Ras International Limited v Southern Finance Limited HC Auckland CIV-2011-404-3197
[2011] NZHC 1260
•9 September 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-3197
UNDER the Companies Act 1993
IN THE MATTER OF an application to set aside a Statutory
Demand
BETWEEN RAS INTERNATIONAL LIMITED Applicant
ANDSOUTHERN FINANCE LIMITED Respondent
Hearing: 5 September 2011
Appearances: Mr C R Vinnell for Respondent
Mr Sam Carey for Applicant
Judgment: 9 September 2011 at 3:00 PM
JUDGMENT OF ASSOCIATE JUDGE DOOGUE [Application to set aside statutory demand]
This judgment was delivered by me on
09.09.11 at 3 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Mr Sam Carey, Auckland - [email protected]
Anthony Harper Lawyers, P O Box 2646, Christchurch – [email protected]
RAS INTERNATIONAL LIMITED V SOUTHERN FINANCE LIMITED HC AK CIV-2011-404-3197 9
September 2011
Background
[1] This proceeding is an originating application by RAS International Ltd (―RAS‖) to set aside a statutory demand issued against RAS by Southern Finance Ltd (―SFL‖).
[2] The statutory demand which is the subject of the application is in the sum of
$318,369.62.
[3] RAS was a motor vehicle dealer trading as ―Evolution Motors‖ from premises at 830 Great South Road, Penrose.
[4] SFL is a Finance Company which provided loans to the customers of RAS for the purchase of vehicles from it.
[5] SFL claims that the debt is made up of the sums set out in the schedule to this judgment which are said to be owing under certain loan facility and security agreements between SFL and the customers of RAS. SFL claims that RAS is liable for the shortfall owing under such agreements (after the sale or loss of the security vehicles) under certain individual recourse agreements entered into between RAS and SFL. The period during which the agreements were entered into spanned the period from November 2004 to April 2005. In all, the amounts which the respondent says it lost under the defaulting agreements was the amount of the statutory demand. This is based upon a total of 25 agreements for the sale and purchase of cars.
[6] According to Mr McLeod, an employee of RAS, Mr Wilkins, a director of SFL, approached him with a proposal that the respondent could assist Evolution Motors’s car sales business by providing finance which was attractive in that it was acceptable to the respondent to finance sales of cars to selected welfare beneficiaries.
[7] Mr McLeod says that Mr Wilkins specifically asked him to put the proposal to the director of RAS, Mr Radisich. This was the proposal that beneficiaries be financed into cars, which led to the string of transactions which have given rise to
the service of the statutory demand by the respondent. He also explained that Mr Wilkins discussed setting up a retention fund which essentially meant that part of the commission that RAS would be entitled to for arranging loans would be held in a separate retention fund and held on account of possible defaults. Mr McLeod says that he put Mr Wilkins’ proposal to Mr Radisich on the basis that if there was any recourse for non-payment by purchasers of the cars, the respondent would be limited in its remedies to such money as had accumulated in the retention account. He says that Mr Radisich agreed to this in discussions with him, Mr McLeod.
The documentation provided by the respondent
[8] Subsequently, the applicant began selling cars on the basis that the respondent would provide the finance. The respondent provided documents which included as an important element the so-called recourse arrangement. One of the documents was part of a master agreement called a dealer agreement which seems to have been intended to regulate the overall relationship between the respondent and the applicant. That document included a recourse provision. As well, on the sale of each individual vehicle, the respondent’s contention was that a separate and additional recourse agreement specific to that transaction would be signed by Mr McLeod. In fact, the first of these two agreements, the ―dealer agreement‖ never ended up being signed, as I will explain shortly. But in every case where a car was sold on finance provided by the respondent, Mr McLeod signed a recourse agreement specific to that transaction.
[9] Mr McLeod sought to reduce the significance of his signing these documents by saying:
So far as I was concerned the retention account was established as the only fund against which any defaults were to be debited. There was no other liability and certainly no liability on RAS.
[10] This seems to be a reference to the individual recourse agreements entered into on the occasion of the sale of each car.
[11] I will refer to the retention fund again below.
[12] Mr Wilkins sent the dealer agreement to Evolution Motors under cover of a letter dated 17 November 2004. While that agreement does not ever seem to have been signed by anyone on the behalf of the applicant, Mr Wilkins at a latter point wrote on the file copy of the letter that ―Simon‖ was happy with the arrangements proposed in the letter and the enclosed documents. This, incidentally, gives rise to an inference that Mr McLeod dealt with the letter which was addressed to the car yard. On the other hand, Mr McLeod says that because of the size of the commercial property where the business was based, postal services to applicants at the car lot were not secure. But he did not say that no letter at all was received at the address or that someone else, and not him, was responsible for dealing with such letters as were received.
