CARATTI -v- MAMMOTH INVESTMENTS PTY LTD [2016] WASCA 84 | Case summary

[4]

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

CARATTI -v- MAMMOTH INVESTMENTS PTY LTD [2016] WASCA 84 | Case summary | Zoe

[338]

It might be said that all this makes it too easy for persons dealing with companies to establish the liability of the company under a sealed document. However, if such a person is dealing with persons associated with a company who execute documents honestly but mistakenly on behalf of the company, I do not see that the company should benefit from discrepancies with its published documents; while if, as in this case, the person is dealing with persons associated with the company who are apparently prepared to be fraudulent and to forge signatures, it gives little more protection to a company to require that a forger state a name on the document which is the correct name of a director or secretary shown in information given through ASIC.

In fact, some protection to the company is given by the requirement that the person must be engaged in dealings with the company in the first place; which in my opinion means that there must be dealings (in the sense of negotiations or other steps in relation to a contemplated transaction) with someone on behalf of the company which are dealings authorised by the company, and the document in respect of which the assumptions may be made must be a document which is 'in relation to' those authorised dealings (and I take this to extend to a document arising out of authorised negotiations or other steps). I note that in Story at 733, Gleeson CJ suggested that the concept of having dealings with a company must embrace purported dealings, because if the provisions only applied where the person representing the company had actual authority, they would be largely unnecessary. I take this as meaning that it is not necessary that the person representing the company have authority from the company to commit the company to the relevant transactions or execute the relevant documents; but in my opinion, it is necessary that the person have authority to undertake some negotiation or other steps, so that the dealings, in relation to which the document is executed, are properly considered to be dealings with the company [81] - [82].

[360]

Of course different legal principles govern the priorities given to the competing proprietary claims of Granite Hill and Esperance Cattle if both succeed in establishing their claimed interests. In the application of those principles, the relevant date is 10 December 2012, rather than 22 February 2013, because that is the date upon which Esperance Cattle acquired any proprietary interest in the property. However, in the result, nothing turns on the difference between these dates for two reasons. First, neither Granite Hill nor Mr Allen Caratti assert that the Granite Hill sublease was created at some time between 10 December 2012 And 22 February 2013. To the contrary, each asserts that the Granite Hill sublease was created no later than early November 2012. Second, there is no doubt that the GH [or Granite Hill] version of the Granite Hill sublease was created not later than 16 November 2012, and I have found that the ABC [or Allen Bruce Caratti] version of the Granite Hill sublease was created after 22 February 2013.

In its pleading and in the course of submissions Granite Hill places emphasis upon the fact that its sublease commences as and from 28 February 2013, whereas Esperance Cattle's lease does not commence until 1 March 2013. However, as all parties accept the principle enunciated in PW & Co v Milton Gate Investments Ltd [[2004] Ch 142], nothing turns on this distinction. That is because all parties accepted that if Granite Hill succeeds in establishing that it acquired an interest in the land as sublessee by a sublease executed in early November 2012, its interest as sublessee remains valid and enforceable notwithstanding the later grant of a leasehold interest to Esperance Cattle on 10 December 2012, or the surrender of Mammoth's head lease on 22 February 2012. It was also common ground that subject to whether Mr Aaron Caratti was a director, which I have found, if in fact Mammoth granted a sublease to Granite Hill after 22 February 2013 (and I have found that the ABC [or Allen Bruce Caratti] version of the Granite Hill sublease was created after that date), it does not confer a proprietary interest upon Granite Hill because by that time, Mammoth had no leasehold interest to convey, although Mammoth would be liable to Granite Hill for breach of the contractual obligation to convey an interest as sublessee. It follows that the fact that the term of Granite Hill's sublease commences one day earlier than Esperance Cattle's lease is irrelevant to the competing priorities of the two interests [288] - [289]. (emphasis added)

[485]

[I]t was common ground that the claims to which the parties were exposed would be mitigated if the question of which of Esperance Cattle or Granite Hill was entitled to possession of the property could be determined in advance of the 2014 cropping season. For that reason, during the last half of 2013, a timetable was set with a view to a trial in February 2014, and trial dates were fixed commencing on Monday 17 February 2014.

