Brookhouse, Reginald Sydney v NSW Mutual Real Estate Fund Ltd & Ors [1978] FCA 11

Federal Court of Australia|1979-03-08|Before: Deane JJ, Franki J

Trade Practices - Misleading conduct - Liability of

N.S.W. MUTUAL REAL ESTATE FUND LTD. & ANCR v. REGINALD SYDNEY SROOKHOUSE

BETWEEN: N.S.W. MUTUAL REAL ESTATE FUND LIIITED and f= utERS MANAGE™IENT PTY. LIMITED

Appellants AND: REGINALD SYTNZY PROOPSOUIE Respondent

ORDER JUDGES MAKING ORDER: Franki, St. John and Deane JJ.

IN THE PrOERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY G No. 39 of 1978 GENERAL DIVISION

BETWEEN: MANACEr Appellants AND: REGIMALD SvOMoV ECOCKHO 72

Reginald Sydney Eroci;ouse, the respondent herein, obtained judgment from a single judge of this Court against three deferdancs, N.S.W. Mutual Real Estate Fund Limited, ("the Fund comrany") Members Management Pty. Limited ("the Management company") and

Newbridge Finances Pty. Lim.tel whose neme was previously

-2?2- N.S.W. Mutual Loans Agency Pty. Limited ("the Agency company"). The Agency company was wound up on 8 February 1977. The Fund company and the Management company have appealed against the judgment ordering the appellants and the Agency company, inter alia,

to pay the sum of $8,050 to the respondent together

Mr. Ollis, at all relevant times the manager of the Agency company and a director of the Management company and from January to October 1974 a director of the

Fund company, had represented to the respondent that

by investing $8,000 in the Fund company he would be able to borrow $30,000 from the Fund company within fourteen to sixteen weeks at what was a very favourable

Practices Act 1974 ("the Act') and was based on s.52(1)

"A corporaticn snail not, in trade or commerce, engage in corduct that is misleading or deceptive."

The substantial argument for the respondent proceeded upon the basis that Mr. Ollis, as the manager of the Agency company, made a misleading or deceptive statement and that the Agency company was an agent in the relevant sense for the Fund company and the Management company and that this statement was therefore misleading or deceptive conduct engaged in

"Any conduct engagec in on behalf of a body corporave by a director, agent or servant of the body corrorats cr by any other person at the direction

. or with the consent or agreement (whether exoress or implied) cf a director, agent or servant of the body corporate shail be deemed, for the purposes of this Act, to have been engaged in also by the body corporate."

It was also submitted for the respondent thar Mr. Ollis, as a director of the Management company, in making the relevant statement made it on behalf of that company and that that company was the agent of the Fund company and therefore both the Fund company and the Management company were liable for the statement made

"It was in the course of performing the task assigned to it by the Fund company and the Management company, that is, of finding purchasers for shareholders who wished to sell

that the Agency company by its two servants made the false representation to the plaintiff. Having acted, as

by both the Fund corpany end tne Management company for tne performance

of that task those two corpanies are liable for its conduct."

The nature of such an appeal as this was considered by the Full Court of this Court in Whim Cree Consolidated N.L. v. Federal Cormissioner of Taxation (1977) 17 A.L.R. 421 at p.426 where after referring to Edwards v. Noble (1971) 125 C.L.R. 296, the Court said:

"Before this court will reverse such a finding of fact,17 will have to be convinced that the trial jucge came to a wrong conclusion."

The Fund company was incorporated in 1973. It purported to provide loans to holders of redeemable preference shares on favouratle terms at a date tc te determined according to a priority number associated

-5-

company had no staff and it is perfectly clear that the Management company,which was incorporated about the same time,was authorised to act as a manager for the Fund company. A Mr. Russell Bruce King

The learned trial judge accepted the evidence of the respondent as to the representations wnich were made and neither Mr. Ollis nor Mr. Emdur were called

The respondent, in about February 1975, was seeking to borrow money to purchase a house. He saw an advertisement in a newspaper and visited the premises of the Agency company wnich at that time were also the vremises of the Fund and Management companies

and there the relevant representations were made to hin.

