Oswald and Connor
[2011] FamCA 498
•28 June 2011
FAMILY COURT OF AUSTRALIA
| OSWALD & CONNOR | [2011] FamCA 498 |
| FAMILY LAW – ENFORCEMENT OF ORDERS – Where the applicant sought to enforce consent orders against the respondent and second respondent FAMILY LAW – PRACTICE AND PROCEDURE – Joinder – Where the second respondent was joined to the proceedings the day the consent orders were signed to effect the transfer of the proceeds of sale of a property pursuant to the orders FAMILY LAW – ORDERS – Stay – Where the second respondent contended that the Director that signed the consent orders did not have authority to do so on behalf of the second respondent company – Where the second respondent sought a stay of the orders pending the determination of the substantive proceedings to set aside the orders FAMILY LAW – COMPANIES – Whether the Director that appeared for the second respondent and signed the consent orders had actual or ostensible authority to do so – Whether in view of r 8.01, the provisions of the Corporations Act 2001(Cth), and the limited evidence before the Court, the presumption of regularity applied to the signing of the consent orders by the Director of the second respondent FAMILY LAW – PRACTICE AND PROCEDURE – Registrar – Review of decision – Where in the alternative the second respondent sought a review of the decision of the Registrar |
| Corporations Act 2001 (Cth), ss 124, 125, 126, 127, 128, 129, 134, 180, 198A, 198D Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth), rr 6.05, 8.01 High Court of Australia Rules 2004 (Cth), r 23.01.2 Federal Court Rules2011 (Cth), O 4, r 14 and O 9, r 3 Supreme Court (Victoria) (General Civil Procedure) Rules 2005 (Vic), rr 1.17(1), 8.03(2) |
| Bank of New Zealand v Fiberi Pty Ltd (1993) 14 ACSR 736, applied Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178, cited Elliot and Willcox (1996) FLC 92-687, applied Hubbard Association of Scientologists International v Anderson and Just [1972] VR 340, cited Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, applied |
| APPLICANT: | Ms Oswald |
| RESPONDENT: | Mr Connor |
| INTERVENOR: | D Pty Ltd |
| FILE NUMBER: | MLC | 5758 | Of | 2009 |
| DATE DELIVERED: | 28 June 2011 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 2 June 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Sweeney |
| SOLICITOR FOR THE APPLICANT: | Taussig Cherrie Fildes |
| COUNSEL FOR THE RESPONDENT: | Mr Dickson |
| SOLICITOR FOR THE RESPONDENT: | Harwood Andrews Lawyers |
| COUNSEL FOR THE INTERVENOR: | Mr Spicer |
| SOLICITOR FOR THE INTERVENOR: | Berry Family Law |
ORDERS
That D Pty Ltd do all acts and things to authorise and direct Berry Family Law to release to Mr Connor all funds currently held in term deposit arising from the sale of the real property at E Street, Suburb F.
That upon the receipt of the funds referred to in order (1) by Mr Connor, he apply those proceeds in part satisfaction of his obligations under the orders made on 2 December 2010 in and towards the obligations to the National Australia Bank otherwise encumbering the properties at M Street, N Town, and T Street, O Town.
That save as to costs, all interim applications be otherwise dismissed and all substantive proceedings await a final hearing before a judge on a date to be fixed.
That should any party desire to make any application for costs arising out of these orders, they do so in writing by way of written submission to be filed and served appropriately and endorsed as having been served on all other parties by 4.00pm on 8 July 2011 and any response be filed and served (and appropriately endorsed with service details) by 4.00pm on 15 July 2011.
That the parties otherwise have general liberty to apply in respect of further interim orders.
IT IS CERTIFIED:
That pursuant to Rule 19.50 of the Family Law Rules 2004 (Cth) it was reasonable to engage counsel to attend.
IT IS NOTED that publication of this judgment under the pseudonym Oswald & Connor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 5758 of 2009
| Ms Oswald |
Applicant
And
| Mr Connor |
Respondent
REASONS FOR JUDGMENT
This is an interim dispute about what is to happen with $236,854 currently sitting in a bank account of a company. It is said that the money arose out of the sale of a property at E Street, Suburb F.
