Poignand v NZI Securities Australia Ltd
[1994] FCA 1106
•7 Jan 1994
1/06, 74-
JUDGMENT No. ....... ,, ..,...... ......,.., C A T C H W O R D S
TRADE PRACTICES - Alleged misleading conduct - Finance facility for development of retirement village - Whether the
financier's representative misrepresented the terms of the
formal agreement concerning the duration of the loan -
Entitlement of financier to appoint a receiver and manager of
the secured assets - Validity of appointment.
CORPORATIONS - Appointment of receiver and manager under corporation common seal - No antecedent resolution of directors authorising the affixation of the common law - No evidence that all directors assented to use of seal - Whether the fact of affixation creates a presumption of assent -
Effect of subsequent resolution ratifying the use of the seal.
Trade Practices Act 1974, s.52
DATE : 7 JANUARY 1994
ROGER JAMES POIGNAND V. NZ1 SECURITIES AUSTRALIA LIMITED, NZ1
CAPITAL CORPORATION LIMITED and MICHAEL EDWARD WAYLAND
No. NG 397 of 1992
I
CO-: WILCOX J 2 PLACE : SYDNEY i
IN THE FEDERAL COURT OF AUSTRALIA )
1 No. NG 397 of 1992
GENERAL DIVISION
BETWEEN: ROGER JAMES POIGNAND
ApplicantAND :
N Z 1 S E C U R I T I E S AUSTRALIA LIMITED, NZ1 CAPITAL CORPORATION LIMITED and MICHAEL EDWARD WAYLAND
Respondents
CO-: WILCOX J PLACE : SYDNEY DATE : 7 JANUARY 1994
MINUTES OF ORDER
THE COURT DECLARES THAT:
(a) Neither NZ1 Securities Australia Limited nor NZ1 Capital Corporation Limited contravened s.52 of the Trade Practices Act 1974 in connection with the entry, or proposed entry, by Ripoll Holdings Pty Limited into an arrangement for a finance facility on behalf of the D W Unit Trust;
After 3 April 1991 NZ1 Capital Corporation Limited was entitled to appoint a receiver and manager of the undertaking and assets secured by the Deed of Charge made between Ripoll Holdings Pty Limited and NZ1 Capital Corporation Limited;
The appointment of Michael Edward Wayland as receiver and manager of the said undertaking and assets that was purportedly made by NZ1 Capital Corporation Limited on 16 March 1992 was initially invalid; but
The said appointment became valid and operative as from 10 April 1992.
AND THE COURT ORDERS THAT:
The applicant have liberty to apply for a determination of the amount of any loss or damage sustained by himself or any group member by virtue of any action taken by any of the respondents between 16 March 1992 and 10 April 1992 in reliance upon the purported appointment of 16 March 1992;
Otherwise the Application be dismissed; and
The applicant pay to the respondents 80% of their costs of the proceeding.
Note: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
1 No. NG 397 of 1992
NEW SOUTH WALES DISTRICT REGISTRY j
1
GENE- DIVISION 1
BETWEEN: ROGER JAMES POIGNAND
ApplicantAND :
N Z 1 S E C U R I T I E S AUSTRALIA LIMITED, NZ1 CAPITAL CORPORATION LIMITED and MICHAEL EDWARD WAYLAND
Respondents
C O W : WILCOX J PLACE : SYDNEY DATE : 7 JANUARY 1994
REASONS FOR JUDGMENT
WILCOX J: This is a representative action brought under Part IVA of the Federal Court of Australia Act 1976 raising two main issues. First, the applicant alleges that the respondents, NZ1 Securities Australia Limited ("NZ1
Corp"), contravened s.52 of the Trade Practices Act 1974 in Securities") and NZ1 Capital Corporation Limited ("NZ1 Cap connection with the granting of a finance facility to a company known as Ripoll Holdings Pty Limited ("Ripoll"). He says that NZ1 Securities and NZ1 Cap Corp misled Ripoll as to the term of the facility. Secondly, the applicant says that the third respondent, Michael Edward Wayland, who has purported to act as receiver and manager of Ripoll was never validly appointed to that office, and is therefore guilty of trespass. Two grounds are advanced for this latter contention: there was no appointment in fact; alternatively, no event occurred entitling NZ1 Cap Corp to appoint a receiver and manager.
The backaround facts The applicant is Roger James Poignand, a qualified chartered accountant and former merchant banker. At all material times, Mr Poignand was a director of Ripoll along with another qualified accountant, John Dalton Courtney, now deceased. It seems that, from time to time and for relatively short periods, other persons also were directors. But the company was controlled by Mr Poignand and Mr Courtney. I will use the term "the Ripoll directors" to refer to them.
Ripoll was incorporated on 9 August 1985. On 29
August 1985 it was appointed trustee of a unit trust known as
"the D W Unit Trust". There were two unit holders at thattime. The directors' intention was that, in its capacity as trustee of the D W Unit Trust, Ripoll would acquire land known as 155 Fisher Road North, Dee Why and construct thereon a retirement village to be known as "Dee Why Gardens". The village was planned as a seven-stage development consisting of
201 self-contained apartment units and 38 hostel units together with recreational and administrative facilities. At the end of August 1985, Ripoll obtained a finance
facility for $7 million from Australian Guarantee Corporation
( "AGCw) and proceeded to acquire the land. Constructioncommenced in about March 1986, Ripoll using a builder recommended by AGC. But the directors were dissatisfied with the performance of this builder. In September 1986, Ripoll engaged a new builder, Balino Holdings Pty Limited ( "Balino") . Balino was controlled by Mr Poignand and Mr Courtney.
Construction proceeded but there was friction with AGC and the Ripoll directors decided to explore the possibility of alternative finance. During December 1986 and January 1987 they had discussions with Janine Middleton, an account manager for NZ1 Securities and NZ1 Cap Corp, and her supervisor, Gary Parker. NZ1 Securities and NZ1 Cap Corp are Australian companies owned by NZ1 Corporation of New Zealand. Where it is sufficient to refer to the group, as distinct from a particular company, I will use the abbreviation "NZIH.
As a result of the discussions, on 20 January MS Middleton sent Ripoll a letter, on behalf of NZ1 Securities,
offering a finance facility of up to $15 million, including
capitalised interest, for a term of "Four years from the original drawdown". Conditions were stated, including interest calculated by allowing a margin of 2.25% above the bill rate. The offer required a registered first mortgage over Ripoll's land at Dee Why, a fixed and floating charge over its assets, guarantees from nine named individuals (including Mr Poignand and Mr Courtney) and one company, and mortgages over two other properties, being properties owned by two of the guarantors.
This offer was not accepted. Discussions continued, mainly between Mr Poignand and MS Middleton. There may have been other matters discussed, but it is clear that a major topic was Mr Poignand's desire to obtain a term longer than four years. According to him, on 27 January he told MS Middleton that four years was not long enough, that "this type of project takes six or seven years". He says that she promised to discuss the matter with Mr Parker and that she subsequently suggested -
"four years with an option to extend for a further term of two years provided you meet the criteria of annual review after the third year".
Mr Poignand says he asked: "Does that mean provided we perform then we have got an extra two years?", and MS
Middleton replied: "Yes. If everything goes according to plan there should be no problem with renewal. ~t is understood this is a long term project".
MS Middleton agrees that Mr Poignand pressed her on the length of the term. She says that she told him that N Z 1 did not provide loans, except for lease finance, for longer than three or four years. Mr Poignand responded by referring to his experience with AGC and expressing concern that NZ1 might require repayment of the facility before it was able to be repaid. She says she replied:
"Prior to the maturity of the loan, NZ1 would review the facility and, if all was going well, NZ1 would consider extending the loan at that time".
She says that Mr Poignand replied that was not enough, he needed "a long-term commitment now". MS Middleton agrees that she discussed the question with Mr Parker and had a subsequent conversation with Mr Poignand. She says that she told Mr Poignand that NZ1 would not grant a facility for a term longer than four years, but added:
"However, NZ1 would be prepared to approve a facility for a term of four years with an option to extend for two years by two twelve- month tranches at NZI's sole discretion".
She says Mr Poignand asked whether the discretion to extend the term could be held by Ripoll but she said it could not.
pointed out that he might not be dealing with her in four She says there was further discussion during which Mr Poignand yearsr time and she observed that, whatever bank he dealt with, there would be no guarantee of having the same account officer all the time. She says that the conversation ended with Mr Poignand saying that he was not happy "but if that is the best that's on offer, then I guess I have no choice other than to accept itw.
On 17 February 1987, MS Middleton sent Ripoll a further letter of offer. This letter was also written on behalf of NZ1 Securities. It was similar to the earlier offer except in two respects. The interest margin was reduced to 2.15% and the proposed term was described in this way:
"Four years from the original drawdown. A review will be conducted at the end of year three with an option to extend for two years."
