Aztech Science Pty Ltd v Atlanta Aerospace

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2187/03 - AZTECH SCIENCE PTY LTD v ATLANTA AEROSPACE (WOY WOY) PTY LTD & ANOR JUDGMENT

The proceedings 1 These proceedings were commenced by summons filed on 3 April 2003 by the plaintiff ("Aztech") against the defendants ("Atlanta", as first defendant, and Dr Daevys, as second defendant). A statement of claim was filed on 15 October 2003. At the centre of Aztech's claims are the allegations in paragraphs 4 and 5 of the statement of claim: "4. Pursuant to written contract dated 19 December 2002, the Plaintiff agreed to remunerate the First Defendant in consideration for the First Defendant assigning to the Plaintiff all property whatsoever in certain inventions and providing to the Plaintiff services towards the development of the inventions for commercial use and operation together with such other projects as the Plaintiff identified to the First Defendant from time to time ('the Contract'). 5. In consideration of the Plaintiff entering into the Contract with the First Defendant, the Second Defendant guaranteed the performance of all of the First Defendant's obligations to the Plaintiff pursuant to the Contract (Clause 45 and Schedule D)." 2 Aztech alleges breaches of the contract thus pleaded and claims relief by way of declaration and orders directed towards performance of the contract by Atlanta and Dr Daevys. Claims for damages and an account of profits are not pressed for reasons I am about to mention. 3 There was no appearance for either defendant upon the hearing of the claims in the statement of claim. Evidence tendered by Aztech showed to my satisfaction that the defendants were served (indeed, a document accepted as being in the nature of a defence has been filed) and that reasonable steps were taken to inform them of the date, time and place fixed for the hearing. Dr Daevys became a bankrupt on 2 March 2004. The Official Trustee in Bankruptcy was informed of the proceedings and the Australian Government Solicitor, on behalf of the Official Trustee, informed the solicitors for Aztech that the Official Trustee would be taking no part in the proceedings. It was shown by evidence adduced by Aztech that Dr Daevys is the only director of Atlanta and is one of two shareholders. 4 A handwritten document entitled "Response to Statement of Claim" and marked "Filed by Stuart Daevys First & Second Defendant" was filed on 2 March 2004, the day on which Dr Daevys became a bankrupt. Although this was cast in the form of an affidavit, the plaintiff accepted it as being in the nature of a defence. I shall refer to it accordingly. Dr Daevys said in the defence that paragraph 4 of the statement of claim was "agreed" and that paragraph 5 was "denied". By subsequent parts of the defence, Dr Daevys disputed matters going to the force and effect of the contract relied upon by Aztech. 5 Because there was no appearance by or on behalf of the defendants, the plaintiff's claims fall to be determined by reference to the evidence adduced by the plaintiff alone. I have already referred to evidence tendered by the plaintiff concerning the position of the defendants in relation to the proceedings. In addition, the plaintiff relied on the affidavit of Antonio Azzi sworn on 4 April 2003 and the affidavit of William James Henty sworn on 24 August 2003, as well as referring to (without formal tender) some isolated passages in the affidavit of Dr Daevys sworn on 7 May 2003 and filed for the defendants. The alleged contract 6 It is necessary at this point to refer to events that culminated in the signing of a document that the plaintiff maintains acquired and retained contractual force and to consider the content of that document. It was prepared by solicitors. I shall refer to it as "the formal document". Its parties are named as Mr Azzi (called "the Promoter"), Atlanta (called "the Contractor") and Dr Daevys (called "the Nominee"). The background is stated in the recitals A to E: "A. The Promoter intends to apply to incorporate an Australian proprietary company under the provisions of the Corporations Act 2001 to be named 'Aztech Sciences Pty Ltd' or such similar or other name as may be approved by the Australian Securities & Investments Commission ('the Principal'). B. The Promoter and the Contractor wish to enter into this Agreement prior to the incorporation of the Principal. C. It is intended that the Principal will be engaged in the business of inventors, manufacturers, promoters and providers of business and management services. D. The Promoter has requested the Contractor to provide services to the Principal. E. The Contractor has agreed to provide the services of the Nominee to the Principal upon and subject to the terms and conditions set out in this Agreement and the Schedules hereto." 7 It is also relevant to quote clauses 1 to 4: "1. The promoter intends to enter into this Agreement on behalf of the Principal before it is registered. 2. If the Principal is not registered or fails to ratify this Agreement within sixty (60) days from the date hereof, this Agreement shall be at an end, and notwithstanding Section 131 of the Corporations Act, neither party shall have any further rights against the other to require performance of this Agreement or to claim damages or costs. 3. If this Agreement ends because of the operation of the preceding provision, the Contractor and the Nominee agree that they do hereby release the Promoter from any liability that he would otherwise be under by law in the absence of this provision. 4. The termination of this Agreement pursuant to Clause 2 shall not affect any rights or remedies of either party against the other for any act event or default occurring prior to the date of termination." 