Soyfer v Earlmaze Pty Ltd

[2000] NSWSC 1068

CITATION:	Soyfer & Anor. v. Earlmaze & Ors. [2000] NSWSC 1068 revised - 24/11/2000
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 2818/00
HEARING DATE(S):	25 and 26 October 2000
JUDGMENT DATE:	22 November 2000
PARTIES :	Ilya Soyfer and Stella Soyfer - plaintiffs Earlmaze Pty. Limited - 1st defendant & cross claimant Robert Matar - 2nd defendant & 1st cross defendant Simon Elcham - 2nd cross defendant Ratam and Mahcle Holdings Pty. Ltd. - 3rd cross defendant
JUDGMENT OF:	Hodgson CJinEq

COUNSEL :	F. Gleeson for plaintiffs T. Alexis with C. Champion for 1st defendant 2nd defendant excused from hearing
SOLICITORS:	Greaves Wannan & Williams, Sydney for plaintiffs Hazan Hollander, Sydney for 1st defendant Kosmin & Associates, Double Bay for 2nd defendant
CATCHWORDS:	CONTRACTS - Consideration - Ratification - Variation of unauthorised contract - Whether intention to give effect to unauthorised contract manifested - CONTRACTS - Options - Exercise - Whether immaterial failure to comply with condition fatal - CORPORATIONS - Management and administration - Directors - Indoor management rule - Person "having dealings with a company" - Statutory assumptions - Company seal accompanied by illegible signatures above words "Director" and "Secretary" - Whether company bound.
LEGISLATION CITED:	Corporations Law ss.126-130
CASES CITED:	Story v. Advance Bank Australia Ltd. (1993) 31 NSWLR 722. Lyford v. Media Portfolio Ltd. (1989) 7 ACLC 271 Wigan v. Edwards (1973) 47 ALJR 586 Himbleton Pty. Ltd. v. Kumagai NSW Pty. Ltd. (1991) 29 NSWLR 44 Gilbert J. McCaul Australia Pty. Ltd. v. Pitt Club Ltd. (1959) SR(NSW) 122. Harrison v. Battye (1975) 1 WLR 58 Quadling v. Robinson (1976) 137 CLR 192 Domb v. Isoz (1980) Ch. 548
DECISION:	See end of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Wednesday 22nd November 2000

NO. 2818 OF 2000
SOYFER & ANOR. V. EARLMAZE PTY. LIMITED & ORS.

JUDGMENT

1   In October 1998, the plaintiffs Mr. and Mrs. Soyfer entered into an agreement bearing date 23rd October 1998 with the second defendant Robert Matar, whereby they were to lend Mr. Matar $500,000.00, purportedly for use in a development at 55-57 Brighton Boulevarde, Bondi Beach. Under that agreement, Mr. Matar was to be responsible for fees and interest incurred by the plaintiffs in obtaining the $500,000.00, and was to pay them $625,000.00 upon completion of the development or after fourteen months, whichever was the earlier. 2   The plaintiffs also purportedly entered into an agreement bearing date 23rd October 1998, whereby the first defendant Earlmaze, the owner of 55-57 Brighton Boulevarde, purportedly granted them an option to purchase Unit 10 in the proposed development for $1,000.00, an option which the plaintiffs could not exercise if Mr. Matar repaid his loan. 3   On or about 31st March 1999, the plaintiffs and Earlmaze made an agreement which purported to substitute Unit 9 for Unit 10 in the earlier agreement. 4   On 23rd December 1999, the plaintiffs gave notice of exercise of the option. Earlmaze denied that it had any obligation to sell Unit 9 to the plaintiffs for $1,000.00. 5   On 15th June 2000, the plaintiffs filed the Statement of Claim in these proceedings, claiming specific performance of an agreement by Earlmaze to sell them Unit 9 for $1,000.00, and alternatively claiming relief against Earlmaze under the Trade Practices Act, and in addition claiming $625,000.00 plus interest from Mr. Matar. 6   Earlmaze has put on a defence denying liability, inter alia on the basis that it had not executed the option agreement of 23rd October 1998; and Earlmaze also put on a cross-claim against Robert Matar, Simon Elcham, and a company Ratam & Mahcle Holdings Pty. Limited (which I will “R & M”) associated with them, claiming damages arising out of the circumstances associated with the purported granting of the option to the plaintiffs. 7   Mr. Matar put on defences to the Statement of Claim and to the Cross-claim, but did not put on any evidence. Mr. Elcham neither put on defences nor put on any evidence. The hearing proceeded in the absence of Mr. Matar and Mr. Elcham.

OUTLINE OF FACTS

8   Earlmaze was incorporated in 1997. The shareholders have at all material times been Paul and Adel Lopatinsky (one each), Mr. Matar (one) and Mr. Elcham (one). Initially, Mr. Elcham and Mr. Lopatinsky were the directors and secretaries of Earlmaze. 9   On 27th October 1997, Earlmaze purchased the property 55-57 Brighton Boulevarde, apparently as trustee of what was called the Brighton Boulevarde Unit Trust. The units in that trust were owned equally by Aquagold Pty. Limited (which I will call “Aquagold”), a company associated with Mr. Lopatinsky, and by R & M. An agreement concerning this development was made in about November 1997 between Earlmaze, Aquagold, R & M, Mr. Lopatinsky, Mr. Matar, and Mr. Elcham. 10   In about February 1998, Earlmaze received Council approval to proceed with the development, and construction commenced in about April 1998. 11   In May 1998, Mr. Elcham resigned as director and secretary of Earlmaze, and was replaced in both capacities by Mr. Matar. Mr. Elcham was overseas from about that time until about October 1998. 12   As at 1998, the plaintiffs had known Mr. and Mrs. Lopatinsky for about 20 years. During 1998, Mr. Lopatinsky spoke to the plaintiffs about their using the equity in their house to raise money, which could be invested to earn a good return. 13   In August 1998, the plaintiffs were introduced to Mr. Matar at the home of Mr. and Mrs. Lopatinsky. Mr. Matar discussed the possibility of the plaintiffs investing in a development site, not being Brighton Boulevarde. There is some dispute in the evidence whether Brighton Boulevarde was mentioned at all at this meeting. 14   In September 1998, Mr. Soyfer telephoned Mr. Lopatinsky, and asked him a question concerning the reliability of Mr. Matar in repaying money. Mr. Lopatinsky said words to the effect that Mr. Matar had repaid amounts due to him so far, but that he could not “guarantee him”. There is some dispute as to what was properly conveyed by that statement. 15   At about the same time, there was a meeting at the plaintiffs’ home between the plaintiffs and Mr. Matar. According to the plaintiffs’ evidence, which is uncontradicted in the absence of Mr. Matar, there was a conversation in which Mr. Matar asked for a loan of $500,000.00 for use in the Brighton Boulevarde development, on the basis he would arrange a loan to them of that amount from the National Australia Bank, would pay all costs associated with the loan, and would pay them $625,000.00 after twelve months. Mr. Soyfer then asked for security, and Mr. Matar said they could have one of the units, which he said was worth over $625,000.00. Mr. Matar said he would ask his solicitor to draft an agreement and fax it to the plaintiffs’ solicitor Marina Sokol. 16   The National Australia Bank approved a loan of $500,000.00 to the plaintiffs, on the security of their home. On 29th September 1998, Mr. Soyfer handed to the National Australia Bank the title deed to the plaintiffs’ home, and also a cheque for $2,116.80, drawn by R & M, to pay bank fees. 17   On 12th October 1998, the plaintiffs’ solicitor Ms. Sokol obtained a company extract relating to Earlmaze, showing that Mr. Lopatinsky and Mr. Matar were the directors and also the secretaries of Earlmaze. 18   On 20th October 1998, Ms. Sokol sent a facsimile to Gil Baron, Solicitor, who was acting for Earlmaze in the transaction. Mr. Baron had been Mr. and Mrs. Lopatinsky’s solicitor for some years, and his firm also acted for Earlmaze in the acquisition of the Brighton Boulevarde property. This fax was in the following terms:

