was held that the caveat was defective because it failed to identify the estate or interest claimed. This is perhaps an unusual decision that may not be fully explained in the reported text of the decision. That is because the interest of the caveator in relation to the provision of the purchase price of the property to his wife may, at least in the sense of a resulting trust, be obvious.
[16] [1958] Tas SR 56.
In Alvaro, the trustee relied upon the decision of the High Court in Napier v Public Trustee (WA)[17] to claim that a resulting trust in favour of the bankrupts arose because the defendant was a trustee of the P&R Alvaro Family Trust. It could not be said that the evidence before the court rebutted the presumption of a resulting trust which will arise when property is transferred into the name of another without any consideration being paid by that person and absent the operation of the presumption of advancement on the rebuttal of that presumption. Judge Burley held that the evidence before the court in opposition to the application did not render unarguable the plaintiff’s contention that a resulting trust arose.
[17] (1980) 55 ALJR 1 at 3 per Aickin J.
His Honour then turned his consideration to the relevant decisions concerning the grant of an order extending time for the removal of the caveat. His Honour discussed the decision of Cox J in Whallin v Bailbart Investments Pty Ltd.[18] In his decision, the learned Judge applied the decisions of the Full Court deriving from and applying that decision. Since that time, the High Court has confirmed in its decision in Australian Broadcasting Corporation v O’Neill[19] that in the context of injunctive relief the relevant applicable test is that enunciated in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[20] At [65] in O’Neill Gummow and Hayne JJ said:-
‘[65] the relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This court… said that on such applications the court addresses itself to two main inquiries:-
‘the first is whether the plaintiff has made out a prima facie case, in the sense that that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief.. the second enquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted’.
…By using the phrase ‘prima facie case’, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed, it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first enquiry, the Court continued, in a statement of central importance for this appeal:-
‘…How strong the probability needs to be depends no doubt upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks’ [references deleted].
[18] (1987) 47 SASR 198 see also Nexus Mortgage Securities v Mawson KLM Holdings and Starmaker (No.51) Pty Ltd (1997) 193 LSJS 474.
[19] (2006) 227 CLR 57.
[20] (1968) 118 CLR 618.
Judge Burley then distinguished the case before him from the decision in Cwalinski. His Honour held that insofar as the decision in Cwalinski is to the contrary to the decisions upon the topic in South Australia, he would not follow that decision. I respectfully agree with his Honour’s conclusion that there is significant doubt about the status of the decision in Cwalinski. I also would not follow that decision.
Judge Burley held that the caveat contained an adequate description of the interest contended for notwithstanding that a resulting trust was not specifically referred to and that the plaintiff was unable to define the extent of the trust. So much may be accepted. In my view, that case is not completely on point because the interest being claimed was obvious, as I think was the case in Cwalinski.
That position is to be distinguished from a caveat which does not at all describe the relevant proprietary interest over the subject matter of the claim. That situation was dealt with by Judge Burnett in his Honour’s decision in Fei v Veritas Liberte Pty Ltd.[21] His Honour held at paragraphs [24] – [29] as follows:-
[24] Under s 191(1) (d) of the Real Property Act:
“the registered proprietor or any other person claiming estate or interest in the land may, by summons, call on any caveator, including the Registrar-General, to attend before the Court to show cause why the caveat should not be removed; and the Court may, after allowing the parties a reasonable opportunity to be heard, make such order as appears just in the circumstances; (if the caveator does not appear in response to the summons, the Court may, if satisfied that the summons was duly served, proceed to hear and determine the application in the caveator’s absence).”
[25]In Stone v Leonardis & Anor, White J discussed how a registered proprietor could make application to remove a caveat that had been placed over its property. The most common application was for the registered proprietor/caveatee to warn the caveat under s 191(1)(e)-(g) of the Real Property Act in which case the caveat will be removed unless the Court, on the caveator’s application, extends the time for the removal of the caveat. The second method of removal was for the registered proprietor/caveatee to apply itself to remove the caveat pursuant to s 191(1)(d). White J held that the underlying nature of the caveat had similarities with an interlocutory injunction. Therefore, the caveator, whether seeking to extend the time for the removal of the caveat or resisting an application to remove the caveat, will have the onus of persuading the Court that the caveat should remain on the property. Therefore, the court must determine whether there is a prima facie case in the sense described in ABC v O’Neill (discussed below) and whether the balance of convenience favours an order extending the time for the removal of the caveat.