Ripoll did not accept this offer either. The directors were anxious to improve the financial terms. They undertook negotiations about those matters. Agreement was eventually reached. MS Middleton thereupon instructed Peter Doyle, a partner in Mallesons Stephen Jaques, solicitors, to prepare the necessary documentation: a Facility Agreement, a Deed of Charge, a Memorandum of Mortgage and guarantees. Mr Doyle deputed Adrian Culey, a solicitor employed by his firm, to prepare the first draft of these documents.
When she gave instructions to Mr Doyle, MS Middleton supplied him with a copy of the letter of offer of 17
February. Mr Culey noted the description of the proposed term. He did not think it was intended to confer on Ripoll an option of extension. He thought it referred to NZI's position and was unnecessary. Apparently, his first draft of the facility agreement did not contain any reference to an extension of the term.
when Mr Doyle came to consider Mr Culey's draft documents, he was uncertain as to what was intended in relation to the term. He telephoned MS Middleton. She gave him instructions and he amended the draft Facility Agreement to accord with them. This document went through several drafts before it reached its final form, but these did not affect the clause dealing with extension of the term, except
as to its number. In its final form that clause read:
"5.08 On the third anniversary of the first Drawdown Date, the Financier will review the Facility with a view to extending the Repayment Date by a further period of 12 months. If the Financier is prepared to so extend the Repayment Date, it will notify the Company accordingly and request the Company to advise whether it so wishes the Repayment Date to be so extended. Upon receipt of such notice from the Financier, the Company shall advise the Company within seven (7) days as to whether it wishes the Repayment Date to be extended. If the Company so advises the Financier, the Repayment Date will be extended for a further period of 12 months and otherwise the Repayment Date will remain unaltered." + . $ l
Several of the terms used in this clause are defined by cl. 1.02. "Drawdown Date" means a date on which a Drawing is made available. In the events that happened, the first Drawdown Date was the date of settlement, 3 April 1987. So cl. 5.08 required a review on 3 April 1990. "Repayment Date" was defined to mean the date four years after the first Drawdown Date; that is, in the events that happened, 3 April 1991. The "Company" was Ripoll and the "Financier" NZ1 Cap Corp, which was substituted for I Securities at the last moment, apparently because the latter company did not hold an Australian banking licence.
The evidence does not disclose when a copy of the Facility Agreement was first made available to Ripoll. But it is common ground that a meeting was held at the offices of Mallesons Stephen Jaques on 2 April 1987, the day before settlement. It was attended by Mr Poignand, Mr Courtney, Ripollrs solicitor, Anthony Hawkins, MS Middleton, Mr Doyle and Mr Culey. Aspects of the Facility Agreement, not including cl. 5.08, were discussed.
On the following day, there was a further meeting at the office of Mallesons Stephen Jaques. Several documents were executed at this meeting. They comprised the Facility Agreement, which was signed by Mr Poignand on behalf of Ripoll, a Deed of Charge (which made no reference to the term of the loan) and a Memorandum of Mortgage of Real Pro~ertv Act land (which also made no reference to the term of the loan and which incorporated by reference the standard terms contained
in registered instrument V47365). During the course of this
meeting, MS Middleton handed to the Ripoll directors a revised letter of offer, this time written by her on behalf of NZ1 Cap Corp. The value of the facility remained unchanged - that is, up to $15 million including capitalised interest - and the terms were much the same as before except that the interest rate was reduced to 2% above bill rate. The stated term of the loan reproduced exactly the language used in the letter of Mr Doyle also said, again without challenge:
"It was also normal procedure and my own usual practice in relation to a transaction of this kind for there to be provided prior to the settlement of the transaction copies of the facility and security documents to the solicitors for the borrower. While I do not have a specific recollection of how this practice was implemented in relation to the transaction involving Ripoll Holdings Pty Limited, I have no reason to think that there was any departure from it."
It seems that AGC was paid out by NZ1 immediately after the meeting of 3 April. Construction continued and NZ1 met the builder's claims and other expenses as they accrued. The first unit was sold on 6 April 1987, and another in May. I was told from the bar table that unit purchasers took a 99 year lease of their unit. The April and May sales realised $264,000. As I understand the position, the net proceeds of sale - that is, after deduction of selling expenses - went to NZ1 in reduction of the balance outstanding on the finance facility.
During the second half of 1987 there were seven sales, realising $952,500. During 1988, 61 sales were made (some hostel units, but mostly apartments). These sales realised a total of $8,045,000.
Sales slowed in 1989. There were 19 sales
($3,085,000) in the first half of the year but only 12
($2,171,000) in the second half. In the first half of 1990
17 February. The requirements for securities, including
guarantees, remained unchanged.
It is not clear to what extent the documents executed on 3 April were read by the persons acting on behalf of Ripoll. Mr Poignand says that he was not provided with a copy of the draft Facility Agreement at the meeting of 2 April or thereafter and that he did not read it before signing it on
3 April. He says he assumed that the term of the facility, as
stated in the Facility Agreement, corresponded with that stated in the letter of offer of 3 April; which, it will be recalled, remained unchanged from the letter of 17 February. M r Courtney is dead. There is no way of ascertaining what he knew about the documents. Mr Hawkins did not give evidence. MS Middleton deposed in her affidavit that she recalled Mr Poignand commenting at the meeting of 3 April: "I have been up half the night reading the Facility Agreement". Counsel did not challenge this evidence in cross-examination, though Mr Poignand subsequently denied making the comment. Mr Doyle, not surprisingly, had no specific recollection of the meetings
were silent about presentation of documents but he deposed, of 2 and 3 April and was dependent on his notes. The notes without challenge, that -
"it was the normal procedure and the usual practice followed by me in relation to a meeting of this kind for there to be provided to all persons present a copy of the facility and security documents (including the Facility Agreement) then under consideration. I have no reason to doubt that this usual practice was followed at the 2nd April 1987 meeting."
the position was much the same (14 sales realising $2,716,000); but, by that time, there was a considerable number of unsold units. Construction of stages 1 to 4 had been completed, and part of stage 5. In about April 1990, Mr Poignand and Mr Courtney decided to suspend construction work until the amount of unsold stock was reduced. Mr Poignand gave evidence that he discussed this decision with MS Middleton and she agreed. MS Middleton did not give evidence on the point but internal NZ1 documents show that she knew of, and approved, the cessation of construction.
It will be recalled that both the letters of offer and the Facility Agreement spoke of a review at the end of the third year. This point was reached in April 1990. Shortly before that date, in December 1989, there was a change in the ultimate ownership of NZI. A company referred to in correspondence as "General Accident", which I gather is a United Kingdom-based insurance company, took over NZ1 Corporation.
It is clear that the 1990 review was carried out, although there is some confusion in the evidence about both its timing and its result. MS Middleton deposed that the review was conducted in September 1990, that in October 1990 a report was sent to NZI's parent company in New Zealand and that, about that time, she had a conversation with Mr Poignand in which she expressed concern about the likely outcome and recommended that he seek to refinance the facility elsewhere. She said that, between that date and late March 1991, she had several conversations with Mr Poignand, and his wife Michelle, concerning refinancing; and that in late March 1991 she was informed that New Zealand would not extend the facility and required repayment on the maturity date.
Mr Poignand's version of events in 1990 and early
1991 is broadly consistent with that of MS Middleton. He says that, in September 1990, Ripoll forwarded to NZ1 information required for the review and, from that time until December, he had frequent contact with NZ1 concerning the outcome. He says that, in December, MS Middleton told him that she had recommended an extension but New Zealand would not extend the facility. He told her it would be impossible to refinance the project at that time and she expressed sympathy.
l
The internal documents of NZ1 suggest a different course of events. On 20 April 1990, MS Middleton completed a 16 page document called a "Credit Memorandum", whose stated purpose was, inter alia, to "complete the annual review of the
the general downturn in the property market in Sydney". She account". The memorandum noted the down-turn in sales "due to expressed concern about the high stock level but noted that Ripoll had taken action to reduce stock by recommencing advertising and ceasing further construction. She commented that there was "sufficient undrawn facility to allow for interest to be accrued for the medium term". MS Middleton expressed the opinion that "NZI's best option may be to extend the facility and support the borrowers until completion". But she apparently did not think there was a need for an immediate decision on that matter. She referred to the expiry date of the facility as April 1991 and said that, in January 1991, "NZ1 will be in a position to ascertain whether it wishes to extend the facility or seek repayment at maturity in April 1991".
In a memorandum dated 24 July 1990 addressed to Gerald Uncle, her then immediate superior, MS Middleton said "Australian Credit Committee has approved the annual review" for Ripoll. On 22 November, MS Middleton prepared a document entitled "Executive Summary to Group Head Office" whose stated purposes included:
" (i) To seek an extension in the term of the facility from April 1991 to 31st October 1991. (ii) To conduct the annual review."
This document was supported by a lengthier document, dated 28
November, which was said to be written for the same purposes.
