Northside Developments Pty Limited v The Registrar-General

[1989] HCATrans 268

• ';~:,,.

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl4 of 1989

B e t w e e n -

NORTHSIDE DEVELOPMENTS PTY LIMITED

Appellant

and

THE REGISTRAR-GENERAL

First Respondent

and

JOHN ROBERT STURGESS and GERARD

JOHN STURGESS

Second Respondents

MASON CJ
BRENNAN J

Northside(2)

DAWSON J

TOOHEY J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 8 NOVEMBER 1989, AT 9. 47 AM

(Continued from 7/11/89)

Copyright in the High Court of Australia

C2Tl/l/PLC 133 8/11/89

:MASON CJ: Yes, Mr Handley.

:t:1R HANDLEY: Just some housekeeping from yesterday,

Your Honours, as promised. Mr Justice Toohey

asked about the disposition of the moneys,

and we have a settlement sheet here. I also

mentioned that there was a deed of loan to

which Northside subscribed as guarantor.

:MASON CJ:	Thank you. Yes, Mr Solicitor.
:t:1R :MASON:	Your Honours, I got to paragraph 4 of the

outline of submissions and was proceeding

to develop the submission that there was

a separate indoor management rule which

could not be equated, and should not be

equated entirely with agency principles
in particular because it embodies a principle

that the outsider is entitled to rely upon

an appearance of authority to do certain types

of acts whether or not that appearance was

as a result of a reading or a belief as to

what was in the articles of association and

whether or not that appearance came as the

result of a representation made by persons

with actual authority within the company to
carry on the activity in question. In

paragraph 4(b), Your Honours, we refer to what

has broadly been referred to as the "cost benefit

analysis" and I do not wish to read, but simply
rely upon the passages in the judgments of the

President and Mr Justice McHugh that are cited there.

I read in a different context the passage

from Lord Penzance's speech in :MAHONY's case

and there is a passage to similar effect in

the judgment of Mr Justice Estey in the case

of CANADIAN LABORATORIES SUPPLIES LTD V ENGLHARD

INDUSTRIES OF CANADA LTD (1979) 97 DLR 3d 1 at 24

and which I believe is on our list. If I could (Continued on page 135)

read that.

C2Tl/2/JM	134	8/11/89
Northside(2)

MR MASON (continuing): It is the passage commencing near the

top of the page:

Modern commerce at practically all

levels and sectors operates through the

corporate vehicle. That vehicle itself,

by conglomerate grouping and divisionalization,

has become increasingly complex. Persons,
including corporate persons, dealing with a
corporation must for practical reasons be able
to deal in the ordinary course of trade with
the personnel of that corporation secure in

the knowledge that the law will match these

practicalities with binding consequences. The

law has long so provided. Both corporate sides

to a contractual transaction must be able to

make secure arrangements at the lowest level at

which adequate business controls can operate.

It is in the interest of both corporate

and natural persons engaged in business that

this be so. One alternative would be to retain

corporate trading authority in the inner core

of management; another would be to conduct the

daily business of the undertaking on a committee

basis. Neither law nor commerce has apparently

found a practical alternative to the delegation

of the corporate authority to agents, its
employees. In undertakings of all but the smallest
proportions, division of authority according to

function is as necessary as it is commonplace.

We put the submission that as we perceive the appellant's

argument in this case, it matters not whether or not Barclays' solicitors did inspect the return that was

lodged at the Corporate Affairs Commission showing Gerard Sturgess as the secretary, and if that is a

correct perception it really does show the potential for

commercial havoc, that the undermining of the indoor

management rule would have.

(Continued on page 136)

C2T2/l/FK	135	8/11/89
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MR MASON (continuing):  Your Honours, in section 4(c) we

have listed cases, most of which my learned friend

has discussed already, which show the indoor

management rule applying to cases where the matter
in question is the validity of the appointment

of the office holder who, having been appointed

then, acts in a particular office. We would stress

in this case that what Gerard Sturgess did, namely

countersign the affixing of the seal, is an act

within the usual authority of a company secretary

and that being so the line of cases that are referred

to on page 3 support, in our submission, the

proposition that a person who acts within the usual

authority of an office will qua an innocent

outsider be capable of binding the corporation

whether or not that person was actually appointed
to the office if that person could have been appointed

to the office by matters of internal management. In this case, the indoor management aspect,

in one sense, comes from the COMPANIES ACT rather
than from the articles of association because,
with respect to Gerard Sturgess, the power to appoint
the secretary is not stated in the articles but

in the Act in the provision that says that the

directors may appoint a secretary; but whether

or not they do, whether or not they have validly

done so, whether or not they have gone through

valid procedures of notice of meeting or whatever

else are classic matters of internal management.

I would wish, however, to just point out one

aspect in the COUNTY LIFE ASSURANCE case,

(1870) LR 5 Ch App 288 because my learned friend

said yesterday that running through the cases is

a theme that there is al~ays something done

irregularly which might honestly have been done

regularly and, in our submission, the COUNTY LIFE

case certainly goes further than that. I have

already referred to MAHONY's case as going further

than that proposition. But in the COUNTY LIFE

case, what I would wish to draw to the Court's

attention is the argument at page 291.

Sir Roundell Palmer for the appellant - perhaps to bring to mind the facts, in the second paragraph

of the headnote:

A life assurance company was registered

in 1863 ..... P. was appointed managing director.

The directors who were named in the articles,

and signed the memorandum of association,

refused to act, and passed a resolution that

the company should not carry on business or

allot shares. Notwithstanding this resolution,

p. -

Preston -

C2T3/l/ND

Northside(2) 136 8/11/89

and one of the shareholders persisted in

carrying on the business ..... and allotted

shares and appointed directors.

Now, that act, in our submission, clearly is an

act of a person who says, "I think this is going

to work, I am going to make it work for my benefit,
whatever you, the other directors and shareholders

think and I am going to use the corporate vehicle

as the instrument for working this matter out",

and in the argument of Sir Roundell Palmer at 291,

the middle of the page, he said:

Nor had Preston, or those acting with him,

any authority to make or use a seal for the

company. As the original directors would

not act, and no new directors had been elected

at any general meeting, no one had any right

to carry on the business of the company, and

the act of setting the seal to the policy

was, in fact, forgery.

So there the argument is clearly put. The

unauthorized placing of the company seal on a document
for purposes foreign to that which are the purposes

of the company is a forgery notwithstanding the

court, by application of the principles, finds

the transactions to be valid.

(Continued on page 138)

C2T3/2/ND	137	8/11/89
Northside(2)

MR MASON (continuing):  Your Honours, MORRIS V KANSSEN - again

I do not wish to take the Court to the case - that,

Your Honours will recollect is one where, because

the director was held to be an inside½ the benefit of the rule did not apply but it is the very fact

that he had assumed to act as a director that
deprived him of the benefit of the rule and that
fact alone thereby showing that that case is

further authority for this line that says that "in

a re3ular appointment or a defective or

non-existent appointment is of no consequence to

an innocent outsider".

The ALBERT GARDENS' case, Your Honours, in

131 CLR 60,has been mentioned by my learned friend

and he sought to say, "Well, there was an

irregularity, after all the directors were elected

to this company. The only problem that affected

them was that they had not taken up their share

qualifications." Our retort to that, Your Honours,

is why is election given a higher status as a

procedural prerequisite to a valid Act, The

articles say, "To be a director you must be elected

and have a share qualification". Where one of

those prerequisites had not been applied there was
an invalidity affecting the appointment but,

nevertheless, for the purpose of the indoor management

rule since both are matters to which the stranger is

a stranger, the rule in TURQUAND's case was applied

by this Court to protect the outsider.

We would submit that the ALBERT GARDENS' case

is, itself, inconsistent with any simple application

of agency rules because, since the articles there

provided that you had to have a share qualification

to be a director, there could be nobody who would
have had actual authority to represent that a

person was a director where the share qualifications

were not taken up notwithstanding the absence of

that share qualification was qua the outsider,	a
matter which that person was entitled to not be

management rule. effected by under the application of the indoor (Continued on page 139)

C2T4/1/DR	138	8/11/89
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MR MASON (continuing):  May I take Your Honours to a brief

section in Gower's Principles of Company Law, the

fourth edition, pages 193 and 194, to show the

usual authority of a secretary, unlike the activity

importance in this context of the fact that what

of the secretary in RUBEN' s case and the officer in

KREDITBANK. At pages 193 and 194 Professor Gower

states rule 5 in this way:

Hence someone dealing with a company

through an officer who is, or is held

out by the company as, a particular

type of officer ..... and who purports to

exercise a power which that sort of

officer would usually have, is entitled

to hold the company liable for the

officer's acts, even though the officer

has not been so appointed or is in fact

exceeding his actual authority. But

this is not so if the officer is in fact

exceeding his actual authority and

(a) the other party knows, or ought,
because of his position with the company
in relation to the transaction, to know,
that the officer has not been so appointed

or has no actual authority;

(b) the circumstances are such as to put

him on inquiry, or

(c) the public documents make it clear that

the officer has no actual authority, or could

not have authority unless a resolution

had been passed which requires filing as

a public document .....