Behind this simple dispute lies a complicated argument. Put simply, the conflict is about whether the Court properly made an order binding a corporation (and if not, the consequence is that the order most likely must be set aside) and the right of the applicant to enforce the order in her favour based on the presumption of regularity. That is unless and until the order is set aside, it stands as an order of the court.
To understand the question before the Court in these proceedings, the background needs to be set out.
There are three parties in the dispute. Ms Oswald was the applicant for financial orders culminating in final orders being made on 2 December 2010. In the interlocutory proceedings before me, she was an applicant. She filed an application in a case on 29 March 2011. That was the first proceedings after the orders were made by consent in December 2010. She was represented by Mr Sweeney of counsel.
Mr Connor was initially the respondent to the financial orders made on 2 December 2010. On 20 April 2011, he filed an initiating application in which he also sought interim orders that included a response to the application in a case of Ms Oswald. He was represented by Mr Dickson of counsel.
D Pty Ltd (“D”) is a company incorporated in Victoria. It became a respondent to the orders on and from 2 December 2010 by virtue of minutes of consent orders signed that day by Ms Oswald, Mr Connor and a director of D Pty Ltd, Mr C Connor.
On 21 April 2011, D filed a response to the initiating application of Mr Connor. On 31 May 2011 D filed an amended response to the initiating application. The amended response which also sought interim orders, referred to the parties as those above but it went further and sought orders by D Pty Ltd and Mr M Connor referring to this brother as “a person purportedly bound by Orders made…on 2 December 2010”.
Although the response just mentioned was perhaps an unorthodox approach, for the purposes only of the interlocutory proceeding, I propose to treat Mr M Connor as a person who has sought to intervene in the case pursuant to r 6.05 of the Family Law Rules 2004 (Cth) (“the Rules”). The formal position needs to be addressed and rectified. Mr Spicer of counsel announced that he appeared for D Pty Ltd and Mr M Connor.
Doing as best I can with the untested and incomplete evidence before the Court, the relevant facts appear to be as follows.
Ms Oswald and Mr G Connor lived together in a de facto relationship between 1991 and June 2009. Having separated after 1 March 2009, the financial jurisdiction of this Court was enlivened when Ms Oswald filed an application on 2 July 2009 seeking orders against Mr G Connor who did not dispute the jurisdiction. He too sought financial orders.
In an affidavit filed 11 March 2010 filed for the purposes of the property proceedings, Mr G Connor said that in about 2001, D purchased the E Street property with the company paying “the deposit” and the balance being funded by way of a loan on which he and Ms Oswald made the monthly payments. However, he then went on to set out the “asset pool” but no reference was made to D or the E Street property.
In October 2010, Ms Oswald and Mr G Connor along with their respective lawyers, held a settlement conference for which the lawyers for Ms Oswald prepared a schedule of assets. That document referred to the E Street property as a “joint asset” to which each of those two parties had ascribed a value. Ironically, if the document was correct, they agreed on its value. Further, each agreed there was a “D loan” over the E Street property but to which Ms Oswald was not a party.
The schedule of assets referred to above is annexed to an affidavit of Ms Oswald filed 29 March 2011 in the proceedings before me. When Mr G Connor filed an affidavit responding to the affidavit of Ms Oswald, he said he recalled that a schedule was prepared but he could not “say” whether the schedule to the affidavit of Ms Oswald was a true copy of the settlement conference document. Importantly, he did not deny that it was so. That is an important fact because he had Ms Oswald’ affidavit for some time. He also did not deny the inference drawn that there was agreement as to the value of the E Street property.
On 2 December 2010 the substantive litigation came before Registrar Sikiotis and both Ms Oswald and Mr G Connor were represented by lawyers. According to Ms Oswald, the case was delayed on that day to “allow time for” Mr C Connor “to attend court and sign the minutes of consent orders”. When Mr G Connor responded to that assertion, he did not deny it. Further, both Ms Oswald and Mr G Connor agreed that Registrar Sikiotis made the orders “after hearing from” the lawyers and Mr C Connor.