There were a number of directions hearings in the period leading up to trial. The last of those took place on Monday 10 February 2014. During the course of that hearing orders were made with respect to amendments to pleadings, including orders arising from the joinder of Bott Livestock Pty Ltd and Bott Cropping Pty Ltd as parties to Esperance Cattle's claim. At that hearing I also directed, by consent, that the parties exchange written outlines of their opening submissions at 4.00 pm on Wednesday 12 February 2014.

Mr Allen Caratti did not comply with that direction. However, on Friday 14 February 2014, being the last business day prior to the commencement of the trial, he filed and served a written outline of his opening submissions in which it was asserted on his behalf, for the first time, that, contrary to his pleaded case, in fact Zel was not a shareholder in any of Harvard, Mammoth, Venetian or Tosman in May 2002. It was also asserted on his behalf, for the first time in these proceedings, that if Zel did own shares in those companies, that the transfers of the share in each of those companies held by Zel to Mr John Caratti were ineffective because Ms Maddeleine Caratti did not have the authority of Zel to execute those transfers. No additional evidence was served or foreshadowed in support of those assertions.

At the commencement of the trial on Monday 17 February 2014, the legal representatives for Mr Allen Caratti distributed to the representatives of the other parties a minute of proposed amendment to Mr Allen Caratti's defence to Granite Hill's third party claim which was said to give effect to the assertions contained in the written outline - namely, by asserting, contrary to Mr Allen Caratti's then pleaded case, that in fact Zel was not a shareholder in any of Harvard, Mammoth, Venetian or Tosman, and that if it was, the transfers of its shares in those companies to Mr John Caratti were ineffective because Ms Maddeleine Caratti did not have authority to execute those transfers on behalf of Zel.

Counsel for each of the parties then presented oral opening submissions. Later in the day I heard argument in relation to various procedural issues, including the application by Mr Allen Caratti to amend his pleading. Towards the end of the day I dismissed that application. The reasons for my decision to disallow the amendment are separately recorded, but essentially turned upon the fact that the amendments, if allowed, would raise factual issues with respect to events that took place between 1991 and 1993, and would also raise issues with respect to the governance of Zel in 2002. Those issues had not previously been raised, nor had they been addressed by evidence served by any party. Procedural fairness to the parties affected by the proposed amendment would necessitate the trial being adjourned for a not insignificant period in order that inquiries could be conducted in relation to those matters, and evidence prepared and presented. It was my firm view that it was not in the interests of justice ([a]s the concept is described in AON Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [98] (Gummow, Hayne, Crennan, Kiefel & Bell JJ)) for the trial to be adjourned for various reasons, not least of which was the probability that one or other party to the proceedings would suffer significant commercial prejudice as a result of the court's inability to make a determination with respect to the entitlement to possession in time for the 2014 cropping season, as arrangements for that season had to commence during March 2014. I also took into account the fact that no justification for the lateness of the amendment was proffered, nor was any evidence adduced to explain why the amendments were proposed so late [325] - [329].

[537]

Counsel on behalf of Mr Allen Caratti submitted that the deed of compromise fell into that category of accord in which the satisfaction agreed to be taken in substitution for the cause of action asserted was the performance of the deed, and not merely the provision of the promises contained within in. In the case of contracts for the compromise of legal proceedings, the question of whether the causes of action asserted in those proceedings are discharged by the provision of the promises contained within the agreement of compromise, or only upon the performance of those promises, is to be resolved by construing the agreement, in accordance with conventional principles of contractual construction (Scott v English [1947] VicLawRp 67; [1947] VLR 445, 453 (Fullagar J); Scaffidi v Perpetual Trustees Victoria Ltd [2011] WASCA 159; (2011) 42 WAR 159 [28] - [33]).