If this rule applies it matters not

whether the outsider has actually inspected

the public documents or not.

I will not take Your Honours to it but at the very

bottom of page 3 we give Your Honours a reference to

a portion of the judgment of Lord Justice Willmer

in FREEMAN AND LOCKYER's case, where that proposition

is supported and the contrast is with rule 6.

GAUDRON J:  Before you leave rule 5, Mr Solicitor, if I look

at the bottom of page 3 of your submissions I take

from that, in the context of rule 5, that you say

all that is important is that Gerard Sturgess, if

occupying the position of secretary, would be able

to affix the common seal?

C2T5/l/HS	139	8/11/89
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GAUDRON J (continuing):  You do not take the further step

that Mr Handley asserts that he ordinarily have

the authority to affix the carm:m seal to a document

pledging the company's assets in support of

another company. And that really does seem to be

the difference between the two submissions, does

it not? And it is a point which seems to be really at

the bottom of the extent of the rule.

MR MASON:  Yes,what Your Honour says is correct. The

relevant article states two preconditions to the

valid affixing of the common seal in a transaction. The first is that it be authorized by the directors

and then the second is that - a imre formal requirement,

that it be signed by a director and countersigned

by either a secretary or a person authorized by the

directors to countersign. By far, in one sense, my

bigger problem is the first bit, the authority
of the board of directors, but I would rely upon

the very facts of TURQUAND's case as saying that is

a matter to which the outsider is a stranger and

where there is the appearance of regularity then

the outsider is entitled to rely upon that. So

far as the second prerequisite to the valid

affixing of the seal which I must also overcome, I

certainly can, in my submission, take the narrower

ground and say that the only concern there is to

show that Gerard Sturgess was by documents of

estoppel or by this TURQUAND	rule, to be treated
as the secretary of the company.

GAUDRON J: Yes, but my question goes a bit further than that

I think. It is this: why in point of principle or

point of authority does one look to the mechanical aspect of affixing the seal, rather than the wider aspect of affixing the seal to the document having

a certain effect?

(Continued on page 141)

C2T6/l/CM	140	8/11/89
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MR MASON:	I am not saying that one does look just to the
mechanical aspects, but I am taking upon myself
the role of showing in a mechanical aspect there
was no problem.

GAUDRON J: Yes.

MR MASON:	On the substantive aspect, I am, in one sense in
calmer waters because what my learned friend is seeking
to set up against my client is that the directors
did not, in truth,authorize the transaction or
authorize the affixing of the seal and,in one sense,
it matters not.
GAUDRON J:	But I thought Mr Handley went further than that and

said, "Well, there was no basis for authority as to

the transaction in question".

MR MASON:	Yes, he does,-yes.
GAUDRON J:	And do you accept that?
MR MASON:	He would accept, I perceive, that if the board as a whole resolved to do the transaction in question
there would be no difficulty, and my answer to that
is that he cannot set up the fact that the board as
a whole did not so resolve because the external appearance of the transaction when it was settled with
Barclays conveyed, either under general principles or
under the more tight TURQUAND rule, the impression,
which was good enough for Barclays, that this matter
of internal management had, in fact, taken place. I
hope I have answered Your Honour's question.

GAUDRON J: Yes, well I will - - -

MR MASON:	Your Honours, if Professor Gower is correct in his
statement of rule 5, when one looks at the very
last part of that statement that says that when you
are in this category of acting in a usual way of the
office, it does not matter whether or not you have
the capacity of saying that TURQUAND's rule must be
inspected the documents. That, in my submission, denies
brought entirely in line with estoppel principles.

(Continued on page 142)

C2T7/l/FK	141	8/11/89
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MR MASON (continuing):  Rule 6, by contrast, is the

area in which RUBEN's case and KREDITBANK

can be placed, whether or not one has a

forgery doctrine, because if:

the officer is purporting to exercise

an authority which that sort of

officer would not usually have, the other party will not be protected -

unless certain additional factors take place.

GAUDRON J:  But if you accept them, is the issue in this

case not whether the matter comes within

rule 5 or rule 6?

MR MASON:  Yes, that would be right, with respect to the

second part. I would say it would be right with respect

to the formalities of the seal fixing.

GAUDRON J: Yes.

MR MASON:  But with respect to the actuality of the

conferring of power, there was simply no

representation in effect that the members

of the board had approved the transaction,

but TURQUAND's case, in my submission,

relieved Barclays of any concern about that

matter, it being a matter of internal
management and absent matters putting them

on inquiry - which we can come to later - they

could take the transaction. at face value.

So it is critical to determine whether it

is rule 5 or rule 6 with respect to my

reliance upon the secretary's function as

fixing the seal, but not - - -

GAUDRON J:  As fixing the seal, full-stop?

(Continued on page 143)

C2T8/l/JM	142	8/11/89
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MR MASON:  As countersigning the affixing of the seal, full stop,

in my submission.

GAUDRON J: Yes, and then you go further. You have to come to

rule 6.

MR MASON:  No, I never have to come to rule 6 because, with

respect to the authority for the transaction itself,

I rely upon - I think we go back to rule 4. With

respect to the capacity to assume that the directors

authorized the transaction itself, I am in rule 4

in MAHONY's case and TURQUAND's case. But,

Your Honour, there is an alternative to the rule 5,
rule 6 problem with respect to Mr Gerard Sturgess

and that is the fact that the articles say that it

does not have to be a secretary to countersign the

seal; it can be a person authorized by the directors.

I submit that I can have that alternative string to

my bow and that is back to rule 4 and, therefore,

we are entitled to assume that Gerard Sturgess had

that alternative authority conveyed.

DAWSON J: They go together, do they not? Once the company

is estopped from denying the authority of the two

people concerned to attest the affixing of the seal
and the fixing of the seal, they are automatically

estopped then from denying the authority of the

company to enter into the transaction because that

is the way the company enters into the transaction.

One follows the other, does it not?

MR MASON:  That is correct, certainly in the facts of this

case. It is possible to conceive of an article

where the formal aspect of the seal fixing article

conveyed an authority upon that person that was not

the usual authority of that office holder and one

might then need to get into rule 6 country in that

situation. But here -

(Continued on page 144)

C2T9/l/DR	143	8/11/89
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DAWSON J:  Once you are stuck with the affixing of the seal

you are stuck with the transaction to which it

is affixed, to put it in colloquial terms.

MR MASON:  Yes. Your Honours, in -

BRENNAN J: Mr Solicitor, before you go on. Is not the

argument against you on this that, be it so that

if this was a transaction authorized by the board

then the indoor management rule would make the

instrument a valid instrument, even though Gerard

Sturgess had not been appointed, and so forth?

MR MASON.	Yes.
BRENNAN J:	But it was not authorized by the board and the

whole thing is a forgery, therefore it is within the forgery exception. That is the real problem which you have to face, is it not?

MR MASON:	Yes.
BRENNAN J:	So it is not right to say on that argument

if that argument was right that once you get to the

protection of the sealing that you therefore get

to the protection of the authority?

MR MASON:  I accept that, Your Honour. If there is a forgery

exception which says that putting the seal on a

document without authority simpliciter or without

authority with an intention to fraudulently benefit

is a forgery, and if that is an exception to the

TURQUAND1MAHONY rule I accept what Your Honour has

said and I am really intending to address that

in a separate later context. So to that extent

where the seal is involved there is the risk that

you have still got to fight off another exception

to the rule called the forgery rule which we come

to later. So I accept that.

MASON C.J:  Just to anticipate that. You fight that off

by relying on what Gower says under his rule 8,do you
not, that' there is no true exception constituted by

forgery, but it comes back to rule 4 and then you

have to meet another attack, the lesser attack,

that the bank was put upon inquiry by the circumstance?

MR MASON:  Yes,Your Honour. In the alternative to Gower's rule 8

I rely upon a portion of an article by Campbell in

the Law Quarterly Review - - -

MASON CJ:	Which you will come to in due course.
MR MASON:	Which gets rid of the forgery doctrine in a slightly
different way, but still gets rid of it for my

purposes. In paragraph 5 of my submissions we seek

C2Tl0/l/CM	144	8/11/89
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to advance some reasons- in one sense they overlap with paragraph 4- why there being an accepted line of authority on a separate TURQUAND rule as we have

put it, they should not be overturned and as it were

TURQUAND should not be dragged into the

FREEMAN & LOCKYER analysis of Lord Justice Diplock.

The first is the point that Mr Justice McHugh

develops at length in the pages we refer to, but

many of the earlier cases just cannot be seen as
turning upon a doctrine that has these elements of

representation. I have referred to SEE's case. If

I could just refer briefly to a couple of passages

in the ROLLED STEEL case, (1986) lili 246,for some
suggestions that even in England TURQUAND has not

disappeared from the category of being a separate

rule and the passages are at pages283 and 292 in

Lord Justice Slade's judgment. At 282 under the heading "The no due authorisation and TURQUAND' s case

points" and then His Lordship addresses those at 283C.