The relevant paragraphs of the disputed order made on 2 December 2010 read as follows:
13.The Second Respondent (and each of the Directors of the Second Respondent) do all acts and things necessary and sign all documents necessary forthwith upon settlement of the sale of [E Street] to provide to the Respondent the entire sale proceeds of [E Street] including the deposit moneys after deducting the selling agents (sic) sale costs and after repayment of mortgage number X … with the National Australia Bank.
14.That pending the settlement of the sale or transfer of [E Street] the Second Respondent (and each of the Directors of the Second Respondent) be restrained from increasing the borrowings secured against [E Street].
15.That in the event the settlement of the sale of [E Street] does not take place then the Second Respondent (and each of the Directors of the Second Respondent) forthwith upon the settlement not proceeding do all acts and things necessary and sign all documents necessary to transfer to the Respondent at the expense of the Respondent all their right title and interest in [E Street].
16.That if the Second Respondent (and each of the Directors for the Second Respondent) fail to comply with the provisions of order 15 hereof then pursuant to section 106A of the Family Law Act 1975 (sic) a Registrar of this court in Melbourne is hereby appointed to execute the transfer of land and all other documents necessary to give validity and operation to these orders in the name of the Second Respondent.
In those orders, Mr G Connor is referred to as “the Respondent” and “the Second Respondent” is D Pty Ltd.
The application as it was argued before me related only to the question of the injunction; that is, what is to happen to the money pending the ultimate determination of the substantive issue.
The substantive application is to set aside the order and/or to review the decision of the Registrar to make the order notwithstanding that leave out of time needs to be obtained before proceeding with the review of the decision, subject to what the Full Court said in Elliot and Willcox (1996) FLC 92-687:
We would also point out that the Court also has the power to review a decision of a Registrar of its own motion, regardless of the time that has elapsed from the making of the decision…see Murray v Director, Family Services (1993) FLC 92-416 at 80,250.
In the peculiar circumstances of this interlocutory hearing, I propose to grant the wife’s application and refuse to make the injunctions sought by the respondents on the basis that there is no evidence that the order was not properly made in accordance with the presumption of regularity.
The onus of proving otherwise lies with the person seeking the order. The respondents or at least one of them maintains that the person who consented to the order on behalf of the company did not have the authority to do so. I should not to be taken to say that if proper evidence was put before the Court to establish that contention that such an application might not succeed.
Although the case was argued as I shall set out below, the relevant justification for refusing to grant the injunction is apparent in the wording of r 8.01(2) of the Rules. Rule 8.01(2) states that:
(2)A corporation or authority that is entitled to be heard in a case may be represented by a lawyer, or an officer of the corporation or authority.
It is still a matter for consideration whether the reference to a officer in r 8.01(2) means an officer with authority in accordance with the requirements of the Corporations Act 2001 (Cth) and in the current proceedings a Director of the company.
In the proceedings before me, it seemed common ground that:
· When the orders were made, the E Street property was in the process of being sold although settlement had not taken place (hence the reference in paragraph 13 of the orders to the proceeds). The proceeds are currently $236,854 which are sitting in the company’s bank account;
· There are two directors of D, Mr M Connor and Mr C Connor;
· Mr G Connor did not comply with his obligations under the orders of 2 December 2010 to transfer two real properties to Ms Oswald;
· The two properties that Mr G Connor was to receive under the said orders have now been placed on the market for sale;
· The mortgagee holding security over the two properties of Ms Oswald was also the mortgagee over the two properties that Mr G Connor was to receive;
· The sale of the properties of Mr G Connor will not likely satisfy the mortgagee and that any shortfall will be pursued through a sale of one or both of the properties of Ms Oswald.
It was asserted by the Connor brothers, but not accepted by Ms Oswald on the basis of a lack of evidence to support the assertion, that the sale of E Street has given rise to a capital gains tax liability of $98,000. No documentation to that effect was produced by the respondents.
In respect of the proceedings before me, it is relevant and important to look at exactly what each party sought.
Ms Oswald sought orders that Mr G Connor forthwith comply with his obligations and failing that, that the two properties to which Mr G Connor was entitled under the orders be sold. She also sought orders that the proceeds of the sale of the E Street property be transferred to her to reduce the National Australia Bank liabilities.
