Norman v ANZ National Bank Ltd
[2012] NZCA 356
•8 August 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA732/2011 [2012] NZCA 356 |
| BETWEEN WAYNE BRUCE NORMAN |
| AND ANZ NATIONAL BANK LIMITED |
| AND AOTEAROA KIWIFRUIT EXPORT LIMITED (IN LIQUIDATION) |
| AND KIM SCOTT THOMPSON |
| Hearing: 26 July 2012 |
| Court: Randerson, Wild and Venning JJ |
| Counsel: S M Kilian and F J Hawkins for Appellant |
| Judgment: 8 August 2012 at 10 a.m. |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
B The appellant must pay costs to each of the first and third respondents for a standard appeal on a Band A basis plus usual disbursements.
CThe liquidator’s general remuneration is to be fixed in the High Court in the usual way. The costs of the proceeding in the High Court are to be dealt with in that Court.
____________________________________________________________________
REASONS OF THE COURT
(Given by Venning J)
Introduction
On 4 October 2011[1] Associate Judge Christiansen dismissed Aotearoa Kiwifruit Export Limited (AKE)’s application to set aside a statutory demand issued by ANZ National Bank Limited (ANZ). The Judge also ordered that AKE be placed into immediate liquidation. Mr Thompson was appointed liquidator.
[1]Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd HC Tauranga CIV-2011-470-697, 4 October 2011. Reasons delivered on 7 October 2011.
On 2 November 2011 Mr Norman, a director and shareholder of AKE, purported to file an appeal in the name of the company against the judgment. On 3 February 2012 Associate Judge Bell[2] recalled the judgment for the purposes of joining Mr Norman as a party to the proceedings to enable him to personally pursue an appeal against the decision of Associate Judge Christiansen.[3] Associate Judge Bell then reissued the judgment with the original date and time of Associate Judge Christiansen’s judgment. Thus, AKE remained in liquidation throughout.
[2]Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd HC Tauranga CIV-2011-470-697, 3 February 2012.
[3]As Mr Norman was a shareholder of AKE he would have had standing in the liquidation proceedings: High Court Rule 31.16(2).
Mr Norman then filed an amended notice of appeal in his own name on 2 May 2012.
The statutory demand claimed $1,281,161.43 on the basis of a guarantee AKE had given ANZ to support the bank’s lending to Maheatataka Coolpack Limited (MCL), a related company. At the time of the hearing in October MCL was in receivership and liquidation.
Background
Mr Norman is a director of both MCL and AKE. In mid 2008 Mr Norman approached ANZ and sought a loan of approximately $1.2 million to refinance MCL’s existing borrowing.
Mr Owen, the bank’s commercial relationship manager at Rotorua, had a detailed discussion with Mr Norman about MCL’s role and its relationship with AKE and AKE’s kiwifruit grower pool. Mr Owen considered MCL, AKE and the grower pool operated as a group – growing, processing, marketing and selling kiwifruit. Mr Norman directed and controlled the operations of MCL and AKE. He also held the majority shareholding in both MCL and AKE personally and through other entities he controlled. Mr Owen decided ANZ should require cross-guarantees from MCL, AKE and Mr Norman in his personal capacity.
At about the same time Mr Norman had to travel to Taiwan on business matters. In anticipation of his absence, on 7 July 2008 he appointed his daughter, Ms Schuster (nee Norman), as an alternate director in his place for both MCL and AKE.
By letter dated 3 July ANZ instructed Fenton McFadden, the solicitors acting for Mr Norman and the companies, to also act for it in relation to the advances to MCL, including the execution of cross-guarantees from MCL, AKE and Mr Norman.
On 16 July Ms Schuster attended the offices of Fenton McFadden and executed the various securities, including the guarantee from AKE in favour of MCL.
On 17 July Ms Norman returned to the solicitors’ office and signed a consent to her appointment as an alternate director of AKE and MCL. The solicitors also altered the execution page of the guarantee, to confirm the capacity in which Ms Schuster had signed the guarantee. ANZ advanced the moneys later the same day.
MCL fell into arrears under the loan facility agreement. ANZ appointed receivers to MCL on 21 July 2011 and subsequently issued the statutory demand against AKE.
The issues on appeal
The principal issue on appeal is whether there is a substantial dispute AKE did not owe the debt as it was not bound by the guarantee.[4] Mr Norman bears the onus of proving a substantial dispute exists.[5]
[4] Companies Act 1993, s 290. No issue was taken before us with the quantum claimed.
[5]Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936 (HC).
The following subsidiary issues arise. To a degree they are interrelated.
(a)Was Ms Schuster validly appointed as a director to AKE?
(b)Does the proviso to s 18(1) Companies Act 1993 apply?
(c)What is the effect, if any, of the belated compliance with s 152 of the Act?