(Continued on page 146)

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MR MASON (continuing):

The only rema1n1ng questions in this

context are whether the judge was right by

his judgment to give leave to amend the

defence so as to plead that Colvilles was

entitled to rely on the resolution as a

resolution passed at a properly constituted

board of directors at which, Mr Shenkman and

Mr Ilya Shenkman having been the only

directors present, a proper disclosure of

Mr Shenkman's interest had been made .....

The possible relevance of the rule in

ROYAL BRITISH BANK V TURQUAND, in the present

context is obvious. The following statement

of the rule, taken from Halsbury's Laws of

England, was approved by the House of Lords

in MORRIS V KANSSEN:

"persons contracting with a company and dealing

in good faith may assume that acts within

its constitution and powers have been properly

and duly performed and are not bound to inquire

whether acts of internal management have been

regular."

Lord Simonds later pointed out the rationale

o f the r u 1 e , a t p . 4 7 5 : "The whee 1 s o f bus i n e s s

will not go smoothly round unless it may be

assumed that that is in order which appears

to be in order."

Quite inconsistent, in our respectful submission, with there being agency and estoppel principles.

And at page 293 His Lordship returns briefly at the top of the page to the TURQUAND principle

and he stresses, from line B, after quoting a

passage from the speech of Lord Parker:

This passage, it will be seen, closely echoes

some of the language used by Buckley J. in

his judgment in the DAVID PAYNE case and is,

I think, an expression of the rule in TURQUAND's

case and the more general principles of agency

to which I have already referred. Harman LJ

went on to say:

"I would agree that, if the bank did not

know what the purpose of the borrowing was,
it need not inquire" - the emphasis is mine -

"but it did know ..... "

C2T 11 /1 /ND	146	8/11/89
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The words "it need not inquire", in my

opinion, make it clear that Harman LJ did
not regard the borrowing as having been

beyond the capacity of the company.

Your Honours, in paragraph (b) we return again,

just in passing, to the cost benefit analysis.

In paragraph 5(c) we put the submission that as

a matter of this Court's approach to precedent,

in matters of commercial law upon which countless
persons have relied, the Court is reluctant to

depart. We refer to a passage in the judgment

of Mr Justice Deane where he collects a number

of authorities on that proposition.

We s u bm i t , in par a graph ( d) , that i t was par t

of the ratio in the ALBERT GARDENS case.

Alternatively, the decision in that case was not

consistent with the rule being a simple application

of agency principles. I do not wish to take

Your Honours to the passages in BROWNETT V NEWTON

but TURQUAND's case was referred to in passing

in judgments of the Justices of this Court.

Then, in paragraph (e), we seek to develop

the submission that - I think what DuCann called

the magnetic effect of statute - there is a deal

of statutory material both before and after the
events of this case which shows that the legislature

proceeded on the basis that the TURQUAND rule is

a separate rule that is not consistent fully with

the approach of Lord Justice Diplock and could

I firstly give Your Honours the explanatory

memorandum with respect to section 68A of the

COMPANIES CODE. That is set out and discussed

in the judgment of Justice Kirby and

Justice McHugh.

(Continued on page 148)

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MR MASON (continuing):  The particular portion of the explanatory

memorandum to which I would wish to draw attention is

paragraph 205 which is part of the discussion of the

proposed section 68A:

A person dealing with a company or with a

person who has acquired, or purports to have

acquired, title to property from a company,

will be entitled to assume -

then down to (b):

that a person described as a director, principal

executive officer or secretary, of a company in

a relevant return, has been duly appointed and

has authority to exercise the powers normally

exercised by such a person ..... The purpose of

this provision is to:

(i) restate the common law rule that the

protection afforded to persons under the "indoor

management rule" is not affected merely because

the directors have not been properly appointed

(MAHONY) ..... In a decision on the equivalent

provision in the UK Companies Act 1948, s.180,

the House of Lords drew a distinction between

defective appointments to which the provision

applied and non-existent appointments to which

it did not:  MORRISS V KNASSEN. Proposed

para 68A(3)(b) is drafted in such a way as to

avoid this problem; and

(ii) provide that a person dealing with an

officer of the company (either actual or assumed)

may assume that the officer is able to exercise

the customary powers belonging to that type of office.

MASON CJ:	Mr Solicitor, speaking for myself, it seems to me the
principal obstacle facing you is the absence of an
appropriate resolution passed by the board of directors,
Mr Sturgess as secretary.
rather than the absence of a valid appointment of
MR MASON:	Yes.
MASON CJ:	Now, I emphasize and appreciate that I am speaking only for myself, but it does seem to me that your
principal efforts ought to be directed to the other
ground of attack, not the non-appointment of Mr Sturgess.

MR MASON:  If Your Honour pleases. One of the defences to the

other grounds of attack which we address in paragraph 6

of the submission is, however, the contention that there

is a separate rule which runs parallel with the TURQUAND
rule that applies where the seal is affixed that says where
that is there there is a particular doctrine which

Professor Lindgren describes as "the positive

C2Tl2/l/HS	148	8/11/89
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corporate seal rule" and, to that extent, if

Mr Justice McHugh' s analysis is correct, the presence of

the seal itself under this doctrine overcomes the

problem of the deficiency or the non-existence of a

resolution of directors, quite apart from the internal

management rule.	Can I come back to that just briefly,
if I may.

MASON CJ:	Yes.
MR MASON:	If I could also give to the Court some copies of

section 51A of the CONVEYANCING ACT and section 106

of the REAL PROPERTY ACT and the commentary which

attends that material because this suggests that in

the case of deeds - and I accept that this document is

not a deed until registered, but in the case of deeds

there is statutory material that pre-dates the facts of

this case which the commentators say is unnecessary

statutory material because it merely reflects TURQUAND's

rule, but, in the context of a seal, it expressly states

the principle that the person, looking at section 51A

of the CONVEYANCING ACT:

(1) In favour of a purchaser in good faith -

(a) a deed shall be deemed to have been duly

executed by a corporation aggregate if its

seal is affixed thereto in the presence of

and attested by its clerk, secretary, or

other permanent officer ..... and

(b) where a seal purporting to be a seal
of a corporation has been affixed to a deed
attested by persons purporting to be persons

holding such officers as aforesaid, the

deed shall be deemed to have been executed

in accordance with the requirements of this

section.

(Continued on page 150)

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MR MASON (continuing):  The commentary from Stuckey's

Conveyancing Acts, I think the relevant portion

is at thA bottom of page 102 of the text:

The seal is essential to the execution

of a deed by a corporation.

in that paragraph there. And section 106 of

the REAL PROPERTY ACT which next follows in

the papers I have handed up, which we would

rely upon in a separate context, but the
present relevance of its reliance is that

section 106(2) is similar to SIA, which

says that:

(2) Where -

(b) the affixing of the seal purports to

have been attested by a person or

persons holding office in the corporation or by a person or

persons holding office -

then the -

Registrar-General may assume -

(c) that the seal and attestation are genuine

and were lawfully affixed.

The commentary over the next page is that the

section is a little more than a statement of

the law.

We would rely upon this statutory material

in these two different contexts: firstly, as

an indication that the TURQUAND rule had, as

a separate rule, well and truly taken root and

ought not to be displaced lightly; secondly,

we would rely upon them as analogous material

to support Mr Justice McHugh's reliance upon

a separate corporate seal rule. Again, stressing

that those sections are not directly applicable

because the mortgage was not a deed, nevertheless

they reflect an understanding of the law that

if it is a deed in favour of a person in good

faith, then· -where the seal is there and there

is an appearance of regularity, that person is

entitled to treat the transaction as valid in

all respects.

BRENNAN J:  But there were no attesting witnesses here,

were there? The two signatures are not those

of attesting witnesses.

MR MASON:  I stand corrected. I think they say, do they

not, that they purport to attest the affixing

of the seal? And I think the article - - -

C2Tl3/l/JM	150	8/11/89
Northside(2)

BRENNAN J:  Do not delay, I am probably mistaken.

DAWSON J: It is right, because it is "affixed here in

the presence of".

MR MASON: "In the presence of", thank you.

BRENNAN J:  They are certainly in the presence of,

but does that make them attesting witnesses? to what appears.

MR MASON:  I would submit that there is an implied

certification. If you take the will analogy,

where the will goes on, as it always says, and

states, "and the witnesses hereby attest",

that is of an evidentiary effect, but if

there are merely the signatures of the

attesting witnesses the presence of those signatures

can, with or without supplementing evidence, be taken

to be evidence of the fact that they attest the will.

So, in my_ submission, there is - - -

BRENNAN J: That may be some particular rule of probate

law, I do not know.

MR MASON:	Yes, it may be.
BRENNAN J:	But it does seem to be that looking at

section 51A(l)(a) and (b), the distinction

is in paragraph (a) that there must be an

actual:

clerk, secretary, or other permanent

officer -

and not a purported one. And in paragraph (b),

which covers the purported cases. you have

got to have them as attesting witnesses.