Mr G Connor sought final orders that the consent orders made on 2 December 2010 be set aside. By reference to the relevant legislative section, he made it clear that he desired the orders to be set aside on the grounds that they were impracticable to be carried out. In addition, he sought interim orders that there be a “stay” of the operation of the relevant parts of the December orders and that any enforcement proceedings be delayed.
D (and to the extent relevant, Mr M Connor) sought orders that the December 2010 orders be set aside having regard to the circumstances that have arisen since they were made on the ground that it was impracticable for the orders to be carried out. Alternatively, (and this was not a matter that was argued in the interim proceedings) there should be review out of time of the orders of the Registrar. Interim orders were sought simply to stay the operation of paragraphs 13 to 16 of the orders. In addition, the company and Mr M Connor sought that the net proceeds of sale of the E Street property be used to pay the capital gains tax liability of D with the balance to remain in the solicitor’s trust account.
It was not suggested, nor is it practicable, that I should determine the substantive proceedings. The issue before the Court concerned what should happen immediately.
The parties respectively submitted that what should happen to the $236,854 requires consideration.
Mr G Connor said that $98,000 should be held in trust pending the payment of the capital gains tax liability of D and the balance should be used as a reduction of the encumbrance affecting the two properties that Ms Oswald was to receive under the orders. As Mr Dickson on his behalf put it, that would preserve all positions. He relied upon the injunctive power of the Court to hold the position pending the ultimate determination.
For Ms Oswald, Mr Sweeney of counsel said that what Mr G Connor was endeavouring to do was to alter the substantive right of Mr Oswald because he was not seeking machinery orders. He therefore sought all of the money be paid forthwith to Ms Oswald.
The next argument however showed the crux of the dispute. Mr Spicer for D and Mr M Connor submitted that the money should be retained completely in trust pending the determination of the substantive proceedings. His submission was that there was an extant application to set aside the orders of 2 December 2010 on the basis that Mr M Connor had no knowledge of the proposed making of the orders and that importantly, by use of the words in parenthesis “and each of the Directors”, in the order, Mr M Connor was bound to do something without having been accorded procedural fairness.
Mr Spicer submitted that the directors could not give away all of the assets of a company. He said that there was no opportunity for the company to get independent legal advice before the orders were executed. He submitted that it was beyond the power of the directors to give away all of the assets if it just left liabilities. He said it was clear as a matter of law that the company had a positive obligation to pay its tax otherwise the directors would be held personally liable. It was asserted that there was no other asset than the E Street property and therefore the company could not meet its obligations to the Australian Tax Office which meant that the directors became liable.
Mr M Connor filed two affidavits. In the first, he said he was authorised by the company to make the affidavit on its behalf. Presumably, that meant that Mr C Connor agreed with what he had said in the affidavit. Mr M Connor said he was not consulted about the making of the orders. He referred to the fact that the order bound the directors.
In respect of that submission I am not sure what the additional words in the orders “and each of the Directors of the Second Respondent” could be said to add to them because the order was directed to the company. Clearly, a company operates by its officers but it is the company in its legal personal capacity that must comply with the order rather than the directors. The company had such an obligation and as such, its method of devolving property must be governed by its constitution.
It is useful to note the reasoning of Mason CJ, Toohey and Wilson JJ in Hamilton v Whitehead (1988) 166 CLR 121 at 127, where their Honours cited Lord Reid in Tesco SuperMr Mets Ltd v Nattrass [1972] AC 153 at 170 on the nature of corporations:
I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company’s servant or agent. In that case any liability of the company can only be a statutory or vicarious liability.
Mr M Connor went on to say that Mr C Connor was requested to attend the Court by Mr G Connor on 2 December 2010 but that in turn, Mr G Connor was pressured by Ms Oswald and her lawyers. I give that statement little weight because there is no evidence from Mr C Connor or from Mr G Connor and as such, it can be nothing more than an assumption, and one that involves serious imputations.