There is another document dated 28 November 1990 on the file. It describes itself as "Australian Credit Committee Loan Approval Minute No. 151". It refers to the Ripoll loan and indicates approval for an extension of the facility "for an extra six months to allow for refinancing", subject to certain terms and conditions. One of the terms and conditions of the extension was that Ripoll was not to be advised of the extension "until expiry of current facility in April 91 so as to maintain pressure for refinancing. Extension to be confirmed by ACC at that time."
The file contains a memorandum from Gary Ward, Senior Lending Manager at the Head Office of NZ1 Bank Limited in Auckland. This letter states that the New Zealand credit committee "was not prepared to entertain an extension of facility to 31/10/91 on the basis submitted".
The project's sales in the second half of 1990 were very disappointing - only four sales, realising $703,500. That situation continued into 1991. There were four sales in the first half of 1991, realising $658,850, and six in the second, realising $1,047,500. It seems that there was continuing interest in the village, which was well located, attractively designed and, according to MS Middleton, well run. The problem was that the downturn in the Sydney house market made it difficult for would-be purchasers of units to
units. sell their homes and thus obtain the money they needed to buy On 15 March 1991, Mr Poignand wrote to MS Middleton stating that "we are now quite confident of refinancing our facility with NZ1 however not on the due date of 3rd April 1991". He went on to say that he was only informed of NZI's desire not to refinance "just prior to Christmas" and to refer to the difficulty in negotiating at that time of the year.
MS Middleton sent a formal letter to Mr Poignand on
28 March reading:
"Please accept this letter as notification that this facility matures on 3rd April, 1991. On that date, the facility will be payable in full. If payment is not forthcoming the facility will be in default and interest will be at the prescribed rate of 5.0% over the appropriate Bank Bill Rate.
NZ1 Securities Australia Limited require
details of the repayment of this facility or alternately, the current status of your refinancing proposal.
NZ1 Securities Australia Limited reserve all
rights under the existing documentation."
Mr Poignand responded on 2 April. The letter included the following passages:
"I acknowledge receipt of your letter of 28th
March 1991 and advise as follows:1. I recognise the facility matures on 3rd
April 1991. 2. As stated in my letter to you of 15th March I am totally confident of refinancing the facility and to that and [sic] am planning to visit the United States about the 20th April to negotiate the best arrangements for this company. We currently have four separate offers of take out and are expecting two more within the next two weeks. We will be negotiating terms and suitable hedging arrangements so that we may, with proper care and consideration, obtain a facility which will be in the best interests of Ripoll Unit Holders. It naturally follows that this would be in the best interests of NZ1 Securities as well. 4. We note that you have indicated interest will be 5% over the appropriate bank bill rate after 3rd April. Considering our relationship with NZ1 to date which we consider has been agreeable to both parties we would have expected you to have been in a position to rollover our loan for only a very short time. We at Dee Why Gardens hold the view (and a strong one at that) that the village is most viable as is the future of the project as a whole. If it was not for expiry of the facility there would be no other problem particularly as the market appears to have turned and we are now looking towards a reasonable rate of reduction in stock. Normally at this time we would have been considering a continuation of our relationship on a long term basis. It is important whilst the refinancing process takes place not to create problems and the added burden of penalty interest does not assist. We therefore request reconsideration of this move."
MS Middleton replied on 3 April stating that the
Sydney office of NZ1 Securities was unable to approve an
Office in Auckland and this was inappropriate until there was extension, that a recommendation would have to be put to Head a firm refinancing proposal. She said that, in the meantime, the interest rate would be 5% above the bank bill rate and drawdowns would be temporarily suspended.
Notwithstanding this letter, on 5 April MS Middleton wrote a memorandum to Ian JOneS, General Manager of NZ1 Securities, recommending an extension of the facility for 3 months, on the basis of an extension fee of $50,000 (paid in cash in advance), a lending margin of 2.5%, drawdowns to be "restricted to marketing costs and levy contributions as per existing arrangements" and some other conditions. The evidence does not disclose a reply to this memorandum, but I was told that NZ1 in fact never charged the 5% penalty margin.
On 15 April 1991, General Accident announced that it had decided to dispose of, or wind-down, the activities of NZ1 Bank in order to concentrate on insurance activities. As a result, many banking staff lost their jobs. They may have included MS Middleton; whatever the reason, she left NZI1s employment in April 1991. Whether it would have made any difference in the long run is impossible to say, but MS Middleton's departure was a blow to Ripoll. NZIrs internal documents reveal that she was a strong "friend at court". She had consistently argued Ripoll's case within the bank bureaucracy. Mr Uncle took over the file for a time before passing it over to Austin Millott, NZI's legal officer. Mr Millott did not think it necessary to acquaint himself with
that the facility would shortly be refinanced and NZ1 paid the history of the matter by reading the file; he assumed out. Consequently, he was unaware of the discussions between Mr Poignand and MS Middleton concerning the duration of the facility or of Mr Poignand's wish to avoid the necessity to refinance before completion of the project. Mr Poignand kept Mr Millott informed about his efforts to arrange new finance and M r Millott did what he could to assist. At the request of solicitors acting for Ripoll, Mr Millott (and Brian Beer, Operations Manager of NZ1 Securities) wrote a letter dated 9 July 1991 stating the following:
"Ripoll Holdings Limited obtained a loan facility from NZ1 Securities Australia Limited in 1987. All terms and conditions of this loan have been met by your client.
The facility expired in April 1991 and because General Accident (parent company of NZ1 Corporation) has decided to close all Banking Operations in Australia and New Zealand we have requested your client to obtain refinancing of the facility.
Copies of the Press Release issued by NZ1 Bank
Limited is enclosed.We have been in contact with our customers and have requested they seek refinancing. The account of Ripoll Holdings has been conducted in a most satisfactory manner and our request is no reflection on their ability to perform." (Original emphasis)
As was to be expected, the April decision to decline further advances caused a problem for Ripoll. Although construction work had ceased, Ripoll had on-going expenses in connection with the maintenance of the village and marketing. On 10
sought funding to enable operations to continue pending July, Mr and Mrs Poignand and Mr Courtney met Mr Millott and refinancing of the facility. Mr Millott agreed to advance $200,000, noting in a memorandum of that date: "No further advances are to be made". It is agreed between the parties that the promised $200,000 was paid, but thereafter NZ1 made no further advances, apart from the capitalisation of interest as it fell due from time to time.
At about this time, NZ1 engaged Mr Wayland to investigate Ripollrs affairs. Mr Wayland asked Mark Langan, of his office, to assemble the necessary information. Mr Langan had a meeting with Mr Poignand on 16 July. On the following day Mr Wayland wrote to Mr Poignand forwarding a list of documents he wished to see. On 18 July, Mr Poignand sent some documents. On 24 July, Mr Millott wrote to Mr Poignand, on behalf of NZ1 Management Services Limited, stating that "we require Mr M Langan to obtain the following information and documents". Six items were listed. They included "details of the management accounts and access to the books and records of Reliv Pty Limited" (a company controlled by Mrs Poignand that provided catering, cleaning and other services to the village) and details of all monies paid by Ripoll to Balmino "and other associated parties" during the 1990-1991 financial year. The letter said that audited accounts of Ripoll, Reliv and Dee Why Gardens Management were required by 31 October 1991.
Mr Millott's letter was followed by a number of and Ripoll's accountant, Sidney Edwards, on the one side and
telephone conversations and meetings, involving Mr Poignand
Mr Langan and Mr Wayland on the other. Some information was supplied, but not all that was sought. The omissions provide one of the grounds by reference to which NZ1 seeks to justify its decision to appoint a receiver and manager.
NZ1 accepts that, in the second half of 1991, Mr Poignand made strenuous efforts to obtain alternative finance and that he kept Mr Millott aware of what he was doing. But he was unsuccessful.
According to a file note made on Monday, 16 September 1991, on the preceding Friday M r Millott mentioned to Mr and Mrs Poignand, apparently for the first time, the possibility of appointing a receiver and manager. Mr Poignand apparently promised to submit a refinancing proposal in the week commencing 14 October. He was unable to do so, although he did forward a letter from a representative of Arab International Group Inc ("AIG") of New York indicating interest in a transaction. Mr Millott allowed further time. In the meantime, Mr Wayland was continuing his exchanges with Mr Edwards concerning financial information.
In November, Ripoll retained Sphere Property Corporation Pty Ltd to assist with finance. John Harston of that company engaged in discussions with Mr Millott. But Mr Millott's patience was wearing thin. On 6 December he served
Cap Corp that read: on Ripoll a formal notice of demand written on behalf of NZ1 dated 3rd April 1987 ('Facility Agreement').
"Reference is made to the Facility Agreement defined by the Facility Agreement is the date four (4) years after the first drawdown under the terms of the Facility Agreement. The Repayment Date has now well expired and despite assurances from you, NZ1 Capital Corporation Limited has not received any firm indication when the moneys due to NZ1 Capital Corporation Limited under the terms of the Facility Agreement shall be repaid.
