Equity Nominees Ltd v Tucker

31. The Directors shall provide for the safe custody of the Seal and the Seal shall never be used except by the authority of and in the presence of at least two directors or their nominees who shall sign every instrument to which the Seal is affixed and every such instrument shall be countersigned by the Secretary or some other person appointed by the Directors.

It is clear, and it is conceded, that there was no consideration for the guarantee in question and the initial problem is concerned with the construction of this article, for unless the deed was executed by the company in conformity with it, or in apparent conformity with it, the appellants' proof of debt was, subject, possibly, to one matter which we shall mention presently, properly rejected.

In terms the provisions of the article require two directors or their nominees to be present when the seal is affixed. So much is, we think, clear from the words "the seal shall never be used except by the authority of and in the presence of at least two directors or their nominees ". If there is any ambiguity in the words we have italicized - which we do not ourselves appreciate - it is resolved by the words immediately following "who shall sign every instrument to which the Seal is affixed". "Who" are to sign unless the reference is to those present, whether directors or their nominees, when the seal is affixed? Is it then sufficient if the seal is affixed in the presence of a single nominee of two or more directors? Or is it sufficient if the seal is affixed in the presence of a single person who is at one and the same time a director and the nominee of another director or directors? To our minds it would do violence to the language of the article to construe it in such a fashion as to permit this to be done; plainly enough it means that the seal must be affixed in the presence of at least two persons who may be either directors or their nominees, or a director and a nominee of a second director. The testimonium of the deed was as follows:

In Witness whereof the guarantors have executed this Deed of Guarantee, the day and year first hereinbefore written.

The Common Seal of The Electrical Repair Coy. Proprietary Limited was hereunto affixed by authority of a resolution of the Board of Directors and in the presence of: - The Common Seal W. D. Sykes Director D. R. Fulcher Secretary.

It should be observed that Sykes purported to sign as a director and Fulcher as secretary so that on the face of the deed it does not appear to have been executed in conformity with the provisions of the article. But it appears from the evidence that Fulcher was a director as well as joint secretary of the company. In these circumstances the appellant sought to overcome the obvious difficulty in two alternative ways. It was urged that the evidence showed that Sykes signed the deed both in his capacity of director and as the nominee of other directors and that Fulcher had countersigned as secretary. But we agree with the Full Court that, even if such a course were permissible under art. 31, the evidence establishes that Sykes was not, in fact, the nominee of any other director to be present when the seal was affixed or to sign the instrument as such. Furthermore, on the face of the instrument Sykes did not purport to sign as the nominee of any other director or directors so that the appellants are not in a position to suggest that on its face the execution of the instrument conformed with the requirements of the article. However, in any event, for the reasons already given, the construction of art. 31 did not permit the seal to be affixed in the presence of one person both as a director and as the nominee of another director and the first contention of the appellants must be rejected.

On the other hand, if it can be said that Fulcher signed the deed in his capacity as a director of the company, the execution of the deed was defective because it is not countersigned by a person as secretary, joint secretary or by "some other person appointed by the directors". The obvious purpose of art. 31 in requiring the countersigning by the secretary or some other person appointed by the directors is so that the signatures of the directors or their nominees may be authenticated. Accordingly, on the hypothesis that Fulcher signed as a director, the omission of a countersignature is fatal to the appeal. Clearly enough, Fulcher could not vouch for the authenticity of his own signature and did not purport to vouch for the authenticity of Sykes' signature.

There is only one other thing we would like to add and this concerns the appellants' contention that because the deed was also executed by P. & D. Distributors Pty. Limited and that company was the holder of all, except Fulcher's one share in the company, it could be said that the execution of the deed by the company was authorized by the unanimous agreement of all its members. We agree with the observations of the Full Court on this point but we point out also that the validity of the execution of the deed by P. & D. Distributors Pty. Limited was not in issue in the proceedings and that, having regard to the form in which that company purported to execute the deed, it would be quite unsafe to assume that it was effectively executed.

I am of opinion the appeal should be dismissed. I have read the joint reasons for judgment of the Chief Justice and Taylor J. and the reasons of Windeyer J. and agree with them.

I agree that this appeal should be dismissed for the reasons which have been given. I shall therefore confine myself to two aspects of the case on which I wish to say something - first, the evidence as to the meeting at which supposedly the seal was affixed to the instrument of guarantee; secondly, the construction of art. 31 of the articles of association of The Electrical Repair Co. Pty. Limited, which I shall call "the company".

The judgment Gibbs J. delivered for the Full Court of the Supreme Court of Queensland is, I consider, correct, with one minor qualification. It seems that their Honours were mistaken in regarding the minute of a directors' meeting of 12th March 1964 and the reference therein to a guarantee debenture as referring to the guarantee now in question, which is dated 11th February 1964. That minute apparently refers to a different, but presumably related instrument. However if there was some misapprehension about this, it does not affect the case. It does not diminish the cogency of the reasoning of the judgment.

Of the document dated 11th February 1964, the Full Court said: "The evidence relating to the execution of this document on behalf of the company was singularly imprecise." That seems to me an understatement. I would have said it was quite unconvincing.