Significantly, no reference was made by Mr M Connor in either of his affidavits to the company’s constitution. In the very last paragraph of the affidavit filed on 31 May 2011, Mr M Connor said that Ms Oswald and Mr G Connor owed him $305,460.88 being an amount that had not been disclosed to the Court. This must be seen as a different issue to the dispute about D. Without formal pleadings and appropriate discovery I do not propose to take that matter into account. Apart from anything else, it was not a matter argued before me.
It is important also to note, and it affects the findings that I can make, there was no affidavit by Mr C Connor. I am not at all convinced that the affidavit of Mr M Connor indicating he was authorised by the Directors assists having regard to the specific role that Mr C Connor undertook on 2 December 2010. It is to be noted in particular that the constitution of the company was not referred to nor was it produced. Accordingly, I do not know specifically what authority the each of the directors respectively had.
In relation to the orders of 2 December 2010, the question is whether it could have been possible, on the basis of the facts set out above, to bind D. If it could not there is a justification for injunctive orders pending the determination of the dispute. Whilst there are many peripheral issues in this case, the only one with which I have been concerned is the application of the principle of whether the company could be validly bound by the actions of Mr C Connor.
The approach of courts to the involvement of corporations varies. Some courts allow a corporation by its officers to complete various steps in litigation and have the discretion to allow an officer to appear on behalf of a corporation in certain circumstances by a grant of leave. However, the general rule is that corporations must appear by way of a solicitor instructed on its behalf. See the High Court of Australia Rules 2004 (Cth) r 23.01.2; Supreme Court (Victoria) (General Civil Procedure) Rules 2005 (Vic) rr 8.03(2) and 1.17(1); and Federal Court Rules 2011 (Cth) order 9, r 3 and order 4, r 14. See also the decisions in In the matter of Dennis & Gordana Perica; Crolink Pty Ltd (in liq) & Anor v Official Trustee in Bankruptcy as trustee for Dennis & Gordana Perica; In the matter of Crolink Pty Ltd (in liq); Crolink Pty Ltd (in liq) & Anor v Croatia Sydney Soccer Football Club Ltd & Anor [1998] FCA 659; Hubbard Association of Scientologists International v Anderson and Just [1972] VR 340; and Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178.
The decisions of other courts above are of little assistance in this case because of r 8.01. The literal reading of r 8.01 cannot mean that a director as an officer of the corporation without authority (ostensible or otherwise) can bind the company due to the relevant provisions of the Corporations Act.
The relevant sections of the Corporations Act are as follows:
124Legal capacity and powers of a company
(1)A company has the legal capacity and powers of an individual both in and outside this jurisdiction. A company also has all the powers of a body corporate, including the power to:
(a)issue and cancel shares in the company;
(b)issue debentures (despite any rule of law or equity to the contrary, this power includes a power to issue debentures that are irredeemable, redeemable only if a contingency, however remote, occurs, or redeemable only at the end of a period, however long);
(c)grant options over unissued shares in the company;
(d)distribute any of the company’s property among the members, in kind or otherwise;
(e)give security by charging uncalled capital;
(f)grant a floating charge over the company's property;
(g)arrange for the company to be registered or recognised as a body corporate in any place outside this jurisdiction;
(h)do anything that it is authorised to do by any other law (including a law of a foreign country).
A company limited by guarantee does not have the power to issue shares.
(2) A company’s legal capacity to do something is not affected by the fact that the company’s interests are not, or would not be, served by doing it.
…
125Constitution may limit powers and set out objectives
(1)If a company has a constitution it may contain an express restriction on, or a prohibition of, the company’s exercise of any of its powers. The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company’s constitution.
(2)If a company has a constitution, it may set out the company’s objects. An act of the company is not invalid merely because it is contrary to or beyond any objects in the company’s constitution.
126Agent exercising a company’s power to make contracts
(1)A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using a common seal.
(2)This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.
127Execution of documents (including deeds) by the company itself
(1)A company may execute a document without using a common seal if the document is signed by:
(a)2 directors of the company; or
(b)a director and a company secretary of the company; or
(c)for a proprietary company that has a sole director who is also the sole company secretary - that director.
Note:If a company executes a document in this way, people will be able to rely on the assuptions in s 129(5) for dealings in relation to a company.
