Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : TODAYTECH DISTRIBUTION PTY LTD -v- BIRJANDI

Corporations - Two-director company - Credit contract executed by one director only - Whether validly executed - Director implied actual authority to sign on behalf of company - Turns on own facts

Practice and procedure - Pleadings - Amendment to defence - Sought after close of case - Whether trial Judge wrongly refused amendment - Whether amendment serves any purpose - Turns on own facts

Corporations Act 2001 (Cth), s 126, s 127, s 127(1), s 127(2), s 127(4), s 129(1), s 129(5), s 129(6), s 198C(1)

Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167

Biggerstaff v Rowatt's Wharf Ltd [1896] 2 Ch 93

Devries v Australian National Railways Commission (1993) 177 CLR 472

Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 5 ACSR 424

Fox v Percy [2003] HCA 22; (2003) 214 CLR 118

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

Amatek Ltd v Botman (1995) 127 FLR 160

State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146

Brunskill v Sovereign Marine & General Insurance Co Ltd [1985] HCA 61; (1985) 59 ALJR 842

Voulis v Kozary [1975] HCA 44; (1975) 180 CLR 177

Jones v Hyde [1989] HCA 20; (1989) 63 ALJR 349

Dennis Hanger Pty Ltd v Kanambra Pty Ltd [1992] FCA 56; (1992) 34 FCR 242

Australian Cole & Shale Employees Federation v Commonwealth [1953] HCA 25; (1953) 94 CLR 621

Hancock v Williams (1942) 42 SR (NSW) 252

Polak v Everett (1876) 1 QBD 669

Holme v Brunskill (1877) 3 QBD 495

Nelson Fisheries Ltd v Boese [1975] 2 NZLR 233

Wren v Emmett Contractors Pty Ltd (1969) 43 ALJR 213

Trade Credits Ltd v Burnes [1979] 1 NSWLR 630

Philips v Astling [1809] EngR 519; (1809) 127 ER 1056

Re A & K Holdings Pty Ltd [1964] VicRp 36; [1964] VR 257

Molsons Bank v Cranston (1918) 45 DLR 316

Pym v Campbell [1856] EngR 480; (1856) 119 ER 903

1 STEYTLER P: The appellant, Ali Birjandi, was one of two directors of a company, Best Buy Computers Pty Ltd, which later changed its name to Bestwest Computers Pty Ltd ("Bestwest"). The other director was his wife, Lucinda Birjandi. Mr Birjandi was the sole director of another company, Best Buy Distributions Pty Ltd ("BBD"). Bestwest was a retail seller of computers and BBD was a wholesaler of computer products. Both companies bought computer products from the respondent ("Todaytech").

2 After a trial in the District Court of Western Australia, Mr Birjandi was found to be liable to pay to Todaytech an amount of $35,813.24, and interest, pursuant to the terms of a guarantee given by him in favour of Todaytech in respect of money owed to it by Bestwest. He appeals against that judgment.

3 The evidence at trial disclosed that BBD had business dealings with Todaytech between 1998 and 2002. During that period Todaytech sold computer parts to BBD. Also during that period, BBD lodged a number of applications for credit with Todaytech. These were respectively dated 26 November 1998, 8 February 1999, 29 November 2000 and 9 January 2002. Each of these applications was approved by Todaytech, with the result that BBD was able to purchase, and did purchase, goods from Todaytech on short-term credit. In no case did the application for credit specify what was to be the period of credit. Rather, BBD agreed in each case to "adhere to ...[Todaytech's] conditions of trading and settlement of accounts in accordance with ... [Todaytech's] agreed trading terms".