We refer to our telephone discussion of even date, and advise as follows:-

1. We act for Mr & Mrs Soyfer and note that you act for Earlmaze Pty Limited.

2. The agreement has been reached that our clients lend to your client the sum of $500,000 towards the development of ten (10) strata units at 55-57 Brighton Boulevarde, Bondi Beach.

3. Your client undertakes upon completion of the abovesaid development but not exceeding 14 months from today to repay to our client the sum of $625,000 plus all interest and associated bank charges.

4. To secure their loan our clients wish to exercise an option for the purchase of unit 10 at the abovesaid development at a nominal price of $1,000. A special condition is to included that if the loan is repaid then our clients will not be exercising an option for the purchase of the above property.

5. In the circumstances would you kindly confirm the above with your client and forward us the relevant documents as soon as possible.

19   On the same day, Mr. Baron sent a copy of this fax to Mr. Matar, by facsimile. Mr. Baron’s file contains a transmission verification report in respect of this communication. 20   Mr. Baron’s file also contains documents apparently prepared for facsimile transmission to Mr. and Mrs. Lopatinsky, bearing the same date and including a copy of the Sokol letter. These documents give as the receiving fax number the number 9389 6043, which was in fact Mr. and Mrs. Lopatinsky’s fax number. However, according to Mr. Lopatinsky, this was also their telephone number, and it was necessary that someone wishing to send a fax to that number first telephone so that the machine could be set up for receipt of a facsimile. Mr. Baron’s file contains no transmission verification report in respect of a fax to Mr. and Mrs. Lopatinsky, and Mr. and Mrs. Lopatinsky deny receiving any such communication. Mr. Baron was not called to give evidence in the case. 21   Mr. Baron prepared an option agreement between Earlmaze and the plaintiffs, and submitted it to Ms. Sokol for execution by the plaintiffs. The counterpart executed by the plaintiffs was sent back to Mr. Baron by Ms. Sokol under cover of a letter dated 23rd October 1998. 22   There is in evidence a copy of this option agreement, purportedly executed by Earlmaze. This agreement, excluding the annexure, is annexed to this judgment. The annexure to the option agreement was a 1996 edition contract for the sale of land, providing for the purchase by the plaintiffs from Earlmaze of Unit 10 for a price of $1,000.00. The date of the contract is shown as “1998”, with the remainder of the date left blank, followed by the words in parenthesis “if not stated, the date this contract was made”. 23   It seems clear that the signature on this option agreement, purporting to be that of the secretary of Earlmaze, is Mr. Elcham’s signature, while the signature purporting to be that of a director has some similarity to Mr. Lopatinsky’s signature. However, Mr. Lopatinsky denies that this is his signature, and denies executing this document at all. 24   The option refers to a consideration of $1,000.00, and no such sum was paid until 23rd December 1999. According to Mr. Soyfer, Mr. Matar said that they need only pay the $1,000.00 if they were exercising the option. 25   Also on 23rd October 1998, Mr. Baron wrote to Ms. Sokol confirming the exchange of the option agreement, and enclosing a copy of a loan agreement executed by Mr. Matar. That agreement was drawn up on R & M letterhead, and included the loan terms referred to earlier in this judgment, and also referred to the loan as being for the purpose of the Brighton Boulevarde development, but it made no reference to security. 26   Mr. Lopatinsky gave evidence that Mr. Matar told him around this time that he had borrowed $500,000.00 from the plaintiffs, and that the plaintiffs were to enter into an option for $1,000.00 to buy Unit 10 for $625,000.00. Mr. Lopatinsky gave evidence that he drove to Mr. Baron’s office with Mr. Elcham; that while he waited in the car, Mr. Elcham apparently went to Mr. Baron’s office, and came back with a two-page document, which Mr. Elcham told him was an option for $1,000.00 providing for a purchase price of $625,000.00; that he signed this document in the car without reading it; and that Mr. Elcham then apparently took the document back to Mr. Baron’s office. Mr. Lopatinsky also gave evidence that the common seal of Earlmaze was kept by Mr. Matar and Mr. Elcham at their offices in Paddington, and that mail to Earlmaze also went to those offices. Mr. Lopatinsky’s own office was at his home. 27   Upon confirmation by Ms. Sokol of entry into the transactions, the plaintiffs gave Mr. Matar a cheque for $480,000.00, drawn in his favour. $20,000.00 of the National Australia Bank facility was undrawn, at Mr. Matar’s request, to cover initial interest payments. The cheque was endorsed by Mr. Matar in favour of R & M, and the evidence does not show that either the cheque or its proceeds were used in the Brighton Boulevarde development. 28   In March 1999, Mr. Matar told the plaintiffs, and also Mr. Lopatinsky, that he had a buyer for Unit 10 for $630,000.00; and Mr. and Mrs. Lopatinsky and the plaintiffs agreed to change the option from Unit 10 to Unit 9. 29   Mr. Baron drew up a document entitled Variation of Option Agreement, and one counterpart of it was executed by the plaintiffs and the other counterpart was purportedly executed by Earlmaze. This counterpart bears the common seal of Earlmaze, and the signatures of Mr. Lopatinsky as director and of Mr. Elcham as secretary. The body of this agreement is in the following terms:

THIS AGREEMENT is made on the 31st day of MARCH 1999
PARTIES
1. EARLMAZE PTY LTD ACN 080 380 212 of 296 Glenmore Road Paddington in the state of New South Wales (the "Grantor") of the first part
2. ILYA SOYFER AND STELLA SOYFER of 13 Chaleyer Street ROSE BAY in the said State (the "Grantee") of the other part

RECITALS
A. The Grantor has granted to the Grantee or its nominee an option to purchase lot 10 in a proposed strata plan identified in the option agreement dated 13 October 1998 (the "option"), as the Property.
B. The Grantor has requested that the Grantee agree to substitute the property identified as lot 10 with Lot 9 in the same proposed strata plan and the Grantee has agreed to do so upon the following terms.

