The Key Result v Wright
[2005] WASC 94
THE KEY RESULT -v- WRIGHT & ORS [2005] WASC 94
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 94 | |
| Case No: | CIV:2632/2004 | 13 APRIL 2005 | |
| Coram: | COMMISSIONER MCKERRACHER QC | 13/04/05 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Application to extend caveat granted | ||
| B | |||
| PDF Version |
| Parties: | THE KEY RESULT (ACN 105 567 271) KIMBERLEY JOHN WRIGHT DEBRA LEANNE WRIGHT REGISTRAR OF TITLES |
Catchwords: | Caveat extension Caveat replacing allegedly unauthorised withdrawal of caveat "Indoor Management rule" Grounds for suspension as to authority of director of company Transaction unusual Subjective or objective tests |
Legislation: | Corporations Act 2001, s 128(4), s 129(7) Transfer of Land Act 1893, s 138B(1), s 138C(2)(a) |
Case References: | Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Anor (2004) 51 ACSR 147 Bell Resources Holdings Pty Ltd v Commissioner for Australian Capital Territory Revenue Collections (1990) 22 FCR 178 Brick & Pipe Industries v Occidental Life Nominees Pty Ltd & Ors (1990) 3 ACSR 649 Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 Flinders Diamonds Ltd v Tiger International Resources Inc & Ors (2004) 49 ACSR 1999 Hohensee v Ocean Breed Pty Ltd (2004) 61 IPR 195 Jandric v Jandric [1999] WASC 22 Midland Brick Co Pty Ltd v Walsh & Another [2002] WASC 248 National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd (in liq), unreported; SCt of Vic; Library No 5330 of 2001; 31 January 2002 Northside Developments Pty Ltd v Registrar-General & Others (1990) 170 CLR 146 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 Royal British Bank v Turquand (1856) 119 ER 886 Story v Advance Bank Australia Ltd & Ors (1993) 31 NSWLR 722 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
KIMBERLEY JOHN WRIGHT
DEBRA LEANNE WRIGHT
First Defendants
REGISTRAR OF TITLES
Second Defendant
Catchwords:
Caveat extension - Caveat replacing allegedly unauthorised withdrawal of caveat - "Indoor Management rule" - Grounds for suspension as to authority of director of company - Transaction unusual - Subjective or objective tests
Legislation:
Corporations Act 2001, s 128(4), s 129(7)
Transfer of Land Act 1893, s 138B(1), s 138C(2)(a)
(Page 2)
Result:
Application to extend caveat granted
Category: B
Representation:
Counsel:
Plaintiff : Mr P T Arns
First Defendants : Mr A D Wilson
Second Defendant : No appearance
Solicitors:
Plaintiff : Arns & Associates
First Defendants : Frichot & Frichot
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Anor (2004) 51 ACSR 147
Bell Resources Holdings Pty Ltd v Commissioner for Australian Capital Territory Revenue Collections (1990) 22 FCR 178
Brick & Pipe Industries v Occidental Life Nominees Pty Ltd & Ors (1990) 3 ACSR 649
Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129
Flinders Diamonds Ltd v Tiger International Resources Inc & Ors (2004) 49 ACSR 1999
Hohensee v Ocean Breed Pty Ltd (2004) 61 IPR 195
Jandric v Jandric [1999] WASC 22
Midland Brick Co Pty Ltd v Walsh & Another [2002] WASC 248
National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd (in liq), unreported; SCt of Vic; Library No 5330 of 2001; 31 January 2002
Northside Developments Pty Ltd v Registrar-General & Others (1990) 170 CLR 146
(Page 3)
Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266
Royal British Bank v Turquand (1856) 119 ER 886
Story v Advance Bank Australia Ltd & Ors (1993) 31 NSWLR 722
Case(s) also cited:
Nil
(Page 4)
1 COMMISSIONER MCKERRACHER QC: This is the plaintiff's application by originating summons for the extension of a caveat in respect of property in Western Australia owned by the first defendants ("the land").