4 Each application was signed by Mr Birjandi on behalf of BBD. Also, in each case Mr Birjandi provided a guarantee in favour of Todaytech whereby he guaranteed "the due amount [sic] to TODAYTECH of all monies now or hereafter to be owing by ... [BBD] for all such goods and / or services as TODAYTECH may from time to time supply ... under its standard terms and conditions of supply as shown below [they were not in fact shown below] or varied from time to time in writing" (cl 1). The guarantee was expressed to be "a continuing guarantee for all debts whatsoever and whensoever incurred by ... [BBD] with TODAYTECH ...", although provision was made for Mr Birjandi to be released from the guarantee on not less than 14 days' written notice to Todaytech, if all of BBD's liabilities to Todaytech had, at the expiration of the notice period, been discharged (cl 2).

5 Karen Birkett, Todaytech's credit administration officer, was the only witness called at the trial on behalf of Todaytech. She said that problems developed with BBD as regards the payment of its accounts. She also said that Mr Birjandi told her that BBD was not operating profitably, that it would be "closed down" and that Bestwest would take over its role. This meant that an application for credit would have to be completed by Bestwest. Todaytech's policy required that there be a guarantee in support of the application. Ms Birkett said that Mr Birjandi told her that he would complete a credit application on behalf of Bestwest.

6 Consequently, Ms Birkett said, on 26 April 2002 she went to Mr Birjandi's office, taking with her a blank credit application, which included a form of guarantee. She said that the application and guarantee formed one document which was stapled together. At Mr Birjandi's office and in his presence she filled in, on the application form, details of Bestwest. The form was then taken by Mr Birjandi to an accountant who worked for Bestwest and he completed other details in the presence of Mr Birjandi and Ms Birkett. Mr Birjandi also completed some of the details before signing the document in his capacity as a director of Bestwest and as guarantor. Ms Birkett witnessed Mr Birjandi's signature as guarantor.

7 The credit application sought a credit limit of "$50,000/30,000". Bestwest's forecast of monthly purchases was said to be $50,000. The credit applied for was expressed to be "subject to TODAYTECH's terms and conditions specified in pages 4 and 5 of this document". Those terms and conditions were standard terms and conditions. They did not specify what was to be the period of credit. Under the heading "Supply of Credit", the terms and conditions provided, inter alia, that:

"a) Application to open a credit account must be completed on an official credit application form ... before supply of credit be considered.

b) Terms and conditions on which a credit account may be granted and operated are subject to change without notice.

c) Payment of credit accounts must be received well within the Credit Terms granted to you.

...".

8 Clause 8 of the terms and conditions provided, under the heading "Variation", that the trading terms were subject to change without notice.

9 The form of guarantee immediately followed the terms and conditions. As with its predecessors, cl 1 of the guarantee provided that the guarantor guaranteed "the due amount [sic] to TODAYTECH of all moneys now or hereafter to be owing by the applicant mentioned above for all such goods and/or services as TODAYTECH may from time to time supply to ... us under its standard terms and conditions of supply as shown below [they were in fact shown above] as varied from time to time in writing". Clause 2 of the guarantee provided that:

"This agreement shall be a continuing guarantee for all debts whatsoever and whatsoever [sic] incurred by the applicant with TODAYTECH not [sic] less than (14) fourteen days written notice of my ... desire to be released from this guarantee and if at the expiration of such period of notice all liabilities of the applicant to TODAYTECH have been discharged then this agreement shall cease to be of effect."

10 Ms Birkett's evidence established that Bestwest's credit application was not immediately approved. Her boss, Mr Cheung, Todaytech's credit controller, told her that, before credit could be extended to Bestwest, BBD had to pay all of its overdue accounts. However, on 24 July 2002 (by which time BBD's outstanding debts had been paid) the credit application was approved. Bestwest was extended credit of up to $30,000 for a period of 21 days from the date of invoice.

11 It was admitted on the pleadings that, between 23 August 2002 and 1 January 2003, Todaytech sold and delivered computer products to Bestwest and that, despite demand, Bestwest failed to pay the outstanding balance owing by it in respect of those products in an amount of $35,853.24, including dishonoured cheque fee charges (totalling $40). It was common cause at the trial that Mr Birjandi also paid no part of that sum to Todaytech, notwithstanding demand by it under the guarantee.

