BETWEEN : ERRICHETTI HOLDINGS PTY LTD (ACN 008 726 869)

WESTERN PLAZA HOTEL CORPORATION PTY LTD (ACN 008 869 234)

BROCKWELL HOSPITALITY INVESTMENTS PTY LTD (ACN 057 655 455)

BETWEEN : ERRICHETTI NOMINEES PTY LTD (ACN 008 792 916)

WESTERN PLAZA HOTEL CORPORATION PTY LTD (ACN 008 869 234)

BROCKWELL HOSPITALITY INVESTMENTS PTY LTD (ACN 057 655 455)

Corporations - Application to set aside statutory demand - Whether Deed enforceable against company - One signature of director witnessing fixing of company seal forged and other signature of person not validly appointed as director - Signature on notice of appointment of that person as a director forged - Corporations Act 2001 - Section 129(6) - Whether s 128(1) includes purported dealings with company - Whether other party knew or suspected that Deed not duly executed - Section 128(4) - Whether genuine dispute as to plaintiffs' liability under Deed

Corporations Act 2001 (Cth), s 127(2), s 128(1), s 128(3), s 128(4), s 129(2), s 129(3), s 129(6), s 206B, s 459H

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290

Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315

PDR Pty Ltd v Cottesloe Constructions Pty Ltd [2000] WASCA 62

Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266

Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59

Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VicRp 68; [1992] 2 VR 279

Clearance Nominees Pty Ltd v Discount Acceptance Corporation Pty Ltd, unreported; SCt of WA; Library No 970593; 7 November 1997

EBM Co Ltd v Dominion Bank [1937] 3 All ER 555

Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306

Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290

Northside Developments Pty Ltd v Registrar­General [1990] HCA 32; (1990) 170 CLR 146

Oris Funds Management Ltd v National Australia Bank Ltd [2005] VSCA 148; (2005) 222 ALR 317

Pico Holdings Inc v Wave Vistas Pty Ltd [2005] HCA 13; (2005) 79 ALJR 825

Ritek Incorporation v Nece Pty Ltd (1997) 24 ACSR 38

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452

1 MASTER NEWNES: I have before me applications to set aside statutory demands served by the defendants on Errichetti Holdings Pty Ltd ("Errichetti Holdings") (COR 238/05) and Errichetti Nominees Pty Ltd ("Errichetti Nominees") (COR 239/05) respectively. These matters were heard together, the evidence and the matters in issue being inextricably interwoven.

2 The service of each statutory demand has its genesis in a dispute arising out of a Deed of Indemnity and Release dated 14 April 2004 and executed in the names of the defendants and the plaintiffs. The plaintiffs say that they did not execute the Deed of Indemnity and Release. Each of them says that the seal was not affixed by the authority of the directors and that one of the signatures attesting to the affixing of the seal is a forgery and the other is by a person who was not an officer of the company at the time and had no authority to act on its behalf. They say the Deed of Indemnity and Release is not binding on them.

3 The defendants accept, for the purposes of these applications, that the signatures in question are forgeries but say that, by virtue of s 128 and s 129 of the Corporations Act 2001 (Cth) (the "Act"), the plaintiffs are nevertheless bound by the Deed of Indemnity and Release. The plaintiffs, on the other hand, say that the statutory assumptions contained in those provisions have no application in the circumstances of this case.

4 It is necessary in light of the matters raised by the plaintiffs in respect of the statutory assumptions to set out in some detail the circumstances leading up to and including the execution, or apparent execution, of the Deed of Indemnity and Release.

5 Errichetti Nominees was incorporated on 10 October 1975. Rosina and Dominic Errichetti were appointed directors on 20 October 1975. Donna Errichetti was appointed a director on 8 June 1979. Peter Errichetti was appointed a director on 22 September 2001.

6 Errichetti Holdings was incorporated on 23 October 1969. Rosina and Dominic Errichetti were appointed directors on 10 December 1969. Donna Errichetti was appointed a director on 29 April 1970. Peter Errichetti was appointed a director on 22 September 2001.

7 On 11 July 2002, Peter Errichetti was disqualified by the Australian Securities and Investments Commission from managing a corporation for a period of 2½ years, pursuant to s 206B of the Act. As of that date he ceased to be a director of the plaintiffs. Peter Errichetti subsequently applied to the Administrative Appeals Tribunal for a review of the disqualification and, on 20 May 2003, the Tribunal reduced the period of disqualification to 12 months from 11 July 2002.