(Continued on page 152)

C2Tl3/2/JM	151	8/11/89
Northside(2)

MR MASON:  Yes, but they do not have to purport to attest, and
here, in my submission - - -

BRENNAN J: Well it is fixed to a deed attested by persons

purporting to - - -

MR MASON:	And that, in my submission, is satisfied if their
presence - indeed, since the only signature of the company is the seal itself, the signing and countersigning, to use the words of the article by the director and secretary, must be, in my submission, for the purpose of attesting the relevant act, namely the sealing.
BRENNAN J:	Yes.
MR MASON:	Your Honours, very briefly, may I give Your Honours
the passage in the Welling book about FREEMAN & LOCKYER
where this learned author points out in the middle of
page 220, about point 6:

In fact, after CANLAB -

which was the case I quoted from Justice Estey's

judgment earlier this morning -

there remains only one difficult theoretical

question in the particular area. Ironically,

this question involved the FREEMAN & LOCKYER

decision itself: where was the representation

from corporate principal to outsider made in

that case?

And about six lines up from the bottom of the page:

It is difficult to find anywhere in the
three reasons for judgment a clear indication

of how the passive acquiescence of the three

board members became translated into a

representation to the outsider. Yet they did

were clear that ostensible authority could	draw that conclusion, for all three judges
not be created by the representation of K. alone.

He then sets out the passages from the judgment which deal with the relationship between the board and the

outsider and, at the top of page 223, he says:

What is required is a representation made by

the corporate principal and made to the

outsider. Yet the only evidence cited by the

three judges is that the corporate principal representated (by passive acquiescence) that K. was permitted to act as if he were the

managing director. To whom was this particular

C2Tl4/l/FK	152	8/11/89
Northside(2)

representation made? Surely, it was made

only to those who can prove that they actually

observed the board's passive acquiescence.

K. saw that acquiescence. But there is no

evidence cited to show that the plaintiff

(the outsider) ever saw the other members of

the board of directors at all! So far as we know,

the outsider actually received no representations

except from K.

And then he proceeds to, at some length, try to resolve

the logical inconsistencies. I will not read the whole

of that discussion to Your Honours, but, if it is

correct it shows in a sense that FREEMAN & LOCKYER,

while some people have seen it getting rid of the

insider management rule, really gave it some credence

in its application.

Your Honours, I will pass over paragraph G and rrove to

our submission in paragraph 6 which I do not wish to

develop. We rely upon the analysis by Mr Justice McHugh

in the pages that are mentioned, and the article of

Professor Lindgren upon which His Honour expressly drew, and my learned friend says, "But if you look at

MAHONY's case, which was not a seal case, and therefore

you cannot say that the rule in TURQUAND' s case was

based upon some additional corporate seal rulen.

(Continued on page 154)

C2Tl4/2/FK	15 3	8/11/89
Northside(2)

MR MASON (continuing):  Our submission is that, as

Professor Lindgren points out, the positive corporate seal rule started before TURQUAND's case.

It became subsumed - eclipsed, one might even say -

by the discussion in TURQUAND's case but did not

necessarily disappear and its validity in point of

precedent and history, having been demonstrated by

Professor Lindgren and being applicable here, the

mere fact that some cases did not involve seals
and therefore proceeded on the TURQUAND principle

does not deny that there is a separate principle

relating to a seal and, in very brief, the seal

being the manifestation of the mind and hand of the

company where it is present then it is the very

act of the company which authenticates and

authorizes the transaction that is involved.

We would seek to rely upon that and to say

that, independently of any of the difficulties

about internal management or Gerard Sturgess, that

validates the transaction. In paragraph 7 we

address the question of whether if, what I have

termed,"the strict agency principled'apply as

discussed in FREEMAN's case, we submit they were

satisfied in the present case because of the

actiomof Ellis and Lees. Very briefl~ we say

that Ellis and Lees, over a period of 10 years,

left everything in the company's affairs up to

Forge and partners and Robert Sturgess: they did

not attend meetings; they signed cheques when

requested; sure, they did not give actual authority

but they armed Forge and partners and Robert Sturgess

with the capacity to poitray the appearance of

authority to represent what was happening in the

affairs of the company ..

We are content to have the test stated as

being, "Did they permit something to take place?". My learned friend drew attention to what he argued

was a slide in the judgment of Mr Justice McHugh

from, "Did they permit" to "Did they fail to

prevent". In our submission, His Honour is not

to be taken to have intended any such slide in
reasoning and we are content to take the higher
test. On the factual material which I will not

trouble the Court to read in detail, we put the

submission in two alternative ways. Firstly, as
in paragraph 7(d) that Forge and Connolly and

Mr Horder, if he was ever validly appointed

secretary, were permitted by the directors to

make representations as to who were the office

holders. Now, I accept that this only goes to the

Gerard Sturgess point so I will pass very briefly through it.

C2Tl5/l/DR	154	8/11/89
Northside(2)

Alternatively- and if the alternative one is

applicable it may go beyond any Gerard Sturgess

problem - we submit that Ellis and Lees permitted

Robert Sturgess to make all decisions about the

conduct of the company's affairs. And although we

cite some passages from transcript, there is a

finding in the appeal book at page 286 which says

sufficiently, in my submission, what we wish to

rely upon. It is the finding in Justice McHugh's

judgment where he adopts a passage in

Mr Justice Young's judgment and he says that, line

14 - well, from line 5 really:

(Continued on page 156)

C2Tl5/2/DR	155	8/11/89
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MR MASON (continuing):

If the directors take so little interest in the affairs of the company that they do not receive or read correspondence addressed to them or if

they permit a system to operate where correspondence

addressed to them may or does not reach them or if
they permit another director to run the company,
the company must be precluded from asserting that

the majority of its directors were not aware of

a state of affairs which affected the company.

This is particularly so in the case of a company

which is run the way Northside was.	His Honour
found:

There is no doubt at all that the plaintiff

company was not being administered in accordance

with good commercial practice or, indeed, in

accordance with company law. No meetings had

evidently been held at all for at least ten
years ..... and what had happened had been that the

directors had permitted Mr Sturgess to run the

company and Mr Sturgess' accountants to do what

was necessary for the bookwork.

Now we would say that that, whilst not going so far
as establishing actual authority to do this particular

transaction, was, in Lord Justice Diplock's analysis,

a holding out by the persons with the actual authority
of a capacity in Robert Sturgess to have the

appearance of the power to make decisions and that

holding out was relied upon by Barclays and paragraph H

we refer to a passage which shows that B.arclays relied

directly upon the representations as to.::Gerard~s

appointment.

BRENNAN J: Must that not be considered in the context of the

business actually carried on by the company?

MR MASON: Certainly,Your Honour,and there certainly is a

lower - inactivity would have been perhaps excusable,

but here there was more than inactivity. It seems

there was inactivity, but they did not even go to

meetings.

BRENNAN J:  Sure. I mean all that was happening was that there

was a piece of land lying there in eternity and this

company happened to own it and there happened to be

a need to put in annual returns. Now beyond that to

say that they permitted Mr Sturgess to run the

company really means they authorized him to

continue to do nothing with regard to the one thing

the company was interested in, namely its asset.

MR MASON:  I am not saying they authorized, but they, by their

activity, held him out, particularly with respect to

the secretary. You see, the chain of the representation

C2T16/l/CM	156	8/11/89
Northside(2)

to Barclays came principally through the secretary

and through Robert Sturgess, saying yes,the company

is willing to mortgage its land to secure the

other debt and whilst accepting that an agent cannot

be the person who can make the ostensible authority

representation, the agent can be the channel through

which the principal does make that representation.

The relevant principal was Robert Sturgess who had

been armed by the dealings of these partners over

the 10 years with the capacity to make that

representation.

BRENNAN J: That rather sounds like the old argument about the

informing clerk and the believing clerk and the

affidavit.

MR MASON: Well those informing and believing clerk stories

are ones which address actual authority and the joke

comes because the actual authority is absent, in

my submission. Here, when one realizes that one

accepts the absence of actual authority, but it is

the capacity to give the appearance that, in my

submission - - -

BRENNAN J:  The transaction that is in question here is one

of alienation of the one asset which a holding

company held.

MR MASON:  Yes.

(Continued on page 158)

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Northside(2)

BRENNAN J:  And to say that the company had theretofore

held out one of its officers as the manager as

it were of its business, it seems to me to fall

a long way short of saying that it held him out

as having authority to alienate the asset.

MR MASON:  On the facts of this case, one way of perhaps

testing it, Your Honour, is to say, "Well,

Mr Harder happily handed over the seals to Robert,

so perceived the situation that he had the appearance of the capacity to speak for the company."

the solicitor happily handed over the CT to they

Again, I accept he did not have it.

Then, Your Honours, in paragraph 8 we address the forgery exception and could I give Your Honours

an additional reference to text writers:

Pennington's Company Law, pages 136 and 137; and

we have copies of the relevant portion of the

Campbell article in the Law Quarterly Review which

to some extent appears to have influenced Gower's

rule 8 but provides an alternative path, it

would seem, to the same result.

Your Honours, I would be reading to

Your Honours large slabs from these works and,

given the time, if I say that we would adopt the

argument in Gower's rule 8, especially on
pages 203 to 205 of his work. Alternatively, the
argument in Campbell, on the pages we have given,
which proceeds on a slightly different basis,

he says that the,forgery exception does not apply

where the person purports to act as agent and here,

because the two Sturgesses signed as director and

secretar½ they purported to act as agent.	And
what was wrong, they lacked authority.	The reply

to that is that the general rule in TURQUAND's

case precludes the company from setting up their

lack of authority and therefore you just do not

get into a forgery situation.