12 It was put to Ms Birkett, in the course of cross-examination, that she had at no time contacted Mr Birjandi or Bestwest to inform either of them that the credit application had been approved. She said, in response, that this was untrue and that she had been in constant contact with them.

13 It was also put to Ms Birkett that, at the time at which the credit application and guarantee were signed on 26 April 2002, Mr Birjandi told her that Bestwest had two directors, himself and his wife, and that Mr Birjandi would "need to get his wife ... to authorise and sign ... the ... documentation because he couldn't open a new credit account on his own for that company". She responded to this proposition by saying that she was positive that Mr Birjandi had said no such thing. However, she acknowledged that either she, or her manager in Todaytech's head office in Sydney, "would have" carried out a company search in respect of Bestwest. She did not know what that search might have revealed.

14 There were three witnesses for the defence, Mr Birjandi, a Mr Stephen Fitzgerald and Mrs Birjandi.

15 In his evidence, Mr Birjandi said that he did not have his wife's authority to execute documents on behalf of Bestwest on his signature alone. He also said that he had never raised with Ms Birkett the question of the lodging of a credit application by Bestwest until after her arrival at his office on 26 April 2002. On that day, he said, she had brought to him documents for execution by BBD in order to update Todaytech's records in respect of that company. Mr Birjandi said that he then told Ms Birkett that he proposed that Bestwest would begin buying products from Todaytech and that it was appropriate that "another application" should be "partially filled" in by Bestwest. He said that he took the blank application form which had been brought by Ms Birkett for completion by BBD and gave it to one of his employees, Mr Fitzgerald, to photocopy it so that two application forms could be filled in, one on behalf of BBD and another on behalf of Bestwest. He said that the BBD application form was required in order to "amend the terms [to] 21 days and 50,000 [sic]". The previous agreement between BBD and Todaytech had provided for a $30,000 credit limit for a period of 14 days. Mr Birjandi also said that he told Ms Birkett, in respect of the Bestwest application, that he would "fill it [sic] partly now" and that he would later ask his wife if she was "agreeable to take on credit terms". He said that he also told Ms Birkett that if his wife did not agree, "we ... [would] just continue as a COD client".

16 Mr Birjandi said in evidence that his wife was ill at the time. After waiting for an "opportune moment" to ask her about Bestwest's credit application, he broached the subject with her. She was not prepared to sign the document because she did not really want to get involved with anything to do with the company at the time. He said that he mentioned this to Ms Birkett some time later and told her that he would keep trying. Bestwest thereafter purchased goods on a COD basis from Todaytech for a period of two to three months. Mr Birjandi said that he was never notified of any credit approval in respect of Bestwest. However, he noticed, after a period of time, that "invoices started appearing with 21 days terms on it [sic]".

17 Mr Birjandi also denied that he had signed a guarantee in respect of Bestwest. He said that the forms produced by Ms Birkett were loose, single sheets and, in effect, that, apart from the application forms, he signed only a guarantee relating to BBD and a page authorising Todaytech to do a "company search" in respect of Bestwest's creditworthiness. Implicit in his evidence was the proposition that the guarantee relied upon by Todaytech was that which had related to BBD and not to Bestwest.

18 Mr Fitzgerald, in the course of his evidence, recalled having been asked to photocopy some papers on the occasion of Ms Birkett's visit in April 2002. He said that they were unstapled, loose papers. After photocopying them, he returned to his desk, which was some 10 to 12 feet away from that occupied by Mr Birjandi but separated from it by Mr Birjandi's office wall. He said that this was a "stud wall" and that the door of Mr Birjandi's office was open. He heard parts of a general discussion between Mr Birjandi and Ms Birkett. He said that he heard Mr Birjandi telling Ms Birkett, in the course of the discussion, that he could not sign the Bestwest application alone because his wife was a joint director and he needed her signature.