8 The formal document bears the date 11 November 2002 in two places, first, at the beginning ("This Contract for Services is made on the 11th day of November 2002") and again just before the signatures ("Dated this 11th day of November 2002"). The date "19.12.02" also appears on the formal document. The latter date is written under the signature of Dr Daevys where he has purported to sign for Atlanta as both its director and its secretary. The evidence of Mr Azzi is that, on 11 November 2002, he signed in a space marked "Executed for and on behalf of Aztech Sciences Pty Limited" and Dr Daevys signed in the place reserved for the signature of "the Nominee" but that there was, on that day, no execution by or for Atlanta. It was not until 19 December 2002 that the signature of Dr Daevys was appended in two places in the section marked "Executed by Atlanta Aerospace (Woy Woy) Pty Ltd", one place for the signature of a director and the other for the signature of a secretary. It was not suggested by Aztech that execution by Atlanta was irregular and I accept that the particular form of execution satisfies s.127(1)(c) of the Corporations Act dealing with the case where one person is both the sole director and the sole secretary of a proprietary company. I shall come back to the significance of the fact that both 11 November 2002 and 19 December 2002 appear in connection with the execution of the formal document. Issues as to pre-registration contract 9 Paragraph 7 of the statement of claim reads: "It was a term and condition of the Contract that if the Plaintiff was not registered or failed to ratify the Contract within 60 days of the date of the Contract (the 60th day being 17 February 2003) the Contract would be at an end." 10 The response in the defence is: "As to paragraph 7 it was agreed that if the plaintiff was not registered or failed to ratify the contract within 60 days of the contract being the 11th of November 2002 the contract would be at an end. Mr Somosi and Mr Azzi failed to incorporate within the 60 day period and the contract was deemed to be null & void." 11 Paragraph 8 of the statement of claim reads: "By mutual oral agreement, the term for registration or ratification of the Contract described in paragraph 7 hereof was extended to 20 February 2003 or a reasonable time thereafter."

There follow in paragraph 9 particulars stating that the oral agreement arose from a conversation "on or about 14 February 2003 at Gosford between Messrs Lawrence Robert Somosi for and on behalf of the Plaintiff and the Second Defendant for and on behalf of the Defendants". Paragraph 10 of the statement of claim pleads, in the alternative to paragraph 8, that the time for registration or ratification was "extended by implication to 20 February 2003 or a reasonable time thereafter". Paragraph 12 says, by way of further alternative, that the defendants are estopped from denying that the time for registration or ratification was extended to 20 February 2003 or a reasonable time thereafter. 12 The defence says in relation to paragraph 8 of the statement of claim: "Paragraph 8: It is denied that the term for registration was extended to any date beyond 60 days or any other date. Regarding alleged "oral agreement" on or about the 14th of February 2003 at Gosford between Somosi, Azzi on behalf of the plaintiff & the second defendant on behalf of the first defendant it is denied that any variation was agreed to or even discussed at this meeting."

There are also statements that can only be construed as denials in relation to paragraphs 11 and 12 of the statement of claim. 13 Based on a certificate issued by the Australian Securities and Investments Commission, it is established that the plaintiff came into existence on 20 February 2003 by virtue of commencement of its registration on that day (see s.119 of the Corporations Act). This circumstance, considered in the light of the passages from the statement of claim and the defence I have quoted, shows that there is before the court a substantial issue as to the force and effect of the formal document. The issue arises in connection with clauses 1 to 4 of the agreement itself but more fundamentally in relation to the provisions of Part 2B.3 of the Corporations Act dealing with what were formerly called "pre-incorporation contracts" but are now termed "pre-registration contracts". The contract upon which Aztech sues cannot be seen to exist in such a state as to be the source of rights and obligations of Aztech except by operation of the Part 2B.3 provisions. 14 For present purposes, the most relevant provision of Part 2B.3 is s.131(1) which I set out in full: "If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract: (a) within the time agreed to by the parties to the contract; or

(b) if there is no agreed time - within a reasonable time after the contract is entered into." 15 It is Aztech's case that, by virtue of s.131(1), the formal document expressed to embody an agreement among (and executed by) Mr Azzi, Atlanta and Dr Daevys came to have effect as a contract among Aztech, Atlanta and Dr Daevys. There is an explicit contention by Atlanta and Dr Daevys that the agreement embodied in the formal document terminated and ceased to be binding by operation of clause 2 of the formal document. That clause refers expressly to s.131 and I am satisfied that Atlanta and Dr Daevys must be regarded as also making an implied assertion based on s.131, with the result that they have put in issue the question whether, having regard to s.131(1), Aztech ever became bound by or entitled to the benefit of the alleged contract upon which it sues. 16 Aztech contends that Atlanta and Dr Daevys have admitted the elements which, having regard to s.131(1), are essential to a finding that a contract in terms of the formal document came to be binding among Aztech, Atlanta and Dr Daevys. The admission, it is said, is express or arises in default of traverse as mentioned in Part 15 rule 20 of the Supreme Court Rules. Even if I were wrong in thinking the defence puts in issue the whole of the s.131(1) question, I would, in this case, decline to act on any such admission. The relief Aztech seeks is of an equitable character and discretionary. The so-called defence was prepared by a lay party apparently without the benefit of legal advice. There are some elements of internal inconsistency in the relevant parts of the defence. In Termijtelen v Van Arkel [1974] 1 NSWLR 525, Hope JA said: "However, no matter how the matter comes to be dealt with by the court, the question arises whether the court is ultimately bound to act upon admissions arising as a result of s. 38, or whether it can refuse to grant a decree to which those admissions would entitle a party and can require evidence, or act on evidence, which is before it. There is no doubt that it can require the proof of a plaintiff's case where the defendant is an infant or a person of unsound mind, or has not been personally served with the statement of claim. I am also satisfied that, if evidence is properly before the court in the same suit, the court can act upon the basis of that evidence and refuse to act upon the admissions." 