[13] A representative example of these documents is provided by a transaction under which Ms Juliette Johns purchased a motor vehicle on 24 February 2005. Under the agreement, the dealer, RAS, was required to pay the difference between the amount obtained on resale of the vehicle on exercise of the lender’s security and the amount of the loan that remained outstanding. The agreement also contained a
―guarantee‖ which would seem to essentially cover the same rule and ground.
Authority to act on behalf of the applicant
[14] It is clear from the evidence that the sole director of RAS was a Mr Radisich.
[15] It is accepted that Mr McLeod’s business card which was adduced in evidence stated that he was the manager of Evolution Motors, which is the trading name of the applicant. It has not been suggested either that while Mr McLeod may have been present at the car lot at 830 Great South Road, there was another individual present who was in charge of the business. It has not been suggested either that Mr McLeod’s role consisted only of selling cars.
[16] It seems likely that documents which were posted to the address were dealt with by Mr McLeod.
[17] Mr McLeod himself said that he was ―generally responsible for the paperwork involved in the selling of cars to customers‖. He agrees that he was the person who was approached by the respondent when they wanted to obtain car sales financing business from the applicant.
[18] Mr McLeod also confirmed that Mr Wilkins would visit the premises regularly and chat to him and that he visited Mr Wilkins’ offices in Christchurch. He says that on one occasion when Mr Wilkins called, he made a comment to him about having no authority — himself being merely the ―finance and insurance man‖ at the yard.
[19] Even though he signed the individual recourse agreements as part of each car sale financed by SFL, Mr McLeod says that he communicated to Mr Wilkins that he had no authority to bind the respondent by signing the individual recourse agreements and that:
[Mr Wilkins] represented to me that my signing was simply an acknowledgement that the agreements were backed up by the retention fund as the finance criteria had been relaxed.
[20] The dealer agreement was sent to ―Mr S McLeod, Evolution Motors‖ on 17
November 2004. The covering letter from Mr Wilkins referred to the reasons why it was necessary for the applicant to seek recourse on individual sales agreements. This was because some of the sales were to persons who were regarded as not being good credit risks. A copy of a standard SFL ―dealer agreement‖ was enclosed and, after explaining the necessity for the agreement, the letter continued:
We trust this is satisfactory. Please contact us to facilitate the signing of the dealer agreement.
[21] The dealer agreement does not seem to have been actually executed. Mr
Wilkins noted on the file copy of the letter that had been sent at some point that
―Graham advises Simon is happy with this arrangement‖.
[22] There is no dispute that the ―Simon‖ referred to is Mr McLeod. The dealer
agreement contained a section headed ―6. Indemnities‖, which set out various
indemnities that the agreement contemplated the dealer would give to SFL and it also had attached to it a document headed ―guarantee and indemnity‖. That part of the document was an indemnity by the dealer in respect of any loss incurred by SFL in entering into the dealer agreement.
[23] The respondent, however, claims that it is able to claim under each of the recourse agreements that were signed by Mr McLeod at the same time that
individual sales contracts were entered into. This brings into question Mr McLeod’s authority to sign the recourse agreements. I will deal with that issue, too, further on in this judgment.
Was the unsigned dealer agreement enforceable?
[24] As noted above, the dealer agreement included a recourse arrangement as part of its terms. It was not, however, signed by anyone for the applicant.
[25] The first substantive issue that arises is whether in fact the recourse agreement, not having actually been signed, is enforceable against the applicant.
[26] In my view, SFL cannot seek indemnity under this document because it was never executed and there is little doubt, in my view, that because this is a commercial agreement it was not intended to be binding unless and until properly executed by both parties. I consider that the Concorde v Anthony Motors (Hutt) Ltd[1] line of authorities applies to the agreement and because it was never signed it never took effect.
[1] Concorde v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385.
[27] In any case, even if that conclusion is incorrect, to the extent that the document was an indemnity of the debts of purchasers of motor vehicles, s 27 of the Property Law Act 2007 applied, which meant that not only did the contract of guarantee have to be in writing but it was also required to be signed by the guarantor. This was not
done.
[28] The respondent cannot therefore claim an indemnity pursuant to the dealer agreement.
Did Mr McLeod have authority to bind the plaintiff to the individual recourse agreements?
[29] The individual recourse agreements are in a different position though, because on each occasion the document was signed by Mr McLeod.