2 The caveat has previously been extended on two occasions on an interim basis prior to an extension yesterday afternoon which I ordered pending delivery of these reasons. I have added some reference to authority on editing the reasons.
3 The second defendant has played no part in these proceedings.
4 The application is made pursuant to s 138C of the Transfer of Land Act 1893 ("the Act") which, relevantly for the purposes of these proceedings, provides that a caveator who has been served with a notice under s 138B(1) may apply to the Supreme Court in accordance with the Rules of the Court for an order extending the operation of the caveat.
5 By subs (2) on the hearing of such an application the Supreme Court:
"(a) if satisfied that the caveator's claim has or may have substance may make an order extending the operation of the caveat for such period as is specified in the order; and
(b) may make an order extending the operation of the caveat until the further order of the Court."
6 In support of the application the plaintiff relies upon an affidavit of Peter Gerard Scully who lives in Victoria, as well as a short affidavit sworn by Mr Arns to which I will refer in a moment. The defendant relies upon an affidavit of Mr Wilson originally sworn on 14 January 2005.
7 Mr Scully is now a director of the plaintiff, which he describes as being essentially a financier. The plaintiff commenced trading on 17 July 2003 and Mr Scully was appointed its manager. Its sole director was a Mr Dragan Okovic.
8 On 1 September 2003 the plaintiff advanced a loan to the first defendants in the sum of $120,000 to help them with the purchase of a commercial fishing vessel and licence. The funds advanced were to be used as a deposit on the vessel.
9 Mr Scully says the first defendants informed him that the loan advance was a deposit paid to the vendor to hold the vessel until the defendants were able to acquire the funds needed from another finance
(Page 5)
- company. The terms of the loan are set out in a deed of mortgage which was executed by the first defendants and stamped on 16 September 2003.
10 In part those funds advanced by the plaintiff were made available by investors in the plaintiff company, Mr and Mrs Erdeli.
11 Relevantly, the terms of the mortgage contemplated repayment of the loan on 9 November 2003, with additional sums payable if the loan was repaid after that date. That additional sum was to be $70,000. If it was paid before that date the amount payable would be $160,000, comprising the principal of $120,000 and an additional sum of $40,000. In addition, interest was to be payable and to accrue on the principal sum from 10 November 2003, that is the date after the due date for repayment. No point has been taken as to these terms. Payment in accordance with them has not yet been made.
12 The mortgage was not registered but the plaintiff instructed its solicitors to register a caveat against the land owned by the first defendants, claiming an interest in the land as equitable mortgagee. On 17 September 2003 a caveat was registered against the land ("the First Caveat"). There was no dispute by the first defendants as to the plaintiff's entitlement to do so.
13 The loan was not repaid on 9 November 2003. Mr Scully swore to the fact that he believed that in late 2003 or early 2004 the first defendant entered into negotiations with Gail Rowe and Jack Papas trading as First Choice Finance Centre. The offices of that entity are situated in Queensland.
14 Mr Scully said that he was aware from his discussions with Mr Papas that the first defendant engaged the services of First Choice Finance Centre ("First Choice") to obtain finance to allow them to complete the purchase of the fishing vessel and licence. Mr Scully was told by Mr Papas that part of the funds would also be used to repay the loan to the plaintiff. The defendants have not denied any of these facts.
15 In approximately January 2004 the plaintiff began to insist that the first defendants repay the loan and on about 20 January 2004 First Choice agreed to advance, as a form of bridging loan to the plaintiff, an amount of $50,000. The plaintiff in turn agreed that in consideration of that advance it would postpone taking any action at that stage against the first defendants in respect of the outstanding loan. This arrangement was negotiated by Mr Okovic on behalf of the plaintiff.