In this case, there can be no doubt that, on the proper construction of the deed of compromise of 26 September 2002, Mr Allen Caratti agreed that the causes of action which he had asserted in CIV 2188 of 2002, arising from the steps that were taken in purporting to remove him from office as a director of various companies within the Caratti group were discharged in return for the promises made by his mother and his brother in the deed. The terms of the deed contain a number of clear indications to that effect. First, Mr Allen Caratti accepted an unqualified obligation to discontinue the proceedings. The obligation to discontinue was not contingent upon performance by his mother or his brother of any of the promises contained within the deed.

Second, a number of promises made by Mr Allen Caratti's mother and brother did not fall to be performed until a very considerable time after the deed was executed. The promises relating to the distribution of assets upon Mr John Caratti attaining the age of 60 did not fall to be performed until almost eight years after the deed was executed. Ms Maddeleine Caratti's promise to convey her interest in the companies to her sons by her will has not yet fallen for performance. Many, if not most, of the other promises contained within the deed are of a continuing nature and operate indefinitely. In those circumstances it would be most unreasonable to attribute to the parties an intention to the effect that the causes of action asserted by Mr Allen Caratti in the proceedings then on foot would only be extinguished if and when, at some time which could not be predicted with certainty but which would necessarily be many years into the future, all promises contained within the deed on the part of Mr John Caratti and Ms Maddeleine Caratti had been performed by them.

Third, there is a clear inference arising from the nature of the rights conferred and the obligations assumed by the parties to the deed of compromise that they were to be in substitution for the rights asserted by Mr Allen Caratti in the legal proceedings then on foot. The deed contains provisions relating to the adjustment of shareholdings in relevant companies, and mechanisms for the appointment of directors to those companies. There is a clear inference from the regime created by the deed of compromise that it was intended to govern the operation of the companies within the Caratti group indefinitely, in substitution for previous arrangements which had resulted in the dispute manifest in the legal proceedings which were compromised by the deed. There would be an obvious inconsistency between Mr Allen Caratti taking the rights and assuming the obligations conferred under the agreement, while reserving the capacity to assert rights claimed contrary to that agreement. It would not be reasonable to attribute to the parties an intention to achieve such an inconsistent and potentially problematic outcome to their agreement.

There is some controversy as to the extent to which the subsequent actions of the parties to an agreement can be used as an aid to determine the proper construction of the agreement (Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 [306] - [335] (Campbell JA); Dayeian v Davidson [2010] NSWCA 42; (2010) 76 NSWLR 572 [64] (Campbell JA); cf Lederberger v Mediterranean Olives Financial Pty Ltd [2012] VSCA 262 [26] - [31]) in accordance with the usual rules for the receipt of that evidence (Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 [4]; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 [71] (Kirby J); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352 (Mason J)). If and to the extent that the actions of the parties to the deed of compromise provide evidence of its proper construction in this case, they are consistent with the construction which I have placed upon the agreement. Mr Allen Caratti discontinued the proceedings which he had commenced without first requiring performance of the terms of the deed by his mother and his brother. In 2004, solicitors acting on his behalf wrote to his mother and his brother seeking to enforce the terms of the deed of compromise. When the demands contained in that correspondence were not met, proceedings were commenced by Mr Allen Caratti seeking to enforce the terms of the deed of compromise, rather than to assert the causes of action which had been asserted in the 2002 proceedings.

For these reasons I have no hesitation in concluding that by his execution of the deed of 26 September 2002, Mr Allen Caratti agreed to discharge the causes of action asserted by him in the legal proceedings then on foot, and to forego the rights asserted in those proceedings, which included his right to assert that he had been unlawfully removed as a director of relevant companies within the group earlier that year, and to accept the rights conferred by the deed of compromise in place of those rights. It follows that the deed of 26 September 2002 had the effect that Mr Allen Caratti surrendered his right to assert that he had been unlawfully removed as a director in various companies within the family group earlier that year [374] - [381].

[560]

If this Court were to find that Allen remained a director of Mammoth (as at October/November 2012), then it should also find that he had either implied actual or apparent/ostensible authority as such director to enter into and execute leases or subleases for Mammoth in respect of Young River Station. Reliance is placed in this context on the matters set out in the grounds of appeal, paragraph 19 and 23 above. Note the reference by John Caratti at ts 427 to 'actual authority' on the part of Allen to enter into or arrange a sublease of Young River Farm.