…
(4) This section does not limit the ways in which a company may execute a document (including a deed).
…
128Entitlement to make assumptions
(1)A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(2)A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(3)The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
(4)A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.
129Assumptions that can be made under section 128
Constitution and replaceable rules complied with
(1)A person may assume that the company’s constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.
Director or company secretary
(2)A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:
(a)has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.
Officer or agent
(3)A person may assume that anyone who is held out by the company to be an officer or agent of the company:
(a)has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.
Proper performance of duties
(4)A person may assume that the officers and agents of the company properly perform their duties to the company.
Document duly executed without seal
(5)A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Document duly executed with seal
(6)A person may assume that a document has been duly executed by the company if:
(a)the company’s common seal appears to have been fixed to the document in accordance with subsection 127(2); and
(b)the fixing of the common seal appears to have been witnessed in accordance with that subsection.
For the purposes of making the assumption, a person may also assume that anyone who witnesses the fixing of the common seal and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Officer or agent with authority to warrant that document is genuine or true copy
(7)A person may assume that an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or is a true copy.
(8)Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section.
(my emphasis)
Part 2B.4 of Chapter 2B makes reference to replaceable rules and the constitution of a company. Section 134 states that:
A company’s internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution or by a combination of both.
I point out again that I do not have the benefit of the constitution of the company in evidence before the Court.
Section 180 of the Corporations Act requires a director to exercise powers and discharge duties with a degree of care and diligence that a reasonable person would exercise if they were in the corporation’s circumstances holding the relevant office. Importantly, section 180(2) states that in making a business judgment a director is taken to meet the requirements of s 180(1) in the discharge of their duties.
Section 198A provides that the business of a company is to be managed by or under the direction of the directors and that the directors may exercise all of the powers of the company except any powers that the Corporations Act or the constitution of the company requires to be exercised at a general meeting.
No evidence was led about the constitution or the restrictions on the directors of D.
Section 198D provides that unless the company’s constitution provides otherwise, the directors of a company may delegate any of their powers to a particular director.
That gives rise to the question of ostensible authority.
Section 198D(3) provides that the exercise of the power by the delegate is as effective as if the directors had exercised it. Obviously the delegate can only exercise powers that are so delegated.
Again, the parties are silent on that issue. It is important to focus on the events of 2 December 2010 in this regard.
It was obvious and the only inference open to the Court that the E Street property was being included in the settlement but that the legal title to it (or the proceeds from its sale) was in a name other than the applicant and the respondent which therefore required the joinder of the legal title holder.
A director of the company Mr C Connor not only came to the Court as required (whether under pressure or otherwise) and signed minutes which are shown on the court file as being on behalf of the company. Further, Mr C Connor appeared before the Registrar and the only inference open to me is that he consented to the orders being made. The presumption of regularity and logic dictates that the orders would not otherwise have been made.
Despite what r 8.01 states, it must be read to refer to a duly authorised director pursuant to the relevant provisions of the Corporations Act. In this case, the evidence does not assist me when D’s constitution was not provided nor an authority, if any, was pointed to indicating that Mr C Connor had or did not have the requisite authority under the constitution of the company or pursuant to the Corporations Act.
The only evidence I have from Mr M Connor is that he would not have entered into the orders had he been made aware of them and that Mr C Connor did not consult him. There is no evidence indicating that Mr C Connor did not have the power to do what he did even if it was to give away the assets of the company as was submitted by Mr Spicer.
All of those matters are matters internal to the company involving the obligations and duties of the respective directors, but I see no reason why the Court should not have been entitled to operate on the apparent authority portrayed by Mr C Connor. This is particularly so in view of the above provisions of the Corporations Act that give rise to the assumption that Mr C Connor was an officer of the company able to properly appear on behalf of the company and execute documents on its behalf in compliance with his duties as a director of the company and in compliance with the company constitution and the Corporations Act: see s 127(1) and (4), s 128 (1) and (2), s 129(1),(4) and (5).
On the evidence before me, there is nothing to suggest that the order was irregular. That is not to say that it ought not be set aside in the future on the basis of the substantive grounds pleaded by the parties, however, as I am only dealing with this discrete issue, the application of the company and Mr M Connor must fail.