Take notice that should NZ1 Capital Corporation Limited not receive from you by 4pm Friday 13th December 1991, a firm and acceptable proposal whereby moneys due to NZ1 Capital Corporation Limited will be repaid, it is proposed that NZ1 Capital Corporation Limited look to its securities held pursuant to the provisions of the Facility Agreement to recover the moneys outstanding including inter alia, at the discretion of NZ1 Capital Corporation Limited, the appointment of a Receiver pursuant to the provisions of the Deed of Fixed and Floating Charge dated 3rd April 1987, or, alternatively, NZ1 Capital Corporation Limited exercises the powers that be conferred upon a Receiver under the terms of the Deed of Fixed and Floating Charge dated 3rd April 1987.
We await your reply."
On the same day Mr Millott sent notices of demand to each of the guarantors.
At about this time AIG wrote to Mr Millott indicating its readiness to negotiate a settlement of the NZ1 debt. So Mr Millott stayed his hand. He and other NZ1 officers met Mr Poignand on 9 January 1992 and, again, later
submitted a proposal. Mr Millott sought clarification of in the month, when a representative of AIG was present and aspects of the proposal. Additional information was supplied but the proposal was rejected. Mr Millott informed the Sydney solicitors for AIG of this decision on 16 March 1992. On the same day he wrote to Mr Poignand:
"We refer to your recent visit to this office with the Arab International Group Inc. The proposal for refinancing has been fully considered but we regret that it is not acceptable.
Accordingly, we have hereby appointed Mr M E Wayland as Receiver and Manager of Ripoll Holdings Pty Limited pursuant to the Deed of Fixed and Floating Charge held by NZ1 Capital Corporation Limited, dated 3rd April 1987.
We would be pleased if you would give him every assistance in the administration."
On the same day two documents were executed under the common seal of NZ1 Cap Corp. The first was entitled "Appointment". It read:
"In pursuance of the powers contained in a Deed of Fixed and Floating Charge dated 3 April 1987 ("Charge") given by Ripoll Holdings Pty Limited ACN 002 976 776 to NZ1 Capital
Corporation Limited ACN 002 895 212
(hereinafter called 'NZI') and of every other power thereunto enabling NZ1 HEREBY APPOINTS MICHAEL EDWARD WAYLAND of Level 66 MLC Centre Martin Place Sydney in the State of New South Wales, Chartered Accountant (hereinafter called 'the Receiver') to be Receiver and Manager of the undertaking and assets charged by the said Charge TO THE INTENT that the Receiver shall have and may exercise in addition to the powers conferred upon a Receiver appointed under the provisions of any
powers conferred upon a Receiver and Manager Statute in that behalf all or any of the by the said Charge."
The second document was a Notice of Appointment addressed to the directors of Ripoll:
"TAKE NOTICE that pursuant to the powers conferred on it by Deed of Fixed and Floating Charge ('Charge') dated 3 April 1987 executed
by Ripoll Holdings Pty Limited ACN 002 976 776
NZ1 Capital Corporation Limited ACN 002 895212 has appointed the undersigned MICHAEL
EDWARD WAYLAND of Level 66 MLC Centre Martin Place Sydney in the State of New South Wales, Chartered Accountant to be Receiver and Manager of the undertaking and assets charged by the said Charge and to enter upon and take possession of the said undertaking and assets and to exercise the powers conferred on him as such Receiver and Manager by the said Charge."
A few days later Ripoll resigned as trustee of the DYV Unit Trust. A meeting of unit holders was held and a new trustee, Rosewick Holdings Pty Limited, was appointed instead.
Mr Millott and Mr Beer both swore affidavits in which they referred to a meeting on 9 March 1992 of the three directors of NZI Cap Corp, themselves and Maxwell Warner. They said that the subject of discussion at that meeting was Ripoll's outstanding loan and that the three directors agreed that NZ1 Cap Corp would appoint a receiver and manager to Ripoll. But this was not a formal directorsn meeting. Their decision was not a board decision and was not minuted. The directors did not agree upon the identity of the proposed receiver and manager. Nor, as was conceded, was there any
decision announced in the Notice of Appointment dated 16 March board decision, in advance of the event, to the effect of the or to authorise the affixing of the company's common seal to
either of the relevant documents.On 10 April, the directors attempted to rectify this omission. They held a formal directors meeting at which they resolved:
"that the use of the Common Seal of the Company as detailed in the following entries in the Seal Register of the Company be ratified:
Entries numbered: 914 - 916, 917A, 917B,
918A, 918B, 919 - 936."
The minute of this meeting was tendered in evidence. Annexed to it are two documents called "Authorisation for execution of documents". One of them is addressed to "Company Secretary" by Mr Millott. It gives the name of the client as Ripoll and lists three "Documents submitted for authorisation": "Appointment", "Notice of Appointment" and "Memorandum of Agreement". At the foot of the document is a certificate signed by Mr Millott headed "Seal Register". It contains a number, "927", and the date "16/3/9ZH. The second document is addressed to the company secretary by Mr Beer. It follows the same form and also refers to Ripoll. It identifies the relevant documents as "Memorandum of Agreement M E Wayland", "Notice of Appointment M E Wayland Agent for the Mortgagee in Possession" and "Appointment Agent for the Mortgagee in Possession Ripoll Holdings Pty Limited (Receiver and Manager
Appointed) ". The seal register stamp gives the number "935" and the date "1/4/92". The effect of the resolution of 10 April is a matter of contention to which I shall return. I understand that Mr Wayland has remained in possession of the trust assets since 16 March 1992. I was told from the bar table that he has attempted to sell units but with little success. I do not know how the trust assets will eventually be sold; but it seems unlikely that they will realise enough money to pay the debt owing to NZI, with accrued interest. The guarantors of the facility face a bleak prospect.
Schedule "A" of the Application lists as group members seven individuals and three companies who are said to be guarantors. The remaining group members, listed in Schedule "B" of the Application, are 52 persons described as "unit holders". Some group members have opted out of this proceeding. In relation to those that remain, I am not presently concerned with some aspects of their claim against NZI. On 15 October 1992, Gummow J directed that issues relating to the guarantors' reliance on NZI's conduct, because of what was communicated by Mr Poignand to them concerning the length of the term, should be tried after the other issues in the case. Notwithstanding this,direction, it is obvious that the guarantors have a huge stake in the present decision. If NZI, through MS Middleton, misrepresented the position to Mr Poignand, they have at least a foundation for their claim to
be relieved of liability under the guarantees. If it is found that MS Middleton did not mislead MS Poignand, there is no scope for such a claim. The misleadina conduct claim The case put by Mr Poignand in reliance on 9.52 of the Trade Practices Act is that NZ1 Securities and NZ1 Cap Corp misrepresented to him and Mr Courtney, representing Ripoll, the provision contained in the Facility Agreement concerning its duration. Two separate misrepresentations are alleged. The first is charged against NZ1 Securities. It arises out of the letter of 17 February 1987 written by MS Middleton on behalf of that company wherein the term of the agreement was stated to be "Four years from the original drawdown", but with a rider: "A review will be conducted at the end of year three with an option to extend for two years". Counsel do not suggest that, at that time, there existed a facility agreement containing a different provision. But they say this representation was calculated to convey, and did convey, to Ripoll that any facility agreement prepared on behalf of NZ1 Securities would give Ripoll an option to extend the facility for two years after the expiration of the initial four year term, subject only to a satisfactory review at the end of year three. Counsel accept that the offer contained in the letter of 17 February was never accepted and that NZ1 Securities eventually did not provide the facility. But they say that the misrepresentation contained in this letter is
persuaded that it would be possible to achieve a satisfactory important because Mr Poignand and Mr Courtney were thereby arrangement with NZI; as a result, they desisted from looking
elsewhere for finance, while there was still time to do so.The second charge of misleading conduct is made against NZ1 Cap Corp. It arises out of the letter of offer dated 3 April 1987 handed to Mr Poignand and Mr Courtney by MS Middleton at the settlement meeting. The portion of the letter dealing with the term of the facility was identical to that contained in the letter of 17 February. By this time a facility agreement (the document executed on 3 April) was in existence. It contained cl. 5.08, dealing with the term of the agreement. Counsel argue that the letter misrepresented the effect of cl. 5.08 and that this misrepresentation caused Ripoll to execute the Facility Agreement without its representatives realising that it failed to give Ripoll a renewal option. Critical to this submission, of course, is that those protecting Ripoll's interests were unaware of the difference between the term of the letter and the wording of cl. 5.08. Mr Poignand said that he did not read cl. 5.08. He said he accepted the letter of offer, and executed the Facility Agreement and security documents, in the belief that the latter documents were consistent with the letter. Mr Poignand says that he would not have taken this course if he had known that cl. 5.08 gave the option to NZ1 Cap Corp and it was open to NZ1 Cap Corp to refuse an extension even if Ripoll passed the three year review.