(d)What is the effect of the alterations to the guarantee form?
(e)Should the Judge have placed AKE into liquidation with immediate effect?
There is a further issue which led to the involvement of the third respondent in the appeal. The appellant argues AKE should never have been placed into liquidation. Associate Judge Bell also suggested it might be helpful for this Court to provide guidance as to the responsibility for a liquidator’s costs in circumstances where the liquidation is subsequently set aside. That matter can be dealt with shortly. Even if a liquidation order is subsequently set aside, it is not set aside ab initio. The liquidator is obliged to undertake his duties as liquidator during the course of the liquidation until further order of the Court. The liquidator should be entitled to remuneration in the usual way during the time the company remains in liquidation.
Was Ms Schuster validly appointed as a director of AKE?
The statutory demand was based on the guarantee provided by AKE. The guarantee was executed by Ms Schuster acting as an alternate director in the place of Mr Norman. The constitution of both MCL and AKE expressly provided for the appointment of alternate directors. The notice of appointment itself, which was executed by Mr Norman on 7 July 2008, was in broad terms and provided Ms Schuster:
... with full power during any absence of mine from meetings or any other business of the company to act as a director in my place and stead including the right to ... otherwise do or exercise all or any acts powers or things which I could or might have done if personally present.
Prima facie the guarantee is binding.
Mr Kilian suggested that the guarantee was invalid because AKE had never intended to provide a guarantee. He argued that Mr Norman had never agreed with ANZ that AKE would guarantee the loan. Mr Norman said that it was only after MCL had been placed into receivership that he was advised AKE was a guarantor. He says that had he been provided with copies of the loan documentation by ANZ he would not have agreed to the guarantee being given. Mr Norman considers his daughter had no right to sign the guarantee on behalf of AKE. Ms Schuster says that she assumed that her father had been sent a copy of the loan documentation and was aware of the requirement that AKE provide a guarantee. She also says (somewhat surprisingly, given the wording of the documents and the fact that she is a police officer) that she did not understand she was executing guarantee documents on behalf of her father, MCL and AKE.
The appellant’s proposition that AKE did not agree to provide a guarantee is misconceived. Mr Norman’s evidence about that is not relevant. The fact is that AKE did provide a guarantee. The issue is whether Ms Schuster’s execution of the guarantee bound AKE.
However, even on the facts, the argument that Mr Norman was unaware of and did not agree to AKE providing a guarantee of MCL’s borrowing is not made out. Mr Norman’s suggestion that until MCL was placed in receivership he was not aware the bank required AKE to provide a guarantee is inconsistent with his own evidence that he was advised by ANZ:
I would have to organise a power of attorney so that documents could be signed on behalf of AKE and Maheatataka.
MCL was the entity borrowing the money. The only reason AKE would need to sign any documents was to provide a guarantee to support MCL’s borrowing.
Next, despite her suggestions otherwise, Ms Schuster was aware that ANZ required a guarantee from AKE. She said that she:
assumed that [Mr Norman] had been sent a copy of the loan documentation and that he was aware of the loan and also the requirement for a guarantee from AKE.
It is apparent Ms Schuster was aware of the need for a guarantee. Further, ANZ’s letter of instructions to Mr Norman’s solicitors Fenton McFadden was clear. Cross-guarantees were required from MCL, Mr Norman and AKE. Mr Norman and AKE are fixed with the knowledge of the solicitors as to the bank’s requirements.
Mr Kilian noted that the solicitors were also acting for ANZ on the transaction. He suggested that ANZ would therefore have known, as the solicitors did, that it was never intended AKE would provide a guarantee. That submission is not supported by any credible evidence. Apart from the letter of instructions, which made it clear AKE was to provide a guarantee, the solicitors also provided a solicitors’ certificate to ANZ confirming, amongst other things, that they had explained the nature, effect and implications of the documents, including the cross-guarantees. Mr Kilian’s submission comes close to suggesting that the solicitors knew that Mr Norman never intended AKE to guarantee the borrowing, yet prevailed upon Ms Schuster to sign the AKE guarantee and had effectively either misrepresented the effect of that to her or had misled her into believing that her father had approved it. They are serious allegations which should not be made in the absence of any proper evidentiary basis.
Does the proviso to s 18(1) apply / what is the effect, if any, of the belated compliance with s 152?
Section 18(1) of the Companies Act affirms, and extends the common law principles known as the “indoor management rule”, or the rule in Turquand’s case.[6] It restricts the circumstances in which a company, or guarantor of an obligation of the company, can assert that the company, or a person the company held out as acting on its behalf, lacked authority to enter into the relevant transaction. The justification behind the rule is that a person dealing with a company is entitled to assume that the company’s internal requirements have been complied with and that the company’s officers are acting lawfully. Section 18 provides:
[6] Royal British Bank v Turquand (1855) 5 E & B 248, 119 ER 474 (QB).