Your Honours, some of this discussion suggests

that the KREDITBANK case can be justified on one

of the alternative bases which appears in that

case, namely that the officer in question was outside

of the usual authority that one would expect that

officer to be exercising. But, certainly, the

reasoning of part of the KREDITBANK decision in

the Court of Appeal and even more so the decision

in the SOUTH LONDON GREYHOUND case are inconsistent
with the argument which I am now putting but we
would submit that in point of principle and when
one remembers that MAHONY's case was a fraud case

itself, then the forgery exception ought to be

C2Tl7 /1 /ND	158	8/11/89
Northside(2)

abolished or, certainly, displaced where there

is a genuine signature by the two Sturgesses.

Your Honours, it was suggested that perhaps

one test of there being a forgery is that there

is no benefit to the company. One difficulty in

point of authority with respect to that analysis

is that at least two of the cases in which TURQUAND's

rule was applied were guarantee cases. And I refer

to the SCOTTISH LOAN case and the HAPYTOZ case.

I do not wish to rake Your Honours to them but

HAPYTOZ is (1937) VR 40, and the SCOTTISH LOAN

case is, I think, 44 SR(NSW) 461.

(Continued on page 160)

C2T 17 /2/ND	159	8/11/89
Northside(2)

MR MASON (continuing):  We would join issue with

my learned friend's schedule where he

suggested that the HAPYTOZ case was one

where the company got a benefit. In truth,

it was company A guaranteeing the debts of

company B. My learned friend then suggested

as an alternative that the forgery exception,

if it exists, depends upon an intention to

defraud. It is the affixing of the seal
without authority and with a dishonest intention

to defraud that takes it out of that situation.

We say again that that cannot be reconciled

with MAHONY's case and something has to give, as

it were.

.We would also raise the question: intent

to defraud whom? Presumably the principle

means intent to defraud the company whose seal

is placed. In RUBEN's case the dishonest

clerk was in effect purporting to issue share

certificates which ultimately he was going to

get. He was issuing them by way of security for a loan to himself, but ultimately they

were to come back to him, as we understand the

situation. Clearly there, there was an

intention permanently to deprive the company of
its own shares, if one takes a share as being

an asset of a company for very loose .terms.

In the present case the evidence shows that the

Sturgesses, while we are not suggesting they
acted honestly, that their intention was to use
the security of the land as a temporary facility
to secure a loan to themselves. The evidence
about the not register for six months, whilst
supporting this suggestion my learned friend
put that it shows the bad faith, also shows,
in our submission, the intention that the

security would be replaced as quickly as possible

as soon as the Sturgesses could generate funds

and in the supplementary appeal papers that my	learned friend handed up yesterday, one of the
documents is an internal memorandum which says
that the intention is that within the six-month
period the unregistered mortgage was to be replaced by a $300,000 deposit made by the
Sturgesses with Barclays. If there is therefore an intention to defraud element as part of the
not that intention to defraud in the Sturgesses. forgery exception, our submission is there was but their intention obviously was that they would never be detected and that the mortgage would not
be called up. Clearly there was an intention to
defraud Barclays but on the principle my learned friend is putting it would seem that it is the intention somehow or other to denrive the

C2T18/1/JM	160	8/11/89
Northside(2)

company itself that is the super-added element

to the unauthorized sealing upon which my

friend refers.

Your Honours, in paragraph 9 of our submissions

we put the alternative argument that the registered

return showing Gerard as secretary created itself

a representation by the company upon which

Barclays were entitled to rely. Again, I accept

that in this context it only goes to shore up any

difficulty we have about Gerard Sturgess.

(Continued on page 162)

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Northside(2)

MR MASON (continuing):  The point is twofold. We submit that

the onus was on the plaintiff, the appellant here, to

show that the search was not made. We were not in the

same position as Northside or as Barclays and the onus of making out the factors giving rise to the claim was

assumed by the appellant, recognized by Mr Justice Young,

but His Honour, in the passage at pages 225 and 226,

to which my learned friend has already referred,

did not give effect to the onus which he prima facie

acknowledged, and the proper giving effect to it would

have been to have said that Northside, just as they called

Barclays to prove good faith, should have called

Barclays' solicitors to prove the absence of search.

Alternatively, we submit that the document having

been registered, the search was established because of

the evidence at page 63 of the appeal book about

Barclays' practice - at page 63H: Q. What you are saying is you are fairly

certain that you were aware earlier? A. Not

personal knowledge but it would be very very unusual if we did a loan at Barclays without

getting a report showing the directors. Very

unusual.

Q. It would be very unusual because it would

be amongst other things very unwise to do so?

A. I would think so, yes.

Q. It would be very unwise to enter into a

transaction pursuant to which finance was

advanced by your company without being

satisfied as to the authority of the purported

spokesman of the company? A. It is a matter

I suppose where our job as negotiators stops

and where the solicitors start. I mean we

basically would have come to an agreement

where a letter of offer issued and then we

would supply a copy of that to our solicitors

In our submission, there being a principle whereby one and ask them to document that.

can infer something happened from a practice of it

happening, and we cite a passage in McLEAN BROS AND RIGG about this, if the onus was on the Registrar- General, that onus was satisfied by that evidence.

I next wish to address very briefly the question of whether Barclays were put on notice. In the main

part we rely upon and adopt the reasoning of the

Court of Appeal. We say it was a question of fact.

It does not help to point to other cases where, on

slightly different or maybe similar facts, different

courts have reached different conclusions. It was not

a duty to be careful on Barclays part. The principle

flowing from TURQUAND's case is that you are safe

unless you are put on notice and, in our submission,

the matters relied upon did support the facts that

C2Tl9/!/HS	162	8/11/89
Norths1de(2)

there was an appearance of the two companies being in

the same stable. We would rely upon the common

registered offic~, the common secretary, the common

accountant, the fact that there was at least one

common director, Mr Robert Sturgess, and the apparent
capacity to procure the seal and the certificate of
title for this company's assets at the same time as

the similar paraphernalia were procured for the

other company's assets.

(Continued on page 164)

C2Tl9/2/HS	163	8/11/89
Northside(2)

MR :MASON (continuing):  Now, those matters were all matters

which created an appearance of regularity and

to say, "Well, you should have done more" is,

itself, in my respectful submission, to convert

a duty of inquiry where notice is given into some

duty of care and it is not part of the TURQUAND

rule that there is a duty of care. The fact that

in the two cases HAPYTOZ and SCOTTISH LOAN,

TURQUAND's case was applied with respect to a guarantee suggests - and, after all, this was

just a secured guarantee in this case - that that

mere fact does not put you on notice. We would

rely upon the cumulative effect of all of the

matters as saying that there was a totality of a

situation which there was no appearance of

irregularity.

The EBM case from which my learned friend

relied, was one where there was a pre-existing

debt in the directors and the bank, in effect,

was pressing for security but, more importantly, we say you cannot go from one case and convert a

finding of fact into a principle of law. That

leaves, Your Honour, our final argument which turns

on section 106(2) of the REAL PROPERTY ACT.

Perhaps just before going to it may I draw attention

to section 127 of the Act which is the section

relied upon:

Any person sustaining loss or damages through

any omission, mistake, or misfeasance of the

Registrar-General or any of his officers or

clerks ..... or by registration ..... or by any

error, omission, or misdescription ..... may .....

bring an action against the Registrar-General

as nominal defendant for recovery of

damages.

Now, in our submission, the whole category of factors that give rise to a cause of action are

ones which certainly include some element of fault -
notional fault, obviously.	The one that we are

concerned with here, namely, registering an

instrument, is capable of being seen in the category

if one takes the historical origin of section 127.

This was, as it were, the pay off that

Sir Robert Torrens offered to overcome the opposition of the legal profession to the Torrens system. It

was greatly opposed - the idea that he conceived,
based on his maritime experience and the customs

office - he was not a lawyer and he was opposed by

the legal profession in his recormnendations and in

order to sell the Torrens system, established this

assurance fund.

To anyone in 1860, they would have started off

with the presupposition that "You have your title
which pre-exists. If you lose your title through

C2T20/l/DR	164	8/11/89
Northside(2)

registration that is sort of, prima facie, wrong.

You have had a wrong done to you through the system."

In that sense, the loss through registration can

be seen in an historical characterization as being

in the same nature as a wrong suffered through the

act of the Registrar-General.

When one goes back to section 106(2), that

section was inserted, as we put in our submissions, by

the 1979 Act whose long title included 11 the

purpose of facilitating the registration of dealings".

It was inserted together with section 36(3) which

is similar in its operation. But 106(2) provides

that:

Where -

(a) a seal purporting to be the seal of a corporation ..... has been affixed ..... to a dealing ..... and

(b) the affixing of the seal purports to have

been attested by a person or persons holding

office ..... or by a person or persons authorised

to attest the affixing of the seal,

the Registrar-General may assume -

(c) that the seal and attestation are genuine

and were lawfully affixed or subscribed ..... and

(d) that the person or persons purporting to

have attested the affixing of the seal had

sufficient authority.