As my narrative of facts shows, Mr Poignand and MS Middleton are in conflict concerning their conversations on this subject. That conflict is at the heart of the issue. So it is appropriate for me to say immediately that I was more impressed with MS Middleton, as a witness, than with Mr Poignand. When she gave her evidence, MS Middleton had the disadvantage of having been away from the subject matter of the case for almost two years. She left NZ1 in April 1991 and has apparently been living in England since that time. MS Middleton gave her evidence during the course of a visit to Australia on 8 March 1993, in advance of the evidence of the other witnesses. Her separation from the case may have made it more difficult for her to recall matters of detail than if she was still with NZ1 and involved with the matter. On the other hand, the fact that she no longer worked for NZ1 gave her a degree of independence that she would not otherwise have had. MS Middleton impressed me as a fair and honest person. But for one matter, which I will discuss in a moment, I would have given unhesitating prima facie credence to everything she said.
Mr Poignand, on the other hand, turned out to be an unreliable witness. There were a number of topics in relation to which I found difficulty in believing what he said. One example, referred to in the submissions of counsel for the respondent, was Mr Poignand's evidence that, at the meeting of 9 January 1992, Mr Wayland said that he was happy with the
evidence in any of his affidavits. His evidence was denied by information supplied to him. Mr Poignand did not include this the other witnesses who participated in the meeting. It seems to me unlikely that Mr Wayland said what Mr Poignand attributed to him. Such a comment would have been against the run of correspondence, the most recent items of which revealed continuing unsatisfied demands. But there is a more vivid example of Mr Poignand's readiness to say whatever seems best to serve his interests: his evidence regarding the supply to
NZ1 of two statements of his personal assets and liabilities. The first statement of assets and liabilities was signed by Peter Metcalfe, a sometime Ripoll director, on behalf of Courtney h Co. It was headed "Roger James ~oignand
Statement of Assets and Liabilities as at 31st October 1986". The statement was one of several documents sent to NZ1 by Mr Courtney on 13 January 1987 in connection with Ripoll's application for the finance facility. The Statement of Assets and Liabilities showed assets of $854,000. The major listed asset was described as "Freehold Property - 8 Cherry Place, Castle Cove", its stated value being $525,000. Another item was "Furniture, fixtures and fittings, home - $50,000". So far as the evidence reveals, Mr Poignand was never the sole owner of the house at Castle Cove. At one time, he held a half interest in the property, his CO-owner being his wife Michelle . But the evidence includes a Real Provertv Act Memorandum of Transfer dated 23 September 1986, whereby Mr Poignand transferred his one-half interest to his wife. The
consideration stated on the Memorandum of Transfer was
$175,000. The dealing was not registered in 1986, indeed not
until July 1992; but its existence in 1986 is suggested by a stamp of the Office of State Revenue that is difficult to decipher but appears to include, as part of a date, the figures "86". Mr Poignand said in evidence that the Memorandum of Transfer was executed by him on the date it bears and was intended to be registered immediately, but registration was overlooked by the solicitor having carriage of the matter. As to the 1986 Statement of Assets and Liabilities, Mr Poignand says this was prepared by the accountants without reference to him and was incorrect. Given that the assets include items (such as "trade debtors", "work in progress", "cash at bank" and "cash deposit") that might fluctuate almost daily, it is difficult to accept that the statement was compiled without reference to Mr Poignand. If Mr Metcalfe was so well-informed about Mr Poignand's affairs
that he could compile the document without reference to Mr Poignand, it is remarkable that he was not only unaware of Mr Poignand's recent sale of his half interest in the house, but also thought he was the sole owner. And it was a lucky stroke for Mr Poignand that the document that went to NZ1 presented him as a person of considerable means, having net assets of $854,800; whereas, if the house and its furniture, fixtures and fittings had been omitted, the figure would have been a more modest $279,800.
The second Statement of Assets and Liabilities is a document dated 31 March 1990. According to a transmission
notation, it was faxed from Dee Why Gardens to NZ1 on 3 July 1990. The transmission sheet is in the handwriting of Mr Poignand's then secretary. It shows MS Middleton as addressee and Mr Poignand as sender. The statement includes amongst Mr Poignand's assets the house, 8 Cherry Place, Castle Cove, with a value of $1,300,000 and furniture and fittings of $100,000. These items are the main contributors to a net worth of $1,836,000. Asked during cross-examination about this document, Mr Poignand said he had no idea how the person who prepared the document could have inserted the house. The evidence continued:
"Someone just made this document up out of their imagination. Is that what you tell his Honour?---I presume and I am not sure who did it but I certainly didn't but most of the people that worked for me in one way or another at that time knew reasonably what my circumstances were."
The immediately following questions revealed that the fax transmission sheet was written by Mr Poignand's then secretary. Mr Jacobsen QC, senior counsel for the respondent, then asked Mr Poignand whether he said that his secretary "sent this document out without speaking to you about it". He replied: "She could well have done. I can't recall, quite honestly, exactly what went on at that time".
Mr Poignand's evidence about the two Statements of Assets and Liabilities is not credible. It seems that, before
approaching NZI, Mr Poignand took the precaution of
transferring his interest in his home to his wife; but, wishing to have the best of both worlds and show the house as an asset on any statement of assets, he instructed the solicitors to delay registration of the Transfer. I think it likely that he was involved in the compilation of the Statement of Assets and Liabilities as at 31 October 1986 that was sent by Mr Courtney to NZ1 in January 1987. It is even more likely that he was involved in the compilation of the March 1990 document. It is extremely difficult to believe that, without instructions, any secretary would forward to an outside company a document dealing with her employer's personal financial position; and, especially, would represent it as a document sent by him. It is noteworthy that Mr Poignand did not suggest that his secretary did this. The only conclusion I can reach about this matter is that Mr Poignand deliberately set out to mislead N Z 1 about his personal wealth; and, when taxed with his description, gave false evidence of non-involvement. Both the episode itself and Mr Poignand's false denials greatly damage his credit.
A second factor that inclines me to accept MS Middleton's version of the conversations between Mr Poignand and herself in February-March 1987, rather than that of Mr Poignand, is the instruction given by her to Mr Doyle. It will be recalled that Mr Doyle did not understand the reference to an option in the letter of offer of 17 February, so he telephoned MS Middleton for enlightenment. She gave him
more detailed instructions. When he swore his affidavit, he
could not recall what instructions she gave him, but he
deposed that cl. 5.08 reflected those instructions. Counsel for the applicant accepted this evidence. They did not seek to cross-examine Mr Doyle.
Once it is accepted that MS Middleton gave Mr Doyle instructions to the effect of cl. 5.08, it is difficult to believe that she said something different to Mr Poignand. Whether or not anyone acting for Ripoll did in fact read the Facility Agreement, MS Middleton would surely have expected that someone would. The transaction was complex and involved a substantial sum of money. Both Ripoll directors were chartered accountants who might be expected themselves to read the Facility Agreement. They might also be expected to appreciate the desirability of obtaining legal advice, especially as Ripoll was acting in a fiduciary role. MS Middleton would have expected that, if there was a difference between what she told Mr Poignand and the content of her instructions to Mr Doyle, the difference would emerge as soon as the document was read, with resultant embarrassment to her and, perhaps, the loss to NZ1 of the envisaged business.
Thirdly, it is difficult to reconcile Mr Poignand's behaviour in late 1990 - early 1991 with a belief until that time that Ripoll had an option, subject to passing the year three review, to extend for a further two years. It was not until long after Mr Wayland's appointment as receiver and
manager that W Poignand first suggested that Ripoll was entitled to extend the term or that the company had been misled. In December 1990, when MS Middleton informally warned Mr Poignand of the likelihood of non-extension, he did not react by reminding her that Ripoll had an option to extend for a further two years. Mr Poignand wrote to NZ1 on 15 March volunteering a reference to "the due date of 3rd April 1991". When he received Ms Middleton's formal letter of 28 March 1991 stating that "the facility matures on 3 April, on which date it will be payable in full", he responded with a letter, of 2 April, statingr "I recognise the facility matures on 3rd April 1991". Even when NZ1 intimated its intention of charging penalty interest, there was no word of remonstrance. According to a file note of Mr Uncle dated 17 April 1991, Mr Poignand telephoned him to report that he and his wife were leaving for the United States to further negotiations for refinancing the facility. Mr Uncle recorded that Mr Poignand "expressed strong dissatisfaction with our actions to charge penalty interest on the Ripoll loan now that it was in defaultw, but the note contains no indication that M r Poignand contested NZI's assertion that the loan was in default or argued that NZ1 was unable to charge penalty interest.