THE PARTIES AGREE:
Interpretation
1. In this agreement unless a contrary intention appears:
(1) "Option" means the option granted under Clause 2(1) of the option agreement dated 13 October 1998 (the "'option");
(2) The singular includes the plural and vice versa.
(3) Words importing a gender include every other gender.
(4) Person includes an individual, firm, body corporate, association (whether incorporated or not) government or governmental, semi governmental and local authority or agency.
(5) Headings are for convenience of reference only and will not affect the construction or interpretation of this agreement.
(6) Where a party to this agreement is more than one person they are jointly and separately liable under the terms of this agreement.

Option
2. (1) The parties hereby agree to vary the terms of the option as follows;
a) substitute Lot 10 with Lot 9 wherever appearing in the option
b) substitute Lot 10 with Lot 9 wherever appearing in the contract for sale annexed to the option other than on the draft strata plan

Confirmation
12. The parties otherwise confirm all the other terms and conditions contained in the said option.

30   The counterpart purportedly executed by Earlmaze was sent, by way of exchange, to Ms. Sokol under cover of a letter dated 1st April 1999. 31   According to Mr. Lopatinsky, when he signed this variation agreement, he believed its effect would be that the plaintiffs would thereafter have an option to purchase Unit 9 for $625,000.00. 32   In about March 1999, the relationship between Mr. and Mrs. Lopatinsky on the one hand, and Mr. Matar and Mr. Elcham on the other, became strained, because Mr. and Mrs. Lopatinsky became concerned about the standard of the development work. 33   In about early April 1999, Mr. and Mrs. Lopatinsky met with Mr. Baron to discuss the possibility of a separation from Mr. Matar and Mr. Elcham. During that meeting, Mr. Baron told Mr. and Mrs. Lopatinsky that Unit 9 had been sold to the plaintiffs for $1,000.00, if Mr. Matar did not repay their loan to them. According to Mr. and Mrs. Lopatinsky, this was the first time that they had any idea that this was so. 34   There is in evidence a record of a facsimile transmission at 1.24pm on 1st April 1999 from Mr. Baron to Mr. and Mrs. Lopatinsky’s accountant, Mr. Lee, of a copy of the 23rd October 1998 option agreement, purportedly at the request of Mr. Lopatinsky. I infer from this that the meeting I have just referred to took place on 1st April, or possibly a day or two earlier. 35   Later in April, there was a meeting between Mr. Baron, Mr. and Mrs. Lopatinsky, Mr. Matar and Mr. Elcham, at which an agreement between Aquagold, Mr. and Mrs. Lopatinsky, R & M, and Mr. Elcham and Mr. Matar, was negotiated. On this basis, Mr. Baron prepared what was described as a “Development Agreement” which was purportedly made on 23rd April 1999. A copy of that agreement is annexed to this judgment. 36   The relevant strata plan was registered in October 1999. In November 1999, Mr. Soyfer asked Mr. Matar for “finalisation” and Mr. Matar told Mr. Soyfer that he did not have the money to repay. The plaintiffs then instructed solicitors, Greaves Wannan & Williams, to exercise the option. 37   On 23rd December 1999, Greaves Wannan & Williams wrote to Baron & Associates, enclosing a cheque for $1,000.00 in favour of Earlmaze. On 24th December 1999, they sent to Baron & Associates a Notice of Exercise of Option, and an executed contract for the sale of Lot 9. On the same day, Baron & Associates returned the $1,000.00 cheque, and sent a notice of rescission of the agreement. Earlmaze, through Mr. Baron, denied any obligation to go through with a sale of Unit 9 for $1,000.00. 38   In March 2000, Mr. Matar stopped paying interest on the NAB loan. These proceedings were commenced on 16th June 2000. 39   On 16th August 2000, Earlmaze’s solicitors, in these proceedings, wrote to Mr. Baron, alleging that he had been negligent in failing to advise Earlmaze in relation to the terms of the option. On 31st August 2000, Mr. Baron replied denying any negligence.

ISSUES

40 Firstly, there are some factual issues. These concern the knowledge of Mr. and Mrs. Lopatinsky in relation to the option agreement of October 1998, and the execution of that agreement; the knowledge of the plaintiffs as to the application of the money lent to Mr. Matar; Mr. Lopatinsky’s knowledge when he entered into the Variation Agreement; and in relation to these matters, the details of certain conversations and the significance of the absence of Mr. Baron from giving evidence in the case. 41 Secondly, there are issues relating to the execution of the option agreement. I have mentioned the factual issue as to whether the agreement was signed by Mr. Lopatinsky. If it was not, there is a question as to whether it was signed with the authority of Mr. Lopatinsky or of Earlmaze; and also the effect of the statutory presumptions contained in ss.128 and 129 of the Corporations Law. 42 Thirdly, there is the question whether, if Earlmaze is not bound by the option agreement, it nevertheless represented that it was entering into such an agreement, thereby misleading the plaintiffs, and thereby entitling them to relief under the Trade Practices Act. Such a representation was made by Mr. Matar, purportedly on behalf of Earlmaze; and also by Mr. Baron, purportedly on behalf of Earlmaze. The question is whether those persons had authority to make such representations, and whether the plaintiffs acted in reliance on them. 43 Fourthly, there are questions associated with the entry into the variation agreement. There is the question whether that agreement was validly executed by Earlmaze. There is the question whether that agreement in some way amounts to a ratification of the option agreement, which in turn could require consideration of Mr. Lopatinsky’s knowledge at relevant times. There is the question of whether the variation agreement could itself operate as an agreement, giving rise to an option in the plaintiffs to purchase Unit 9 for $1,000.00. That question involves the construction of the variation agreement, and also the issue of whether consideration was provided for it. 44 Fifthly, there is the question of whether, by reason of non-payment of the $1,000.00 consideration prior to 23rd December 1999, the option agreement failed for want of consideration, or Earlmaze was entitled to terminate it. 45 Sixthly, there is the question of whether the option was validly exercised. The option agreement provided for exercise by service of a duly executed form of Notice of Exercise, and a duly executed and dated contract. The executed contract which was served with the Notice of Exercise of Option did not have the date filled in. 46 Seventhly, there is the question of precisely what, if any, relief should be given to the plaintiffs against Earlmaze. The main issue raised here was whether there should be some condition which ensured that the plaintiffs did not get a greater benefit from the option than was required to obtain full satisfaction of Mr. Matar’s obligations under the loan agreement. 47 Eighthly, there is the question of the plaintiffs’ remedy against Mr. Matar. Mr. Matar put on a defence to the effect that, if the plaintiffs exercised the option, they should not be entitled to judgment against him for the loan. 48 Finally, there is the question of what, if any, remedy should be given to Earlmaze against Mr. Matar and Mr. Elcham, and/or against R & M, in the event that the plaintiffs recover some remedy against Earlmaze. 49 Both sides have provided written outline of submissions, which I will leave with the papers.