The appellants relied upon what was put forward as a minute of a meeting of directors of the company. This reads as follows:

Minutes of Meeting of Directors of The Electrical Repair Company Proprietary Limited held at the Head Office of the Company

Resolved that a Deed of Guarantee between Neon Signs (Australasia) Limited of the first part Equity Nominees Ltd. and Equity Nominees (N.S.W.) Ltd. of the second part and "the Guarantors" (of which this company is one of such Guarantors) of the third part whereby this company guarantees the performance of a Trust Deed made the 19th March, 1962 (called "The Trust Deed") which constituted and secured Registered First Mortgage Debenture Stock of the Company be and the same is hereby executed under the seal of The Electrical Repair Company Proprietary Limited.

The signature is the signature of Sykes. It will be noticed that this "minute" does not shew who were present at this meeting, although on other occasions this appears in the minutes. It states it was held at the "Head Office of the Company". In fact it was held in Melbourne at the head office of Neon Signs (Australasia) Limited. The head office of The Electrical Repair Company Pty. Limited was not in Melbourne, but in Brisbane; and its common seal was kept there. There is some vague evidence of a duplicate seal in Melbourne; but it is quite inconclusive; and by what authority, and for what purpose and for how long there had been two seals, if two there were, does not appear. The words "the company" in the minute mean Neon Signs Limited not the company, which a few lines earlier was called "this company". At least one director, Fulcher, had no notice of the supposed meeting. Neither he nor another director, Dicks, was in Melbourne on 21st January. They were in Brisbane. Sykes was in Melbourne. He apparently signed the minute there. The appellants rely upon it, and point to the provisions of the Companies Act making minutes kept in accordance of the Act presumptive evidence. I do not read these provisions as having the meaning or effect for which the appellants contended. I need not discuss them in any detail. It is enough to say that, whether or not the document was a minute kept and "so entered and signed" as the Act requires, I am unable to regard it as evidence that the meeting was "duly held and convened", for the simple reason that there is positive uncontradicted evidence which was accepted that the meeting was not duly convened. You cannot make a meeting by writing on a piece of paper that there was a meeting. It would, I consider, be pushing the statutory provisions and the presumption of regularity much too far to say, as the appellants invite us to do, that there was a directors' meeting on 21st January; that, as three was a quorum, we must assume three persons were present; and that, at this meeting in Melbourne on that day, the seal of the company was affixed to the document which was subsequently dated 11th February. There are other aspects of the matter which add to my scepticism. However, for the purpose of examining the consequences of the appellants' argument I shall assume that there was a meeting duly convened and held, and a resolution in the terms stated. What then?

The resolution recorded is that the "deed of guarantee be and the same is hereby executed under the seal of the company". Whatever that was thought to mean, the passing of a resolution to execute a document under seal cannot thereby result in its having been executed. Except in cases in which there is some equity to compel the execution of a deed, passing a resolution to do so is not of itself binding upon the company. The appellants' contention that the resolution must be read as meaning that a deed was to be executed then and there and as evidence that this in fact was done seems to me quite insupportable. The question then is: Was the document on the face of it duly executed so as to be the company's deed? In my opinion it was not. Doubtless it is true that a company makes a deed when it executes under its common seal an instrument described as a deed. But when by the company's articles formalities and a procedure are prescribed for the authorization of the use of the seal and its authentication these must be complied with. Where they are apparently complied with the company will be bound as against a person dealing with the company in good faith. That rule has however no application here, because, apart from other considerations, the requirements of art. 31 were not complied with either apparently or in fact. As stated in Norton on Deeds, 2nd ed., p. 24, "Directors in whose presence the seal of a corporation is affixed, where the regulations of the corporation require the seal to be affixed in their presence, are not witnesses; they attest the sealing as part of the operation of sealing and not as witnesses". In the present case the article required the signature of "at least two directors or their nominees" to be present when the seal was affixed and to sign and the countersignature of the secretary or some other person appointed by the directors. "Two directors or their nominees" means, I take it, two persons, either two directors, or a director and the nominee of another director, or two nominees of two directors. I cannot accept the proposition that Sykes signed both for himself and as the nominee of another director. There is no evidence to support this. And the article does not provide for such a course. It requires two persons to be present when the seal is affixed, each to sign and a third person to countersign. Only when this is done is the operation of affixing the seal complete. I shall assume that somehow or other - although how does not appear - Sykes was able to sign in Melbourne and to see the seal kept in Brisbane, or some other seal of the company, put on the document. Even so, I do not see how for the purpose of making up a quorum a person can be both himself and the nominee of someone else. One man can act in two capacities, but not simultaneously; and one man cannot by acting in two capacities become two men.

As the seal was never duly affixed, the deed was not the company's deed: cf. In re Efron's Tie and Knitting Mills Pty Ltd [1] . I do not think we must look on this as the result of a mere legal technicality. There has recently been some discussion of the consequences of subsidiary companies which were carrying on their own separate businesses guaranteeing obligations of the parent company. The interests of the ordinary trade creditors of the subsidiary may be drastically subordinated to the interests of the parent company, or its debenture holders or other creditors. Whatever be the consequences in commercial morality of such transactions in particular cases, it is surely more than a mere technicality to expect that a company's guarantee should be an engagement into which it enters by the decision of its own directors, at a meeting duly convened, and that effect be given to this decision in the manner required by law. All that can concern a court in these matters is of course that the law be observed. In the absence of consideration the law demands a deed duly executed. There was none in this case.