John added the qualification that Allen did not have the authority to sign a lease as a director of Navarac: ts 431, 436. But John only became an alternate director of Navarac on 9 October 2012 and left again on 8 November 2012 although he obviously exerted much influence behind the scenes. There is no evidence that any such 'limitation' was ever recorded in the records of Mammoth (or Navarac) in respect of the admitted authority Allen had to deal with ... land [financed by Elders Rural Bank]. There is also no evidence that any such limitation was ever communicated to the outside world by the other directors of Mammoth (or Navarac). The conduct of Maddeleine Caratti, a director of Mammoth since 2002, was to the contrary, as indeed found by the trial judge (judgment at [94]; [100] and [217]). See also in this regard the evidence referred to in paragraphs 19 and 23 of the grounds of appeal.

The trial judge rejected the case of Allen Caratti that his mother had given him general authority to sign on her behalf. This occurred also in the context of general credibility findings against both Allen Caratti and his mother. But there had been a long course of conduct in transactions involving Mammoth where Allen had signed for his mother and where his mother had ratified by deed certain actions in this regard. Mammoth had also acted on the documents so executed. Given that the trial judge did not find that Allen Caratti was a duly appointed director of Mammoth and did not consider de facto directorship, the authority issue contended for in this appeal, tied directly to directorship/de facto directorship, did not arise for decision by the trial judge [38] - [40].

[578]

36.1 Mammoth, Navarac and Maddeleine had pleaded in their defence and counterclaim that Allen was not a director of Mammoth or Navarac since 2002, or 'was not otherwise authorised by Mammoth to sign for and on behalf of Mammoth' ... This placed in issue Allen Caratti's ability to sign for Mammoth other than as a (duly appointed) director.

36.2 The said parties also pleaded reliance on the [Deed of Compromise] to seek to deny Allen the opportunity to run a case that he was still a director of Mammoth.

36.3 Allen in his defence to the counterclaim of those parties, denied [those allegations]. His plea in paragraph 15A(c)(4) pleaded that 'since 26 September 2002, Allen has, with Maddeleine's knowledge, executed documents as a director of each of Navarac and Mammoth and other companies identified in the [Deed of Compromise] particulars of which are filed herewith' (the relevant particulars).

36.4 The relevant particulars contain the essential allegations of facts relating to the appellant's acting as a de facto director of Mammoth (and Navarac) - and the relevant particulars were indeed canvassed at trial.

36.5 In refusing the amendments, the trial judge relied on the irrelevant consideration that the amendment would necessitate a review of all actions by the appellant referred to by the trial judge at ts 375, last paragraph to ts 376, whereas the amendment sought to rely on the execution of particularised documents and the appellant would fail if these did not establish that he acted relevantly as a de facto director. The evidence of John, Maddeleine and Aaron given at trial ... shows there was no real contest on what Allen has been doing for Mammoth over the years, except as to the signing of documents.

36.6 The trial judge erred in fact and in law, and relied upon an irrelevant consideration, in holding at ts 376, 3rd paragraph, that the amendment would entail a forensic evaluation and detailed analysis of a large number of proceedings 'which have been instituted by various parties involved in or related to the parties to these proceedings since 2004'.

36.7 The trial judge erred in fact and relied upon an irrelevant consideration, in holding at ts 376, 4th paragraph that granting the amendment would necessitate an adjournment of the trial - see paragraph 36.5 above.

36.8 The trial judge failed to give any or proper consideration to the circumstance that the plea by Granite Hill in reliance upon ss 128 and 129 of the Corporations Act and its related plea of estoppel against Mammoth, in any event placed in issue the facts concerning Allen's acting or purporting to be a director for Mammoth in October/November 2012 and any holding out by Allen and by that company in this regard.

36.9 The trial judge failed to give any or proper consideration to the interests of justice in the ventilation of real and relevant issues at trial, in placing so much reliance upon a decision as to 'who is entitled to the possession of the relevant land prior to the commencement of [the 2014 growing] season' (ts 376, second last paragraph).