8 In the meantime, in early 2002, there were negotiations between the defendants and a company, Blue World Pty Ltd ("Blue World"), for the purchase by Blue World of a property known as Raine Square in the commercial business district of Perth. The negotiations were conducted on behalf of Blue World by Messrs Peter Errichetti and Michael Hale, the directors of Blue World, and a Mr Ralph O'Brien (who described himself as a business consultant) and on behalf of the defendants by Messrs David Williams and Christopher Brockwell. The issued shares in Blue World were held equally by Hale and Peter Errichetti (or interests associated with Mr Errichetti).

9 On 28 May 2002, Blue World entered into an option to purchase Raine Square for $24 million. The option was exercisable on or before 15 October 2002. The option fee payable by Blue World was $500,000. Under the terms of the option, Errichetti Nominees guaranteed the performance by Blue World of its obligations under the option. The option was signed on behalf of Blue World by Hale and Peter Errichetti, as directors, and on behalf of Errichetti Nominees by Peter Errichetti, as a director. A separate Deed of Guarantee and Indemnity was entered into by Errichetti Nominees by which, among other things, it guaranteed the performance of Blue World under the option and charged land owned by Errichetti Nominees to secure the option fee of $500,000.

10 It was apparently the intention of Peter Errichetti and Hale to raise funds through a public capital raising to enable Blue World to complete the purchase. The capital raising did not come to fruition and in the course of the endeavours to bring it about there was a falling out between Peter Errichetti and Hale. The option finally lapsed on 15 October 2002.

11 In the meantime, on 11 July 2002, Peter Errichetti was disqualified from being involved in the management of a corporation. Peter Errichetti says that he informed Messrs Williams and Brockwell of his disqualification at about the time it occurred and subsequently of his application to the Administrative Appeals Tribunal. Mr Brockwell, on the other hand, believes it was first mentioned in about October or November 2002. The defendants' solicitor, Mr Goerke of the firm Jackson McDonald, says he first learned of it in November 2002, from the solicitors acting for Blue World.

12 There were subsequently discussions between Peter Errichetti and Mr O'Brien, on behalf of Errichetti Nominees, and Messrs Brockwell and Williams, on behalf of the defendants, in the course of which Peter Errichetti proposed that Errichetti Nominees be granted an option to purchase Raine Square. The discussions culminated, on 22 October 2002, in Mr Goerke providing draft copies of an option agreement and a supplemental deed to Mr O'Brien. In an e-mail sent on that day Mr O'Brien asked for certain changes to be made to the documents and requested that six copies of the amended documents be made available so that he "may have the Errichetti family sign same ...".

13 The option agreement and supplemental deed were executed at the offices of Jackson McDonald on 23 October 2002 by Peter Errichetti, on his own behalf, and by the defendants. Mr O'Brien and Peter Errichetti then took the documents away. Mr O'Brien said he would arrange for them to be executed by Errichetti Nominees. The documents were returned to Jackson McDonald on the same day, or the following day, executed under seal in the name of Errichetti Nominees. The affixing of the seal was attested by signatures in the names of Dominic and Rosina Errichetti as directors of the company.

14 By the option agreement, which is dated 23 October 2002, Errichetti Nominees was granted an option to purchase Raine Square for $25,700,000. The terms of the option required that it be exercised by 31 December 2002. The option fee payable by Errichetti Nominees was $1 million.

15 At the same time, a supplemental deed was entered into between the defendants, Errichetti Nominees and Peter Errichetti by which, among other things, the defendants agreed not to exercise their rights under the Blue World option, including the recovery of the unpaid $500,000 option fee, if Errichetti Nominees exercised its option. The deed also dealt with the manner in which the transaction was to be carried out if the option was exercised.

16 It seems that the purchase by Errichetti Nominees was to be facilitated through a property trust to be established by Raine Square Management Pty Ltd. It was apparently envisaged that the trust would raise funds from the public. It appears that neither Peter Errichetti nor any other member of the Errichetti family was at any stage a director of Raine Square Management Pty Ltd, which was represented by a firm of solicitors, Wilson & Atkinson. It is not clear from the material before me precisely what was the relationship or arrangement between Peter Errichetti or the plaintiffs, on the one hand, and those who controlled Raine Square Management Pty Ltd, on the other. Around this period there were, however, a number of meetings between the directors of Raine Square Management Pty Ltd and its solicitors, Wilson & Atkinson, and Messrs Peter Errichetti and O'Brien.

17 As it turned out, the option was not exercised by 31 December 2002 and by a handwritten agreement dated 31 December 2002, the defendants agreed to extend the option period to 7 February 2003. The document was signed on behalf of Errichetti Nominees in the names of Dominic and Rosina Errichetti.