(1)A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—
(a)this Act or the constitution of the company has not been complied with:
(b)a person named as a director of the company in the most recent notice received by the Registrar under section 159 of this Act—
(i) is not a director of a company; or
(ii) has not been duly appointed; or
(iii)does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(c)a person held out by the company as a director, employee, or agent of the company—
(i) has not been duly appointed; or
(ii)does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(d)a person held out by the company as a director, employee, or agent of the company with authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power:
(e)a document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine—
unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be, of this subsection.
...
Unless the proviso applies, the section is an absolute answer to the appellant’s submission that Ms Schuster did not have authority to bind AKE. The proviso excludes persons with actual or imputed knowledge of the relevant contravention from the protection conferred by s 18(1).
The best point for the appellant on this issue is that it can be inferred the solicitors were aware Ms Schuster had not been duly appointed as a director of the company at the time she executed the guarantee on behalf of AKE on 16 July, and therefore did not have authority to enter into the guarantee on its behalf. At the time the guarantee was executed, Ms Schuster had not provided written consent to act as a director, as required by s 152 of the Companies Act. It is clear that the solicitors were aware of this, because they asked her to come back in the next day, 17 July, and sign the required consent.
There are, however, a number of answers to that point. First, the security documents, including the AKE guarantee, were effectively held in escrow and not relied on by ANZ until after the issue of consent (and the capacity that Ms Norman signed the documents in) was clarified. ANZ did not authorise the drawdown until after the receipt of a further letter of 17 July from the solicitors that addressed these issues.
Next, the appointment of a person as a director of a company is not necessarily invalidated by failure to comply with the requirement in s 152 that the person consent in writing to act as a director. The section does not provide that failure to obtain consent will render the appointment of no effect. In this respect, it may be contrasted with s 282 of the Act, which expressly provides that the appointment of a person (other than an Official Assignee) as liquidator of a company “is of no effect” unless that person has consented in writing to the appointment.[7] If Parliament had intended non-compliance with s 152 to render the appointment of a director of no effect, it surely would have said so.
[7] Companies Act 1993, s 282.
This issue was considered by the High Court in Paape v Fahey.[8] In that case, one of the defendants sought to avoid liability as a director for breach of the Securities Act 1978 in reliance on his non-compliance with s 152. The Court rejected the argument and held that a breach of the section did not mean a person appointed as a director was exonerated from any action taken while purporting to act as a director before a consent was provided.[9]
[8] Paape v Fahey (2002) 9 NZCLC 262,857 (HC).
[9]Ibid, at 262,868. There was no challenge to this finding on appeal : Reuhman v Paape (2002) 9 NZCLC 262,988 (CA).
In our view, the requirement in s 152 that the person consent in writing to act as a director is for the protection of the director, not the company. Among other things, s 152 was designed to avoid people being appointed a director without their knowledge. This view is supported by s 158 of the Act, which validates Ms Schuster’s action in completing the guarantee on behalf of AKE as a director, even if the failure to comply with s 152 in some way made her appointment defective. Section 158 reads:
The acts of a person as a director are valid even though—
(a) The person's appointment was defective; or
(b) The person is not qualified for appointment.
As Richardson J observed in Re Northwestern Autoservices Ltd in relation to the predecessor to s 158, the section and articles of association:[10]
... are of general application and apply both between the company and outsiders and between the company and its members. They do not validate defective appointments. What they do is to validate the otherwise invalid acts of defectively appointed officers. ...
[10] Re Northwestern Autoservices Ltd [1980] 2 NZLR 302 (CA) at 309.
The current position is similar to the case of McIntosh v CMX Technologies Pty Ltd.[11] Despite finding the appointment was invalid on other grounds, Palmer J in the Supreme Court of New South Wales confirmed that the fact the directors had not provided a signed consent to act did not render their appointment invalid. The Judge referred to s 201M(1) of the Corporations Act 2001 which provided:
(1) An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or the director did not comply with the company’s constitution (if any) or any provision of this act.
[11] McIntosh v CMX Technologies Pty Ltd [2005] NSWSC 1282.
Although s 158 is in different terms, it is to the same effect. We conclude that ANZ is entitled to rely upon s 18 of the Act and that the proviso to that section does not apply in this case.
What is the effect of the alterations to the guarantee form?