[581]

Prior to the commencement of the trial, written submissions were exchanged between the parties. There was nothing in the written submission filed on behalf Mr Allen Caratti which suggested or implied in any way that he was mounting a case of directorship of those companies on the basis that he was a de facto director, to use the shorthand phrase, or by the reason of invoking the definition of director in section 9 of the Corporations Act which is essentially the statutory provision now relied upon by the amended pleas.

So it seems clear that the first occasion upon which any suggestion that that proposition would be advanced arose ... during the course of the opening address of Mr Allen Caratti during the afternoon of the first day of the trial. And the proposition was introduced into the debate by me in the course of an interchange with counsel, in which I was endeavouring to ascertain the precise basis upon which the matter was being put.

The first occasion upon which I mentioned de facto directorship was in a context in which it's clear that I was excluding that proposition from this case because it ... was not then my understanding that there was any assertion to that effect ... in this case. But as the matter went on ... counsel for Mr Allen Caratti ... ultimately, in the end ... made, I think, quite explicit [that] he did rely upon the proposition that Mr Allen Caratti was a de facto director. And that as it seems, as I say, based on my view of the pleadings as they then were, that is the first occasion on which that proposition was advanced.

Later that day, an application to amend Mr Allen Caratti's pleadings [was made], which I refused, for reasons which I then gave. The afternoon was left on the basis that Mr Allen Caratti would bring in a minute of amendment excluding the matters that had been debated during the afternoon and in respect of which his application for leave was unsuccessful. The next morning minutes had been exchanged and were provided to the court which went well beyond any of the matters that had been debated the previous afternoon and which included the paragraphs to which objection is now taken.

It is, I think, significant to assess what the forensic consequences of allowance of these amendments would be and to assess those consequences it is necessary to say a little about the notion of what I have loosely described as de facto directorship. As I have mentioned, that is a concept which evolved at common law in different ways through different concepts including de facto directorship and shadow directorship. And debates with respect to the distinctions between those things have now, to a significant extent, been circumvented by the terms of section 9 of the Corporations Act, to which I have already referred.

...

So the consequences, it seems to me, of the allowance of these amendments would be to necessitate an inquiry into the entire scope of the commercial activities of each of Navarac and Mammoth over the period covered by the plea, which is the period between 2002 and early 2013. And over that period, its management or governance structures and the way in which the company was managed by its appointed directors and employed officials and, in particular, would require a review to be taken of the role of the putative director, Mr Allen Caratti, within that commercial context and within that management and governance structure.

In my view, it is plainly not a question which could be determined solely by looking at the 50 documents which Mr [Allen] Caratti says he executed over that period, particularly having regard to the temporal gap of at least two years between the last execution of [those] document[s] and the relevant time at which [the] directorship would have to be determined for the purpose of these proceedings.

The ambit of that factual inquiry is compounded by the evidence that I have received from Ms Tantiprasut, the solicitor acting for the Navarac parties, in which she deposes to ... a number of proceedings which have been instituted by various parties involved in or related to the parties to these proceedings since 2004. That evidence satisfies me that proper forensic evaluation of the assertion which Mr Allen Caratti now wants to make would require a detailed analysis of the position which he has adopted in each of those proceedings over that period.

Because of the ambit of the factual inquiry, which would be necessitated by the allowance of these amendments, I accept [counsel for Navarac and Mammoth's] submission that the consequence of allowing these amendments would be to necessitate an adjournment of this trial to some date in the future. Fairness and justice to the parties affected by these amendments could not be accommodated within the context of the trial dates that have been set by reason of the factual ambit of inquiry which would be necessitated by the allowance of these amendments and to which I have referred.

If an adjournment was necessitated, it is difficult to know when the case could resume. It would certainly not be for many months, and it would certainly not be prior to the commencement of the 2014 growing season for crops and pasture. As I indicated in previous rulings in this case, the timetable that has been fixed for this case takes account of the commercial exigencies which underpin these proceedings, and in particular, the desirability for all parties to know who is entitled to possession of the relevant land prior to the commencement of that season.