18 The option granted to Errichetti Nominees was exercised by a notice dated 29 January 2003, although the funding necessary to enable the purchase to be completed had not by that stage been arranged. The notice of exercise was endorsed with the seal of Errichetti Nominees and signatures in the names of Dominic and Rosina Errichetti as director and secretary respectively.

19 It seems the funding for the purchase had still not been arranged when, in about May 2003, Peter Errichetti asked that the time to settle the purchase be extended. It is apparent that over this period, and indeed over the whole period between October 2002 and April 2004, there were a large number of meetings and telephone discussions between Peter Errichetti and Mr O'Brien on behalf of the plaintiff, and Messrs Williams and Brockwell and the defendants' solicitors, Jackson McDonald, on behalf of the defendants, in relation to the transaction.

20 It is also apparent that Wilson & Atkinson participated in a number of those discussions. The defendants' solicitor, Mr Goerke, says he understood that from February 2003 until about August 2004 Wilson & Atkinson were acting for the plaintiffs in relation to the fundraising for the purpose and the establishment of the Trust. He says that Wilson & Atkinson on a number of occasions described the plaintiffs as the firm's clients and there is in evidence correspondence from Wilson & Atkinson in which they so describe themselves. Mr O'Brien, however, describes them in his affidavit as the solicitors for the proposed Raine Square Property Trust to be established by Raine Square Management Pty Ltd.

21 In the latter part of June 2003, Errichetti Nominees being in default, the transaction was varied by a second supplemental deed, a put option, a guarantee by Errichetti Holdings of the performance of the obligations of Errichetti Nominees, and mortgages over certain property owned by the plaintiffs. Under the second supplemental deed, among other things, the non-refundable deposit was increased to $2 million, the date for completion was extended to 31 July 2003 and Errichetti Nominees was required to provide additional security for the amounts payable by it. By the put option, the defendants were entitled to require Errichetti Nominees to purchase Raine Square for the sum of $26 million if Errichetti Nominees had not settled the contract to purchase it by 31 July 2003 and performed its other obligations under the option agreement.

22 Mr Goerke says that the documents were sent to Wilson & Atkinson to be executed by Errichetti Holdings and Errichetti Nominees. They were returned under cover of a letter of 24 June 2003 from Wilson & Atkinson saying that the documents had been duly executed. In each case the documents had been executed under seal and the affixing of the seal attested by signatures in the names of Dominic and Rosina Errichetti.

23 On this occasion, the documents were accompanied by a solicitor's certificate dated 23 June 2003 and signed in the name of a solicitor, one Ian McEwan. Mr Goerke says that he had advised the defendants that it would be prudent to require the directors of Errichetti Holdings and Errichetti Nominees to obtain an independent solicitor's certificate. The certificate, which had been prepared by Wilson & Atkinson, stated that Mr McEwan had been consulted by Rosina and Dominic Errichetti in their capacities as directors of Errichetti Nominees and Errichetti Holdings, that Mr McEwan had been providing legal service to Rosina and Dominic Errichetti and their companies for a number of years, and that Rosina and Dominic Errichetti were known to him personally. It says that the effect of the documents had been explained to them and that the documents had been executed on behalf of the companies in Mr McEwan's presence.

24 Mr Goerke says he had not heard of Mr McEwan and that he had enquiries made at the Legal Practice Board to confirm that Mr McEwan was a practising solicitor.

25 On 30 June 2003, a deed poll was executed on behalf of Errichetti Nominees acknowledging that the company was in default of certain provisions of the second supplemental deed and extending the time for compliance with those provisions until 15 August 2003.

26 Mr Goerke says that he negotiated the terms of the deed poll with Wilson & Atkinson. Wilson & Atkinson sent electronic versions of the deed poll and a solicitor's certificate to Mr O'Brien to arrange for their execution. The deed poll, endorsed with the seal of Errichetti Nominees and signed in the names of Dominic and Rosina Errichetti as directors, was subsequently returned to Mr Goerke by Wilson & Atkinson. Mr Goerke also received a completed solicitor's certificate at about the same time but he cannot recall from whom. The certificate was dated 1 July 2003 and was again signed in the name of Mr McEwan. It was to the same effect as the earlier certificate.

27 As events turned out, Errichetti Nominees had not performed its obligations under the second supplemental deed by 15 August 2003 and Peter Errichetti again asked the defendants to extend the time within which it was to do so. In consideration of payments totalling $339,456 made by Errichetti Nominees, the time period was extended to December 2003.