to the advertisement was to obtain a loan ava favourable rate of interest to enabie him to purchase the house in which he was then living in the Sydney suburb of Cronulla. The purchase of shares was not an object in itself. It was the means to obtain such a loan, There never was any suggestion that the loan would be obtained otherwise than from the Fund company acting through the services of its manager, the Management

indicated 1n the advertisement, it was, to use his voerds,

The business of the Fund company was the making of loans. The representation made to the respondent was as to the availability of loan moneys and related to activity of the Fund company acting through the Management company. The respondent borrowed $8,000 from a bank, the loan being guaranteed by his father, and paid this money to Mr. Ollis at the Agency company for the purchase from existing shareholders of two parcels of partly paid redeemable preference shares in the Fund company. In the result, which in all the circumstances does not seem surprising, no money was forthcoming from the Fund company withzn the stated

The first question to be determined is whether I am convinced that the trial judge came to a wrong conclusion in holding that the representation, which was clearly misleading or deceptive, was made by the Agency company within the scope of the authority conferred upon it by the Furd compary and the Managemert

Mr. King gave evidence, inter alia, that: (a) After the incorporation of the Fund company the Agency company acted as a dealer in securities,

introducing new members into tne Fund company and also

arranging transfers of the shareholdings of various members in the Fund company. (b) For introducing company new members into the Fund/the Agency Company received a commission from the Management company. (c) The Agency company conducted a business as a dealer in shares of the Fund company and its only licence to deal in shares was for the shares of the Fund company. (d) He had no knowledge that the Fund company ever authorised any party to offer loans on its behalf, but that he regarded the

Fund company and the Management company as the same

A prospectus dated 16 August 1973, which had been registered by the Fund company with the Corporate Affairs Commission of New South Wales, for the issue by it of redeemable preference shares was in evidence as was a prospectus dated 10 December 1974, also registered by 1t with the Corporate Affairs Commission of New South Waites, No shares, the subject of this second prospectus, were ever alloted. Both prospectuses however were signed by the

directors of both the Fund and Management companies.

The first prospectus under the heading "Additional Statutory Information", in dealing with

-8- was a director and shareholder in the Agency company "which is interested in the promotion of the Fund

The second prospectus contained the following passage:

"TRANSFER OF SHARES. Shares can be transferred on a form approved sy the Directors and by payment of Stamp Duty and the prescribed transfer fee.

If any sharcholder desires to transfer ary of his shares they should contact Members Management Pty. Ltd.

Shares will be offered for sale by N.S.W. Mutual Loans Azency Pty. Ltd. as ugenc tut a loss may be incurred if snares are held for a short neriod. A brokerage fee w2ll be charged for this service."

"THE PRCMOT.R CCiHPANY 1s N.S.W. Mutual Loans Agency Pty. Ltd. which has teen an-ointed by Members flaragement Fey. Limited

to act as itc e7~ +t in the promotion c> re. ~emrershins into the furi but acther the

fund nor the méragement Company . have enterec into any agreement an this regard witn them.

Members Manazorent Pty. Ltd. pays a commission ts the N.S.W. Mutual Loans Agency Puy. Ltd. for the introduction of new memvershivs into tre func. The fund aves not pay remurration for any services supplied by N.S.W. Mutual Loans Agency Pty. Ltd."

It is to be noted that the Agency company is said to have been appointed by the Management company as its agent for the "promotion of new memberships into the fund." The prospectus also shows on the same page that employees of the Agency company had various shareholdings in the fund. On the next page under a heading "Answers to Important Questions" appears the

A. Yes. You can do so yourself at any time. Should you recuire your shares sold ty us we can arrange tnis for you providing you have been in the fund for twelve montns and your calls are not in arrears.