(Page 6)
16 The advance which was made by First Choice to the plaintiff was documented in an agreement of 20 January 2004, the parties to that being First Choice and Mr Okovic and his wife Olivera Paola, "trading as The Key Result Pty Ltd" (sic). The first defendant was not a party to that agreement. In addition there was a bill of sale which does make reference to security being granted in respect of the First Caveat.
17 Following these events the relationship between Mr Scully and Mr Okovic deteriorated. The involvement of the plaintiff in the business was significantly reduced. On 8 April 2004, however, Mr Okovic contacted Mr Scully and told him that he was willing to resign as the sole director of the plaintiff and that he and his wife would cease their association with the plaintiff.
18 Mr Okovic told Mr Scully that his wife would transfer to Mr Scully or Mr Scully's nominee the shares which she held in the plaintiff. Mr Okovic signed a minute of a meeting of 13 April 2004 recording his resignation as a director and the approval of the transfer of his wife's shares in the plaintiff to him. As far as Mr Scully was concerned, therefore, the involvement of Mr Okovic and his wife with the plaintiff ended on 13 April 2004.
19 Subsequently in early May Mr Scully was phoned by Mr Erdeli, who expressed concern about the loan to the first defendants. Mr Erdeli told Mr Scully that he had been in contact with Mr Papas about the loan to the first defendants and Mr Papas had sent to him several items of correspondence between First Choice, the plaintiff, and the first defendants.
20 Mr Scully asked Mr Erdeli to send copies of that correspondence to him and Mr Erdeli forwarded to him several documents. The first was a letter from First Choice to the Erdelis of 14 April 2004. It dealt with the removal of the First Caveat over the land for a total payout directly to the Erdelis of some $90,000.
21 There was also a letter on the plaintiff's letterhead to the first and second defendants of 5 April 2004 which was unsigned and purported to make and propose different arrangements.
22 There was also a letter on the plaintiff's letterhead to the defendants and apparently signed inter alia by Okovic dated 12 April 2004 but stamped "received" 20 April. It referred to slightly different arrangements again for the discharge of the liability of the first defendants.
(Page 7)
23 Finally, there is a letter from First Choice to the first defendants of 12 April 2004 dealing in substance with the same topic.
24 I might say that none of these communications appears to be models of business writing precision nor are they consistent in their terms or effect. It is also of note that the 14 April letter was sent direct to Mr and Mrs Erdeli, who were neither the mortgagee nor the caveator. Nevertheless the content of these documents does support the concern which Mr Erdeli had expressed to Mr Scully about the state of the investment that had been made by the Erdelis.
25 Mr Scully received a telephone call from Mr Papas late in April 2004 requesting the plaintiff to consent to the withdrawal of the First Caveat in exchange for the plaintiff receiving $100,000 in part repayment of the loan. Mr Scully rejected that proposal and told Mr Papas that he would not consent to the withdrawal of the caveat unless the entire loan was repaid.
26 On or about 17 May 2004 Mr Scully became aware that the First Caveat had been withdrawn. He contacted solicitors and instructed them to lodge a further caveat. As a result a second caveat was lodged on 18 May 2004. It is the caveat to which these proceedings are directed ("the Second Caveat").
27 The Second Caveat claims the same caveatable interest as the First Caveat in respect of the debt still due and owing and protected by the equitable mortgage. At about the same time Mr Scully gave instructions to the plaintiff's solicitors to send to the first defendants a notice of demand in relation to the loan. That notice of demand was sent and it asserted that the sum then due and payable by the first defendants pursuant to the advance and the mortgage was a total of $211,987.19.
28 Mr Scully observed that the withdrawal of the First Caveat which has been lodged with the Department of Land Administration on 12 May 2004 appears to have been executed under the company seal by Mr Okovic. It was dated 12 April 2004 but was received by DOLA on 12 May 2004 as the official record of its receipt on the document demonstrates. Mr Scully points to the considerable delay between the date of the withdrawal and the date of lodgment.