17 Even if there was an admission as to the s.131(1) elements (which, as I say, I think there was not, given that the defence expressly calls in question the aspect concerning timely incorporation and should be taken to put the s.131(1) question as a whole into issue), I would regard the admission as one that should, in the circumstances, not be permitted to preclude an examination on the merits. Effect and operation of s.131(1) 18 I proceed, therefore, to consider the effect and operation of s.131(1) in the present context. The section causes contractual rights and obligations to arise in circumstances where the general law of contract would not recognise them. Apart from statute, it is impossible for a contract supposedly made by someone as agent for a non-existent person to be the source of benefits to or burdens on either the supposed principal (who does not exist) or the supposed agent, except to the extent that the latter might be exposed to a claim for breach of warranty of authority: Black v Smallwood (1966) 117 CLR 52. In the particular case of a company as yet unincorporated, the general law position was described in the following terms in a report of the Victorian Law Reform Commissioner ("Pre-Incorporation Contracts", Report No 8, 30 April 1979) which formed the basis for the adoption of the original version of the provisions now reflected in Part 2B.3 (s.81 of the Companies Act 1981 (Cth) and corresponding State and Territory Codes): "1. The law lies within a small compass and can be stated briefly. A limited liability company is an artificial creature created by the law. It is both elementary and axiomatic that until the act of creation is performed it has no existence and can neither acquire nor give rights and thus be subject to obligations. Prior to its coming into existence it can have no 'agent' acting for it, and consequently cannot be held liable on the basis that any person, such as the promoter of the company, contracted as 'agent' for it. This is so even if the promoters are in fact the only members of the company after its formation. 2. Since 1866 it has been clear in English, Canadian and Australian law that a company when formed cannot adopt or ratify any act performed or obligations incurred on its behalf before incorporation and all that can be done to give binding force to such acts or obligations is to enter into a new contract on the same terms as the old." Application of s.131(1) in this case 19 There can be no doubt, in my view, that, when Mr Azzi signed the formal document, he entered into (or, at the least, purported to enter into) a contract "on behalf of" a company not then registered, being a company of the description found in recital A of the formal document. There can equally be no doubt, as I see it, that Aztech, when it came into existence on 20 February 2003, became the company the future incorporation of which was referred to in recital A; and this is so despite the minor difference between Aztech's name as eventually registered and the name referred to in recital A (the former contains the word "Science" and the latter the word "Sciences"). The situation is therefore one described in the opening words of s.131(1): "If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered …". 20 That being so, s.131 will be seen to have operated to cause Aztech to become bound by the contract embodied in the formal document and to be entitled to the benefit of that contract if, by the time relevant for the purposes of s.131(1), two things occurred: first, Aztech was registered and, second, Aztech ratified the contract. When I refer here to the time relevant for the purposes of s.131(1), I intend to refer to whichever of "the time agreed to by the parties to the contract" (paragraph (a)) or "a reasonable time after the contract is entered into" (paragraph (b)) is made applicable by the section to the circumstances of this case. The applicability of one of paragraph (a) and paragraph (b) rather than the other depends on whether there is what is referred to in one place as "the time agreed to by the parties to the contract" and in another as the "agreed time". If there is, paragraph (a) applies to the exclusion of paragraph (b); but if there is not, it is paragraph (b) that prevails. 21 The section refers, in paragraph (a) to "the parties to the contract". The reference to "the contract" is a reference to the contract mentioned at the start of the section, that is, the contract entered into (or purportedly entered into) by "a person … on behalf of, or for the benefit of a company before it is registered". The company not registered and therefore non-existent is in no sense a "party" to this contract. Not being a person, it cannot be a "party" to anything. The "parties" to the contract can only be the person who enters into (or purports to enter into) that contract on behalf of or for the benefit of the proposed company and the person or persons with whom the first-mentioned person enters into that contract. The reference in paragraph (a) to "the time agreed to by the parties to the contract" is accordingly a reference to any time agreed by all those persons as the time within which both registration of the company and ratification of the contract by the company are to occur. If the persons in question have not agreed a time within which both those events are to occur, the default specification ("within a reasonable time after the contract is entered into") alone is applicable (for an example of such a case, see Classic International Pty Ltd v Lagos (2002) 11 BPR 20,573). 