28 It seems that by 10 December 2003 Errichetti Nominees was still not in a position to complete the transaction and a third supplemental deed was prepared by Mr Goerke, on behalf of the defendants, to vary the transaction once again. The deed was left at the offices of Jackson McDonald for collection and execution by Errichetti Nominees.

29 On or about 10 December 2003, the third supplemental deed was collected from Jackson McDonald's offices. Shortly afterwards it was returned, endorsed with the common seal of Errichetti Nominees and the signatures of Dominic and Rosina Errichetti as directors. A solicitor's certificate, again signed in the name of Mr McEwan, was returned with the deed.

30 It seems that by March 2004 it was apparent that Errichetti Nominees would be unable to proceed with the purchase of Raine Square and a settlement was negotiated by Peter Errichetti and Mr O'Brien and the defendants. A meeting was held on 30 March 2004, attended by Messrs Williams, Brockwell and Goerke for the defendants and Peter Errichetti and Mr O'Brien for Errichetti Nominees, to discuss the terms of settlement. According to Mr Goerke and Mr Brockwell, at that meeting Peter Errichetti said that the term of his disqualification from managing a company had been reduced by the Administrative Appeals Tribunal and he had been re-appointed a director of Errichetti Nominees and Errichetti Holdings as from 14 July 2003.

31 The terms of settlement were the subject of the Deed of Indemnity and Release (the "Deed"), prepared by Mr Goerke. By the Deed, the defendants agreed not to exercise the put option in exchange for an indemnity from Errichetti Nominees, Errichetti Holdings and Peter Errichetti by which they agreed to indemnify the defendants for any difference between the sum of $27,067,000 and the total consideration received by the defendants on the sale of Raine Square, after deduction of all expenses incurred in the sale process.

32 The Deed was left by Mr Goerke at the reception desk at the offices of Jackson McDonald for collection and execution by the plaintiffs. Mr Goerke says that, in a telephone conversation on 8 April 2004, Peter Errichetti told him that he (Peter Errichetti) had signed the Deed. He said he would ask Mr O'Brien to send to Mr Goerke the advice from ASIC that ASIC would accept his re-appointment as a director of those companies. Late that day Mr Goerke sent an e-mail to Mr O'Brien and Peter Errichetti saying that the executed Deed must be returned to Jackson McDonald by 13 April 2004 or the put option would be exercised. He said that if the Deed was signed by Peter Errichetti on behalf of the plaintiffs, unequivocal evidence in writing from ASIC that he was accepted by ASIC as a director had to be provided within the same time. Failing that, the Deed had to be executed by other directors and supported by a solicitor's certificate.

33 On 9 April 2004, Mr O'Brien sent to Mr Goerke a copy of the decision of the Administrative Appeals Tribunal reducing Peter Errichetti's disqualification to a period of 12 months.

34 On 13 April 2004 Mr Goerke received the executed Deed, endorsed with the seals of the plaintiffs and signed in the names of Dominic and Peter Errichetti on behalf of both of the plaintiffs. On the same day Mr Goerke received copies of two letters dated 23 March 2004 sent by a firm of accountants, Galluccio Griggs, to ASIC enclosing Form 484s notifying ASIC of the appointment, on 10 July 2003, of Peter Errichetti as a director of Errichetti Nominees and Errichetti Holdings respectively. Mr Goerke does not recall from whom he received those documents. However, he caused a search to be conducted at ASIC of the plaintiffs. The searches did not show Peter Errichetti as a director of either company.

35 On 14 April 2004, having had enquiries made of ASIC, Mr Goerke sent an e-mail to Mr O'Brien saying that ASIC would not accept the forms because Peter Errichetti's 12 month ban ended on 11 July 2003. Mr Goerke asked Mr O'Brien to sort it out. Mr O'Brien replied the same day suggesting that Peter Errichetti be appointed as of 1 April 2004. Mr Goerke sent an e-mail to Mr O'Brien on 15 April 2004 to the effect that it would be the defendants' "strong preference to have Peter [Errichetti] appointed at the earliest possible date, given that he has been negotiating with David [Williams] and Chris [Brockwell] all along as the person in effective control of the companies. As there does not appear to be any impediment to an appointment with effect from 11 July 2003, we would prefer that date."

36 On 16 April 2004, Mr Goerke received from Mr O'Brien copies of two letters from Galluccio Griggs to ASIC, dated 15 April 2004, enclosing two Form 484s notifying ASIC of the appointment, on 14 July 2003, of Peter Errichetti as a director of both plaintiffs. The letters were in similar terms to the earlier letters. The Form 484s were signed in the name of Dominic Errichetti on behalf of Errichetti Nominees and Errichetti Holdings respectively.