Snares will te cffered for sale by N.S.W. Mutual Loans Agency Pty. Ltd. as agent but a loss 7&¥ be ircurrea if shares are held for a short period. 7 the Agency Company was acting as agent for the Fund Conny, 3t was also acting as agent for the tianagement Company which

The legal personality of a company as distinet and independent from those who constitwie its corporate organs or ' ray J: edaty a6 duadesonin? ip deen] treory cid ol the @ascenee ai cer -

porate existence. Corporate existence and corporate legal per-

sonality are however figments of the law. A company cannot per- form a positive act either of its own volition or independently of the actions of those who constitute its corporate organs or act as agent on its behalf. Where the corporate organs of shareholders in general meeting or directors in meeting are involved, special principles of company law will ordinarily be applicable to determine whether there has been effective corporate decision or corporate action for the reason that those corporate organs do not make decisions or act for the company they make decisions and act as the company. Where such corporate organs are not involved, the ordinary principles of the law of agency are applicable to determine corporate liability for word or act. In applying those principles however, it would be unrealistic to be unconscious of the fact that ordinarily a corporation will speak and act through an agent. Resolutions of corporate organs apart, the alternative to agency in the case of a corporation

is atrophy. Where the question is not whether express ad 7:v authority has been conferred for a particular transaction but whether one purporting to act as an agent has acted within general implied authority, the inference of agency may well b: more readily drawn in a case where the alleged principal is a corporation which cannot act independently of others than in a case where the alleged principal 1s a person who ordinarily acts for himself independently of the instrumentality or agency otf others. In both cases however, a finding of actual agency

cannot properly be made without a proper evidentiary basis.

the control and business actixilics ol the Agency Company

and the two appellant companies. 0O1]11sS would seem, ai all times, to have been acting jn has capacity as manager of the Agency Company. The Agency Cumpany itself was, for its pirt, plainly acting in the capacity of an agent. It acted ss agent for the vendors of the fully paid redeemable preference shares which Brookhouse ("the respondent") acguired. There was, however, evidence before the learned trial Judge which warrantied the conclusion that, un the ove:all dealings with the resevord-ni involving the acquisition of shares, 1t was alse parporlsn, to

act as agent for the Fund Company and 1ts Tanager, the Viau ier Company. The interest and involvement of the Fund Cumpane ru

the overall dealings with the respondent was suparenr an

incident of the acquisition of the shaves by ipo respoldst. wk

that he became a moaber of the Fund Cue wens Liabie Tor ceo il an the partly paid redcemable preference shares ahich he acauuired Another incident of the acquisition of those shares was that the Agency Company procured for tne Fund Colpeny the paywiuc any outstarding calls. More imporvaurt, from beginning 9 erd of the dealings betscen the Asency Company and the reaper" : it was apparent that, av least fron the respondent's poaine . view, the whole point and end of the overall dealangs waz Lic procuring of a loan to the respondent upon the security vi tin house which he wished to purchase. The prospective louder at

all tines was the Tund Comrpary When the transfer of sa.

had becn completed, there was no sugpestion that th

end of Oljis' and the Agency Company's involvement wita tne

propased Lean Jron tho Pana wet traeh os the prec tln . .

of the respondent's acquisitien of the shares. Ollas! repre ieut - -

ations of which complaint 1s made related to that prospective loan. A finding that all that 01115 said and did was suid and done solely on behalf of the vendors of the shares would have been utterly discordant with the whole context in which those

There remains the question whether there was a sufficient basis in the evidence for a finding that the Agency Company, 1n purporting to act for the tio appellant curpanies when it made the representations, was acting within autuer t,. There is no specific evidence of any oxpress grant of é1ther general authority to make representations cf the typroounareh visi made or of ad now authority to make the opeetiie repre ota. ice whieh were made to the respondent. The eucsrcicen vietber irs was a sufficient basis 10 the overall evidence for an unlerence that the Agency Company did have authority te make, on bent,

of the appellant companies, representations of the type «bir were made has caused me considerable difficulty. The relevini evidence 18 summarized in the judgment of TPienki J Were it not for the interlocking in the business activetices and ': te control] of the three companies, I should have hesitated to vous the conclusion that there was sufficient 1n the evidence ic found such an inference. In the context of that interlu «c ie of activity and contro] howeve~, T have reached the conte that there was an adequate basis in the evidence betorre wh: learned trial Judge for the finesng thal the Agency Cone... h hie .

tO Nep,olLteatscons For tne fegd. cs. lton OL She.eS an the faye

Company and that it had authority, in relation to such neyotial-

ions, to make representations on behnif of the appellant companic as to the availability of a loan from the Fund Company, through

its manager, the Management Company, in the event that shares

It is, in the circumstances, unnecessary that I express any view as to the scope or effect of the provisions

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (78 paragraphs)