When Mr Poignand was asked in cross-examination about his failure to protest that Ripoll was not in default, or to claim that it was entitled to an extension, he answered that he wished to maintain good relations with NZI; he was
manager, a step that would be disastrous for the village. I concerned not to provoke the appointment of a receiver and can understand a degree of reticence. It may have been unwise to adopt an extremely truculent posture. Even if Ripoll was right, litigation would have been undesirable. However, it would have been possible for Mr Poignand politely to make the point that he had been told that Ripoll had the benefit of a two-year option. Even if Mr Poignand made a pragmatic assessment that, regardless of fault, the relationship had in fact broken down and it was therefore better to look elsewhere for finance, an experienced businessperson would surely say something when told that NZ1 would impose penalty interest.
Counsel for the applicant attribute Mr Poignand's failure to make a complaint to his ignorance of the fact that Ripoll had in fact passed the year three review. They say that, if Mr Poignand was unaware of that fact, he would naturally believe that the term expired at 3 April 1991. It was only after the commencement of this litigation, when NZ1 disclosed its internal documents, that Mr Poignand became aware that Ripoll had in fact passed the review; accordingly, it is natural that the protest is made now but not sooner.
I do not accept this argument. First, the allegation of misleading conduct in relation to the term of the facility was made when the proceeding was commenced, before discovery of documents. Secondly, according to his account of the matter, his conversation with MS Middleton in December 1990 was not a discussion about whether or not Ripoll
had passed the year three review, but whether or not New Zealand would extend the facility. There is no suggestion in his evidence that he asked why Ripoll had failed the review, or suggested that Ripoll had a right to an objective determination of its performance and to an extension if its performance was satisfactory. The whole tenor of the conversation seems to have been the course that NZ1 would take, in its untrammelled discretion. And on 15 March, before he received any official notification of NZI's decision, Mr Poignand wrote a letter referring to "the due date of 3rd April 1991".
Next, if MS Middleton had agreed with Mr Poignand that Ripoll had an option to extend the facility subject to a satisfactory year three review, it might be expected that her internal memoranda would reflect that understanding. They do not. Notwithstanding that she was supportive of Ripoll's position and wished to persuade her superiors to allow the company time to trade out of its difficulties, none of her documents contains a suggestion that there was an option to extend. On the contrary, she regularly speaks of expiry in April 1991.
Finally, in considering whether or not Mr Poignand's evidence of his conversations should be accepted, it seems to me that counsel's failure to call Mr Hawkins is significant. No explanation was given for this failure. So far as I am aware, he was available to give evidence. The issue of the
compatibility between the conversations and the documents is
at the heart of the applicant's case. Those advising the applicant obviously appreciated that it would be essential to prove that he was unaware of the terms of cl. 5.08 of the Facility Agreement and that they differed from what had been agreed by MS Middleton. Yet they failed to call the solicitor acting for Ripoll on the transaction, the person best placed to say what documents were scrutinised before execution. I can only infer that they chose not to call Mr Hawkins because they thought his evidence would not assist the applicant; that is, he would not say that he failed to read cl. 5.08 prior to execution or to communicate its contents to Mr Poignand. If, knowing the terms of cl. 5.08, Mr Poignand executed the Facility Agreement, he has a problem about causation. But his problem goes deeper than that; if, knowing the terms of cl. 5.08, he nonetheless executed the Facility Agreement, without any protest or request for change, it becomes extremely difficult to believe that those terms departed from his oral agreement with MS Middleton.
The factor that militates against the matters I have mentioned is the seeming inutility of an agreement along the lines claimed by MS Middleton. My initial reaction was the same as that of Mr Culey. It would always be open to NZ1 to agree to an extension of the facility, if Ripoll wished. NZ1 could hardly force an extension on an unwilling client; after all, the facility could be paid out at any time. So what was to be gained by giving NZ1 an option? Moreover, it is common
ground between MS Middleton and Mr Poignand that it was at his
insistence that the condition inserted in the first letter of
offer, of 20 January, was revised and that he pressed this matter in discussions because he did not wish to expose Ripoll to the risk of having to change financiers before the project was completed. The notion of an option only makes sense if it gives something to Ripoll, not to NZI. Under these circumstances, it seemed to me at one stage of the hearing that the only way of making sense of the condition in the letter of offer was to treat it as referring to a provision whereby Ripoll would have a legally-enforceable right to extend the facility for a further two years provided that it passed the year three review.
On reflection, however, it seems to me that this is not the correct view. I have become so persuaded, not only by reflecting on all the matters set out above, but by considering the precise form of cl. 5.08. Although this form confers no obligation on NZ1 to extend the term, it does require it to consider the possibility of extension. On the third anniversary of the Drawdown Date, NZ1 is bound to review the facility "with a view to extending the Payment Date by a further period of 12 months". NZ1 may not simply call for repayment and otherwise close its file; it must actively review the facility and make a decision whether it is prepared to extend. If so, it must notify Ripoll. That company then has an option to extend, exercisable simply by notifying NZI.
Lawyers tend to look at contractual instruments in terms of the legal rights they create. Looked at from this perspective, it is easy to denigrate cl. 5.08; it gives Ripoll no significant legal right. But commercial people often think it advantageous to obtain a promise by the other party to negotiate, or to consider undertaking a transaction; for example, in a letter of intent. This perception presumably reflects a belief that forcing someone to spend time and energy considering a transaction creates a psychological momentum towards agreement to the transaction itself.
Whether or not this belief is correct, I think it explains why Mr Poignand was prepared reluctantly to accept MS Middleton's counter-proposal. He would have preferred to obtain from N Z 1 a legally-enforceable commitment for a period longer than four years. But MS Middleton made clear to him that N Z 1 would not agree to that. A commitment to review the facility with a view to extension was very much second best, from Mr Poignand's point of view. But it was better than nothing; and, so far as the evidence shows, Mr Poignand had not received a better offer from any other financier. I think it is probably true that he said to MS Middleton, as she alleges, that he was not happy but "if that is the best that's on offer, then I guess I have no choice other than to accept it".
Having regard to all of the above matters, I have
reached the conclusion that Mr Poignand (and so Ripoll) was
condition was not well expressed in the letters of 17 February not misled as to the duration of the facility. The agreed and 3 April, but I think that it was to the effect of that
contained in cl. 5.08 of the Facility Agreement.The effect of my finding that NZ1 Cap Corp was not guilty of misleading conduct in relation to the duration of the facility is that the Facility Agreement and security documents must be left to operate according to their tenor, with the result that the facility expired on 3 April 1991. When, on that day, Ripoll failed to repay NZ1 Cap Corp, there arose an "Event of Default" within the meaning of the Charge. Clause 10.02 of that document includes, as an Event of Default, a failure by Ripoll to pay any of the moneys payable to NZ1 Cap Corp on the due date for repayment. It follows that, after 3 April 1991, it was open to NZ1 Cap Corp to appoint a receiver and manager. The next question is whether it validly did so.
The validitv of Mr Wavland's a~~ointment
Article 8 4 ( 2 ) of NZ1 Cap Corp's articles of
association provides:
" 8 4 ( 2 ) The seal shall be used only by the authority of the directors, or of a committee of the directors authorised by the directors to authorise the use of the seal, and every document to which the
seal is affixed shall be signed by a director and be countersigned by another director, a secretary or another person appointed by the directors to countersign that document or a class of documents in which that document is included."
Counsel for the respondents accept that there was no prior resolution of the directors authorising the affixation of NZ1 Cap Corp's common seal to the Appointment and Notice of Appointment of M r Wayland dated 16 March 1992. Nonetheless they contend that the seal was validly affixed and the appointment valid. They point out that the document was signed by a director, Warner, and countersigned by the company secretary. As to the opening words of art. 84(2), they say that it is sufficient that the use of the seal was authorised by the directors; the authority need not be conferred by a formal resolution at a board meeting. Counsel refer to J W (Vicl Broomhead Ptv Ltd v J W Broomhead Ptv Ltd [l9851 VR 891. In that case, speaking of a company whose articles of association contained a clause similar to art. 84(2), McGarvie J said at 915:
"It is sufficient if at the time when the seal is used each of the directors has authorized that use. Neither the words of the regulation construed in their context nor any principle of law requires the authority to be given in any particular way, at any particular time or on any particular occasion. Directors may give their authority at different times and in different ways. I find support for this construction in the authorities and reasoning applied by Wickham J. in considering the analogous situation of assent given by the members of a company in Perseus Minina N.L v Landbrokers (Perth) Ptv. Ltd [l9721 W.A.R. 12.
the approach of Jenkins L. J. in construing the Support for this construction comes also from articles of a trading company. He said in Holmes v Keves [l9591 1 Ch. 199, at p.215: 'I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to the result is admissible on the language of the articles, in preference to a result which would or might prove unworkable.'
If all the directors authorize a particular use of the seal, business efficacy in the operation of the company would be impeded by a requirement that there must be a meeting of directors and a formal resolution before the seal can be used."