37 Mr Goerke says that, on 19 April 2004, he was informed by an outside clerk employed by Jackson McDonald that an ASIC employee had told her that ASIC would accept the forms appointing Peter Errichetti as a director of both companies and that the register would be updated in the following few days. However, subsequent company searches did not reveal that Peter Errichetti had been re-appointed a director. On 18 May 2004, a solicitor employed by Jackson McDonald was told by an ASIC employee that the Form 484s had been incorrectly completed and had been sent back for correction.

38 In early June 2004, Mr Goerke caused further searches to be conducted and those searches showed that Peter Errichetti had been re-appointed a director of both companies as from 14 July 2003.

39 Mr Goerke says that he believed from his correspondence with Mr O'Brien, and from his own enquiries, that the delay in Peter Errichetti's appointment had been due to administrative issues and there was no reason to doubt the validity of his re-appointment.

40 Mr Brockwell says that the first time he became aware of any issue relating to the execution of the Deed, or of any of the earlier documents, was in June 2005 when he was told by a person associated with Raine Square Management Pty Ltd of a rumour that documents relating to the sale of the land had not been signed by Dominic or Rosina Errichetti. Mr Williams and Mr Goerke each say that they first became aware of the issue in mid-2005 when Mr Brockwell informed them of what he had been told. Mr Goerke says he then conducted a company search of each company and those searches revealed that Mr Peter Errichetti still appeared on the register as a director.

41 Mr O'Brien says that he did not have any dealings with the directors of Errichetti Nominees or Errichetti Holdings, and that Peter Errichetti arranged the execution of all of the documents. Mr O'Brien also says that leading up to the execution of the Deed the defendants and their solicitors became aware that Peter Errichetti had not been reinstated as a director of either company. In support of that, Mr O'Brien annexes to his affidavit the e-mails between himself and Mr Goerke on 14 and 15 April 2004, to which I have already referred.

42 There has also been filed an affidavit of Mr McEwan, the solicitor in whose name the certificates in respect of the earlier documents had been signed, in which, among other things, Mr McEwan says he did not sign any of the certificates and he did not give the advice referred to in the certificates.

43 Mr Goerke, Mr Williams and Mr Brockwell each says that at no time did they have any occasion to doubt that the Deed and the earlier documents had been duly executed or that Peter Errichetti had authority to negotiate on behalf of the plaintiffs.

44 The defendants subsequently sold Raine Square for an amount substantially less than the amount referred to in the Deed. The amount now said to be owing to the defendants under the Deed is the sum of $7,968,322.65.

45 On 9 September 2005, the defendants served on each of the plaintiffs a statutory demand for that amount. The plaintiffs have applied to set aside the statutory demands on the ground that there is a genuine dispute as to the plaintiffs' indebtedness to the defendants. The plaintiffs contend that the Deed is not binding on them, the signature of Dominic Errichetti on the Deed and the Form 484s having been forged and Peter Errichetti not being a director of either company at the relevant time. The plaintiffs say that the Deed was not executed by any person having authority to do so on behalf of either company.

46 The defendants accepted for the purposes of this application that the signature of Dominic Errichetti on the Deed was a forgery and that his signatures on the Form 484s were also forgeries. It was submitted, however, that, by virtue of s 128 and s 129 of the Act, there was no genuine dispute as to the plaintiffs' liability to the defendants under the Deed.

47 The principles to be applied on an application to set aside a statutory demand are well known. They are conveniently summarised in Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, where Owen J, with whom Pidgeon and Wallwork JJ agreed, said at [27]:

"From the relevant authorities on the issue of what amounts to a 'genuine dispute' under s 459H there can be discerned an emphasis on two overriding considerations. First, that in determining whether there is a genuine dispute a court is required to undertake an investigation that raises much the same sort of considerations as the 'serious question to be tried' criterion which arises in an application for an interlocutory injunction or for the extension or removal of a caveat: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 per McLelland J at 671. Further, to reach a finding that there is a genuine dispute the applicant must satisfy the court that:

(a) the dispute is bona fide and truly exists in fact; and

(b) the grounds alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 15 ACLC 1001 per Northrop, Merkel and Goldberg JJ.

This formulation has been adopted in a number of recent decisions: see Goldspar Australia v KWA Design Group (1999) 17 ACLC 456 per Austin J at 462 and Universal Greening Pty Ltd v Sabine & Anor [1999] FCA 529; (1999) 17 ACLC 880 per Kenny J at 885. In the interests of consistency in the various courts that have to apply the Corporations Law, I think this is the approach to be preferred."