22 In the present case, the persons relevant for the purpose just mentioned are Mr Azzi, Atlanta and Dr Daevys. In order to know whether the case is within paragraph (a) or paragraph (b) of s.131(1), it is necessary to decide whether those persons agreed a time within which registration of the company which is now Aztech and ratification of the contract by that company were to occur. The only stipulation on the subject (leaving aside, for the moment, the alleged oral agreement pleaded in paragraph 8 of the statement of claim) is found in clause 2 of the formal document itself. That clause refers to a period of 60 days "from the date hereof" (a form of words raising separate questions to which I shall come). The clause does not say, in so many words, that the parties agree upon the end of that period of 60 days as being the time by which both registration of the company and ratification of the contract by it are to occur. What it does say is that the agreement "shall be at an end" (with no party having any rights against the other) if either of the specified events does not occur within the period of sixty days. But that provision as to the agreement's coming to an end and the all rights evaporating if either event does not happen in the 60 day period carries within it, as a necessary corollary, a statement by the signatories of their agreement that the end of the 60 day period is the time by which both the events are to happen. 23 By referring to s.131 in their contract and saying that, if either of the events relevant to the section's operation did not occur within the stated period, the contract would end (so that the contractual rights and obligations of the proposed company would never arise), Mr Azzi, Atlanta and Dr Daevys were agreeing, as contemplated by s.131(1)(a), the time within which both those events were to occur in order to cause s.131 to create those rights and obligations. 24 On this basis (and subject to the question of the alleged oral agreement pleaded in paragraph 8 of the statement of claim), I view the present situation as one in which the expiry of the period of 60 days "from the date hereof" was the time agreed to by the "parties" (as contemplated by s.131(1)(a)) to be the time by which both the event of registration of the company referred to in recital A and the event of ratification of the contact embodied in the formal document were to happen. That being so, the case is within s.131(1)(a) and the time relevant for the purposes of that provision is the expiration of the period of 60 days "from the date hereof". What was "the date hereof"? 25 The next question to be considered is the meaning, in the circumstances, of "the date hereof" in clause 2 of the formal document which, as I have said, bears two dates in connection with its execution, one (11 November 2002) being the date on which it was signed by Mr Azzi ostensibly "for and on behalf of Aztech Sciences Pty Limited" and by Dr Daevys as "the Nominee" and the other (19 December 2002) being the date on which Dr Daevys signed as director and secretary of Atlanta. The defence, in responding to paragraph 7 of the statement of claim, makes clear the contention of Atlanta and Dr Daevys that "the date hereof" was 11 November 2002. In paragraph 7 of the statement of claim and elsewhere, Aztech maintains that "the date hereof" was 19 December 2002. 26 It is, in my opinion, clear that the parties, in referring to "the date hereof", intended to refer to the date on which their contract was made. The words were, of course, included in the formal document when it was typed and before anyone signed it. At that time, no one could have predicted with any certainty the date on which the document would be signed or otherwise adopted. The document is therefore to be interpreted "as if that date, when ascertained, … were expressly designated": Amber Properties Pty Ltd v Sufigoe Pty Ltd (1994) 6 BPR 13,822 per McLelland CJ in Eq. The task here is to ascertain the date. 27 Whenever it is necessary to decide whether a contract has been made, the fundamental question is that posed by Heydon JA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [81]: "In the light of the above cases, it is relevant to ask: in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the Council and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?" 28 The cases referred to by his Honour were cases showing that analysis of the process of contract formation in terms of offer and acceptance is, as he put it, "not always necessary or sufficient". One judicial observation not referred to by Heydon J but in my opinion stating the relevant principle in a form particularly pertinent for present purposes is that of Wells J in Re The Bank of Adelaide (1979) 4 ACLR 393 at p.421: "I may lend emphasis to what I have just said by referring briefly to the traditional analysis of the formation of a contract into offer and acceptance. Such an analysis holds good for many cases but by no means for all. Let it be supposed that A and B meet to discuss their common business interests and jointly decide that they should record their agreement on certain of those matters. It is a common practice for men in such a position to transmit heads of agreement and general instructions to a third person to draft a full agreement along the lines indicated. If, after A and B have read and discussed the draft, they agree, without more, to execute it, it would be absurd to attempt to identify, in the relevant events, a stage where A made a formal offer to B or vice versa. The truth of the matter is that A and B have agreed to adhere to a form of contract brought to their joint attention, and about which they have already held fruitful discussions. To describe what has happened in terms of offer and acceptance would be to superimpose on the true facts a framework of artificiality." 29 As the passage from the judgment of Heydon JA emphasises, questions of contract formation are to be determined by reference to the intentions of the parties, objectively ascertained; and, where a form of contract has been prepared for signature, the contract will generally be formed when all parties have positively adhered to it. The United States position applicable to cases of the present kind (which I think corresponds with our own) was stated as follows in Willard F Deputy & Co v Hastings 123 A 33 (1923): "The authorities are uniform in holding that parties signing a contract prepared for signatures of other persons along with theirs, and intended to be signed by all of the parties named in it are not bound until all have signed it and incur no obligation, if any of those who were to have signed it refuse to do so. Herndon v Meadows , 86W. Va. 499, 103 S.E. 404; Bean v Parker , 17 Mass. 591; Wood v Washburn , 2 Pick. (Mass.) 24; Ely v Phillips , 89 W. Va. 580, 109 S.E. 808; Fish v Johnson , 16 La. Ann. 29; McDaniel v Anderson , 19 S.C. 211; Bruch v Shafer , 235 Pa. 590, 84 Atl. 515, and 45 Pa. Super. Ct. 612." 