FACTUAL ISSUES
Submissions

50   Mr. Gleeson, for the plaintiffs, submitted that I should find that Mr. Lopatinsky was aware of the terms of the option dated 23rd October 1998. He referred to the facsimile apparently prepared for sending to Mr. and Mrs. Lopatinsky dated 20th October 1998, enclosing Ms. Sokol’s letter setting out the terms of the transaction; and submitted that I should infer that this facsimile was sent and received. Mr. Gleeson pointed out that Mr. Lopatinsky admitted that he had spoken to Mr. Baron concerning the preparation of the option. He submitted it was very unlikely that Mr. Baron would have proceeded unless he had ensured Mr. Lopatinsky was aware of the terms of the option. This was confirmed by the circumstance that Mr. Lopatinsky apparently did not take Mr. Baron to task in April 1999, after (according to Mr. Lopatinsky) he found out the terms of the option for the first time, or pursue any enquiry as to how an option in those terms had come to have been given. The inference could more confidently be drawn because Mr. Baron had not been called. 51   Mr. Gleeson submitted I should also infer that Mr. Lopatinsky signed the option: his account of signing a two-page document, without reading it, was implausible. The variation in his signature could be explained by the circumstances of the signing, namely on his lap in the car. 52   Next, Mr. Gleeson submitted that, in any event, Mr. Lopatinsky was plainly aware of the terms of the original option when the variation agreement was made: the meeting at which he was told of the terms of the previous option, according to him, must have taken place on or before 1st April 1999 - in fact, Mr. Lopatinsky said it was in March 1999 - and the variation agreement was not exchanged until 1st April 1999. 53   Mr. Alexis submitted that, having regard to the claim in negligence foreshadowed against Mr. Baron, no inference should be drawn against Earlmaze from the non-calling of Mr. Baron. 54   Mr. Alexis further submitted that the plaintiffs must have known or suspected that the option was not properly granted by Earlmaze. He submitted that they had been told that no more money was needed for Brighton Boulevarde; they were aware that Mr. Lopatinsky would not “guarantee” a loan to Mr. Matar; and yet they made a loan to Mr. Matar, taking security by way of guarantee given by a company in which Mr. Lopatinsky had a half interest.

Decision

55   It is necessary to come to a view on the nature of the transaction which occurred in connection with the making of the option agreement dated 23rd October 1998, and the role in that transaction of Mr. Matar and Mr. Elcham. The loan agreement asserted that the money lent was for Brighton Boulevarde, a project of Earlmaze; yet the money was paid to Mr. Matar, and then was put in a bank account of R & M, and not shown (as a whole, at least) to have been passed on to Earlmaze or used in the Brighton Boulevarde development. The signature on the option purporting to be that of Mr. Lopatinsky appears very different from Mr. Lopatinsky’s signature. In those circumstances, in the absence of Mr. Matar and Mr. Elcham, I infer, on the balance of probabilities, that Mr. Matar and Mr. Elcham wanted money for some purpose other than a purpose of Earlmaze, and obtained it by Mr. Matar falsely representing to the plaintiffs that all the money was for the Brighton Boulevarde project, in order to suggest a legitimate purpose for the loan and/or to make it plausible that security should be provided from Earlmaze. I also infer, on the balance of probabilities, that Mr. Lopatinsky’s purported signature on that document was forged. 56   In those circumstances, I am not satisfied, on the balance of probabilities, that either Mr. or Mrs. Lopatinsky was aware of the terms of the option agreement, or that they received the facsimile dated 20th October 1998 from Mr. Baron. However, I am satisfied that Mr. Lopatinsky at least was aware that Mr. Baron, as solicitor for Earlmaze, was preparing an option agreement for execution by Earlmaze and submission to the plaintiffs. Indeed, Mr. Lopatinsky accepted that this was so. 57   I am not satisfied that Mr. Lopatinsky was aware, before he signed the Variation Agreement, or indeed before he gave instructions to exchange that agreement, of the actual terms of the option agreement dated 23rd October 1998; nor am I satisfied that he had an opportunity to withdraw his instructions to exchange after he found out about the terms of that option. There is force in Mr. Gleeson’s submission that it is curious that he did not take Mr. Baron to task, or pursue any enquiry as to what had happened; but in my opinion, his priority in April 1999 was to bring about the separation of his affairs and his wife’s affairs from those of Mr. Matar and Mr. Elcham, and so I do not draw an adverse inference against Mr. Lopatinsky on this basis. 58   As regards the plaintiffs, I am not satisfied that they were told that no money was needed for the Brighton Boulevarde project: if anything to that effect was said at the meeting at Mr. and Mrs. Lopatinsky’s house, as suggested by Mrs. Lopatinsky, I am not satisfied that it was taken in by the plaintiffs. I am not satisfied that Mr. Soyfer understood what Mr. Lopatinsky said to him over the telephone about not guaranteeing Mr. Matar as being a refusal to give any kind of guarantee (including a guarantee by Earlmaze) of a loan to Mr. Matar: in my opinion, Mr. Soyfer understood Mr. Lopatinsky’s words, and did so reasonably, as meaning that Mr. Lopatinsky could not give an unqualified assurance that Mr. Matar would repay his debts. 59   I am not satisfied that the plaintiffs suspected that something was wrong because the loan was made to Mr. Matar, and the option was given by Earlmaze, a company of which Mr. Matar was a director. The transaction, structured in that way, might have given rise to suspicion in persons knowledgeable in company law; but it was accepted by two solicitors, and I see no reason not to accept the evidence from the plaintiffs that they did not suspect that anything was amiss.

EXECUTION OF OPTION AGREEMENT
Statutory Provisions

60 Relevant to this question are ss.126-130 of the Corporations Law, which provide as follows:

126.(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.

127(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary - that director.
Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.
(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary---that director.
Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings in relation to the company.
(3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).
(4) This section does not limit the ways in which a company may execute a document (including a deed).

128(1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(2) A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
(4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.

129(1) A person may assume that the company's constitution (if any), and any provisions of this Law that apply to the company as replaceable rules, have been complied with.
(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.
(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.
(4) A person may assume that the officers and agents of the company properly perform their duties to the company.
(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.
(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.
(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.

130(1) A person is not taken to have information about a company merely because the information is available to the public from ASIC.
(2) Subsection (1) does not apply in relation to a document that has been lodged with ASIC to the extent that the document relates to a charge that is registrable under this Law.

