Companies—Indoor management rule—Forged instrument—Mortgage of company's property—Seal not affixed in accordance with articles—Validity—Mortgage for benefit of director—Whether mortgagee put on inquiry. Real Property (N.S.W.)—Torrens system—Compensation for loss sustained by registration of another person as proprietor—Mortgage of company's property—Seal not affixed in accordance with articles—Registration—Whether loss sustained by registration or execution of mortgage—Registrar-General entitled to assume that common seal affixed and attested with company's authority—Whether defence to claim for compensation—Real Property Act 1900 (N.S.W.), ss. 106, 127.
Decisions
MASON C.J. The appellant is a company which was incorporated in 1965 for the purpose of holding certain land at Frenchs Forest near Sydney under the Real Property Act 1900 (N.S.W.). The appellant was at the relevant time the registered proprietor of that land. The first respondent is the Registrar-General. The second respondents, Robert Sturgess and Gerard Sturgess, were not represented at the hearing of the appeal.
2. The appeal concerns an instrument purporting to be a mortgage of the land executed on 24 December 1979 by the appellant, under its common seal, in favour of Barclays Credit Corporation Holdings Pty. Limited ("Barclays"), to secure the payment of principal and interest under a loan amounting to approximately $1,400,000 made by Barclays to one or more companies owned and controlled by Robert Sturgess, a director of the appellant. The appellant had no interest of any kind in those companies. The mortgage was registered on 20 May 1980. Following default, Barclays sold the land by auction under the power of sale conferred by the instrument to a third party who became the registered proprietor of the land. The appellant sued the Registrar-General for damages under s.127 of the Act by way of compensation for the loss of its estate or interest in the land on the ground that it did not execute the mortgage instrument. Section 127 permits a person who has sustained loss or damages by the registration of any other person as the proprietor of land, and who is prevented by the Act from bringing proceedings for possession or recovery of the land, to bring an action against the Registrar-General as nominal defendant for recovery of damages.
3. At all material times, the directors of the appellant were Robert Sturgess, John Lees and Robert Ellis. The shareholders were John Lees, Robert Ellis and Rogard Pty. Limited which was controlled by Robert Sturgess. None of the money lent by Barclays in consideration of the execution of the mortgage was received by the appellant. The instrument of mortgage was executed under the common seal of the appellant by Mr Sturgess, who also attested the affixing of the seal. The document also bore the signature of his son, Gerard Sturgess, who purported to sign as "company secretary".
4. Article 56 of the articles of association of the appellant provided:
"Subject to the power to delegate conferred by…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Northside Developments Pty Ltd v Registrar-General [1990] HCA 32
Case
[1990] HCA 32
Decision Date
CaseChat Overview and Summary
Northside Developments Pty Ltd (the appellant) appealed to the High Court of Australia against a decision of the New South Wales Court of Appeal concerning the validity of a mortgage over company property. The dispute arose from a mortgage executed by Northside Developments in favour of the first respondent, a director of the company. The core of the controversy lay in whether the company's common seal had been affixed to the mortgage document in accordance with its articles of association and whether the mortgagee was put on inquiry regarding the regularity of its execution.
The High Court was required to determine two primary legal issues. Firstly, whether the mortgage was validly executed by Northside Developments, particularly in light of allegations that the company's seal was not affixed in the manner prescribed by its articles and that the attestation was irregular. Secondly, the Court had to consider whether the Registrar-General was liable to compensate Northside Developments for any loss sustained by the registration of the mortgage, and if so, whether the Registrar-General had a defence to such a claim under the *Real Property Act 1900* (N.S.W.), specifically concerning the assumption of due authority for the affixing of the common seal.
The High Court, in allowing the appeal, held that the indoor management rule, which protects third parties dealing in good faith with a company, did not extend to validating a forged instrument or an instrument where the company's seal was not affixed in accordance with its articles. However, the Court found that the Registrar-General was entitled to rely on the presumption that the common seal was affixed with the company's authority and that the attestation was regular, as provided by s 127 of the *Real Property Act 1900*. Consequently, the Registrar-General was not liable to compensate Northside Developments for any loss. The Court set aside the orders of the Court of Appeal in so far as they applied to the appellant and ordered that the appeal to that Court against the orders of Young J. in favour of the appellant be dismissed with costs. The first respondent was ordered to pay the appellant's costs of the High Court appeal.
Orders
Orders of the court
Appeal allowed.
Set aside the orders of the Court of Appeal in so far as they apply to the appellant and in lieu thereof order that the appeal to that Court against the orders of Young J. in favour of the appellant be dismissed with costs.
The first respondent to pay the appellant's costs of the appeal.