[26]The caveator must make out a prima facie case in the sense that if the evidence remains as it is there is a probability that at the end of the trial it will be entitled to relief. The reference to a prima facie case does not mean that the applicant must show that it is more probable than not at trial it will succeed; it is sufficient that he shows a sufficient likelihood of success to justify in the circumstances the preservation of the status quo.
[27]The caveator must satisfy two further requirements, namely the balance of convenience (whether the inconvenience of damage that the caveat would likely suffer if the caveat is removed, outweighs the inconvenience or damage that the caveatee would suffer if the caveat remains on the property) and that damages are not an adequate remedy. The onus lies on the caveator to satisfy the Court of these matters.
[28]The approach taken by White J in Stone v Leonardis to an application for the removal of a caveat pursuant to s 191(1)(d) was followed by Hinton J in Psevdos v First Mortgage Company Home Loans Pty Ltd.
[29]A caveat must accurately describe the proprietary interest over the subject matter alleged to be held by the caveator. In Union Finance Pty Ltd v Rateki Pty Ltd & Anor (No 2), Judge Lunn held that for a caveat to be allowed to remain on the title, it must correctly identify a legally maintainable interest in the land by the caveators, citing Caravan & General Finance Pty Ltd v Clearview Developments Pty Ltd and Roclin Investments Pty Ltd v Makris. In Caravan, Zelling J held that the caveat was defective because the ground upon which the claim is made under the caveat was not a ground which was sustained by any of the documents before the Court. In Roclin Investments, Hogarth J held that the caveat was, on its terms, too wide and therefore was bad. (citations omitted)
[21] [2022] SADC 41 (1 April 2022).
Of importance, is that the caveat must correctly identify a legally maintainable interest in the land by the caveator. It must therefore be referable to the documents before the court and it cannot be expressed so broadly as to be unsustainable. Such a case it to be distinguished from the position before Judge Burley in the Alvaro matter. In that case, the interest claimed by the trustee of the bankrupt estates of the Alvaros was of an indefinable share as a proprietary interest in the land. Such an interest could arise in a number of ways including under the operation of a resulting trust, for which the applicant in that case contended.
In this case, the applicant does not contend that as a mortgagor for example, Belzar Pty Ltd has committed itself to providing its property as collateral for a loan entered into on the 3rd August 2020 under an agreement dated the 10th May 2022. The caveat over the land does not refer to the 10th May 2022 agreement but rather the 3rd of August 2020 agreement. For that reason alone, the caveat is bad because Belzar Pty Ltd did not exist on the 3rd August 2020 and the property was not owned by that company on that date.
Belzar Pty Ltd submits that the caveat fails to correctly identify a legally maintainable interest in the land. Properly understood, the caveat seeks to protect what is now said to be an oral agreement for the lending of money which had nothing to do with the respondent which was registered in November 2021 and its property was purchased in March of 2022. Therefore, on this argument, no caveatable interest can arise in respect of that property in favour of the applicant under an agreement dated 3 August 2020. I accept those submissions; they are correct.
Belzar Pty Ltd also submitted that it is not a party to any of the three loan agreements, number two, number three and number four. It is not referred to, and it is not included as a borrowing party and that under the doctrine of privity, the respondent can have no obligations under any of those agreements, it not being a party to any of them. It contends that there is nothing within the documentation indicating that Mr Russo was signing any of these agreements for and on behalf of Belzar Pty Ltd or that he is signing the documents for and on behalf of anyone but himself. I also accept those submissions as they are similarly correct.
The execution by Mr Russo of the agreements, in his own name, is not sufficient to bind or give rise to any presumption that Belzar Pty Ltd is bound to them.