I followed J W Broomhead in Claremont Petroleum NL v Cumminas (1992) 110 ALR 239 at 291-292. In claremont it was proved that all four directors assented to the affixation of the company's common seal to certain deeds, although there was no valid board resolution authorising affixation. In the present case, there is no proof that all three NZ1 Cap Corp directors gave advance assent to the use of the seal. Mr Warner clearly did, but that is all that is proved. Counsel for the respondents say this does not matter. They refer to a statement of Mason CJ in Northside Develo~ments Ptv Ltd v Reaistrar General (1990) 170 CLR 146 at 162:
"it is the presence of the seal on the document that gives rise to the presumption that the seal has been affixed with the authority of the directors".
In the course of his judgment the Chief Justice referred with approval to the judgment of McHugh JA when the case was before
decision is reported, under the name Reaistrar-General v the New South Wales Court of Appeal. The Court of Appeal Northside Develo~ments Ptv Ltd, at (1988) 14 NSWLR 571. At 595-596 McHugh JA said:
"A company is bound by the affixing of its seal to a document if the company under its memorandum or articles might have had power to enter into the transaction and if, where required, the seal is affixed in the presence of and countersigned by persons who either by virtue of their offices or positions or the company permitting them to act in those offices or positions might have had authority to be present and countersign the document. It is not necessary that the party dealing with the company should have relied on the memorandum or articles or any act of the company. . . . It is sufficient that the seal was affixed and, where required, countersigned by persons who either held or were not prevented by the company from purporting to hold offices or positions which might have authorised them to countersign the sealing of the document by the company.
The 'positive corporate seal rule' as Professor Lindgren has described it ('The Positive Corporate Seal Rule and Exceptions Thereto And The Rule In Turquand's Case' (1973) 9 Monash Uni LR 192), therefore, is not an application of agency principles but a special rule of company law. An outsider is precluded from relying on this rule only if he is put on inquiry as to whether the seal is affixed with authority or whether the persons purporting to countersign the sealing have the authority to do so. When the outsider does not rely on the seal of the company but on the representation of some person as agent of the company, no doubt the principles expounded by Diplock LJ in Freeman & Lockver fa Firm) v Buckhurst Park Pro~erties fManaa1) Ltd [l9641 2 QB 480 are applicable: see crabtree-Vickers Ptv Ltd v Australian Direct Mail Advertisina & Addressina CO Ptv Ltd (1975) 133 CLR 72 at 78. But where the company seal is concerned, the rule in Roval British Bank v Turauand ( 1856) 6
E & B 327; 119 ER 886, a rule of company law,
applies. That part of the rule concerning
of association has been appended to the law of notice of a company's memorandum and articles agency and applied in situations where a third party relies on the act of the company's agent. But the affixation of the seal of a corporation represents the authentic expression of the mind of the company itself. The company is bound because it has expressed its own will and not because it is responsible for the act of an agent."
As this passage makes apparent, there is a major difference between the present case and Northside Develo~ments. Unlike the situation in Northside Develo~ments,
the present case is not one where an outsider seeks to bind a company to a document bearing its common seal. It is the reverse; here, the company seeks to rely upon a document authenticated by the common seal. It seems to me that the rule in Turauand's case has no application to such a situation. The rule was developed for the benefit of persons dealing with a company, not for the benefit of the company itself. This is made clear from the formulation of the rule set out in Halsburyfs Laws of England that was endorsed by Lord Simonds in Morris v Kanssen [l9461 AC 459 at 474 and adopted by Brennan J in Northside DeveloDmentS at 171:
"But 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."
No doubt because of the distinction I have just
made, counsel for the respondents do not contend that the rule
say that Mason CJ's use of the word "presumption", means that, in Turauand's case applies, in terms, to this case. But they once it is shown that the seal is in fact affixed, the onus shifts to the opposite party to prove that it was affixed without the directors' authority. Counsel point out that, in the present case, their opponents cross-examined both M r Millott and Mr Beer and had the opportunity to ask them whether they authorised the affixation of the common seal, but they chose not to do so; so there is no evidence on the point.
I do not accept this submission. The words used in a judgment must always be read with regard to the facts of the case under consideration. Northside Develo~ments was a case where the company's seal had been affixed to a mortgage of its land without proper authority. Default having been made under the mortgage, the mortgagee exercised its power of sale; with the result that the company lost its land. It sought to recover that loss out of the statutory compensation scheme. The question was whether its claim was excluded by the "indoor management" rule applied in Turauand's case. It was in that context that Mason CJ spoke of the "presumption" that the seal was affixed with the authority of the directors. He was referring to the presumption of authority that operates aaainst a company. I do not think his Honour was suggesting that there was a presumption in favour of a company, such as the presumption of regularity that applies to public and official acts: see Phipson on Evidence (13th ed) at para. 41-
17. The possible existence of such a presumption was not a matter that the Court had to decide. If, nonetheless, Mason CJ had wished to make a statement about that topic, he would
would not only have been of far-reaching importance; so far as surely have done so more clearly and fully. Such a statement I can ascertain, it would have broken new ground. I have not been able to find any case in which it has been held that proof of the affixing of a company common seal to a document creates a presumption, in the company's favour, that it was affixed with the authority of the directors. I do not think this surprising. If, in any particular case, there is an issue whether a company's common seal was validly affixed to a document upon which it relies, it seems correct in principle to require that the company bear the onus of establishing valid affixation rather than that the opposing party be required to negative it. That approach not only accords with the general rule that the person asserting a fact must prove it, it is particularly appropriate in this situation; the company may be expected to have greater access to the relevant facts and witnesses than the opposing party.
I reject the submission that the affixation of the common seal to the Notice of Appointment creates a presumption of prior approval by the directors. In the absence of evidence that any of them, other than Mr Warner, gave prior approval, I hold that the Notice of Appointment was ineffective for its purpose.
Counsel for the respondents submitted that there was
no necessity in this case for Mr Wayland's appointment to be
made under common seal. They pointed out that cl. 11.01 of
the Deed of Charge provides simply:
"At any time after an Event of Default has occurred the Chargee may appoint a Receiver of the whole of the Charged Property".
The clause does not require any particular formality; neither does any relevant statute.
I agree that it was not necessary to make the appointment by directors' resolution. A suitably authorised officer might have acted as the company's agent to make the appointment. There is no evidence as to whether Mr Warner had the requisite authority. But it does not matter whether he did or not; he did not purport to act as the agent of the company when he signed the Notice of Appointment. He purported to act as a director authenticating an act of the company itself.
In my opinion it must be concluded that Mr Wayland was not validly appointed on 16 March.
In view of this finding, I have to determine whether the appointment was ratified by the board resolution of 10 April. Counsel for the applicant submit that it was not. They argue that the resolution of 10 April was too cryptic and uncertain to amount to a ratification of the affixation of the common seal on the Appointment and Notice of Appointment. I do not agree. The 10 April resolution might have been better
worded but I think the intent was plain. The board of directors wished to ratify the use of the company's common seal on certain documents identified by entries in the seal register. Their purpose was to give those documents the same efficacy as they would have had if the affixation of the common seal had been approved in advance; although obviously the ratification could take effect only from the date of the board resolution. As previously mentioned, entry 927 in the seal register refers to three documents involving Ripoll. They are identified as "Appointment", "Notice of Appointment" and "Memorandum of Agreement". In the absence of any suggestion that there were other documents involving Ripoll that answered these descriptions and were executed under the common seal on 16 March 1992, it must be inferred that these were the documents required to effect the appointment of Mr Wayland as receiver and manager. The document called "Appointment" was no doubt the authority addressed to him and the "Notice of Appointment" the document addressed to the directors of Ripoll, both already quoted. The "Memorandum of Agreement" was presumably an agreement made between Mr Wayland and NZ1 Cap Corp covering matters such as his responsibilities, liability and fees.
My conclusion is that Mr Wayland's appointment became effective as from the directors' meeting on 10 April. He had no authority to act as receiver and manager between 16 March and 10 April. To the extent that any actions taken by any of the respondents between those dates in reliance on the
applicant or group members, the applicant is entitled to documents dated 16 March caused loss or damage to the recover damages for the amount of that loss or damage. I do not know whether that entitlement has any practical significance; but I propose to reserve leave to the applicant to apply for a determination of the quantum of damages, if he so wishes.
The other arounds of auuointment My conclusion that there was no misleading conduct by NZ1 Cap Corp in relation to the duration of the facility makes it strictly unnecessary for me to deal with the other grounds advanced by counsel for the respondents as justifications for Mr Wayland's appointment. However, as they were fully argued, I will shortly state my views about them.