Submissions

61 Mr. Gleeson submitted that Mr. Lopatinsky knew and approved of the execution of the option agreement: however, I have rejected that factual submission. 62 He further submitted that, even if Mr. Lopatinsky’s signature had been forged on that document, the plaintiffs can rely on the statutory assumptions in the Corporations Law. It did not matter that the signature was forged: see s.128(3) and cf. Story v. Advance Bank Australia Limited (1993) 31 NSWLR 722 at 732. 63 Mr. Gleeson submitted that s.129(6) meant that the plaintiffs could assume that the option had been duly executed, because the company’s common seal appeared to have been fixed in accordance with s.127(2); and this fixing appeared to have been witnessed by a director and company secretary in accordance with s.127(2)(b), because the signatures appeared to be those of a director and secretary of Earlmaze by reason of the descriptions appearing under the signatures. 64 Mr. Alexis submitted that the option had not been signed, and did not appear to have been signed, by a director and secretary of Earlmaze. It was not in fact signed by Mr. Lopatinsky, and the other signatory, Mr. Elcham, was neither a director nor a secretary. A search obtained prior to the execution of the option by Ms. Sokol showed that Mr. Lopatinsky and Mr. Matar were the only directors and secretaries; and the loan agreement had been signed by Mr. Matar, and his signature plainly did not appear on the option agreement. 65 Mr. Alexis submitted that, for s.129(6) of the Corporations Law to apply, the signatures must purport to be those of persons shown on the register as directors and/or secretaries, or else persons otherwise held out by the company as directors and/or secretaries: cf. s.129(2) and (3). He further submitted that s.128(3) did not apply, because the forgery could be inferred to have been effected by Mr. Elcham who was neither an officer nor an agent of Earlmaze. 66 Alternatively, Mr. Alexis submitted, the plaintiff must, within the meaning of s.128(4), have suspected that the persons who signed the option had not been duly appointed, that Earlmaze’s constitution had not been complied with, that Mr. Matar had not properly performed his duties, and that the document had not been duly executed.

Decision

67 In order that any of the assumptions referred to in s.129 may be made, it is first necessary that the assumptions be “in relation to dealings with a company” within s.128(1), and in my opinion, this must be dealings by the person seeking to rely on the assumptions: cf. Story at p.732-3. 68 In my opinion, on or about 23rd October 1998 the plaintiffs were engaged in “dealings with” Earlmaze. There could be a question whether the dealings they had had with Mr. Matar qualified as dealings with Earlmaze: although Mr. Matar was a director of Earlmaze, he did not in my opinion have actual or ostensible authority to negotiate in relation to an option to dispose of property of Earlmaze worth $625,000.00 or thereabouts for $1,000.00. However, by 23rd October 1998 the plaintiffs were, through their solicitor Ms. Sokol, dealing with Mr. Baron, a solicitor who had been engaged by Earlmaze to act in relation to an option for the disposal of Earlmaze property. In my opinion, Mr. Baron did have instructions from both directors to act in relation to that matter, albeit that his instructions from Mr. Lopatinsky were given under a mistake by Mr. Lopatinsky as to the nature of the option which was proposed. I do not think that mistake negatives Mr. Baron’s authority, on behalf of Earlmaze, to act as a solicitor in relation to the proposed option. Accordingly, I find that the plaintiffs were entitled to make the assumptions in s.129 of the Corporations Law in relation to their dealings with Earlmaze through Mr. Baron. 69 The next question is whether the plaintiffs are disentitled to make any particular assumption, on the ground that, at the time of the dealings, they knew or suspected that the assumption was incorrect, as contemplated by s.128(4). In my opinion, the onus of proof in relation to that provision lies on whoever is challenging the person’s entitlement to make the assumption. 70 In my opinion, entitlement to make an assumption is lost under s.128(4) only if it is shown that the person in question actually knew or actually suspected that the assumption in question was incorrect: the words are plainly not apt to cover the case where circumstances are such as to put a reasonable person upon enquiry, but where the person in question has no actual knowledge or actual suspicion. An argument to the contrary can be mounted by reference to the explanatory memorandum to the Company Law Review Bill 1997, which states in relation to s.128(4):

This objective test is stricter than the current law and makes it clear that the common law “put upon enquiry” test has no application to the statutory provisions: see Bank of New Zealand v. Fiberi Pty. Limited (1994) 12 ACLC 48; 14 ACSR 736.