29 The withdrawal of the First Caveat appears to have been prepared by the solicitors for the first defendant.
(Page 8)
30 Mr Scully points to the fact that Mr Okovic ceased to have any authority to act on behalf of the plaintiff as at the date of his resignation as a director on 13 April 2004, that he did not authorise Mr Okovic to execute or lodge the withdrawal of caveat or to enter into any agreement with the first defendant to compromise the terms payable pursuant to the mortgage, and both Mr Okovic and his wife ceased to be employees of the plaintiff as at 13 April 2004.
31 Mr Scully says that on 22 May 2004 he telephoned the first-named first defendant and he also sent an SMS (Short Message Service) message to him alerting him to the possibility of fraudulent action and urging that no funds be released to Papas. He kept a record of the SMS message sent to the mobile telephone of the first-named first defendant. In that message Mr Scully says that the following words were transmitted:
"Hi Kim, I advise you not to release funds to Jack Papas etc; it appears that there has been fraudulent action from Jack and Co. We have starting [sic] legal action to recover the money owed to The Key Result. I suggest you call me to discuss Peter Scully."
32 On or about 3 June 2004 Mr Scully's solicitors received a letter from the first defendants' solicitors advising they had been instructed to act for the first defendant in response to the notice of demand issued by the plaintiff's solicitors. The letter says:
"In consequence of that agreement [which had been made with Key Result on 12 April 2004] settlement occurred on 11 May 2004 and The Key Result Pty Ltd tendered a withdrawal of caveat number I629938. ...
In view of all these matters we consider that our clients have been discharged from any liability to The Key Result Pty Ltd and that your notice of demand should be withdrawn."
33 The agreement contained a variation to the 12 April agreement, that being an agreement to accept the sum of $80,000 by First Choice Finance in discharge of all liability of the first defendants to the plaintiff. It confirmed that securities held over the properties would be withdrawn."
34 The letter purporting to vary the agreement was undated but bore a date received stamp of 27 May 2004. Again Mr Scully says the plaintiff did not authorise the letter stamped with "received" on 27 May 2004 or the earlier letter dated 12 April 2004 and date stamp "received" on
(Page 9)
- 20 April 2004. On the basis of the delay between supposed creation and receipt of the documents, Mr Scully says that he suspects the letters in each case were prepared and signed by Mr Okovic and his wife on dates closer to the dates that the letters were date stamped and being dates after they ended their association with the plaintiff.
35 In any event, I am asked to draw this inference in light of the unexplained delay between the supposed date of creation and the date of receipt of the respective letters. Mr Scully points to the fact that in their capacity as employees of the plaintiff up till 13 April 2004, Mr Okovic and his wife had access to the plaintiff's stationery and the plaintiff's letterhead and to the company seal. He says that when he became the sole director of the plaintiff, he searched for the company seal but was unable to find it. On that basis he also suspects that Mr Okovic took the company seal with him when he left the company.
36 As at December 2004 when Mr Scully swore his affidavit in support of this application, he said that he was unaware of how much, if anything, had been paid by the first defendants to First Choice in purported satisfaction of the loan but says that he believed that if any amount was paid, it was paid after 22 May 2004. In an affidavit sworn by Mr Ashley David Wilson, solicitor for the first defendants, on 12 April 2005, Mr Wilson annexes documents which confirm that the date of payment of $79,000 less bank fees and charges was 28 May 2004. Mr Wilson, on instructions, caused the sum of $79,000 less bank fees and charges of $35 to be electronically transferred to the account nominated in the letter "from the plaintiff", that which contemplated discharge of all liabilities of the first defendants for $80,000 and being date stamped received on 27 May 2004.
37 On 25 August 2004 Mr Scully instructed the solicitors for the plaintiff to write to the solicitors for the defendants advising that as at that date the first defendants remained indebted to the plaintiff in the total sum of $208,607.25, together with accrued interest.