48 On an application of this sort the Court will confine itself to the question whether a real dispute exists rather than attempt to determine the merits of the respective positions of the disputants: PDR Pty Ltd v Cottesloe Constructions Pty Ltd [2000] WASCA 62 at [6] - [7]. In that case the Full Court referred with approval to Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290 at 295, where Hayne J, having considered the terms of s 459H and its place in the statutory scheme, said that:

"At least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute."

49 The question, then, is whether there is a genuine dispute as to the plaintiffs' liability to the defendants under the Deed. The relevant provisions of s 128 of the Act are as follows:

"(1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

...

(3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.

(4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect."

50 The relevant provisions of s 129 are as follows:

"...

(2) A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:

(a) has been duly appointed; and

(b) has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.

(3) A person may assume that anyone who is held out by the company to be an officer or agent of the company:

(a) has been duly appointed; and

(b) has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.

...

(6) A person may assume that a document has been duly executed by the company if:

(a) the company's common seal appears to have been fixed to the document in accordance with subsection 127(2); and

(b) the fixing of the common seal appears to have been witnessed in accordance with that subsection.

..."

51 The plaintiffs submit that Peter Errichetti was not an agent of either of the plaintiffs because he did not have any authority, express or implied, to enter into the Deed and he was never held out by either company as having any authority to do so. Further, the purchase of a property of the nature and value of Raine Square was so far outside the ordinary business of the plaintiffs that the suspicion of the defendants must have been aroused. Moreover, no agent of a company could "customarily" enter into a transaction of the nature and magnitude of the transaction in question.

52 It was submitted that, on the evidence, the knowledge that Peter Errichetti had been banned as a director, the persistent failure of Errichetti Nominees to complete any of the agreements entered into, and the very nature of the transaction in question, were such as to raise a suspicion on the part of the defendants as to wrongdoing by Peter Errichetti. Counsel argued that by the time the Deed was signed it was plain that Peter Errichetti's conduct was suspicious but the defendants did not, on any independent evidence, know him to be a director of either plaintiff and did not make any attempt to inform the directors of the plaintiffs what was happening or to verify that Peter Errichetti was authorised to act on behalf of the plaintiffs. In accordance with s 128(4), the defendants were therefore not entitled to make the assumptions in s 129.

53 Although it did not emerge with clarity, it also appeared to be contended by the plaintiffs that, by virtue of s 128(1), the s 129 assumptions only apply where the person making the assumption has had dealings with an agent or officer of the company, or someone who has been held out by the company as its agent or officer. It did not apply where the person has had dealings with someone who merely purported to be an agent or officer of the company.

54 It was submitted that in this case the defendants' dealings in relation to the Deed had been, not with the plaintiffs, but with Peter Errichetti, who was not an agent or officer of the plaintiffs and had not been held out by the plaintiffs to be an agent or officer. Accordingly, by virtue of s 128(1), the s 129 assumptions did not arise.

55 It was also argued on behalf of the plaintiffs, in the alternative, that the assumption referred to in s 129(6), that a person may assume a document has been duly executed by a company if the company's seal appears to have been properly affixed and witnessed under s 127(2) of the Act, is subject to the person "getting through the gate of s 129(3)". As I understood that submission (and with due respect to the plaintiffs' counsel, I had difficulty understanding precisely what was being put), it was that the individual who purported to be a director and who executed the document on behalf of the company, must have had been held out by the company to the person making the s 129(6) assumption as an officer or agent of the company.

56 It was submitted that, accordingly, as Peter Errichetti was not a director of the plaintiffs and had not been held out by the plaintiffs to be a director, it could not be said that the Deed which bore his signature as a director appeared to have been duly executed in accordance with s 127(2) of the Act. The defendants could not, therefore, rely on the s 129(6) assumption.

57 It was contended on behalf of the plaintiffs that, in any event, at the time the Deed was executed it was apparent from the correspondence that the defendants knew or suspected that Peter Errichetti was not a director of the plaintiffs at the time of execution. Mr Goerke received the executed Deed and copies of the Form 484s, which stated that the appointment had been on 10 July 2003, on 13 April 2004. He became aware from searches he then made that Peter Errichetti still did not appear on the ASIC records as a director and he became aware within a day or two that the Form 484s had not been accepted by ASIC because Peter Errichetti's period of disqualification did not expire until 11 July 2003. On 15 April 2004 Mr Goerke told Mr O'Brien that the defendants wanted Peter Errichetti appointed from the earliest possible date. The next day he received copies of new Form 484s stating that Peter Errichetti had been appointed a director on 14 July 2003.