Kirby P (as his Honour then was) in Bank of New Zealand v Fiberi Pty Ltd (1993) 14 ACSR 736 at 741 to 742 stated that generally
…if one or more officers of a company purport to bind that company, but do so without authority or fraudulently, it is that company which should ordinarily bear the loss, and not the party innocently dealing with the company.
Actual authority can be implied from acquiescence, but the acquiescence and evidence of the communication by words or conduct by the directors to the agent must be established: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 1 all ER 630 at 643 per Lord Diplock.
In Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 Mason CJ observed at 159 that:
This Court has accepted that the judgments in Freeman & Lockyer correctly state the relevant principles of law: Crabtree Vickers Pty. Ltd. v. Australian - Direct Mail Advertising & Addressing Co. Pty. Ltd.. The judgments in Freeman & Lockyer, especially that of Diplock L.J., indicate that the rule in Turquand’s Case in its application to the acts of a company undertaken through its agents is an exemplification of the law of principal and agent and that the ambit of the operation of the rule is to be ascertained by reference to the actual or ostensible authority of the agent who purports to act on behalf of the company.
Brennan J stated at 177 in reference to the rule in Turquand’s Case that:
The indoor management rule is really a presumption of regularity. To use the Latin maxim, omnia praesumuntur rite esse acta: Morris v. Kanssen. The presumption is no more than a presumption of fact. Whence does it arise? It arises from the likelihood that a company has given to its officers and agents the authority needed to carry on its business and to act for its benefit within the limits of the authority which officers and agents in their respective positions would ordinarily possess.
In the absence of evidence to the contrary the presumption of regularity applies to establish that Mr C Connor had the authority to appear for the second respondent in the proceedings and sign the consent orders of 2 December 2010 by virtue of his position as a director of the second respondent.
The application of Mr G Connor in relation to the holding back of the money for the capital gains tax liability must also fail. There is no evidence of that liability and even if I could draw some inference that there was such a liability, as Mr Sweeney put it, it may very well have been taken into account in respect of the payment that had been made. Mr Spicer on behalf of the company submitted that all of the assets of the company had been given away but apart from the statement of Mr M Connor, I have no evidence of what the balance sheet of the company was or currently is, or how it may or may not be affected by the enforcement of the 2 December 2010 orders. Even in view of this submission, s 124(2) of the Corporations Act provides that a company’s legal capacity to do something is not affected by the fact that the company’s interested are not served by doing it, and s 125 provides that such an act is not invalid merely because it is contrary to a prohibition or express restriction, or inconsistent with a object set out in the company’s constitution.
It was further put by Mr Dickson on behalf of Mr G Connor that I should withhold the funds pursuant to some injunctive power but on the basis that the facts which supported the injunction arose out of the question of the lack of communication by Mr C Connor with Mr M Connor as distinct from some claim by Mr M Connor of money owing to him personally, but there is no foundation in the evidence to justify that submission.
That then leaves the extant application of Ms Oswald to enforce her orders. Her entitlement under the orders of 2 December 2010 was to receive the two properties unencumbered. That has not occurred and it is clear that under paragraph 13 of the orders Mr G Connor was entitled to the net proceeds of the sale of the E Street property. The application of Ms Oswald is to effectively garnishee those funds as a way of partly satisfying her entitlements under the order to obtain the unencumbered property. On the basis of all of the evidence, that seems to me to be the only conclusion open at this stage. As I indicated in discussions with counsel, that is not to say that all of these matters cannot be readdressed when the substantive issues are argued but on the evidence before me, the application of Ms Oswald must succeed.
Accordingly, I direct that D Pty Ltd do all acts and things necessary to release the said sum to the applicant Ms Oswald direct by way of a garnishment order and for her to accordingly pay such funds to the mortgagee over the two properties to which she was entitled under the orders as a part satisfaction of the obligations of Mr G Connor to the mortgagee.
In due course, if the parties desire to make submissions as to costs, they can do so in writing and I shall determine the matter in chambers.
I certify that the preceding sixty-eight (68) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 28 June 2011.
Associate:
Date: 28 June 2011
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