71 There is in that memorandum a possible internal conflict between the suggestion that the test in s.128(4) is an objective test, and the suggestion that it does away with the common law “put upon enquiry” test. In my opinion, it is the reference to an objective test which is potentially misleading in the Memorandum: it could perhaps be explained on the basis that the actual holding of a suspicion, although in one sense subjective, is a matter of fact, and is in that sense objective; whereas something of a value judgment is required in order to decide whether or not someone is put on enquiry. The fact that the “put upon enquiry” test is said to be displaced confirms the clear meaning of the provision, namely that it is actual knowledge or actual suspicion which is necessary. Accordingly, I disagree with the suggestion put forward in (1998) 16 Company & Securities Law Journal at 562-5, and agree in general terms with the contrary suggestion put forward in (2000) 18 Company & Securities Law Journal at 50-61. In the latter reference, there is a suggestion that the requirement of knowledge also embraces “wilful blindness”: I disagree with that, but probably it makes no difference, because wilful blindness almost inevitably involves actual suspicion. 72 In this case, I have held that the plaintiffs had no relevant knowledge or suspicion; and it was not submitted that Ms. Sokol had any relevant knowledge or suspicion. 73 The next question is whether it can be said in this case that the fixing of the common seal appeared to have been witnessed in accordance with s.127(2), that is, relevantly, by a director and a company secretary of the company. The document contains two illegible signatures, respectively above the words “director” and “secretary”. However, the names of the persons purporting to sign are not indicated on the document, and in fact the name of one of the actual signatories, Mr. Elcham, was not included among the names of persons held out by the company to be directors or secretaries of the company or shown on information provided by the company to ASIC to be directors or secretaries of the company. Furthermore, the information provided by the company through ASIC showed that Mr. Matar was one person whose signature was necessary; and it was obvious from Mr. Matar’s signature on the loan document that he did not sign the option document. 74 Section 129(6)(b), in combination with s.129(2), (3) and (8), makes it clear that it is sufficient, for the assumption in s.129(6) to be made, that the signatures give the appearance of being by persons shown in the information provided by the company through ASIC or otherwise held out by the company to be the appropriate signatories. The question is whether this is necessary. On one approach, it could be said that the appearance that the fixing of the company seal has been witnessed by a director and a secretary of the company is given by a document containing the common seal, and containing signatures, even illegible signatures, above the words “director” and “secretary”. 75 However, the contrary is assumed in the article referred to earlier in (2000) 18 Company & Securities Law Journal, at 52. I note that, under the relevant provision applicable prior to 1st July 1998, namely s.164(3) of the Corporations Law, the relevant assumption depended upon the appearance that the witnessing of the seal was by person(s) who “may be assumed to be” the relevant officer(s), by reason of returns lodged or other holding out by the company. That wording is absent from s.129, although it could be argued that it is implicit in s.129(8), which in effect permits assumptions to be accumulated. And the explanatory memorandum in relation to s.129 makes no suggestion that a change is intended in this respect. 76 It could be suggested that the first approach mentioned receives some support from the last sentence of s.129(6). If the signature(s) accompanying the seal must appear to be those of named persons who either are the appropriate officers in fact, or else appear from information provided by the company through ASIC or are otherwise held out by the company to be the appropriate officers, it could be argued that, where a person thus appears or is held out to be sole director and sole secretary, it could be assumed that this person was duly appointed as such and the last sentence of s.129(6) would be otiose. On the other hand, if it is sufficient that there be a seal with signature(s) appearing to be that of the person(s) described as having the appropriate office, then something more would be required to establish or justify an assumption of the precondition in s.127(2)(c), namely that the company in question “has a sole director who is also the sole company secretary”, this precondition not being part of the mode of execution which may be assumed. 77 I do not think this is a strong argument. Even if the signature(s) did have to appear to be those of named persons who are, or appear or are held out to be, appropriate officers, it may be sufficient for this hurdle that a single signatory be held out as a director and/or a secretary, in which case the last sentence in s.129(6) would have work to do. Further, even if information to ASIC showed the named person to be the only director and secretary, it could be argued that s.129(2) only justified the assumption that this person was duly appointed as a director and a secretary, not that he or she was the sole director and sole company secretary. 78 Ultimately, in my opinion, it is a question of what the words of s.129(6) mean, in their context. It seems that the appearance in question there is not appearance to the person dealing with the company, having regard to that person’s actual knowledge or assumptions; and indeed that there is no need that the person in question actually make any of the assumptions in question: see the second sentence of s.128(1), and cf. Lyford v. Media Portfolio Ltd. (1989) 7 ACLC 271. Rather, it is that the company’s seal objectively appears to have been fixed and witnessed in accordance with s.127(2), that is, relevantly, “witnessed by ... a director and company secretary of the company”. With some hesitation, I consider that a document bearing a company seal with signatures respectively above the words “director” and “secretary” does objectively appear to be so witnessed. 79 The next question is whether the appearance that a document has been witnessed as required by s.127(2) would be negatived if there is other material available to the person dealing with the company which would, if understood, show that one or more of the signatures was not that of a director or secretary of the company. In my opinion, it would not: for such material to preclude the entitlement to rely on the assumption in s.129(6), it must in my opinion give rise to the knowledge or suspicion referred to in s.128(4). Accordingly, I do not think the presence of Mr. Matar’s signature on the loan agreement, and its absence from the option agreement, precludes reliance on ss.128 and 129. 80 Mr. Alexis submitted that s.128(3) only applied if the relevant fraud or forgery was by an officer or agent of the company; and that Mr. Elcham was not an officer or agent of Earlmaze. However, in my opinion the fraud or forgery does not need to be within the agent’s authority in such a way as would make the company liable for it within the principle of Lloyd v. Grace Smith & Co. (1912) AC 716. In my opinion, it is sufficient that the person in question be an agent of the company in the sense of having some legitimate role on behalf of the company in relation to the dealings in question; and it is not suggested that Mr. Elcham did not have such a role, for example in conveying documents to Mr. Baron. 81 It might be said that all this makes it too easy for persons dealing with companies to establish the liability of the company under a sealed document. However, if such a person is dealing with persons associated with a company who execute documents honestly but mistakenly on behalf of the company, I do not see that the company should benefit from discrepancies with its published documents; while if, as in this case, the person is dealing with persons associated with the company who are apparently prepared to be fraudulent and to forge signatures, it gives little more protection to a company to require that a forger state a name on the document which is the correct name of a director or secretary shown in information given through ASIC. 82 In fact, some protection to the company is given by the requirement that the person must be engaged in dealings with the company in the first place; which in my opinion means that there must be dealings (in the sense of negotiations or other steps in relation to a contemplated transaction) with someone on behalf of the company which are dealings authorised by the company, and the document in respect of which the assumptions may be made must be a document which is “in relation to” those authorised dealings (and I take this to extend to a document arising out of authorised negotiations or other steps). I note that in Story at 733, Gleeson, CJ suggested that the concept of having dealings with a company must embrace purported dealings, because if the provisions only applied where the person representing the company had actual authority, they would be largely unnecessary. I take this as meaning that it is not necessary that the person representing the company have authority from the company to commit the company to the relevant transactions or execute the relevant documents; but in my opinion, it is necessary that the person have authority to undertake some negotiation or other steps, so that the dealings, in relation to which the document is executed, are properly considered to be dealings with the company. 83   Finally, I should note an argument which was not advanced at the hearing, but which is put in an article in (1999) 10 Journal of Banking and Finance Law and Practice 38-53; namely that it is necessary to consider separately the questions of formal authority (whether company’s assent to the transaction is in proper form) and substantive authority (whether the company has authorised the transaction). I agree with the authors that there is some support for that proposition, in relation to the general law position, in the judgments of the High Court (apart from Mason CJ) in Northside Developments Pty. Ltd. v. Registrar-General (1990) 170 CLR 146. However, I do not think the other authorities cited in the article support that proposition in relation to a person entitled to make the statutory assumptions; and if it can be assumed (and cannot be denied by the company) that a company has duly executed a document, I do not think there is any separate question as to whether this was duly authorised. In any event, under s.129(8) of the Corporations Law, the assumptions in s.129 are cumulative; and once one can assume under s.129(6) that a document has been duly executed, one can also assume under s.129(1) that the company’s constitution has been complied with, so as to authorise that due execution. Of course, a person who fails in relation to formal authority may still possibly succeed if substantive authority is shown. 84 Accordingly, in my opinion, the plaintiffs are entitled to rely on an assumption that the option agreement was duly executed by the company, and the company Earlmaze is precluded by s.128 from asserting to the contrary.

TRADE PRACTICES ACT
Submissions

85   Mr. Gleeson submitted that Mr. Matar represented to the plaintiffs that Earlmaze would grant them an option to purchase Unit 10 for $1,000.00, in consideration of the $500,000.00 loan to Mr. Matar. He submitted that Mr. Baron also made this representation to the plaintiffs, through Ms. Sokol. Mr. Gleeson submitted that Mr. Lopatinsky had authorised Mr. Matar to deal with the plaintiffs in relation to the proposed option, and also authorised Mr. Baron to prepare the option and carry the transaction through. These representations were made in trade or commerce, namely in connection with Earlmaze’s activities as a property developer. Accordingly, if the option was not duly executed by Earlmaze, and if the plaintiffs are thereby unable to get the benefit of the option, Earlmaze will be liable for these misrepresentations. 86   Mr Alexis submitted that Mr. Matar did not have actual or ostensible authority to deal in relation to such an extraordinary option; and in relation to Mr. Baron, Mr. Alexis submitted that the plaintiffs were put on enquiry that this was not a transaction authorised by Earlmaze, and accordingly were not entitled to rely on any representation by Mr. Baron.