38 Reference was also made in that letter to the lack of authority of Mr Okovic and Ms Paola at the time of the advance of the funds and to that fact being specifically brought to the attention of Mr Wright by Peter Scully in a telephone message left with Mr Wright on 22 May 2004.
39 In response to that letter solicitors for the first defendants wrote on 8 September stating that on their instructions the liabilities of the first defendants had been fully discharged pursuant to the agreement with the
(Page 10)
- plaintiff on 12 April 2004 and that in consequence of that agreement the First Caveat had been withdrawn. The letter goes on to say:
"At all times during our clients' dealings with Mr Okovic, Ms Paola and Mr Papas, our clients verily believed that they were dealing with persons who had actual authority to act on behalf of The Key Result."
41 Another short affidavit tendered on the day of the hearing was an affidavit of Mr Arns on behalf of the plaintiff disclosing an intention and instructions to issue proceedings in the District Court and appending a draft statement of claim which in essence would seek to pursue determination of the issues which are presently in dispute between the plaintiff and the first defendant in this application.
Legal Considerations
42 The legal principles are not seriously in dispute between the parties. It is clear that pursuant to s 138C(2)(a) of the Transfer of Land Act the court may make an order extending a caveat if it is satisfied that the caveator's claim has or may have substance.
43 The onus is on the caveator to establish that there is a serious question to be tried as to whether a caveatable interest exists, however, a caveat will not generally be removed pending trial unless it is patently clear that the interest in the land sought to be protected cannot be made out.
44 The authorities for these propositions are Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 at 141 per Brinsden J and Custom Credit Corp Ltd v Ravi Nominees Pty Ltd(1992) 8 WAR 42 at 48.
45 In Midland Brick Co Pty Ltd v Walsh & Another [2002] WASC 248 Hasluck J set out the relevant principles the court is to take into account on an application of this kind. His Honour referred to Jandric v Jandric [1999] WASC 22 in which the court referred to the necessity for a plaintiff to demonstrate on the evidence that his claim to have a caveatable interest in the land raised a serious question to be tried. If there was a serious question to be tried the question would not, except in the most exceptional circumstances, be determined on originating
(Page 11)
- summons. It was inappropriate to attempt to resolve conflicts in the evidence on affidavit.
46 In Deputy Commissioner of Taxation v Corwest Management Pty Ltd (supra) at 141 it was held that the jurisdiction granted in s 138 should not be exercised so as to remove a caveat unless the case is one in which it is patently clear that the estate or interest sought to be protected cannot be made out and that degree of clarity will not emerge if there are disputed questions of fact when the respondent should be left to proceed by way of action to establish the claimed interest or estate.
The Indoor Management Rule
47 In these proceedings the first defendants essentially rely on the "indoor management rule". They claim an entitlement to rely upon the assurances given by Mr Okovic on the company letterhead under his signature and on the fixing of the company seal to the withdrawal of the caveat.
48 The indoor management rule is a rule which entitles persons dealing in good faith with a company to make certain assumptions. It has been part of company law for over a century stemming from the decision of Royal British Bank v Turquand (1856) 119 ER 886. The essence of the rule is that a person dealing with a company is taken to have constructive notice of a company's constitution but it prevents a company from denying as against a third party acting in good faith that it has done whatever was necessary under its constitution to confer authority on a person to do an act which the person reasonably appears to have its authority to do provided that the authority could, consistently with the company's constitution, have been conferred on that person.
49 The indoor management rule has been described as a presumption of regularity. It reflects the likelihood that a company has authorised its officers and its agents to carry on its business and to act for its benefit within the limit of the authority which officers and agents in their respective positions would ordinarily possess.
50 In response to the claim by the first defendants that they are entitled to rely upon the indoor management rule the plaintiff asserts that a third party dealing with a company is not entitled to rely on the formal validity of an instrument and to assume that the seal has been regularly affixed if the very nature of the transaction is such as to put him or her on inquiry.