30 In the present case, two of the parties - Mr Azzi and Dr Daevys - signed on 11 November 2002 and the third party (Atlanta) executed on 19 December 2002. It is Mr Azzi's evidence that Dr Daevys expressly declined to have the contract executed by Atlanta on 11 November 2002. Two reasons were apparently given: first, that Dr Daevys had forgotten to bring the company's common seal; and, second, that he was proposing to change the shareholdings and directors. There is thus evidence to support an inference that, according to the parties' intentions, none was to be bound until the third had executed 31 That inference becomes, to my mind, overwhelming when one considers the parties' respective roles. The formal document contemplated the transfer of technology by Atlanta to Aztech (the company to be formed) and the provision of Dr Daevys' services to Aztech by Atlanta. The role in which Dr Daevys was cast by the formal document was of a subsidiary kind in that, in essence, he agreed to underwrite performance by Atlanta. The bargain contemplated by the formal document therefore lacked essential substance in the absence of assent to it by Atlanta. Unless and until Atlanta gave its assent, there was nothing upon which Dr Daevys' promises of an underwriting kind could operate. 32 In short, the whole structure of the proposed transaction and the contractual roles of the parties whose ultimate performance was envisaged (by which I mean Aztech, Atlanta and Dr Daevys) were such that there could have been no intention of the immediate parties (Mr Azzi, Atlanta and Dr Daevys) that any contractual relationship could be sourced in the formal document before all of those immediate parties had executed it as provided for in the document itself. 33 On this basis, the formal document attained contractual force among Mr Azzi, Atlanta and Dr Daevys when executed by Atlanta on 19 December 2002 and not at any earlier time. The "date hereof", as referred to in clause 2, was accordingly 19 December 2002, with the result that the period of 60 days referred to in that clause was the period that ended on 17 February 2003. Was the s.131(1)(a) date varied? 34 Aztech had no existence until its registration on 20 February 2003. As a result, neither of the things referred to in s.131(1) had happened by 17 February 2003, being the deadline agreed to in the formal document by "the parties to the contract" (in the sense referred to in paragraph [21] above). Aztech says, however, that those persons (Mr Azzi, Atlanta and Dr Daevys) made a new and subsequent agreement as to the time within which the s.131(1) events were to occur. I have already quoted paragraph 8 of the statement of claim and set out the substance of paragraph 9. I have also referred to the denial of these matters in the defence. Paragraph 8 pleads what amounts to a variation of the original contract by a subsequent contract. The subsequent contract is not said to have had any efficacy beyond extending "the term for registration or ratification" provided for in the original. Essential to any conclusion that there was a subsequent contract which produced that effect would be a finding that the parties to the subsequent contract corresponded with the parties to the original contract. 35 The only evidence upon which Aztech relies in support of its contention that the three relevant persons made a subsequent agreement with respect to the time "for registration or ratification" (being the two events relevant for s.131(1) purposes) is the evidence contained in paragraph 10 of Mr Azzi's affidavit of 4 April 2003: "On 14 February 2003 I was present at a test of the sub-aquatic monitor at Gosford. Also present were an employee of my company, Robert Somosi, the Second Defendant [ie, Dr Daevys], and Michael Burke, a director of the First Defendant [ie, Atlanta]. Shortly prior to that date I had been diagnosed with a condition which required the removal of my gall bladder. I was due to, and did, undergo surgery on 21 February 2003. On the day of the 14th February 2003, I was in great pain and distress and I overheard a conversation between Mr Somosi and Mr Daevys in words to the following effect: Somosi: 'Tony is in a terrible state. He has already cancelled meetings with the solicitors and the accountants in relation to the trust and the setting up of the company (the Plaintiff). Do you mind if we take a few extra days to set everything up?' Daevys: 'Tony looks terrible. That won't be a problem.'" 36 This account shows that there was, on 14 February 2003, a conversation between Dr Daevys and Mr Robert Somosi who is described by Mr Azzi as "an employee of my [Mr Azzi's] company". The company referred to in that way cannot be identified from the affidavit. On the date in question (14 February 2003), Aztech, of course, did not exist and paragraph 9 of the statement of claim simply cannot be correct when it says that Mr Somosi was, on that day, a party to the conversation "for and on behalf of the Plaintiff". (Nor, of course, did the words attributed to Mr Somosi show that he purported to speak on behalf of or for the benefit of the proposed company.) 