The matters advanced by counsel boil down to six substantive grounds: that Ripoll was insolvent on 16 March 1992 (see cl. 12.01(g) of the Facility Agreement); that Ripoll failed to provide NZ1 with audited financial statements for the year ended 30 June 1991 (see cl. 9.01(d)); that Ripoll failed to provide financial information about its business (see cl. 9.01(e), cl. 10.01(£) and cl. lO.Ol(g)); that an event had occurred, or circumstances arisen, which, in the opinion of NZ1 Cap Corp, "is likely materially and adversely to affect the ability of (Ripoll) to perform all or any of its obligations under or otherwise to comply with the terms of
material adverse changes in the financial position of Ripoll (the agreement)" (see cl. 12.01(p)); that there had been as disclosed in the unaudited financial statements for the year ended 30 June 1991 (see cl. 8.01(f) and cl. 8.03); and that false information was given to NZ1 Cap Corp concerning Mr Poignand's assets and liabilities (see cll. 8.01(h) and 12.01(c) of the Facility Agreement and cll. 14.l(a) and 15.l(p) of the registered Memorandum of standard conditions).
I think that the final ground is clearly made out. The first five grounds are more open to dispute. In relation to the claim of insolvency, the problem is a lack of evidence. Within the period fixed by the Court's directions, the respondents filed and served a certificate as to the amount owing by Ripoll to NZ1 Cap Corp. They intended to take advantage of a provision in the Deed of Charge (cl. 33.01) making a certificate of an authorised officer of NZ1 Cap Corp as to the amount of the debt conclusive evidence as to its contents. But the certificate did not comply with the requirements of the clause, objection was taken to its tender and I rejected it. Subsequently, the respondents tendered other evidence as to the amount of the debt but I also rejected this evidence. It would have been unfair to the applicant to admit the evidence at that stage, without an adjournment of the hearing to allow the calculation to be checked, and the respondents were unwilling to suffer an adjournment.
Without evidence as to the amount of the NZ1 debt at then insolvent. The history of the matter leads me to suspect
16 March 1992, it is impossible to conclude that Ripoll was
that it was. But suspicion is not proof. The problem about the second ground is the wording of cl. 9.01(d), on which it is based. That paragraph requires Ripoll to send to NZ1 Cap Corp "two (2) copies of its audited financial statements and every report, notice or like document issued by it to its shareholders, in each case at the time of issue thereof, and (in the case of audited financial statements) not later than 120 days after the end of the financial period to which they relate". Ripoll sent a copy of its 30 June 1991 financial statements to Mr Wayland on 23 October 1991. This was within 120 days of the end of the period to which the statements related. But the statements were not audited. Counsel say that cl. 9.01(d) required Ripoll to have its accounts audited, even if it would not otherwise be obliged to do this, and send the audited accounts within 120 days. They accept that Ripoll had no statutory obligation to have its accounts audited.
I think that cl. 9.01(d) assumes, rather than requires, that Ripoll's financial statements will be audited. The paragraph does not create an obligation to audit; rather, the purpose of the paragraph seems to be to ensure that NZ1 Cap Corp will receive copies of all the usual statutory documents that Ripoll distributes to its shareholders. I do not think that Ripoll breached the paragraph by failing to
have its 1991 accounts audited. The third ground alleges that Ripoll failed to provide adequate information about its dealings with Balino. This is said to contravene three provisions of the Facility Agreement. The first of them is cl. 9.01(e). But this paragraph is clearly inapplicable. It imposes an obligation on Ripoll to provide NZ1 Cap Corp -
"with such financial and other information concerning each Relevant Person and its officers as (NZ1 Cap Corp) may from time to time reasonably require".
The term "Relevant Person" is defined as meaning Ripoll, the guarantors and any other person entering into the security documents. It does not include Balino.
Clause 10.01(£) requires Ripoll to make available to NZ1 Cap Corp "such information as to the Project and its business, affairs and financial condition" as NZ1 Cap Corp may reasonably request. Paragraph (g) refers to information required for the purpose of NZ1 Cap Corp's discharge of its duties or discretions under the security documents or by operation of law. This paragraph is clearly inapplicable. It is much more arguable, however, that para. (f) applies. The word "Project" is defined to mean "the development of a retirement village known as 'Dee Why Gardens' on the land in accordance with the Final Plans and Specifications including
. . . the design and construction of the Building in the manner
contemplated by the Building Contract". The words "Building Contract" are defined to include any contract for the construction of any part of the village. The contract with Balino fell within that definition. Balino's work was part of the "Project", so it seems correct to say that information about the account of Balino was information about "the Project and its business, affairs and financial condition". If it were necessary to make a firm decision on the question, I would hold the respondents entitled to rely on cl. 10.01(£).
I think the next ground would fail. Clause 12.01(p) makes it an Event of Default if an event occurs or circumstance arises which, in the opinion of NZ1 Cap Corp, is likely materially and adversely to affect Ripollfs ability to perform its obligations. The short answer to this ground is that there is no evidence that NZ1 Cap Corp formed that opinion. There may have been events or circumstances entitling NZ1 Cap Corp to form the necessary opinion. But it never did so, either by a resolution of its board of directors or the formation of an opinion by an appropriately authorised person.
Clauses 8.01(f) and 8.03 of the Facility Agreement together provide an ambulatory representation by Ripoll that there has been no materially adverse change in its financial position from that set forth in its financial statements for the immediately preceding year. Breach of this representation is an Event of Default. The respondents claim that the
adverse change from those of 30 June 1990. A comparison financial statements of 30 June 1991 reflect a materially between the two sets of statements shows that the 1990 profit of $18,658 became a loss of $20,445 in 1991. More significant, perhaps, was the fact that the 1990 current assets of $758,437 shrank to $86,646 in 1991 and current liabilities increased from $38,940 to $261,501. There was certainly an adverse change in the company's financial position. Whether it was materially adverse is another matter. The question arises: material to what? Presumably, to Ripoll's prospects of paying N Z 1 Cap Corp the moneys due under the finance facility. But it would require more information and analysis than a simple comparison between the 1990 and 1991 figures to establish that the 1991 financial statements disclosed an adverse change that was material in that sense.
The final ground relates to the false statements about Mr Poignand's assets and liabilities. I doubt the application of all the provisions relied on by the respondents. But cl. 12.01(c) clearly applies. It provides that it is an Event of Default if -
"any representation, warranty or statement made or deemed to be made or repeated in respect of any Relevant Person ... in any document delivered under any of the Security Documents is or proves to have been incorrect in any material respect".
Mr Poignand was a guarantor, and therefore a "Relevant
MS Middleton in response to requests made by her. Clause Person". Both the 1986 and 1990 statements were supplied to 9.01(0) required Ripoll to provide NZ1 Cap Corp with such financial information concerning each Relevant Person as it might require. The 1990 information was apparently supplied pursuant to this obligation. Accordingly, the 1990 statements about Mr Poignand's ownership of the house and its contents, and their value, were statements in a document delivered under a Security Document. They were incorrect; and, I think, materially so. They were statements that might be taken into consideration by NZ1 Cap Corp in determining whether to extend the facility. Compare the statutory expression "false or misleading in a material particular" discussed in Minister for Immiaration. Local Government and Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 at 352.
It follows that, independently of the expiry of the facility, there were breaches of the Facility Agreement entitling NZ1 Cap Corp to appoint Mr Wayland as receiver and manager of the trust assets.
The conclusions set out above mean that, except in one respect, the applicant's claim fails. The exception relates to the invalidity of Mr Wayland's appointment on 16 March 1992. That invalidity was soon cured but I must provide an opportunity for the applicant to prove the extent of any
damage that occurred in the meantime. I propose to declare that:
(a)
neither NZ1 Securities nor NZ1 Cap Corp contravened s.52 of the Trade Practices Act in connection with Ripoll's entry or proposed entry into the finance facility arrangement;
(b)
after 3 April 1991, NZ1 Cap Corp was entitled to appoint a receiver and manager of the undertaking and assets secured by the Deed of Charge made between Ripoll and N Z 1 Cap Corp;
(c)
the appointment of Mr Wayland as receiver and manager purportedly made on 16 March 1992 was initially invalid; but
(d)
the said appointment became valid and operative as from 10 April 1992.
I will reserve liberty to the applicant to apply for a determination of the amount of any loss or damage sustained by himself or any of the group members by virtue of any action taken by any of the respondents between 16 March 1992 and 10 April 1992 in reliance upon the purported appointment of 16 March 1992. Otherwise the proceeding will be dismissed.
The respondents have been substantially successful.
Consequently, they should have an order for the bulk of their
respondents' failure on the issue of the initial validity of costs. There should be a discount of costs, reflecting the the appointment. But this issue had little effect on the length of the hearing. The discount should be small. I propose to order that the applicant pay 80% of the respondents' costs.
I certify that this and the preceding fifty-five (55) pages are a true copy of the Reasons for Judgment
of the Honourable Justice Wilcox. Associate :
Dated: 7 January 1993
APPEARANCES
Counsel for the Applicant: J P Hamilton QC and
N FranceySolicitors for the Applicant: Blessington Judd Freeman
LazarusCounsel for the Respondent: P Jacobsen QC and S Epstein Solicitors for the Respondent: Holmes & Bevan Dates of hearing: 29 November - 6 December
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