58 Mr Goerke was aware that it was not until some time after 18 April 2004 that the forms were accepted for registration by ASIC. Although ASIC's records subsequently showed that Peter Errichetti had been appointed a director as from 14 July 2003, the defendants knew that his appointment had simply been backdated and they must have known that his appointment could not lawfully be made in that way.

59 It was submitted on behalf of the defendants that there was nothing that would give rise to any suspicion on the part of the defendants. There was no satisfactory evidence as to the ordinary business of the plaintiffs and therefore no evidence which could make good the allegation that the transactions in this case were entirely outside the ordinary business of the plaintiffs. In any event, that would not establish that the defendants knew or suspected that the plaintiffs had not resolved to execute the Deed or that it had not been validly executed.

60 It was submitted that there was nothing in the conduct of the transactions to give rise to suspicion. In addition to Peter Errichetti, the plaintiffs appeared to be represented by a firm of lawyers, Wilson & Atkinson, and by a consultant, Mr O'Brien. The plaintiffs' common seal appeared to have been regularly affixed to the various agreements, including the Deed, and in relation to several of the earlier transactions the defendants had been provided with independent solicitor's certificates which were regular on their face and verified that a solicitor who knew Dominic and Rosina Errichetti had witnessed their signatures on the documents. The defendants had no reason to suspect that the solicitor had not in fact signed the certificates.

61 In addition, over a period of time the defendants had lodged caveats on the title to properties of which the plaintiffs were the registered proprietors and notice of those caveats would in the ordinary course have been served on the plaintiffs' registered office. The validity of those caveats was never questioned.

62 Moreover, it was illogical to suggest that the defendants would have spent all the time and effort they did in connection with the sale of the land knowing or suspecting that the person with whom they were dealing was acting fraudulently or without authority.

63 Further, Peter Errichetti had apparently been appointed a director of each of the plaintiffs on 14 July 2003 and was named as a director of each of the companies, as at the time of the execution of the Deed, in the searches obtained by the defendants from ASIC. The Deed, accordingly, appeared to have been duly executed in accordance with s 127(2) and the plaintiffs were entitled to rely on the assumption in s 129(6).

Is there a genuine dispute as to the plaintiffs' liability?

64 I do not accept the plaintiffs' submission that s 128(1) necessarily precludes the s 129 assumptions arising on the facts of this case because the defendants had dealings, not with the plaintiffs, but only with Peter Errichetti who was not authorised to act on behalf of the plaintiffs.

65 A similar issue arose in Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722, which concerned comparable provisions in the then Companies (New South Wales) Code. In that case, a husband and wife were the directors of a family company. The husband executed a mortgage of the company's property by affixing the seal and attesting to it in his own name and by forging his wife's signature. The question was whether the mortgagee bank was entitled to rely on the statutory provisions to enforce the mortgage.

66 Section 68A of the Code provided, relevantly, that a person having dealings with a company was entitled, in relation to those dealings, to make certain assumptions, including that a document had been duly sealed by the company if impressed with what appeared to be the seal of the company and attested by persons who may be assumed to be directors or a director and secretary of the company. Section 68D provided that a person was entitled to make the assumptions even where the signatories had acted fraudulently or forged the document, unless the person had actual knowledge of the fraud or forgery.

67 It was argued on behalf of the company, among other things, that the bank had not had dealings with the company but only with the husband, so the assumptions did not arise. The Court of Appeal (Gleeson CJ, with whom Mahoney and Cripps JJA agreed) concluded on the facts that the bank had had dealings with the company. Gleeson CJ went on, however, to say (at 733):

"It should be added that, since the subject matter of s 68A, by hypothesis, includes dealings with purported company agents who lack actual authority, and, by virtue of s 68D, extends to forged instruments, the concept of having dealings with a company must embrace, subject to the qualifications contained in the legislation, purported dealings. If the statutory provisions only extended to cases where the person representing the company had actual authority then they would be largely unnecessary."

68 In my view, those observations apply with equal force in relation to s 128 and s 129 of the Act and a similar result must follow. Accordingly, the s 129 assumptions can be relied upon where a person purported to act as an agent of the company in the relevant dealing.

69 The plaintiffs' next contention was that Peter Errichetti did not have, and the defendants knew or suspected that he did not have, or made no enquiry as to whether he had, authority to act for the plaintiffs in the various transactions, including the execution of the Deed.

70 I do not consider that a failure by the defendants to enquire as to the authority of Peter Errichetti to act on behalf of the plaintiffs is, of itself, sufficient to enliven s 128(4).