I turn then to the operation of s 127, 128 and 129 CA. These sections provide:-
127 Execution of documents (including deeds) by the company itself
(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c)for a proprietary company that has a sole director who is also the sole company secretary—that director.
Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.
(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed 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.
Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings in relation to the company.
(3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).
(4) This section does not limit the ways in which a company may execute a document (including a deed).
128 Entitlement to make assumptions
(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.
(2) A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are 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.
129 Assumptions that can be made under section 128
Constitution and replaceable rules complied with
(1) A person may assume that the company’s constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.
Director or company secretary
(2) A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:
(a) has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.
Officer or agent
(3) A person may assume that anyone who is held out by the company to be an officer or agent of the company:
(a) has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.
Proper performance of duties
(4) A person may assume that the officers and agents of the company properly perform their duties to the company.
Document duly executed without seal
(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.
Document duly executed with seal
(6) A person may assume that a document has been duly executed by the company if:
(a)the company’s common seal appears to have been fixed to the document in accordance with subsection 127(2); and
(b)the fixing of the common seal appears to have been witnessed in accordance with that subsection.
For the purposes of making the assumption, a person may also assume that anyone who witnesses the fixing of the common seal and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Officer or agent with authority to warrant that document is genuine or true copy
(7) A person may assume that an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or is a true copy.
(8) Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section.
The evidence before the court satisfies me that at all relevant times there were two directors of Belzar Pty Ltd. Under s 127(1)(a) CA, it would be necessary for both of those directors to have signed the documents to have bound the company. The meaning and effect of s 127(1) CA is that in the circumstances identified, the company may be bound by execution of the documents if they are signed, for example by two directors of the company or by a director and company secretary, or if there is a sole director, by that sole director. The documents are not executed by both directors of Belzar Pty Ltd and they do not bind the company under the operation of this section.
None of the assumptions under s 129 CA assist the applicant. The company’s constitution has not been complied with; the two directors who are duly authorised have not executed the document; Remo Russo has signed in his own name. He does not purport to be a person and held out by the company to be an agent of the company. He is not properly performing his duties as a director. The document is not executed under seal. Therefore, the entitlement operating under s 128 CA to make the assumptions in s 129 CA are not established.
Separately, there is no evidence of Belzar Pty Ltd holding out Remo Russo as being authorised to bind the company as an agent whether by actual or ostensible authority. Nothing within the documentation which is signed by him expresses any notion of any authority on his part. There is no evidence that in a two director company, Mr Russo was held out as having capacity to bind the company as one of its directors and therefore his signature bound the company. There is no evidence that both directors have agreed to the transaction and there is no evidence that Mr Russo was entering the transaction except on his own behalf.
In those particular circumstances it is also not possible to bind Belzar Pty Ltd after the fact. Mr Remo Russo is not a party to the first agreement. That agreement which is dated 22 November 2021, does not place any obligation upon him to do anything. Under it the loan of $33,000 is made to Matthew Darren Trim without there being any guarantor or the provision of any security.
Under the deed called the PPSR loan agreement dated the 10th May 2022, the principal borrower, called the grantor, is CAPL. It appears from the execution clause of that agreement that the sole director and secretary of the company is Olivia Frances Trim, the wife of Matthew Trim. The agreement is also signed by Matthew Trim and Remo Russo but they are not directly named as borrowers. The loan detail is recorded in Schedule 1. Paragraph 3 of the schedule describes the particulars of loan. Namely the date of loan as being 3 August 2020 – amended 10 December 2020 and the principal amount of the loan is $256,400. The period of the loan is three months and the interest rate is 24 % compounding monthly.