19 Mrs Birjandi's evidence was that the arrangement in existence between herself and her husband as regards the signing of contracts on behalf of Bestwest (she said that the two of them had "decided" upon this arrangement) was that they had "to sign the documents together". She recalled that in April 2002 her husband had told her that he wanted to "fill out ... [a credit] application for Todaytech" in respect of Bestwest but that she had refused to sign it. She was then suffering from depression.

20 Before turning to the judgment of the trial Judge and the grounds of appeal, there is one other aspect of the trial process which it is necessary to mention. After the respondent had closed its case and during the cross-examination of Mr Birjandi, counsel for Mr Birjandi moved a further amendment to the defence (it had been amended at the commencement of the trial). That amendment sought to add the following paragraphs:

"15. If, which is denied, ... [Bestwest] did enter into a valid written contract with ... [Todaytech], and, the guarantee referred to in paragraph 2 of the Statement of Claim is also valid (which is also denied), ... [Mr Birjandi] avers that the contract between ... [Todaytech] and ... [Bestwest], between on or around 1 May 2002 until 18 July 2002 included the term that all payments by ... [Bestwest] were to be made 'COD' meaning immediately on delivery by ... [Todaytech]. Further, that on 18 July 2002 ... [Todaytech] without prior notice in writing (as was required by either [sic] clause 1 of the guarantee), or, of any kind to ... [Mr Birjandi] unilaterally altered the terms of the contract between ... [Todaytech] and ... [Bestwest] whereby the terms were altered to include the following terms:-

(a) that ... [Bestwest] could pay on 21 day invoices; and

(b) that ... [Bestwest] could incur credit of up to $30,000.00.

16. ... [Mr Birjandi] did not consent to, agree with or in any way accept the changes to the contract between ... [Todaytech] and ... [Bestwest] pleaded in paragraph 15 hereof.

17. By virtue of the matters pleaded in paragraphs 15 and 16 hereof any liability of ... [Mr Birjandi] to ... [Todaytech] under the said guarantee is entitled, in equity, to be discharged from any liability [sic] under the guarantee."

21 Having heard submissions in support of the amendment from counsel for Mr Birjandi, the trial Judge refused to allow it. He said, in effect, that it came too late, that it "cast ... [the] controversy in a totally different light" and that it "[gave] rise to a number of aspects that would need to be pursued".

22 That brings me to the judgment of the trial Judge. It is very brief and was given ex tempore. He identified the central issue in dispute between the parties and the gravamen of the evidence of each of the witnesses. He also dealt with issues of credibility. He said of Mrs Birjandi's evidence that her position, as she had outlined it, "would appear to be rather strange" in view of the fact that her and her husband's management of Bestwest was "their vocational activity". As to Mr Fitzgerald's evidence, the trial Judge said that Mr Fitzgerald had not been involved in the "negotiations" and that it would consequently have been "somewhat unusual" for him to have paid particular attention to what was being said by Ms Birkett and Mr Birjandi. He also said that Mr Fitzgerald's evidence about photocopying a document did "not take the matter very far". He then went on to say:

"Having regard to the trading history between the plaintiff and the defendant's entities, it would in my view have been unusual for the plaintiff not to require some guarantee of Best West [sic] Computers Pty Ltd's obligations. I found Ms Birkett to be a reliable witness, what she had to say and the manner in which she said it. To the contrary, I thought the evidence of the defendant was in part extraordinary and inconsistent with the trading arrangements between the parties. I am therefore satisfied to the required degree that exhibit 5 [the credit application and guarantee] came into existence in the circumstances outlined by Ms Birkett.

That being the case, first of all I should say that the defendant was in a position to and did make the application for credit on behalf of the company ... Best West [sic] Computers Pty Ltd, and the defendant guaranteed to the plaintiff that he would meet the obligations of the company pursuant to the credit arrangements if that company was unable to do so."

23 The trial Judge went on to give judgment in favour of Todaytech against Mr Birjandi for the admitted amount of the debt, less the dishonoured cheque fees, and interest.