37 It is, to my mind, significant that, while Mr Azzi says that he overheard the reported conversation between Mr Somosi and Dr Daevys, he does not say that Mr Somosi was acting at his request or instruction or with his authority. Mr Somosi is not represented as having been an employee of Mr Azzi (as distinct from Mr Azzi's unidentified company) and there can be no inference that he was acting within the scope of some relevant employment by Mr Azzi in saying what he reportedly said to Dr Daevys. Mr Somosi is not mentioned in Mr Azzi's affidavit at any point before the paragraph in which Mr Azzi narrates what he overheard on 14 February 2003. There are two subsequent references to him but neither could form any basis for a finding that Mr Somosi was some kind of general agent for Mr Azzi. It is also significant that Mr Azzi's evidence is merely that he overheard what Mr Somosi said. There is no suggestion that he intervened after Mr Somosi had spoken to confirm what Mr Somosi had said. 38 In these circumstances, I cannot be satisfied that Mr Azzi, being, as explained in paragraphs [21] and [22] above, one of the "parties to the contract" referred to in s.131(1)(a) became party to or subscribed to any subsequent agreement with the other "parties to the contract" (Atlanta and Dr Daevys), being an agreement fixing some new or extended time within which the events of company registration and ratification were to occur. Because the words spoken by Mr Somosi and Mr Daevys are alone relied upon as constituting (or being the source of) an agreement among Mr Azzi, Atlanta and Mr Daevys and the evidence does not show that Mr Somosi acted with the actual or implied authority of Mr Azzi, Mr Somosi's actions cannot be regarded as amounting to contractual conduct on the part of Mr Azzi. 39 Implicit in what I have just said are two propositions: first, that the word "agreed" in s.131(1)(a) refers to the making of a contract; and, second, that the relevant agreement need not form part of the "contract" with which s.131(1) is concerned. The first proposition relies on the normal expectation that "agreement" generally refers to a legally enforceable agreement (J R Bryant (Constructions) Pty Ltd v Daniels, unreported NSWCA, 20 March 1996), which expectation must be particularly strong in a statutory context such as the present dealing with matters of contract. As to the second proposition, I merely say that I accept, without deciding, that an agreement made subsequently to the contract itself may be taken as relevant for s.131(1)(a) purposes where, as here, the contract itself contained an agreement of the s.131(1)(a) kind and the subsequent agreement is said to vary that original agreement. 40 In paragraph 11 of the statement of claim, Aztech says that the time for registration or ratification was "extended by implication to 20 February 2003 or a reasonable time thereafter". The present context is one in which the parties "agreed to" a time and the inquiry is as to whether they later "agreed to" some later time. While agreement may be implied from facts, the only pertinent facts to which Aztech points are those concerning the conversation on 14 February 2003. Paragraph 11 of the statement of claim therefore does not advance matters from Aztech's point of view. 41 Paragraph 12 of the statement of claim pleads an estoppel, saying that the defendants are estopped from denying an agreement to extend the time for registration or ratification to 20 February 2003 or a reasonable time thereafter. Estoppel, however, cannot help Aztech when it comes to the question posed by s.131(1) as to "the time agreed to by the parties to the contract" - that being, of course, a question going to the very existence of the contract on which Aztech sues. I have already expressed the view that "agreed" in s.131(1)(a) connotes contract. When the question is whether a particular time originally "agreed" by the parties has been replaced by a later time "agreed" by them, the purely contractual connotation makes irrelevant any estoppel that might preclude an assertion by one or more of the parties that the later time is not the applicable time. An estoppel is not an agreement. The distinction is succinctly stated in an old American case (Forsyth v Day 46 Me 176 (1853), Supreme Judicial Court of Maine): "The distinction between a contract intentionally assented to, or ratified in fact, and an estoppel to deny the validity of the contract, is very wide. In the former case, the party is bound, because he intended to be; in the latter, he is bound notwithstanding that there was no such intention because the other party will be prejudiced and defrauded by his conduct, unless the law treat him as legally bound." 42 Use of the word "agreed" in s.131(1)(a) shows that the provision is exclusively concerned with what is here called "the former case".

Conclusions to this point 43 In light of the above, I conclude, first, that the parties to the contract contained in the formal document, as made on 19 December 2002, (being Mr Azzi, Atlanta and Dr Daevys) acted with express regard for the provisions of s.131 and agreed, as contemplated by s.131(1)(a), a time limit expiring on 17 February 2003; second, that that time limit was neither varied by any later agreement among the same parties nor met, in that neither of the events which, in terms of s.131, were to happen within the time limit (registration of the company and ratification of the contract by it) did happen within that limit; and, third, that s.131(1) therefore did not operate to cause the plaintiff to become bound by and to obtain the benefit of the contract contained in the formal document. 44 This conclusion makes it unnecessary to consider whether the two events happened within the extended period said by the plaintiff to have become applicable by virtue of the subsequent agreement the plaintiff contends was made among the relevant persons on 14 February 2003. I proceed nevertheless to consider whether, as Aztech contends, there was ratification by it of the contract in the formal document after Aztech's registration on 20 February 2003 and, if so, when that ratification occurred. The ratification concept 45 Aztech points to a number of factual matters in support of its contentions as to ratification by it of the contract made on its behalf by Mr Azzi. The significance of those matters can be judged only by reference to the relevant ratification concept. 46 In company law, a species of ratification is applicable to cases in which a company organ or instrumentality oversteps the boundaries of the powers properly exercisable by it according to the company's internal arrangements. The process by which the members in general meeting (or perhaps by unanimous assent outside a meeting) sanction after the event some act of the directors that is beyond their powers or involves improper exercise of those powers is often described as ratification. It might be more accurately described as condonation. By and large, persons with whom the company deals (or "outsiders") are not concerned with these matters unless fixed with knowledge of irregularity. This "indoor management rule" was first developed by courts (eg Royal British Bank v Turquand (1856) 6 E&B 327; 119 ER 886; Mahony v East Holyford Mining Co (1875) LR 7 HL 869) and is now enacted by statute (Corporations Act, Part 2B.2). 