Decision

87   I accept that Mr. Matar was not actually authorised to represent that Earlmaze would enter into such a transaction, and that such a representation was not otherwise within his actual authority. I accept also that Mr. Matar was not held out by Earlmaze as having such authority. 88   As regards Mr. Baron, Mr. Lopatinsky did authorise Mr. Baron to prepare and submit the option agreement, and in my opinion the fact that Mr. Lopatinsky was mistaken as to the contents of the agreement that Mr. Baron was preparing does not negative Mr. Baron’s authority to make representations on behalf of the company Earlmaze in the course of doing that work. In my opinion, Mr. Baron’s representation as to what Earlmaze was prepared to do was a representation binding Earlmaze. 89   In my opinion, the plaintiffs did rely on that representation in advancing $500,000.00 to Mr. Matar; and although there were circumstances that might have put some persons on enquiry, I note that they did not in fact raise concerns in the solicitors involved, and I see no reason for finding that the plaintiffs’ reliance on the representation was unreasonable so as to deprive them of a remedy against Earlmaze. 90   Of course, this question would only arise, and need pursuing further, if I had held that Earlmaze was not bound by the option agreement.

VARIATION AGREEMENT
Submissions

91   Mr. Gleeson submitted that the variation agreement clearly bound Earlmaze, because its execution had been authorised by both directors Mr. Lopatinsky and Mr. Matar. Accordingly, even though it had been witnessed as secretary by Mr. Elcham, who was not a secretary or director, it should be inferred that Mr. Elcham had been authorised to witness this agreement under Article 84(2) of Earlmaze’s Articles of Association. Alternatively, execution by one director on the authority of both was sufficient, in relation to an agreement which did not have to be sealed: see MYT Engineering Pty. Limited v. Mulcon Pty. Limited (1999) 30 ACSR 705 at 713. Furthermore, all shareholders assented to this agreement: see Re Compaction Systems (1976) 2 NSWLR 477 at 484; Sutherland v. Robert Bosch (Australia) Pty. Limited (2000) 33 ACSR 680 at 687. The circumstance that Mr. Lopatinsky may have been mistaken as to the contents or effect of this agreement was irrelevant: see L’Estrange v. F. Graucob Limited (1934) 2 KB 394 at 403. 92 Mr. Gleeson submitted that the variation agreement amounted to a ratification of the original option agreement, or alternatively a new agreement giving rise to an option in relation to Unit 9, enforceable against Earlmaze. 93 Mr. Alexis submitted that this transaction could not operate as a ratification, because Mr. Lopatinsky did not know the true terms of the agreement said to have been ratified; and because there cannot be ratification of a forgery: see Brook v. Hook (1871) LR 6 Exch. 89; Rowe v. B & R Nominees Pty. Limited (1964) VR 477. Furthermore, Mr. Alexis submitted, it could not operate on its own as a new agreement. Clause 2 purported only to vary the original agreement; and a variation of a nullity is still a nullity. Furthermore, the reference to confirmation in cl.3 was inappropriate to create a new agreement.

Decision

94   I accept Mr. Gleeson’s submission that Earlmaze is bound by the execution of the variation agreement, notwithstanding the participation of Mr. Elcham, who was neither a director or secretary. I think that position is made out on each of the three grounds referred to by Mr. Gleeson. 95   I do not think that the variation agreement would have operated as a ratification of the previous transactions, if that transaction was not otherwise binding on Earlmaze. I think ratification does require understanding of what is being ratified, and I am not satisfied that, at the relevant time, Mr. Lopatinsky had that understanding. I do not need to consider whether a forgery can be ratified. 96   However, in my opinion, the variation agreement would operate as a new agreement, even if the option agreement did not bind Earlmaze. 97   In my opinion, the variation agreement plainly manifests an intention by Earlmaze that the plaintiffs should have the benefit of an option to purchase Unit 9 for $1,000.00. The circumstance that Mr. Lopatinsky was not aware that that was the intention manifested by the agreement is irrelevant. There plainly is consideration for such an agreement, even if the previous option agreement did not bind Earlmaze. The plaintiffs plainly had a bona fide belief that they did have the benefit of the previous agreement, and in my opinion, that is sufficient consideration: cf. Wigan v. Edwards (1973) 47 ALJR 586. 98 However, since I have decided that the original option agreement binds the company, there really is no question about the efficacy of the variation agreement.

NON-PAYMENT OF $1,000
Submissions

99   Mr. Alexis submitted that the option had been granted in consideration of Earlmaze receiving $1,000.00: see Recital B and the Interpretation clause. The $1,000.00 was not paid, so there was no consideration for the option. Mr. Alexis referred me to Himbleton Pty. Limited v Kumagai NSW Pty. Limited (1991) 29 NSWLR 44 at 51f; but submitted that this particular option should not be construed as being granted in return for a promise of $1,000.00. He submitted that the loan to Mr. Matar was not consideration, because the money did not go to Earlmaze, and the loan had not been requested by Earlmaze. In the alternative, Mr. Alexis submitted that the failure to pay $1,000.00 was a fundamental breach, justifying rescission. 100 Mr. Gleeson submitted that the option was not invalid for want of consideration. In addition to the $1,000.00 to be paid for it, there was the consideration of a loan made to Mr. Matar for the purpose of assisting with Earlmaze’s Brighton Boulevarde development. This consideration could be shown by parol evidence: see Yaroomba Beach Development Co. Pty. Limited v. Souer de Lion Investments Pty. Limited (1989) 18 NSWLR 398 at 407-8; Barba v. Gas & Fuel Corporation of Victoria (1976) 136 CLR 120 at 131-2. This was, in any event, confirmed by cl.6 of the option agreement. 101 The $1,000.00 was paid on 23rd December 1999. If the option was in return for actual payment, rather than a promise to pay, then it constituted an offer which was accepted by actual payment: see Michael v. Barnes, Needham, J., NSWSC, 12/5/87. 102   Furthermore, Mr. Gleeson submitted, Earlmaze entered into the variation agreement, notwithstanding the non-payment of $1,000.00. It thereby represented that a binding agreement had been entered into, and in reliance on that representation, Earlmaze did not pay the $1,000.00 until 23rd December 1999. 103   Mr. Gleeson submitted that the late payment of the $1,000.00 could not be a fundamental breach, but at most could give rise to a right to rescind only after notice had been given in accordance with cl.7 of the option agreement.

Decision

104   In my opinion, the option was not invalid for want of consideration. As submitted by Mr. Gleeson, there was other consideration: since Earlmaze is bound by the execution of the option agreement, with its reference in cl.6 to the loan, it is bound to treat the loan as consideration. In any event, in my opinion, the provision concerning $1,000.00 should be construed as giving rise to a promise to pay $1,000.00, as discussed in Himbleton. 105   In my opinion also, there was no fundamental breach entitling rescission. This is established by the entry into the variation agreement, notwithstanding the non-payment of the $1,000.00; and in my opinion, it is clear that, in order to rescind on the basis of the non-payment of $1,000.00, the procedure provided by cl.7 would need to be followed.