25 The first is that the trial Judge erred in failing to find that the "credit contract" between Todaytech and Bestwest had not been validly executed by Bestwest, given that it had been executed by only one director who had no authority, and who had not represented that he had the authority, to execute it on his own. The particulars to that ground (which go wider than the ground itself) contend that it was "not challenged" that Mr Birjandi did not have "sole authority" to sign contracts on behalf of Bestwest; that the guarantee formed part of the credit application and was conditional upon Todaytech entering into the credit contract with Bestwest; and that, because the credit contract was invalid, the guarantee could not be valid.

26 The second ground challenges the trial Judge's refusal to allow the amendment to which I have earlier referred. Essentially, Mr Birjandi contends, by his counsel, that the amendment would not have resulted in any additional evidence from either party. He also contends, in effect, that, had the amendment been allowed, the trial Judge would have been obliged to find that, because no credit had been extended to Bestwest in the period immediately following upon the execution of the guarantee, the subsequent extension of credit, after 24 July 2002, amounted to a material alteration of the nature of the obligations guaranteed, of which alteration Mr Birjandi had been given no notice in writing and to which he had not agreed. This, he contends, must have resulted in him being discharged from liability under his guarantee.

28 While the trial Judge's reasons are brief, it appears sufficiently from them that he preferred the evidence of Ms Birkett to that of Mr and Mrs Birjandi and Mr Fitzgerald and that he found Ms Birkett to be the only reliable witness.

29 I have said that Ms Birkett was emphatic in her denial that events on 26 April 2002 followed the course suggested by Mr Birjandi and Mr Fitzgerald. Her version of what took place is entirely consistent with the documentary evidence in the form of the credit application and guarantee executed on that day and also with the later extension of credit by Todaytech to Bestwest and the acceptance, by Bestwest, of that credit instead of making payment by cash on delivery. It is also consistent with the prior conduct of affairs as between BBD and Todaytech. In these circumstances, it was open to the trial Judge to form a sceptical view (as he obviously did) of the evidence of Mr and Mrs Birjandi and Mr Fitzgerald. Moreover, he had the advantage, denied to us, of seeing and hearing the witnesses. There is no basis upon which this Court could upset his credibility findings: see Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167 at 179; Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479; and Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at 127 [26].

30 Next, it seems plain, on a fair reading of the transcript of the trial, that Todaytech did challenge Mr Birjandi's evidence that he did not have sole authority to execute the credit application on behalf of Bestwest. Ms Birkett's evidence was to the effect that she had become accustomed to the fact that Mr Birjandi executed documents on behalf of BBD and she did not doubt his authority to do the same on behalf of Bestwest. She was, as I have stressed, emphatic that Mr Birjandi said nothing to suggest that he lacked the requisite authority. Also, Mrs Birjandi was challenged, in cross-examination, as regards her assertions in respect of the "arrangement", said to have been decided upon by her and her husband, that both signatures were required. There was consequently nothing in the manner in which the case was conducted which precluded the trial Judge from finding, as he did, that Mr Birjandi was authorised to, and did, make the credit application on behalf of Bestwest.

31 As to the issue of what authority Mr Birjandi in fact had, it is true, as his counsel contended before us, that the search of Bestwest which had seemingly been undertaken by Todaytech would have revealed that Bestwest had two directors. However, that did not mean that Mr Birjandi could not have been authorised to sign an application for credit on behalf of that company. The effect of Ms Birkett's evidence was that Mr Birjandi implicitly represented that he was so authorised and that evidence, as I have said, was accepted by the trial Judge.

32 Counsel for Mr Birjandi relied, in support of his contentions, upon s 127 of the Corporations Act, which allows a company having two directors and a common seal to execute a document without using the common seal if, inter alia, the document is signed by two directors. However, this does not mean that a company having two directors and a corporate seal is limited in the way in which it may sign a simple credit application of the kind in question in this case. It plainly can sign such a document by one director, if he has been given the requisite authority. Section 127(4) of the Corporations Act provides that s 127 does not limit the ways in which a company may execute a document and s 126 provides that a company's power to make a contract may be exercised by an individual acting with the company's express or implied authority and without using a common seal.