Clause 3.2 of Schedule 1 of that agreement provides:-
‘3.2 Other agreements
(a) Other agreements to which this agreement relates are listed below:
(i)Loan agreement between LTAK Investments Pty Ltd and Matthew Darren Trim dated 22 November 2021 - $30,000
(ii)Loan agreement between LTAK Investments Pty Ltd and Commercial Adelaide Pty Ltd, Remo Russo and Matthew Darren Trim dated 10 May 2022 - $45,000
(iii)Loan agreement between LTAK Investments Pty Ltd and Commercial Adelaide Pty Ltd, Remo Russo and Matthew Darren Trim dated 10 May 2022 - $105,000
The loan agreement described in Schedule 1, clause 3.2 (a)(i) is the first loan agreement which I have described above.
The second loan agreement is that dated the 10th May 2022 which purports to be in relation to a loan in the amount of $256,400, on 3 August 2020 and amended 10 December 2020. The respondent Belzar Pty Ltd is not a party to that agreement.
The third and fourth loan agreements described in Schedule 1, clause 3.2 (a)(ii) and (iii) were made between the applicant and CAPL, Remo Russo and Matthew Darren Trim. Each are also dated 10 May 2022 and each recite in the ‘Background’[22] as follows:-
[22] Affidavit of Lori Trudy Ann Kambitsis affirmed on 4 September 2023 (FDN 2), page 63 and 74.
BACKGROUND
AThe borrower wishes to borrow from the lender, and the lender wishes to lend to the borrower the Loan Amount specified in item 1 of the schedule.
BThe borrower consents to the lender noting its interest in respect to the Loan Amount on the Property by way of caveat lodged against the title of the Property
CThe borrower agrees to enter into a loan agreement (General Security Agreement) with the right to register a Security Interest on the PPSR and lodge a Caveat over real estate assets.
DThe parties wish to record their mutual understanding as to the terms of the loan and how the loan will be repaid.
The borrowers named in these two loan agreements are CAPL, Remo Russo and Matthew Darren Trim. There are three guarantors and they are the same parties. Although trite, the borrowers CAPL and Trim, are incapable of consenting to the imposition of any form of security interest in favour of the applicant on property belonging to Belzar Pty Ltd. As well and for the same reasons, Remo Russo is incapable of binding Belzar Pty Ltd without the consent of his co-director. There is no privity of contract between the applicant and Belzar Pty Ltd under the loan agreements dated 10 May 2022 (agreements numbered 2, 3 and 4).
There is also no evidence that any part of any amount of money paid by the applicant to any of the borrowers has in anyway benefited the respondent Belzar Pty Ltd. In that context, if it be said that Belzar Pty Ltd has bound itself to an obligation, it is plainly an improvident transaction.
The applicant then contended that in light of the content of the document of loan (no 2, no 3 and no 4), a presumption arises in favour of the applicant that a caveat should be maintained where it may be said that a prima facie case arises.
Belzar Pty Ltd addressed what appeared to be the submissions of the applicant that there would be a presumption in favour of the maintaining of the caveat where it may be argued that a prima facie case arises. In Reschke v Trevor Reschke Nominees Pty Ltd[23] the decision of the Full Court was written by Kourakis CJ. His Honour dealt with the operation of s 191 of the Real Property Act 1886 at [46] and following:-
Section 191 of the Real Property Act 1886 (SA) (the RPA)
[46]The foundation stone of Burke’s submissions on his appeal against the caveat refusal decision is that the long line of authorities in this State which have applied, by analogy, principles relating to an application for an interlocutory injunction in determining applications for an extension of a caveat are wrong. Burke accepts, of course, that as a caveator it is necessary for him to establish a reasonably arguable case of a proprietary interest in the land. However, he contends that the assessment of the balance of convenience must commence with a presumption in his favour because of the proprietary interest protected by the caveat. Burke contends that only in special or exceptional circumstances should an application for an extension be refused when a reasonably arguable case has been established. Burke did not put this argument to the courts below but has adopted the burden of a herculean task only on appeal.
[23] 132 SASR 451 [2019] SASCFC 27.