When Ms Schuster completed the guarantee on behalf of AKE, the document did not identify that she was completing the document as an alternate director for AKE. The document, as executed by her, provided:
SIGNED by Guarantor(s)
Aotearoa Kiwifruit Export Limited Wayne Bruce Norman [Ms Schuster’s signature]
Full name of Guarantor Full Name of Director Signature of Director
Apparently the issue was raised by ANZ before it would approve the drawdown. The solicitors then deleted the reference to Mr Norman and replaced it by a reference to Ms Schuster’s name “as alternate director”. After the alterations (which were in handwriting) the document read:
Tawhai Lesley Norman
SIGNED by Guarantor(s) as Alternate Director
Aotearoa Kiwifruit Export Limited Wayne Bruce Norman [Ms Schuster’s signature]
Full name of Guarantor Full Name of Director Signature of Director
Mr Kilian did not place any particular emphasis on this issue in his written submissions. In his oral submissions he referred to the execution page primarily in support of the submission Ms Schuster was not aware of the effect of the document she was signing. That submission cannot stand on the plain wording of the document signed by Ms Schuster. AKE was clearly identified as a guarantor.
The appellant was right not to seek to rely on the alterations. While it would have been preferable for the solicitor to have obtained Ms Schuster’s initials to the alterations, they were not of any moment in this case. The alterations do not have any legal effect. They were not alterations to the terms of the agreement which would have required AKE’s confirmation. They simply clarified the capacity in which Ms Schuster had signed the document.
Even without that clarification the guarantee satisfied the requirements of both s 27 of the Property Law Act 2007 and s 180 of the Companies Act. Section 27(2) of the Property Law Act requires that a contract of guarantee entered after 1 January 2008 must be in writing and signed by the guarantor. Section 13(2)(b) of the same Act provides that such a contract may be entered on behalf of the company in writing by a person acting under the company’s express or implied authority.
Ms Schuster had AKE’s express authority to act as director. She entered the guarantee on behalf of AKE acting under that authority. It was unnecessary for the document to record that she was so acting. It is a question of fact whether or not she had that authority. To that extent the description of the capacity in which she signed was not directly relevant. The important point was that she signed the guarantee on behalf of AKE, acting as a director of the company.
Section 180 of the Companies Act confirms that a contract may be entered on behalf of a company by a director whose signature must be witnessed. Ms Schuster executed the guarantee as a director and the solicitor witnessed her signature. The requirements of both the Property Law Act and the Companies Act for a valid guarantee were met. The document was valid.
We conclude that Associate Judge Christiansen was right to confirm there was no genuinely arguable case the guarantee was not binding on AKE. There was no substantial dispute as to whether it was liable for the debt.
The decision to immediately liquidate AKE
The appellant also challenged the Judge’s decision to place AKE into liquidation immediately. In his recall judgment Associate Judge Bell suggested that this Court might provide some direction to the High Court as to how the powers under s 291(1) of the Act should be exercised.
We note that s 291(1) provides:
(1)If, on the hearing of an application under section 290 of this Act, the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the Court may—
...
(b)Dismiss the application and forthwith make an order under section 241(4) of this Act putting the company into liquidation,—
on the ground that the company is unable to pay its debts.
The section provides for a discretion. The discretion must be exercised in the circumstances of the particular case before the Court. Other than to observe the discretion need not be limited to cases where the company is “moribund”, as referred to by Associate Judge Bell, it is neither appropriate nor necessary for this Court to provide any general direction about the matter.
In the present case Mr Norman’s own evidence confirmed that, while the company’s name had cultural significance, the company did not have any significant assets and was not in a position to act as guarantor for any indebtedness. In the circumstances it was open for Associate Judge Christiansen to conclude that no purpose would be served by providing a period of time for AKE to pay the sum due under the demand before ANZ could apply to place AKE into liquidation. The Judge was entitled to exercise his discretion in the way he did.
The only other consideration was the claim that other growers might be interested in moneys held by the company. But that claim can be properly dealt with by the liquidator during the course of the liquidation.
Costs
The costs in this Court should follow the event. Both ANZ and the liquidator have been put to the cost of responding to this appeal. As Mrs Scott recorded in her submissions the liquidator acknowledges that Mr Norman was entitled to bring the appeal, but the liquidator supported the first respondent’s opposition to it. Mrs Scott submitted, and we accept, that the liquidator has conducted himself as a reasonable and prudent liquidator and should be remunerated in accordance with established principles. Mr Kilian accepted that the appellant had not told Mrs Scott that the liquidator’s claim for fees was not subject to challenge. In the circumstances it was appropriate for Mrs Scott to appear before this Court on behalf of the liquidator.
The appellant must pay costs to each of the first and third respondents for a standard appeal on a Band A basis plus usual disbursements.
The liquidator’s general remuneration is to be fixed in the High Court in the usual way. The costs of the proceeding in the High Court are to be dealt with in that Court.
Solicitors:
Kilian & Associates Ltd, Albany for Appellant
DLA Phillips Fox, Auckland for First Respondent
Norris Ward McKinnon for Second and Third Respondents
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