(Page 12)
51 The plaintiff argued that a person dealing with a company is put upon inquiry, inter alia, when that company enters into a transaction which appears to be unrelated to the purposes of its business and from which it appears to gain no benefit: Northside Developments Pty Ltd v Registrar-General & Others (1990) 170 CLR 146. In Northside Developments, at 155, Mason CJ held that:
"[12] ... A person, even one who has no special relationship with the company concerned, may be put upon inquiry by the very nature of the transaction: see E B M Co Ltd v Dominion Bank (1937) 3 All ER 555; A L Underwood Ltd v Bank of Liverpool (1924) 1 KB 775; Rolled Steel Ltd v British Steel Corporation (1986) Ch 246, at pp 284-285, 295. As will appear, the application of this proposition to the facts of the present case is critical to its outcome.
[25] However, there is no reason why a third party should be entitled to rely on the formal validity of the instrument and to assume that the seal has been regularly affixed if the very nature of the transaction is such as to put him upon inquiry. If the nature of the transaction is such as to excite a reasonable apprehension that the transaction is entered into for purposes apparently unrelated to the company's business, it will put the person dealing with the company upon inquiry. It is one thing to assume that the common seal has been regularly affixed to an instrument apparently executed for the purposes of the company's business; it is quite another thing to assume that the seal has been regularly affixed when the transaction is apparently entered into otherwise than for those purposes ...
[26] The decision in E B M Co Ltd v Dominion Bank illustrates the point. The seal of the company had been affixed to a charge of certain of its property to secure an advance by the bank to three directors of the company. On the face of the charge the seal appeared to have been affixed in accordance with the articles of association as it bore the signatures of two of the borrowers as president and secretary respectively. However, no resolution had been passed authorizing the creation of the charge. The Judicial Committee held that the transaction was unenforceable on the ground that the bank had notice of an extraordinary dealing whereby directors were using their powers to cause the company to apply its property for their
(Page 13)
- benefit, there being no indication that the company stood to gain from the transaction.
[27] In Wake's Case it was held that the defendant was not entitled to rely on a share certificate issued under the seal of the plaintiff company in the presence of and bearing the signature of a director D and the secretary G, as required by the articles, the seal having been affixed without the authority of the board of directors. Clauson J (at p 509) rejected the argument that the defendant could treat the seal as having been affixed by the plaintiff company, holding that the affixing of the seal is something with which the board deals and not a director. Whatever one may think of that reason, the decision may be supported by reference to the fact that the share certificate was issued to the defendant in payment of a debt owed to him by another company of which D and G were also a director and the secretary respectively. As the transaction was one in which the plaintiff company did not stand to benefit in any way, the defendant was put upon inquiry. Alternatively, the circumstances were such that neither D nor G had actual or ostensible authority to issue a share certificate to the defendant in payment of a debt owing by another company ...
[35] It is not possible to give specific guidance as to the circumstances in which the nature of a transaction will be such as to put a person dealing with a company upon inquiry. So much depends upon the circumstances of the particular case, notably the powers of the company (if relevant), the nature of its business, the apparent relationship of the transaction to that business and the actual or apparent authority of those acting or purporting to act on behalf of the company. Much will also depend upon representations about the transaction made by such persons, for the party dealing with the company may often find protection in the principles of agency or the doctrine of estoppel."
- See also Brennan J at 178.
52 From this analysis it would seem that the judicially applied test involves objective elements as well as subjective. Conveniently turning a blind eye to unusual circumstances would not enable one to take the benefit of the indoor management rule.
(Page 14)
53 However, since Northside Developments (supra) s 128 and s 129 of the Corporations Act 2001 have been passed. Relevantly for present purposes they provide (s 128) that a person is entitled to make the assumptions in s 129 in relation to dealings with a company and the company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
54 The assumptions in s 129 are similar to but broader than those reflected in the common law indoor management rule referred to in Northside Developments (supra). Of particular relevance to the present application is s 129(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."
- However, under s 128(4) it is provided:
"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."