33 There is no suggestion, in this case, that Bestwest had any constitutional restriction on the exercise of its powers which would have precluded execution of a credit application or contract by only one director. Moreover, under s 129(1) of the Corporations Act a person may assume that the company's constitution (if any) has been complied with, although, where neither of s 127(1) and (2) is complied with, as in this case, the provisions of s 129(5) and (6) do not apply and the assumptions of due execution by the company there referred to have no application.

34 In her evidence, Mrs Birjandi said that she was not involved in Bestwest's business "day-to-day hands-on, making the business decisions and arranging finance and things of that nature". She said that she "worked in the shop ... did banking and looked after staff and all that type of things [sic] ...". Implicit in her evidence was the notion that the daily running of the company and the general charge of the business (these being the usual tasks of a managing director: Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 5 ACSR 424 at 427) were left in the hands of her husband, the only other director. A managing director has implied actual authority to make day-to-day contracts in the course of the company's normal trading activities: Biggerstaff v Rowatt's Wharf Ltd [1896] 2 Ch 93; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549. While there was no evidence that Mr Birjandi had been appointed as Bestwest's managing director (as to which see s 198C(1) of the Corporations Act), it was, in my opinion, open to the trial Judge to find, as he seemingly did, that Mr Birjandi had implied actual authority of that kind in this case.

35 It was undoubtedly also open to the trial Judge to find that the application which was executed by Mr Birjandi on behalf of Bestwest was supported by the guarantee which was signed by him. The trial Judge went on to find that credit was extended to Bestwest pursuant to that application (as a result of its acceptance by Todaytech), albeit after a delay during the period in which BBD got its affairs in order, and that Bestwest thereafter purchased goods on credit rather than on a COD basis. The credit so extended to Bestwest was that which had been contemplated by the credit application, although it was at the lower end of the amount sought. While the application had not specified the period for which credit was to be extended, Mr Birjandi's prior course of dealing with Todaytech had been such that he (and hence Bestwest) must have anticipated that it would be extended for a period of either 14 or 21 days, those periods having previously been extended by Todaytech to BBD. I have earlier mentioned that Mr Birjandi said, in his evidence, that on 26 April 2002 the BBD application form was required in order to "amend" its credit terms to 21 days. That presumably meant that he had a similar understanding as to the duration of the credit that would be extended to Bestwest if its application was accepted. As I have said, a period of 21 days' credit was extended to Bestwest in respect of purchases made after 24 July 2002, that period having been specified in the invoices supplied by Todaytech to Bestwest in respect of the goods which were

sold by it to Bestwest under its standard terms and conditions after that date.

36 There was consequently no basis for the challenge to the validity or operation of the guarantee which had been entered into by Mr Birjandi.

38 Even putting to one side the trial Judge's findings in respect of delay and prejudice (and also Todaytech's contention that this ground requires leave to appeal), it is enough to say that, if the amendment had been allowed, it could not have assisted Mr Birjandi.

39 As will be apparent from what I have already said, there never was any alteration, material or otherwise, to the arrangements which were contemplated by the guarantee. As I have said, the credit application was only accepted by Todaytech on 24 July 2002. Sales of goods by Todaytech to Bestwest prior to that date had been COD only because there was, until then, no agreement as to the extension of credit, the credit application having then still been held in abeyance. After the agreement as to credit came into effect on 24 July 2002 (upon which date the guarantee also took effect) there was no variation to the terms of the credit agreement.

40 The amendment was consequently misconceived and no purpose would have been served by allowing it.

41 It follows that there is no substance to either ground of appeal. The appeal should consequently be dismissed.

42 WHEELER JA: I have had the advantage of reading in draft the reasons to be delivered by Steytler P. I agree with his Honour's reasons and have nothing to add.

• The evidence at trial
• The amendment application
• The judgment of the trial Judge
• The grounds of appeal
• Ground 1 - The "credit contract"
• Ground 2 - The amendment
• Conclusion