47 Section 131(1) is, in my view, concerned with a broader concept of ratification and I would not accept that the ratification it contemplates necessarily involves some form of corporate resolution (cf Mezzanotte Investments Pty Ltd v Carpenter [1998] SADC 3781). The context is one in which principles of agency are at work in a way modified and adapted by statute. Thus, as is said at paragraph 15.290 of "Ford's Principles of Corporations Law" (Looseleaf, September 2004, by H A J Ford, R P Austin and I Ramsay) in relation to s.131(1): "Presumably, just what constitutes ratification is governed by the law of agency." 48 One relevant principle of the law of agency is that a non-existent person cannot have an agent and any act of a supposed agent of a non-existent person is incapable of ratification. That principle is obviously displaced by s.131(1) which works on the clear basis that a company, once registered and existing, can ratify something ostensibly done on its behalf before it existed. The application of general principles of the law of agency must therefore be confined to a determination of the sufficiency and efficacy of events after registration to constitute ratification. The focus must therefore be upon analogy with cases where one person purports to act, vis-à-vis a third party, as agent of another person (being a person who exists) but the relevant authority does not then exist or, because exceeded, does not operate. 49 It is generally said that ratification may be express or implied. Express ratification occurs when the alleged principal has, by unequivocal language or conduct, acknowledged that the contract is his. Implied ratification may arise in various ways. It often occurs when the alleged principal, although not expressly acknowledging the contract as his own, acts in a way that can only be explained on the basis that he accepts the contract as his own. The essence is, in either case, a manifestation of the principal's intention to be bound. 50 Determining whether there has been ratification, in the sense relevant to the law of agency, therefore depends on an assessment of the conduct of the alleged principal. The conduct may consist of acts of the alleged principal himself or acts of someone else who clearly acts with the authority of the alleged principal. The reference here to "acts" extends also to omissions to the extent that, in the particular context, omissions are capable of being of probative value. And it goes without saying that, in a case such as the present, conduct can be relevant only if occurring after the time at which the alleged principal came into existence. The evidence relevant to ratification 51 Written submissions made by Mr Montgomery of counsel on behalf of Aztech say that there can be no doubt that Aztech adopted and ratified the contract entered into by Mr Azzi, Atlanta and Dr Daevys because Aztech paid money as contemplated by the contract and, through Mr Azzi (who, on formation, became its sole shareholder and sole secretary and one of its directors), "pursued the benefits and burdens of the contract". The submissions also say that Mr Azzi caused Aztech, after its registration, to perform the contract and to demand performance of it. The submissions refer, in these connections, to paragraphs 7, 14, 15, 19 and 22 of Mr Azzi's affidavit and paragraphs 10 and 16 of Dr Daevys' affidavit. 52 Paragraph 7 of Mr Azzi's affidavit (confirmed by paragraph 10 of Dr Daevys' affidavit) may be put to one side as it refers to payments that Mr Azzi "authorised and caused" to be made to the defendants on 19 December 2002 and 24 January 2003. Aztech did not then exist and the acts of Mr Azzi on those dates cannot have been (or resulted in) acts of Aztech. Paragraphs 14 and 15 of Mr Azzi's affidavit (the first of which is agreed to in paragraph 16 of Dr Daevys' affidavit) read as follows: "14. Subsequent to 14 December 2002, the First and Second Defendants provided services as contemplated by the agreement, I authorised and caused a further payment of $15,000 to be made to the First Defendant on 26 February 2003 in payment of a further account received from the First Defendant on the same date. 15. Subsequent to 20 February 2003, I caused to be sought from the Defendants information necessary for the commercialization and sale of the 4 devices set out in Schedule B of the agreement, but I received no satisfactory response." 53 Paragraphs 19 and 22 of Mr Azzi's affidavit do no more than identify annexed letters. The first is a letter of 18 March 2003 signed "Tony Azzi" and addressed to "The Directors of Atlanta Aerospace Pty Limited". It is on plain paper carrying no letterhead. This letter of 18 March 2003 contains a number of complaints by Mr Azzi related to "our agreement finally signed by Atlanta Aerospace on 19 December 2002". The complaints are addressed to "you". There is reference to Aztech only in the third last paragraph which reads as follows: "I would in passing wish to deal with a matter you raised for the first time yesterday and again in your facsimile of 18.01 hours last evening, that is, the question of the 60 days to form Aztech. As you know I was very ill during February and Robert communicated this to you. Aztech was incorporated on 20 February 2003. This was subsequent to Robert telling you many times that I was ill and the incorporation was delayed because I was in hospital. I am told by Robert and Ms Scanlan that he reminded you of this and you conceded that you were told this 'numerous' and 'innumerable' times. I also take the view that you consented in these conversations with Robert to a slight or reasonable delay in that incorporation of Aztech Science Pty Limited. I also take the view that you have invented contrivances to avoid the consequences in that contract."