(Continued on page 166)

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Northside(2)

MR MASON (continuing):  Our submission is that if the Registrar-

General is authorized to make the assumption for the purpose of facilitating the registration of the dealing, how is it that he suddenly loses the

capacity to make that assumption when he is sued

for damages for the very act of registering the

dealing?

TOOHEY J:	Mr Solicitor, are you	saying that section 106
provides an answer to	the Registrar independent

of any other argument	that may have been raised
in the course of this	appeal?

MR MASON:	Yes, and it is a point that was not argued below.
We gave a belated notice of contention to my friend,
but we do not understand its lateness to be cause of challenge.
TOOHEY J:	But how is it said that the assumption that the
section permits the Registrar to make provides an answer to a claim under section 127, if the claim is
based on the proposition that a person has sustained
loss or damage, not through any omission, mistake or
misfeasance of theRegistrar-General, but by the
registration of any other person as proprietor of
land?

MR MASON: Well, it was the very registration of Barclays that

caused the loss. The purpose of 106 was to

facilitate and encourage the speedy registration of

the dealing in Barclays' favour where a company is
involved and there is a seal and these other matters

giving the appearance of regularity, and you cannot,

in our submission, encourage and facilitate

registration with one breath, and in the same breath

say that very act causes you to pay damages.

DAWSON J: Why not? I do not know why you ..... say we will

have the swiftness on the one hand and if we make

a mistake then there is the insurance fund to -

MR MASON:	The answer we would make to that, Your Honour, is
that 106 is stated in terms of an assumption the
Registrar-General is entitled to make, It would negate the purpose of the facilitating of a dealing
if the Registrar-General had to be looking over his
shoulder to the possibility of this action being brought. In a sense,it takes away the very incentive
that 106 is designed to give, in our submission.
TOOHEY J:	But why should not section 106 be seen as some sort
of protection to the R2gistrar in the course of everyday dealings, but leaving intact the right of a person who can bring himself within section 127 to recover ultimately from the assurance fund?

C2T21/l/FK	166	8/11/89
Northside(2)

MR MASON:	Your Honour, with respcect, that is the argument
that is put against us.  We would say that section 134
of the Act provides an independent and pre-existing protection from the Registrar-General from personal suit, so there is work, we say, to be done, for 106(2).
That is one answer we seek to make, and secondly, we would say that the purpose obviously underlying 106(2)
would be frustrated if - in the narrow area that 106(2)
deals with, obviously that would be frustrated if you
facilitate the dealing, but you can then be sued on an undisclosed forgery point.
BRENNAN J:	Was there a Titles Office practice before 106 was

introduced, which covered the assurance to the

Registrar-General of the genuineness of instruments that hE

was asked to register?

MR MASON:	106(1) was there for a long time. Subsection (2) came
in in 1979.  I think the only way I can answer that
is in one of the documents I handed up this morning I
gave the conrrnentary to 106 as well as the conrrnentary to section 51 A.

(Continued on page 168)

C2T21/2/FK	167	8/11/89
Northside(2)

MR MASON (continuing):  I think the attitude was that

TURQUAND's case gave that protection already, but

I cannot otherwise answer Your Honour. There may

be something in that text which I have given

Your Honour which discusses the practice, but

if it is not there then I would envisage that I

just cannot answer the question.

BRENNAN J: And is it corrnnon ground that by reason of the

registration of the instru.~ent of mortgage there was

a loss by Northside which answers the description

of that term in 127(1)?

MR MASON: Yes,and that explains,Your Honour,why Northside

could do nothing but wring their hands prior to the

auction. They learnt the property had been

advertised. At that stage the contract had not
been - the sale had not taken place - but by that

point of time Barclays has got registered and so

Barclays had touched base, as it were. Therefore

it is corrnnon ground that there was the act of

registration that provided the indefeasibility which

squeezed out Northside.

TOOHEY J:  But it is not quite the same point though,is it? It is

one thing to say that is was the registration of the

mortgage that secured indefeasibility to Barclays.

Is it the same thing to say that the loss or damage

arose by reason merely of the registration of the

mortgage?

MR :MASON:  No, it had to be more than that, because Barclays

had to exclude the operation of 126 of the REAL

PROPERTY ACT and that explains in the appeal books
on page 6 Barclays pleaded, and this was as a res~lt

I am informed, of an application to strike out and

this they did. In paragraph 8A of the.amended
statement of claim Barclays pleaded and took on

themselves the burden of alleging that Barclays:

At all material times ..... had no knowledge of	the matters referred to in paragraph 7 hereof
and took the mortgage hereinbefore referred to
in good faith.

So they had to go further than prove registration.

They had to prove registration in a non-fraud

context.

TOOHEY J:  Yes ,I understand that. I am not sure that I

understand the equation of fraud with good faith,

but that is perhaps another question.

MR MASON:  It was certainly treated as being - I think it was

prior to BAHR V NICOLAY, but it was treated as being

the same point. Have I correctly perceived

Your Honour's question or have I answered it by

pointing to 126?

C2T22/l/CM	168	8/11/89
Northside(2)

TOOHEY J:  Almost; I think. I suppose there is a sense in which

it can be said that the registration of the mortgage
of itself did not cause loss, but it was the

payment of the mortgage advance to someone other

than the registered proprietor that brought about

the loss. I mean every mortgage involves an

encumbrance on the title, but there is no loss

ordinarily accompanying it, because the mortgage

advance is paid to the registered proprietor.

MR MASON:  I think all I can say is that is a point the

Registrar-General did not take and could not now

take. Subject to the points that have been raised

it accepts that it has to pay the money to Northside.

Of course one of the consequences is that the money

will go to Northside and be distributed amongst its

shareholders and there is some evidence about some

rearrangement of the shareholdings when

Messrs Lees and Ellis found that Robert Sturgess had cheated them and there were allotments of shares

to an effect swamp the Robert Sturgess shares in

the company, but there are still some Robert Sturgess

shares in the company. That capacity to argue that

sort of point has been accepted and has been lost.

If Your Honours please, those are our

submissions.

(Continued on page 170)

C2T22/2/CM	169	8/11/89
Northside(2)
MASON CJ:	Thank you, Mr Solicitor.	Yes, Mr Handley.

MR HANDLEY:  Your Honours, the respondent's case is that,

in effect, this Court should repudiate the
FREEMAN AND LOCKYER approach adopted by the Court
of Appeal in England. It is hard to understand
at times whether the attack on FREEMAN AND LOCKYER
is total or partial, only in relation to the cases

involving the application of the common seal.

But it is difficult to see why agency principles

should be repudiated in relation to one class
of corporate contracts and embraced in another.

And, of course, the very rules in Gower to which

my friend refers all reflect faithful acceptance

and application of FREEMAN AND LOCKYER principles.

So there is a sort of tension, in our submission,

in the heart of the respondent's submissions to

this Court.

We would submit that FREEMAN AND LOCKYER has been accepted in this Court as correctly stating

appropriate principles in relation to informal

corporate contracts in CRABTREE-VICKERS; it has

also been cited elsewhere but I will not multiphy

citation. The fact that my learned friend was

able to embrace the Gower rules, 1 to 8, which

faithfully reflect FREEMAN AND LOCKYER, in our

submission, demonstrates that the Court of Appeal

were on weak ground in seeking to repudiate that

case in the case of sealed instruments.

Your Honours, there is something perhaps a

little strange that in 1988 the Court of Appeal

should retrace its steps in relation to a matter

of company law and commercial law back to TURQUAND's

case and ignore more than a century of development

of case law in the light of both TURQUAND's case

and MAHONY's case which one would have thought

would have been stamped out by the English courts and, indeed, the Australian courts to reflect the

competing pressures of certainty and protection

in commercial transactions balancing the interests

of outsiders and shareholders. And there is no

reason on principle to think that what the Court

of Appeal sought to find from decisions in the

infancy of company law should be more appropriate
to 20th century business than recent decisions

in England and in Australia which have followed

FREEMAN AND LOCKYER.

Can I endeavour to reply from my friend's

own outline? In our submission, in this case,

it is not helpful to separate the ostensible authority

or the actual authority or the appearance of

authority of the Messrs Sturgess in the attestation

or execution of the mortgage and the guarantee
loan agreement from the document or the transaction

to which the seal was applied.

C2T23/l/ND	170	8/11/89
Northside(2)

MR HANDLEY (continuing):  Had the transaction been an

honest one and not a forgery, there could have

been no question that the company would have been

bound. My friend's submissions seek to isolate

on the one hand, the authority of an apparent

secretary to attest the affixing of the common

seal and the authority of the director to attest

the affixing of the common seal and the fact

that the common seal is there and say, "Well,

they're all right", and then try and look at
the question of whether the outsider is put on

inquiry is a separate matter. In our submission,

one has to ask whether Robert or Gerard Sturgess,

singly or jointly, had actual or ostensible

authority to mortgage this land for their private

debts and to affix the common seal to an instrument

or instruments for that purpose. Running the

two questions together, in our submission, invites

an answer favourable to the appellant.