This is, therefore, one of those amendments which would, in my view, consistently with the principles enunciated by the High Court in Aon, be contrary to the interests of justice, broadly examined in accordance with those principles, and for that reason, I will not allow the amendment to be made (ts 373 - 377).

[654]

To found an estoppel as to the authority of an officer or agent who is engaged in a transaction for the purposes of the company's business or otherwise for the company's benefit and who is purporting to exercise an authority which an officer or agent in that position would ordinarily be expected to have, the mere carrying on of the company's business with officers and agents performing particular functions on its behalf and in its interest is a sufficient representation by the company. Although such representations by the company seem a slender foundation on which to build an estoppel, the indoor management rule treats them as sufficient unless the party relying on the rule is put on notice to inquire into the authority of the officers or agents to do what they did in the transaction. The slenderness of the foundation enhances the importance of the qualification. In transactions other than those engaged in for the purposes of a company's business or otherwise for the benefit of the company, and in transactions where the officer or agent has purported to exercise an authority over and beyond the authority which an officer or agent in that position would ordinarily be expected to possess, a party seeking to bind the company by estoppel must rely on particular representations of authority made by the company - that is, by officers or agents of the company having actual or ostensible authority to make those representations.

When the indoor management rule applies, it covers each of the links between the constitution of the company and the particular act (or omission) done (or omitted) by a purported officer or agent of the company in the transaction. It covers the due making of appointments of the original directors, of subsequent directors, of other officers and of agents; it covers the conferring of authority on officers and agents; and it covers the satisfaction of conditions governing their exercise of authority in the instant case. As the presumption of regularity covers each of these links, so may the circumstances of a particular case put a party dealing with the company on inquiry as to any one of them. The cases in which the indoor management rule has been applied can be placed within one or other of the three broad categories - appointments, conferring of authority and satisfaction of conditions - though the categories are not, of course, mutually exclusive (178).

[1063]

Chapter 2B: Basic features of a company

8.1 New Chapter 2B will replace current Part 2.3 and Part 4.2 (insofar as it deals with companies). The provisions in Part 4.2 which deal with other bodies corporate will be re-enacted in Part 5B.3.

...

8.6 Part 2B.1 also sets out a company's powers to execute a document (including a deed) or to appoint an agent to make contracts on behalf of the company. It will be clear that a company can exercise these powers without using a common seal, whether or not the company has a seal (Bill ss 126 and 127). Having a common seal will be optional for companies.

Assumptions people dealing with companies are entitled to make

8.7 New Part 2B.2 deals with assumptions that can be made about a company by a person dealing with the company and the effect of constructive notice (Bill ss 128, 129 and 130). A person will not be entitled to make an assumption if they knew or suspected that the assumption was incorrect (Bill s 128(4)). This objective test is stricter than the current law and makes it clear that the common law 'put on inquiry' test has no application to the statutory provisions: see Bank of New Zealand v Fiberi Pty Ltd (1994) 12 ACLC 48, 14 ACSR 736.

8.8 To facilitate the execution of deeds without the use of a seal, a person will be able to make assumptions regarding the execution of documents by company officers (Bill s 129(5)).

8.9 The assumptions contained in section 129 of the Bill will have cumulative operation (Bill s 129(8)). For example, when making an assumption that an officer of the company has properly performed their duties to the company (Bill s 129(4)), a person may rely on an assumption that the officer has been duly appointed and has authority to perform those duties (Bill 129(3)).

8.10 Subsections 129(2) and (3) of the Bill use the term 'a similar company' as a plainer version of current subsection 164(3) which refers to 'a company carrying on a business of the kind carried on by the company'. (emphasis added)

CARATTI -v- MAMMOTH INVESTMENTS PTY LTD [2016] WASCA 84 (27 May 2016)

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CARATTI -v- MAMMOTH INVESTMENTS PTY LTD [2016] WASCA 84 (27 May 2016)

Legislation Cited (8)

Cases Cited (64)