In the context, "you" must refer to Dr Daevys. 54 The letters referred to in paragraph 22 of Mr Azzi's affidavit are letters from a firm of solicitors to "The Directors, Atlanta Aerospace Pty Limited". Both are dated 1 April 2003. The second is no more than a presently irrelevant addendum to the first. That first is headed: "THE CONTRACT ENTERED INTO BY ATLANTA AEROSPACE PTY LIMITED AND YOURSELF WITH AZTECH SCIENCE PTY LIMITED ON 19 DECEMBER 2002"

This letter refers to "our client" in a way that seems clearly enough to contemplate Aztech (for example, "our client" is referred to as "it"). It says that Aztech is concerned about statements by Dr Daevys "on your behalf" denying the existence of "the subject agreement" and threats by him to act inconsistently with it. The letter continues: "We are instructed that our client maintains that the agreement is valid and binding and that it is concerned by Mr Daevys statements, which are inconsistent with the fact of the agreement." 55 Certain demands follow. There is then the following statement: "Our client remains ready, willing and able to make payment of the amounts properly due for March 2003."

The amounts referred to are clearly amounts referable to the formal document dated 19 December 2002.

Assessment of the evidence relevant to ratification 56 Once the matters in paragraph 7 of Mr Azzi's affidavit are discarded for the reasons of timing already stated, the first matter to consider is the statements in paragraphs 14 and 15. The relevant conduct there referred to is described by the words, "I authorised and caused a further payment of $15,000 to be made to the First Defendant [ie, Atlanta] on 26 February 2003 …"; and the words, "Subsequent to 20 February 2003, I caused to be sought from the Defendants information …". The first of these statements (the statement as to a payment) is cast in precisely the same terms as those used in relation to the payments referred to in paragraph 7 of the affidavit as having occurred on 19 December 2002 and 24 January 2003. The inference to be drawn is that the process Mr Azzi set in train on 26 February 2003 was the same as that he had set in train on the two earlier dates when Aztech did not exist. This plus the fact that the description of what happened on 26 February 2003 (when Aztech did exist) makes no reference to Aztech, expressly or by implication, and does not in any way show that Aztech itself did anything on that day leads to the conclusion that the statement as to the payment on 26 February 2003 does nothing to show that there was ratifying conduct of Aztech. The need for supposed acts of part performance to be identifiable, in a case arising under s.131(1) itself, with the company rather than merely the person who acted on its behalf in entering into the contract was emphasised by Chernov JA in Scuderi v Morris (2001) 39 ACSR 592 at [83]. 57 The same comment applies to the request or requests for information referred to in Mr Azzi's affidavit as having been made "[s]ubsequent to 20 February 2003". Again there is nothing that connects with Aztech what he "caused" to be done; and there is no basis for an inference of conduct by Aztech. 58 I look next at the letter of 18 March 2003. I do not regard that letter as containing any statement by Aztech. I acknowledge that Mr Azzi was at that time a director of Aztech. But in the letter as a whole and in the quoted paragraph in particular, Mr Azzi, as its signatory, is addressing Dr Daevys and making assertions about the contract that he (Mr Azzi) entered into with Dr Daevys and Atlanta on 19 December 2002. The letter is a letter written and signed by Mr Azzi without any reference to any capacity or office held. Aztech plays a part only as the object of conversations to which the letter refers. The letter does not, expressly or by implication, carry any message communicated by Aztech. 59 The first of the solicitors' letters of 1 April 2003 is different. By that letter, the solicitors clearly make statements on behalf of Aztech to both Atlanta and its "directors" including Dr Daevys. These statements include a statement that Aztech "maintains that the agreement is valid and binding" and that Aztech "remains ready, willing and able" to make payments for March 2003 referable to the contract. These are clear manifestations by Aztech, through its solicitors, of an intention to be bound and to perform. They amount to ratification of the contract of 19 December 2002 by Aztech. Conclusions on ratification 60 Had it been necessary for me to decide whether the contract contained in the formal document was ratified by Aztech, my conclusion would have been that ratification occurred on 1 April 2003 by means of the solicitors' first letter of that date. A further question would then have arisen, namely, whether that ratification occurred within the extended period which Aztech contends applied for s.131(1) purposes because of the oral agreement of 14 February 2003 (this being, of course, a contention I have not upheld). Paragraph 8 of the statement of claim describes the alleged oral agreement as an agreement to extend "the term for registration or ratification" of the contract pleaded in paragraph 7 "to 20 February 2003 or a reasonable time thereafter". Because, as I view matters, there had been no ratification by 20 February 2003, my task would have been twofold: first, to decide whether it is open to the parties to agree "a reasonable time" pursuant to s.131(1)(a) and; if so, to decide whether, in the circumstances, 1 April 2003 was a "reasonable time" after 20 February 2003. Having regard to the position that has been reached, there is no point in my embarking upon these inquiries. Disposition of proceedings 61 The case advanced by Aztech is based wholly on the proposition that the content of the formal document came, by operation of s.131(1), to have contractual force among Aztech, Atlanta and Dr Daevys. For the reason stated at paragraph [43] above, that proposition cannot be sustained. 62 The claims in the summons and statement of claim must therefore be dismissed and there must be judgment for the defendants. **********

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