The Chief Justice then dealt with the argument that it would only be in special or exceptional circumstances an application for an extension should be refused when a reasonably arguable case has been established. The court rejected this argument. At [52], Kourakis CJ said as follows:-
[52]The starting point for identifying the proper test to be applied in considering an application for an extension of time must be the statute itself. The salient, and at the time of its enactment, radical, feature of the RPA is the indefeasibility of title it grants to a registered proprietor. Secondly, it is to be remembered that the RPA does not allow the registration of equitable interests. It follows that a person claiming an equitable proprietary interest might have that interest defeated by a legal transfer of the land. One of the statutory purposes of allowing a caveat to be lodged is the protection of, as yet, unregistered interests, including equitable interests.
Then at [55] and [56] Kourakis CJ held:
[55]Both the registered proprietor and a person who seeks to impeach that title by asserting a competing equitable interest, claim a right to enjoy the benefits of a proprietary interest in kind until their dispute is determined. An extension of time will often be granted to the caveator if the registered proprietor does not have any pressing need to dispose of the land, or to use it as security to obtain finance. Equally, an extension of time may be granted when the registered proprietor wishes to sell the land because, his or her interest being reduced to a realisation of its value in money terms, a delay in that sale may be compensated by an undertaking as to damages, if the caveator has a capacity to honour that undertaking.
[56]The fundamental point to be made is that, in exercising the statutory discretion to allow a caveat to remain for an extended period, the Court must balance the competing claims and interests of the registered proprietor and the caveator.
At [59] – [64] Kourakis CJ held as follows:-
[59]It is apparent that the relevant considerations mandated by the purpose served by the statutory discretion are no different to the considerations which inform the grant of an injunction. Both involve a balancing of competing proprietary interests.
[60]As Cox J observed in Whallin v Bailbart Investments Pty Ltd (Whallin), the discretion conferred by s 191 is a matter of adjectival law. The consequences of extending or not extending a caveat might be serious, but they do not determine final rights.
[61]In Whallin, Cox J rejected a submission that it is sufficient to secure an extension of the caveat that there be a serious question to be tried because “common sense and authority combined to oppose it”. Cox J observed that the proposed test ignored altogether the interests of the registered proprietor.
[62]Cox J reframed the procedural questions as to whether a caveator need obtain an equitable injunction at all, and whether or not the caveat would be allowed to remain after the granting of an interim injunction or interlocutory injunction. His Honour reaffirmed the long line of authority which proceeded by analogy with an interlocutory equitable injunction. Those cases included Galvasteel Pty Ltd v Monterey Building Pty Ltd, Ovenden v Palyaris Construction Pty Ltd, Taddeo v Catalano, and Van Reesema v Giameos (No 2).
[63]Those authorities were largely confirmed by this Court in Nexus Mortgage Securities v Mawson KLM Holdings & Starmaker (No 51) Pty Ltd in which the approach of Cox J was adopted. More recent authorities, too, have followed that approach.
[64]Burke’s principal contention as to the relevant question of law in assessing whether to grant an extension of the caveat should be rejected.
(citations omitted)
It is accepted that there will be those cases where a property interest claimed by an applicant party will be irretrievably adversely affected by a failure of the court to extend the time for the removal of a caveat. Usually, such occasions will occur where there is a direct nexus between the claimed interest which is reflected in an interest in land such that the interest may be identified with the claim. In those circumstances, a court may be inclined to err on the side of caution and extend the time for the removal of the caveat and require the issue in contest between the parties to be litigated. That is not this case. In the case at bar, the applicant claims a security interest to protect what it contends is a form of mortgage or a mortgage guarantee security given as a collateral security by Belzar Pty Ltd which was not party to any form of original agreement and which has not in any way adopted any obligation under those agreements.
As a result, in this instance no alleged interest in any real property belonging to the applicant can be interfered with by a refusal by the court to extend the time for the removal of the caveat. In my view the converse is the case. There is a clear and obvious prejudice to the respondent if the caveat is maintained. This is particularly the case when it is known that there was a delay of many months between 22 May 2022 and October 2022 when the applicant lodged the caveat upon the title of Belzar Pty Ltd. By 10 May 2022, the applicant had continued to make very large cash loans to the same people or entitles which had not been repaid since September 2020, the due date for repayment of the first loan.