[30] Before considering the matter of Mr McLeod’s authority, it is necessary to set out two sections from the Companies Act 1993: ss 18 and 180 seem to have
particular relevance.
18 Dealings between company and other persons
(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—
…
(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,
(2)Subsection (1) applies even though a person of the kind referred to in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery.
180 Method of contracting
(1)A contract or other enforceable obligation may be entered into by a
company as follows:
(a) an obligation which, if entered into by a natural person, would, by law, be required to be by deed, may be entered into on behalf of the company in writing signed under the name of the company by—
(i) 2 or more directors of the company; or
(ii)if there is only 1 director, by that director whose signature must be witnessed; or
(iii)if the constitution of the company so provides, a director, or other person or class of persons whose signature or signatures must be witnessed; or
(iv) 1 or more attorneys appointed by the company in accordance with section 181:
(b)an obligation which, if entered into by a natural person, is, by law, required to be in writing, may be entered into on behalf of the company in writing by a person acting under the company’s express or implied authority:
(c) an obligation which, if entered into by a natural person, is not, by law, required to be in writing, may be entered into on behalf of the company in writing or orally by a person acting under the company’s express or implied authority.
(1A) A company may, in addition to complying with subsection (1), affix its common seal, if it has one, to the contract or document containing the enforceable obligation.
(2) Subsection (1) applies to a contract or other obligation—
(a) whether or not that contract or obligation was entered into in
New Zealand; and
(b) whether or not the law governing the contract or obligation is the law of New Zealand.
[31] The applicant says that the signature by Mr McLeod on the individual recourse agreements does not bind it. It says in summary that none of the recourse agreements were signed by the sole director of the applicant, Mr Radisich. The space provided for the execution of the agreement by the dealer had the text
―director‖ printed underneath it, which showed that it was envisaged that such agreements would be signed by a director of the company.
[32] Mr McLeod was not a director of the applicant at the time he signed any of the recourse agreements.
[33] I interpolate that there seemed to be little dispute that it would have been within the authority of a director of the company to sign recourse arrangements of this kind.
[34] There is no evidence that Mr McLeod had express authority to sign the recourse agreements.
[35] That brings the Court to a consideration of s 18(1)(d). The question is whether Mr McLeod was held out as having authority to sign the individual indemnity agreements. The section requires the Court to be able to conclude that he was held out to the opposite party to the transaction who is trying to bind the company to the transaction as having that authority. The holding out may have in fact been to a number of parties, but that is unimportant as long as the party seeking to enforce the agreement was one of them.
[36] It may be the case that had Mr McLeod not said anything about his authority, the Court would have been able to imply that he was held out as having authority to sign the individual recourse agreements. Such an implication would arise from the fact that the defendant had left him in apparent charge of the car yard; that there was no one else but him apparently available who would execute common business agreements incidental to the sale of cars on behalf of the company; and the fact that he was described on his business card as ―manager‖. A reasonable person who came to the car yard to transact business — whether as a purchaser or a representative of a finance company — would have understood from all the circumstances that Mr McLeod was the most senior employee present on the car yard and therefore must be in charge, absent, for example, Mr McLeod or another employee identifying some other person as being the appropriate manager who was absent.
[37] However, an inference that Mr McLeod had the authority that would normally be implied from the circumstances which I have just mentioned, could not reasonably be drawn where the agent himself had said that he had no authority to sign the documents in question. Mr McLeod has given evidence to that effect.
[38] Mr McLeod’s account, while unlikely, may be true. It may be that had Mr McLeod in fact made such a comment, Mr Wilkins, if he were behaving rationally, would have asked a further question along the lines of, ―if you are not authorised to sign who do I get to sign?‖, rather than leaving the question of authority to bind the company up in the air as Mr McLeod’s evidence suggests that he did.
[39] Mr McLeod of course says that he had told Mr Wilkins when asked to sign the dealer agreement that he did not have authority and that the document would need to be referred to Mr Radisich. While that representation concerned a different document, it was nonetheless a background circumstance which would affect the overall impression that Mr Wilkins would have obtained of the extent of the authority which Mr McLeod was held out as having.
[40] That being my conclusion, it follows that Mr McLeod himself may have made it clear that the company was not holding him out as having authority to sign the individual recourse agreements.
[41] In my view, the evidence of Mr McLeod is sufficient to establish that there is a substantial dispute about the liability of the applicant. While I have marked reservations about the reliability of the evidence that Mr McLeod has given about the very limited role that he had at the site, and more importantly to the outcome of this case, what he claims to have told Mr Wilkins about the extent of his authority would have made it clear to Mr Wilkins that Mr McLeod did not have sufficient authority
to enter into such arrangements.