BRENNAN J:  For what reason would this transaction have

been binding on the company had it been honest?

MR BANDLEY: "This transaction", I did not say "this

transaction", Your Honour;	I said, "an honest
transaction".

BRENNAN J:  Of course. I put that very badly, obviously.

If a transaction had been honest and had resulted

in the execution of an instrument such as the

instrument we have here in precisely the same

terms, would that instrument have been binding

upon the company?

MR BANDLEY:  Your Honour, I would seek to avoid that

question as not being particularly helpful.

I would seek to present an alternative question,

that if for some reason the company had received

a substantial land tax assessment, which it

did not suit the directors to pay out of their

own pockets as they had been paying rates for

15 years out of their own pockets, and they

decided to get a temporary mortgage from

Westpac for the purposes of paying the land

tax assessment, and that was the origin of the

transaction and the money advanced by Westpac
went into the company's bank account and, of course,

Westpac would not be concerned to see how it was

applied, then we would have a MAHONY case, in my

submission. Sturgess Junior would be a de facto

officer; there would have been involved knowledge and communication between the corporators and any

informality in Mr Sturgess Junior's appointment

would matter no more than if it were the fact

that Mr Horder had been informally appointed

secretary some 10 years before.

BRENNAN J:  But that situation is one where the benefit

is clearly for the company.

C2T24/l/JM	171	8/11/89
Northside(2)

MR HANDLEY:  Yes, Your Honour, hence my expression, "an

honest transaction".

BRENNAN J: Then let me press you with the situa·tion where

the directors had authorized Sturgess for his

own purposes to utilize the company's asset as

security for an advance from Barclays.

MR HANDLEY:  In that event, Your Honour, we could not

be here because the transaction would not be
a forgery; there would be actual authority;

it would be an honest transaction and benefit

to the company, there may be none, but authority

would be total.

BRENNAN J: And the absence of any actual authority in

Gerard Sturgess to act as secretary or to

affix the seal would be irrelevant?

(Continued on page 173)

C2T24/2/JM	172	8/11/89
Northside(2)

MR HANDLEY: Yes, Your Honours. My learned friend referred to the

COUNTY LIF~ case in 5 Ch App 288. I am sorry to go

back to it. He drew attention to the fact that

Sir Roundell Palmer had referred to the policy in

that case as being a forgery. Your Honours, the fact

that counsel submitted that it was a forgery matters

little because Lord Justice Giffard did not find that

it was a forgery but that there was some estoppel

from relying upon it. That submission sank without

trace so far as the decision was concerned.

If I could just take Your Honours to the top of

page 293 where, in our submission, one finds what I

would call estoppel by acquiescence leading to a

holding out. His Lordship says in the second line:

That is the internal history of the

company; and before I go further, I may

say that the directors of this company, at

any moment they chose, might have got an

injunction - at any moment they chose they

might have put an end to this company.

They did not choose to do so, and it is not too much to assume against them that they

knew that the company had a place of

business and that Mr Preston intended to

commence and did commence operations.

So that, in our submission, is a finding of holding

out which is sufficient to bring the COUNTY LIFE case

within the mainstream of English authority running

from MAHONY's case through to FREEMAN & LOCKYER.

My learned friend drew attention - I am looking at

page 3 of his outline - MORRIS V KANSSEN is referred

to. The decision in that case does not assist, of

course, because an outsider was involved, but may I

just remind Your Honours that Lord Simonds in the

passage in question uses the word "regular" and, in

our submission, His Lordship was not adverting in any

way to fraudulent and forged transactions but was

echoing the statements about regularity which go back

and his submission was that there could be no question	to TURQUAND's case itself. My friend made a submission about ALBERT GARDENS
of actual authority there and that - I am not sure
that I have his submission accurately - undoubtedly
the appointment of the directors was defective because the
share qualification was not taken up. I think his
point was that since the share qualification had to
exist at the time of the election there was no power
in the shareholders to elect those directors at all and that this in some way put ALBERT GARDENS outside
agency principles but, in our submission, the election
of the de facto directors by the general body of shareholders was important and indeed critical because the shareholders sent those directors out into the world armed with their blessing to act as
the directors of the company. The articles did not

Nortns1de(2) C2T25/l/.HS 173 8/11/89

destroy the representation and the authority inherent

in that election because the share qualification was

a matter of indoor management and so ALBERT GARDENS

can be seen to be entirely consistent with the

operation of agency principles in this area.

(Continued on page 175)

C2T25/2/HS	17 4	8/11/89
Northside(2)

MR HANDLEY (continuing):  At the top of page 4 my learned

friend, in paragraph (a) says:

many of the earlier cases would have been

decided differently if the law required the

outsider to show actual reliance upon a

representation made by a person or persons

within the company that had actual authority

to do or permit the transaction in question -

There is a slight change in that statement which is

important.	Of course, shareholders do not have
the capacity to run the company.	The typical

article, as the Court would well know, says, "The

company is to be managed by the directors." And

the role of the shareholders, however, is to appoint

the directors as agents of the corporation so that

it is not right to look for a representation made

by shareholders within the company that had actual

authority to do or permit the transaction in

question because the shareholders can never actually

directly bind the company to business transactions

because of the standard form of article and the

well-established basis that the shareholders cannot

interfere in the day-to-day running of the company. No, but ever since MAHONY's case, that has

not been required. MAHONY's case has looked to

the acts of the shareholders in appointing de facto

or acquiescing in self-appointments by persons

as directors who then proceed to go into the world

and act as corporate agents. And so there is a

pnoblem with that submission, we suggest, in 5(a).

But ever since MAHONY's case, it has been sufficient

that the shareholders have knowingly acquiesced

in the activities of de facto directors. I

emphasize the word "knowingly" and that, of course,

was also found in the COUNTY LIFE case and has

been present ever since.

My friend's problem about-.Welling, which he drew the Court's attention to, and how FREEMAN

AND LOCKYER could be reconciled with principles

and how you would find a representation made by

the shareholders or the other directors in FREEMAN

AND LOCKYER, Your Honours, is to be answered, in

our submission, in the light of authority and

principle going back to MAHONY's case.

There was no difference between the acts and

omissions of the corporators in MAHONY's case from
the acts and omissions of the corporators in the

FREEMAN AND LOCKYER case and in each case they

knowingly acquiesced in - permitted, knowingly

permitted, a person to represent himself to the

outside world as the managing director or as the

C2T26 /1 /ND	175	8/11/89
Northside(2)

board of director of the company and, in our

submission, there can be no difficulty in fitting

these cases into the mainstream of ostensible

authority and estoppel by representation in the

light of the case law dating back to MAHONY's case

and earlier.

My friend referred to SEE's case, SEE V

AUSTRALIAN AGRICULTURAL COMPANY. In our submission,

that is a case about old system conveyancing and

the title, or the evidence of title, which a vendor

is entitled to force on a purchaser and that

purchaser is entitled or bound to accept. A vendor,

in an old system conveyance, does not have to prove
that every signature on the old system deeds which

may go back, of. course, for a very long time,

is a genuine signature and that there is no forgery

involved in a deed of conveyance of 1910 or 1880

or anything of that nature.

(Continued on page 178)

C2T26/2/ND	176/177 MR HANDLEY, QC	8/11/89
Northside(2)

MR HANDLEY (continuing):  SEE's case is about the evidence

of title which a vendor can force on a purchaser

and a purchaseris bound to accept and it says

nothing, in our submission, that is of assistance

in this case. And, indeed, the very statements

from Stuckey, in our submission, supported that
view. I thought it was Stuckey. If you will just
pardon me, Your Honours, I thought that Stuckey -

cited - referred to SEE' s case. Yes, I am sorry, it is Woodman. Your Honours, it is the second of the two texts my friend handed up in relation to

corporate instruments in conveyancing.

If one goes to Woodman, page 603, SEE's case

is referred to in the third paragraph of the text

under 106.2. The headnote to SEE V THE AUSTRALIAN

AGRICULTURAL COMPANY, 10 SR, states:

that were title is derived through a company's

deed, either directly or through a chain of

title, all that is requisite for the protection

of a person taking title thereunder is that

on the face of the deed it should appear to be

executed by the company under its seal -

et cetera. Now, Your Honours, bearing in mind

that it is an old system title, if in fact the deed

was a forgery, appearance, in our submission, could

not protect the old system purchaser. The case is

about the evidence which will be accepted in
settlement of a conveyancing transaction involving

old system land. Your Honours, paragraph S(c),

my friend invokes the question of stare decisis

and, in our submission, the appellant is the one

that stands in the mainstream of Anglo-Australian

authority and it ts the Court of Appeal who has gone

back a hundred years to change the rules, whereas,

up until the Court of Appeal decision,

FREEMAN & LOCKYER had been accepted without question

in this country and in all cases involving corporate

contracts it is the decision under appeal which has

changed settled law in this country. -·

At the.bottom of page 4, we do not accept that

ALBERT GARDENS is authority for any such proposition

as my friend contends and we have already - - -

MASON CJ: That is fairly obvious, is it not, Mr Handley? I

mean, there is no need to respond to this by way

of answers to interrogatories.