The terms of the loans do accentuate the difficulties for the applicant in relation to the nature of the very transactions which it seeks to maintain and therefore to enforce. For the reasons that I have already explained, each of the second third and fourth agreements are necessarily improvident transactions for a company such as Belzar Pty Ltd which, without any obvious benefit, has allegedly bound its assets for the benefit of a lender to third and other parties out of which it achieves no benefit and only a detriment. As well, such a form of transaction raises the spectre of a director not acting in the best interest of the company and in breach of his duties including, fiduciary duties.
There are other considerations. The 3 August 2020 loan was to be repaid in short order and it was not repaid. Then there were further loans. They were also provided at extraordinarily high interest rates. They were also to be repaid quickly and they have never been repaid. There has been no payments made on any of these loans. Belzar Pty Ltd is not named in any of these transactions and so there is no basis in fact or in law, to infer any authority in any person to bind Belzar Pty Ltd to such improvident transactions. I am satisfied that all of these considerations overwhelmingly favour refusing an extension of the caveat sought by the applicant.
Returning then to the operation of UCR 144.2(2) I adopt the approach outlined by Doyle J in Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd.[24] His Honour held at [59] – [60] as follows:-
[59]By way of summary of the approach articulated in Spencer v Commonwealth, it can be said that the power to determine a claim summarily should not be exercised lightly. Exercise of the power requires a practical assessment of whether the applicant has real, as opposed to merely fanciful, prospects of success. While the Court need not be satisfied that the claim is hopeless or bound to fail, nevertheless it must be cautious not to do a party injustice by summarily determining an action, particularly where there are disputed issues of fact or law or mixed fact and law, merely because the Court considers that the claim is unlikely to succeed. However, beyond these very general guidelines, the Court should focus upon the words used in the rules and avoid applying any judicial gloss.
[60]Related to the requirement that the Court undertake a “practical” assessment is the notion that the Court should not embark upon a “mini trial” of the claim. Rather, the claim should be assessed in a summary manner, while being cognisant of the incomplete nature of the evidence upon which the Court’s decision must be based. Adversarial argument may assist, and indeed may result in the emergence of a sufficiently clear answer to a complex issue that summary judgment is appropriate. On the other hand, the need for prolonged argument may be indicative of a reasonable basis for the claim.
(citations omitted)
[24] (2020) 137 SASR 117.
I have made a practical assessment about whether I consider the applicant has a real or merely fanciful prospect of success. I am satisfied that there are no or alternatively insufficient disputes of mixed facts or law which would otherwise deter me from summarily determining whether or not the orders should be made for the extension of the caveat. I have assessed the evidence and the application of principle in a summary manner and I have kept in mind that the disputes of fact and law have taken place based upon affidavit evidence upon which there was no cross examination. At the outset of the hearing, I invited each party to identify the affidavits which that party read in evidence and whether or not there was an application for cross examination on the affidavits. Each affidavit was read without any need for cross examination. On further reflection, that is quite understandable as the documents speak for themselves.
The principles in relation to when a company is bound by an act of one of its directors when there are two directors of the company are well settled. I have kept in mind the principles of implied authority, acquiescence and estoppel but there is no evidence of those matters. None could be suggested. It is plain that Remo Russo purported to act as Belzar Pty Ltd when he had no authority to do so and he was purporting to bind a company to a completely improvident transaction.
In summary, in reaching my conclusion, I have applied the stringency of the tests in relation to summary judgment as outlined in UCR 144.2(2). I have reached the conclusion, that the application for the extension of time for the removal of the caveat should be dismissed. I am satisfied that the applicant has not established a prima facie case in the sense that if the evidence remains the same, there is a probability that at the trial of the action the applicant will be entitled to relief. Although the topic was not specifically addressed during submissions I have also considered the question whether the balance of convenience favours the maintenance of the status quo. I am satisfied that the balance of convenience does not favour the maintenance of the status quo for the same reasons that the applicant has not established a prima case.
I make orders accordingly. I will hear the parties further in relation to consequential orders and costs.
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