EXERCISE OF OPTION
Submissions

106   Mr. Alexis pointed to the requirement in cl.2(1)(a)(ii) that, as part of the exercise of the option, there had to be provision of a form of contract which had been both executed and also dated. Clause 2(3) confirmed this, by requiring the counterpart to be provided by the vendor to bear the same date.

Decision

107   This option can be regarded as an irrevocable offer to enter into a contract. Where such an option prescribes the time and manner of acceptance, any purported acceptance which does not comply with the prescribed time and manner is not an acceptance, but a counter-offer: see Gilbert J. McCaul Australia Pty. Limited v. Pitt Club Limited (1959) SR(NSW) 122. 108 However, if there is a literal but immaterial difference between an offer and a purported acceptance, then it seems clear that this is a true acceptance and not a counter-offer: see Harrison v. Battye (1975) 1 WLR 58; Quadling v. Robinson (1976) 137 CLR 192; Domb v. Isoz (1980) Ch. 548 at 599. In the case of exercise of an option, the Court should not be too ready to characterise a difference as immaterial: if a condition for exercise of an option is the absence of breaches of a lease, then even minor breaches would preclude the exercise. Furthermore, the purported exercise of an option even one day late would be a material difference between the offer and the acceptance. 109 In this case, in my opinion, there is in fact literal compliance with the requirement of the option. Clause 2(3) of the option makes it clear that the date of the contract is to be the date of actual exercise of the option. That date is in this case clearly established by the dated letter enclosing the Notice of Exercise of Option and the contract, which was delivered on that date by courier. Although the enclosed form of contract gives as the date “1998”, it goes on to provide “(if not stated, the date this contract was made)”. The absence of any identification of the date, apart from the year 1998, in my opinion brings into play the words in the parenthesis, so that the contract, on its face, is to be considered as dated on the day it was made; and that is clearly 24th December 1999. In that sense, the contract is dated. 110 Even if that analysis is incorrect, in my opinion any discrepancy between the terms of the offer and terms of the acceptance would be entirely immaterial, and not such as to prevent the formation of a contract.

REMEDY TO PLAINTIFF
Submissions

111   Mr. Alexis did not contest that, if the decision is otherwise in favour of the plaintiffs, the plaintiffs were entitled to specific performance. However, he submitted that there should be a condition imposed ensuring that they do not benefit from the agreement to any greater extent than the amount owing to them from Mr. Matar. Mr. Gleeson submitted that there was no evidence that the unit was worth any more than the debt owing.

Decision

112   In my opinion, the Court can reach a conclusion as to the true nature of the transaction, as being not an outright option to purchase, but rather an option to acquire title to the unit as security for payment of the moneys due by Mr. Matar; and accordingly, in my opinion, Earlmaze has an equity of redemption in the property, and the plaintiffs do not acquire outright ownership of it. On that analysis, the unit can either be released to Earlmaze at an agreed value, or alternatively the plaintiffs can sell it in effect as mortgagees. That approach was not explicitly argued before me, and if either party wishes, I would be prepared to hear further submissions on it.

PLAINTIFFS’ CLAIM AGAINST MR. MATAR

113   The only substantial defence to this claim is to the effect that the plaintiffs cannot both exercise the option and claim the debt. 114   On the approach I have taken, that the option is a security, the plaintiffs can have the benefit both of the security and a judgment for the debt; subject of course to the condition that they cannot obtain more than the amount payable to them by Mr. Matar and costs.

EARLMAZE’S CLAIM AGAINST MR. MATAR AND MR. ELCHAM

115   In my opinion, any liability by Earlmaze to the plaintiffs has been caused by breaches of obligations owed by Mr. Matar and Mr. Elcham to Earlmaze, as officers and/or employees of Earlmaze; and perhaps also by their fraud, although I do not need to come to a final decision on that. In my opinion, Earlmaze is entitled to be indemnified by Mr. Matar and Mr. Elcham for losses it suffers by reason of its liability to the plaintiffs. 116   Furthermore, Earlmaze is entitled to similar relief against Mr. Matar, Mr. Elcham and R & M pursuant to the Development Agreement of 23rd April 1999.

CONCLUSION

117   For the reasons I have given, in my opinion the plaintiffs are entitled to specific performance of the option. However, subject to further submissions, I would propose to declare that they will hold the unit as security for Mr. Matar’s debt, and I would grant liberty to apply in relation to further relief arising from that position. 118   I will give judgment against Mr. Matar for the amount of the debt, and interest. However, I would make an order appropriate to prevent any double recovery. 119   In my opinion, the plaintiffs are entitled to an order that their costs of the proceedings be paid by Earlmaze and by Mr. Matar. 120   In my opinion, Earlmaze is entitled to an order that its costs of the proceedings, and also the costs which it has to pay to the plaintiffs, should be paid to it by Mr. Matar and Mr. Elcham. I would also declare that Earlmaze is entitled to be indemnified by Mr. Matar, Mr. Elcham and R & M against loss caused by the option agreement and the plaintiffs' exercise of the option; and I would reserve liberty to apply for further relief in relation to that matter also.

ADDENDUM
Friday 24th November 2000

121   HIS HONOUR: Mr. Alexis has drawn my attention to paragraph 72 of my judgment, and told me that he did submit that Ms. Sokol did have relevant knowledge or suspicion, and that to that submission I had responded to the effect that it would have been unlikely that, having that knowledge or suspicion, she would have gone ahead to settle the transaction, and advise her client to hand over $500,000.00. I did not keep a note of that, and had forgotten it when I wrote the judgment, but I accept entirely that that exchange took place. 122   Although there is material that could have supported an inference that Ms. Sokol did have relevant knowledge or suspicion, and although Ms. Sokol did not give evidence, I think the consideration that I put to Mr. Alexis in argument does mean that the inference that she did in fact have the knowledge or suspicion should not be drawn. I do note that this matter would not, in my view, affect in any event the decision I expressed on the variation agreement or the Trade Practices misrepresentation claim. 123   Mr. Alexis also submitted that the appropriate order to give effect to my judgment would be in terms of giving the plaintiffs a charge over the unit. In my opinion, the security contemplated was by way of a legal transfer subject to an equity of redemption, and I propose to make orders giving effect to that. 124   I make orders in accordance with the Short Minutes of Order which I initial and date. 125   I direct that within seven days of receipt of the vendor’s signed counter-part, the plaintiffs attend to stamping the contract. 126   I give liberty to the plaintiffs, on three days’ notice, to apply in respect of any application that Earlmaze account for rents received in respect of the subject property. 127   The exhibits may be returned after 28 days if there is no appeal.

Last Modified: 11/24/2000