56 The provisions under the statute are less advantageous for the company in some circumstances than the test in Northside Developments. The statutory exception pertains to actual knowledge or suspicion. These also stand in contrast to s 68A and s 68D of the former Companies Code and s 164 and s 165 of the Corporations Law, considered in Bell Resources Holdings Pty Ltd v Commissioner for Australian Capital Territory Revenue Collections (1990) 22 FCR 178; Story v Advance Bank Australia Ltd & Ors (1993) 31 NSWLR 722 and Brick & Pipe Industries v Occidental Life Nominees Pty Ltd & Ors (1990) 3 ACSR 649. In the cases which have considered the current legislation provisions (see Flinders Diamonds Ltd v Tiger International Resources Inc & Ors (2004) 49 ACSR 1999; Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Anor (2004) 51 ACSR 147; Hohensee v Ocean Breed Pty Ltd (2004) 61 IPR 195 and National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd (in liq), unreported; SCt of Vic; Library No 5330 of 2001; 31 January 2002) there does not appear to have been the need to explore the extent to which the statutory exception in s 128(4) may be more limited. It does however emerge from the earlier cases that
(Page 15)
- the legislative provisions, even then, were not simply codifications of the rule.
57 I turn then to the matters on which the plaintiff relies as supporting an arguable case for the purpose of the exclusion contained in s 128(4) of the Corporations Act.
58 The plaintiff relies upon the fact that the first-named first defendant was warned of the possibility of fraud by the sending of the SMS. I have been urged on behalf of the first defendants to disregard the SMS because there is no proof that it was received and its content was equivocal.
59 The plaintiff also relies upon the fact that there was no apparent reason for the plaintiff to have accepted much less than the sum that was due as is ostensibly the case under the correspondence and agreement purportedly reached by Mr Okovic. On the other hand, the first defendants say that the total of $80,000, which was clearly sent on 28 May, and the sum of $50,000 forwarded to First Choice in January are not much less than the sum which was due. I consider that the total sum falls well short of the sum supposedly due and there is no explanation as to why that is so.
60 Further, it is significant that it is at least arguable that the undated variation of the 12 April 2004 agreement and the withdrawal of caveat dated 12 April 2004 but both of which were received in late May, were in fact executed by Mr Okovic when he was no longer an officer or employee of the plaintiff at all. It would be difficult to see how the first defendants could take the benefit of s 128 and s 129 of the Corporations Act in that circumstance.
61 In my view the heavy discount of the debt without explanation, taken with the only evidence I do have about the despatch of the warning in the SMS, at least arguably put the first defendants sufficiently on notice as to the lack of authority of Mr Okovic to purport to withdraw the First Caveat. There is no evidence to suggest the SMS was not received. There is no evidence that the first-named first defendant did not become suspicious about the generous position the plaintiff was now apparently adopting to the discharge of a much greater debt. Whether he had actual knowledge or was actually suspicious (within the meaning described in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 per Kitto J at 303) may remain to be determined. I express no view on the strength or likelihood of final findings but it seems to me that the plaintiff has
(Page 16)
- discharged its onus of proving an arguable case in accordance with the authorities which I have cited.
62 On the balance of convenience aspect there is very little evidence either way and I have not been addressed on any specific prejudice, in respect of the first defendants, of having the caveat maintained for the time being. Mr Arns for the plaintiff has offered to agree to a liberty to apply provision to facilitate the opportunity for the first defendants to reargue the position if specific prejudice emerges. In addition I note that there is the protection afforded by s 140 of the Act in circumstances to which that section is directed.
63 There being no reason on the balance of convenience why I should not extend the caveat, and the plaintiff having discharged the onus it is required to discharge in accordance with the authorities, I will accordingly make an order extending the operation of the caveat. The order will be subject to the usual condition that proceedings be commenced without delay to test the issue of whether or not there remains a caveatable interest. I will hear counsel on the terms of the specific orders which I am asked to make.
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