MR HANDLEY:  No, I am sorry, Your Honour. I am using the top

of the page as a means of access to the bottom of the page, but my friend has put a lot of material before the Court in a compressed form.

C2T27/l/DR	178	8/11/89
Northside(2)

MR HANDLEY (continuing) I wanted to pick up the reference to

Campbell in the Law Quarterly Review

MASON CJ: Paragraph 8.

MR HANDLEY:  Yes, I am sorry, thank you. Would Your Honours be

good enough to look at the extract from the

Law Quarterly Review which contains this article,

page 131, because on line 3 the author states:

On the other hand, the rule -

that is, the rule in TURQUAND's case -

was in fact applied to forged instruments

in TURQUAND's case itself -

now, Your Honours, that is just not correct, in our

respectful submission, as the study of the judgments

demonstrate; and then the author proceeds to list a

whole host of cases which he suggests are cases of

forgery, but, with respect, Your Honours, he has

questioned:

But perhaps these were not cases of forgery?

At the end of that paragraph invites the answer that they certainly were not cases of forgery; there was no fruad on the company involved in any of them and none of those cases were decided on the basis of

forgery, and any analysis which proceeds on the basis
thatTURQUAND's case has been applied to a host of

forgery cases is fundamentally flawed, in our submission.

My friend submitted that Ellis and Lees had

permitted Sturgess to run the company. Now, Your Honours,

the first thing is that this company did not run, or was

not run by anybody, it just existed. Apart from that

he also said, for example, that Ellis and Lees did not

attend meetings of the company, but nor did Sturgess.

There is no evidence that Sturgess attended meetings

and Ellis and Lees stayed away. The evidence is that

there were no meetings at all and, Your Honours, the

evidence is that Sturgess' activities prior to this

consisted of carrying the hat around once a year

among his colleagues for the rates, and that is

Mr Sturgess' activity and that was what was involved

in running the company in the 15 years up to the time

of this fraud. Nothing turns upon the alleged

quiescence of Ellis and Lees in this case, because it

did n0t involve any holding out, and there was no element

of knowledge that Sturgess was doing anything other

than collecting money to pay the rates. So, the sort

of evidence that existed in MAHONY's case and the sort
of evidence that existed in FREEMAN & LOCKYER and other

cases is not found here.

C2T28/l/FK	179	8/11/89
Northside(2)

Your Honour, my friend submitted that in HAPYTOZ

there was a guarantee and that this was not for the

benefit of the company, and perhaps this is a

small point, but I would just seek to take the Court

to the report in order to nail it, because the

guarantee was given for consideration, and that

was accepted and the commercial background shows the

circumstances in which the document was given.

(Continued on page 181)

C2T28/2/FK	180	8/11/89
Northside(2)

MR HANDLEY (continuing): In 37 VLR at page 40,

judgment at page 43, I go to a line on page 44,

point 5 on the page:

It is not disputed that the wording of
the document relied upon is apt to

render Hapytoz Co. liable nor that there

was consideration for the giving of

the guarantee.

But earlier, on page 43, it appeared that

Hapytoz and a company called "Perfection Shoes":

carried on the same kind of business and

had the same shareholders, four in number,

who were also the sole directors -

and that both companies bought goods from a
company called "Raymond" and Raymond required

Haptoz to guarantee the debt of the associated

company. That was done and hence, in a case of

that nature, in our submission, there is not

suggestion of fraud or forgery. It was a

corporate act executed on behalf of the company

by the director.

As far as SCOTTISH LOAN is concerned, it

was a loan company and one looks at the
judgment of Chief Judge Nicholas and sees

no point was taken about fraud or forgery or

the transaction not being for the benefit of

the company.

My friend took Your Honours to the evidence

of a Barclays officer at page 63H where he

referred to Barclays searching - normally making

a search of the directors. That evidence clearly

is evidence about what Barclays did and not what

its solicitors did. If they did not follow a

normal precaution in this case that only

emphasizes the fact that they were put on inquiry.

If they did follow the ordinary precaution, they

would have become aware that Sturgess was a

minority shareholder and a minority director
and they would have been put on inquiry even

more.

BRENNAN J:	As to the test of being put on inquiry, do you wish to say anything about ROLLED STEEL
PRODUCTS (HOLDINGS) LTD V BRITISH STEEL
CORPORATION and the observations that were
cited there from Lord Justice Harman if the
bank did not know what the purpose of the
borrowing was it need not inquire?
MR HANDLEY:	This bank knew what the purpose of the

borrowing was, Your Honour.	We can turn that
statement against my friend.	Of course, in

C2T29/l/JM	181	8/11/89
Northside(2)

the ROLLED STEEL case itself, in the end

the Court of Appeal held that some transactions

were of their own nature such as to put a

party on inquiry and that was part of the

actual decision in the case. I will ask my

junior to find that point, and I will come

back to it, if I may.

BRENNAN J:  What is it, in your submission, which puts

a party upon inquiry?

MR HANDLEY:  Your Honour, that a company, having no

apparent connection with the business of the

borrower, and having no apparent connection

beyond Sturgess's own say-so, that it

authorized the pledging of its land for this

very substantial debt of $1.4 million in the

end. It is that point, Your Honour. It is

the point that here is a person purporting

to use the property of an unassociated company

as security for his own borrowings.

(Continued on page 183)

C2T29/2/JM	182	8/11/89
Northside(2)

MR HANDLEY (continuing):  Now, my friend looks at this

transaction in part, at the moment at which the

seal is put on the document on the mortgage and

the certificate of title is handed over. But in

our submission the inquiry on which Barclays was

put commenced much earlier than that. It commenced

at the point of time when he does not initially

offer this land as security. That is apparent

from the documents. Barclays are not satisfied,

they demand further security and he says, "Oh well, I

will give you this'.' At that point of time there

is nothing except Sturgess's own representation
and at that point of time, in our submission, as

we put it in our outline, "Well what right have

you got to mortgage this property for your own debt?".

BRENNAN J:  You say there is a pledging of an asset

by a company for no known or likely commercial reason?

MR HANDLEY:	Yes,Your Honour.
BRENNAN J:	Of benefit to it.
MR HANDLEY:	Yes.  Involved in it is for the known purposes

and benefits of someone else, namely· Farola or

whatever the company was called, this car yard,
new and used, at Ashfield. Your Honours, we do

not wish to take up time on this, but if Your Honours
do get to the question of my friend's evidentiary
references on page 6 there are a number of those that

we do not accept as supporting the statements for

which they are cited, particularly that:

Ellis and Lees left Forge and Connollv in

control of all records·;..·

This ,authority extended to the running·.of the

company so far as any paperwork or filing of

any documents were concerned.

With the Registrar of Companies certainly, but no

further -

It follows from the foregoing that Forge and

Connolly, and Mr Herder if he was ever validly

appointed secretary, were permitted by the

directors to make representations as to who

were the office holders.

(Continued on pa~e 184}

C2T30/l/CM	1B3	8/11/89
Northside(2)

MR HANDLEY (continuing):  In answer to Mr Justice Brennan's

question about ROLLED STEEL, we would tome back

to the fact that at the top of page 285

Lord Justice Slade refers to UNDERWOOD V BANK OF

LIVERPOOL as illustrating:

that the very nature of a proposed
transaction may put a person upon iDquiry

as to the authority of the directors of a

company to effect it, even if he has no special

relationship with the company -

"he", there , i s the outs id er , even i f the

outsider has no special relationship with the

company. And, in our submission, that applies

in this case and that is what we would get from

the ROLLED STEEL case and we would submit that

that is what the Court would take from the ROLLED

STEEL case and I do not have any further answer

to that, to Your Honour's question.

I do not think we need add anything to the

discussion which took place with the Solicitor-

General about section 106.

BRENNAN J:  You do not seek to identify it by way of any

criterion, the particular circumstances on which

the putting on inquiry might depend?

MR HANDLEY:	In ROLLED STEEL or in this case?
BRENNAN J:	For the purposes of the resolution of this case.
MR HANDLEY:	Your Honour, courts have always refused to

define "fraud" because of the manifest ways in

which or because of the manifold ways in which

it might manifest itself. I wonder whether it

is possible to do other than illustrate the

circumstances upon which the very nature of the

transaction will put an outsider on inquiry. It

is a sort of res ipsa loquitur situation, is it

not? But the two cases, cited by Mr Justice McHugh,

of UNDERWOOD and EBM BANK, in our submission, point

irresistably in favour of Barclays being put on

inquiry in this case. And it comes down to an

apparent diversion of the company's assets for
other purposes, particularly for the private

purposes of the agent who is initiating the

transaction.

If the agent initiating the transaction is

not going to benefit in a known way from the

transaction, it is obviously much harder to show

C2T31/1/ND	184	8/11/89
Northside(2)

that the outsider is put on inquiry. If

the Court pleases.

MASON CJ:  Thank you, Mr Handley. The Court will consider

its decision in this matter.

AT 11.53 AM THE MATTER WAS ADJOURNED SINE DIE

C2T31/2/ND	185	8/11/89
Northside(2)