The retention fund
[42] In the light of the conclusions that I have reached concerning Mr McLeod’s apparent authority, it is not necessary to go on and consider the arguments about the retention fund.
Result
[43] The application is granted and the statutory demand dated 12 May 2011 and served on the applicant 18 May 2011 is set aside. The parties should confer on the
issue of costs and if they are not able to agree same direct memoranda to me within
seven days of the date of this judgment.
J.P. Doogue
Associate Judge
Addendum
| Date of Recourse | Account | Client | Security | Amount | Date of Recourse |
| 30/11/2004 | 57407 | K Thomas | 1996 Toyota Rav 4 CDW275 | $15,615.58 | 21/04/2005 |
| 2/12/2004 | 57418 | DM Cooper | 1994 Toyota Lucida CYJ719 | $16,467.03 | 21/09/2005 |
| 24/12/2004 | 57478 | R & E Andrew | 2001 Toyota Vitz CKR661 | $9,289.77 | 26/10/2005 |
| 7/03/2005 | 57661 | L Moke | 1995 Jeep Cherokee CRN2 | $16,028.44 | 30/03/2006 |
| 24/02/2005 | 57619 | J Johns | 1995 Nissan Primera CMZ977 | $14,638.69 | 7/04/2006 |
| 8/04/2005 | 60007 | M Veikoso | 1995 Toyota Lucida CPC698 | $7,675.76 | 9/05/2006 |
| 15/12/2004 | 57456 | J Soper | 1994 Subaru Legacy BEY576 | $12,136.50 | 22/05/2006 |
| 23/03/2005 | 57705 | D Morunga | 1995 Nissan Primera CPG557 | $9,420.76 | 26/05/2006 |
| - | 57590 | M Hepi | 1999 Mitsubishi Legnum CMU54 | $22,826.37 | 26/05/2006 |
| 25/01/2005 | 57511 | G Maaka | 1996 Nissan Pulsar CLU375 | $7,984.34 | 8/06/2006 |
| 22/11/2004 | 57403 | R Ruki | 1997 Mitsubishi Legnum CJQ907 | $10,542.87 | 23/06/2006 |
| 14/08/2004 | 57237 | W Komene | 1994 Honda Odyssey BUQ870 | $10,470.74 | 23/06/2006 |
| 8/11/2004 | 57375 | R Netana | 1999 Nissan Pulsar CHZ24 | $13,377.52 | 8/09/2006 |
| 28/01/2005 | 57547 | J Marks | 1996 Mitsubishi Chariot CMD822 | $16,153.60 | 27/09/2006 |
| 9/03/2005 | 57672 | R Kopa | 1996 Subaru Legacy CNQ930 | $20,556.69 | 2/11/2006 |
| 13/03/2005 | 57696 | K Manuel | 1996 Subaru Legacy CPC693 | $13,206.85 | 24/01/2007 |
| 15/02/2005 | 57583 | A Hepi | 1996 Nissan Primera CMP773 | $21,000.27 | 13/02/2007 |
| 20/01/2005 | 57534 | I Petera | 1996 Subaru Legacy CYJ640 | $11,092.88 | 5/04/2007 |
| 13/04/2005 | 60018 | R Tau | 1997 Mitsubishi Legnum CLH699 | $13,023.22 | 12/07/2007 |
| 12/01/2005 | 57498 | Cooper- Brown | 1996 Subaru Legacy CLH680 | $6,571.81 | 22/08/2007 |
| 12/04/2005 | 60013 | D Stables | 1995 Jeep Cherokee ZE 3710 | $7,069.01 | 14/04/2008 |
| 19/01/2005 | 57514 | W Mackie | 1995 Subaru Legacy CLM297 | $19,398.57 | 7/05/2008 |
| 11/08/2004 | 57209 | E Reed | 1997 Ford Festiva CEJ564 | $5,033.73 | 7/05/2008 |
| 26/04/2005 | 60042 | M Samuels | 1997 Nissan Skyline CQM964 | $3,268.79 | 24/09/2008 |
| 22/02/2005 | 57604 | E Ferguson | 1996 Subaru Legacy CLD505 | $15,519.83 | 9/10/2008 |
| Total recourse requests due $318,369.62 | |||||
RAS INTERNATIONAL LIMITED V SOUTHERN FINANCE LIMITED HC AK CIV-2011-404-3197 9
September 2011
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