71 The effect of s 128(4) is that a person is not entitled to make an assumption under s 129 if at the time of the relevant dealing they knew or suspected that the assumption was incorrect.

72 In Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266, Kitto J described what constitutes suspicion in the following way:

"In the first place, the precise force of the word 'suspect' needs to be noticed. A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to 'a slight opinion, but without sufficient evidence', as Chambers Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence."

73 That statement was applied by Osborn J in Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315 (at [118]) to s 128(4) of the Act. His Honour went on to say (at [119]), by way of obiter, that he did not accept that s 128(4) was concerned with cases of constructive knowledge or constructive suspicion.

74 In my view, s 128(4) does not preclude a person from relying upon a s 129 assumption simply because there has been a failure on their part to enquire, even where a reasonably prudent person would have made enquiries. The section does not incorporate the concept of being 'put upon enquiry'. Nor will such a failure be sufficient to establish that the person knew or suspected the fact that such enquiry would have revealed. The person must be found to have had at least an "actual apprehension or mistrust, amounting to a slight opinion" that the fact exists. Of course, in a particular case it might be inferred from what the person did know, or otherwise from the particular circumstances of the case, that no inquiry was made because the person suspected the fact existed and preferred not to have that suspicion confirmed.

75 The questions then are whether, first, it might be inferred from the conduct of Peter Errichetti and the circumstances of the transactions leading up to the Deed that the defendants knew or suspected that he was not authorised to act on behalf of the plaintiffs; secondly, as Peter Errichetti was not, and had not been held out by the plaintiffs to be, a director of either company at the time he signed the Deed it is arguable that the s 129(6) assumption does not arise; and, thirdly, it might be inferred from the circumstances surrounding the execution of the Deed that at that time the defendants knew or suspected that Peter Errichetti had not been validly appointed as a director.

76 I do not accept that there is any basis for the first contention. The evidence does not establish what the business of the plaintiffs was or that the transactions were outside the ordinary course of the business of the plaintiffs - to the extent that that might be a relevant factor. In the case of each plaintiff, the company seal appeared to have been duly affixed by the authority of the directors in each of the transactions preceding the Deed. There is nothing to suggest that the defendants were aware, or that they might have been aware or suspected, that the signatures of Rosina or Dominic Errichetti had been forged. The fact that the plaintiffs had consistently failed to meet their earlier contractual obligations provides no foundation for such an inference. Nor does the fact that the defendants did not make separate enquiries of Dominic and Rosina Errichetti as to the authority of Peter Errichetti to act on behalf of the plaintiffs in any of those transactions provide any such foundation.

77 The documents executed in connection with the various transactions leading up to the Deed were consistently signed in the name of extant directors. Peter Errichetti did not seek to conceal the fact of his disqualification in 2002 from acting as a director and from that time on the documents were always signed in the names of the other directors. Nor did Peter Errichetti act alone. Mr O'Brien, who was apparently an independent business consultant, was actively involved in the matter on behalf of the plaintiffs. At an early stage he said in an e-mail to Mr Goerke that he (O'Brien) would arrange for the option and the supplemental deed to be executed by "the Errichetti family". When the documents in question were returned to Mr Goerke they bore signatures in the names of Dominic and Rosina Errichetti. It also appeared that for much of the time Wilson & Atkinson had been acting for the plaintiffs.

78 In addition, in June 2003, July 2003 and December 2003 documents signed in the names of Dominic and Rosina Errichetti were accompanied by a solicitor's certificate which stated that the solicitor had been providing legal service to Rosina and Dominic Errichetti and their companies for a number of years, that Rosina and Dominic Errichetti were known to him personally and that they had signed the documents in his presence. That certificate had been prepared by Wilson & Atkinson. (I should say that there is no suggestion that Wilson & Atkinson were aware that any signatures on any of the documents had been forged.)

79 All that occurred was no doubt designed to prevent any suspicion on the part of the defendants from arising. That it appears to have been entirely successful is not at all surprising.

80 I do not consider that on the basis of the events prior to those surrounding the execution of the Deed there is any basis upon which it might be found that the defendants knew or suspected that Peter Errichetti was not authorised to act on behalf of the plaintiffs or that the signatures on the various documents had been forged.

81 The circumstances in which the Deed came to be executed were somewhat different, however.

82 At that time the defendants sought confirmation that Peter Errichetti had, as he claimed, been re-appointed a director of each of the plaintiffs. It appears that they became aware from the copies of the letters from Galluccio Griggs to ASIC, dated 23 March 2004, and the attached Form 484s that the plaintiffs had apparently purported to re-appoint Peter Errichetti as a director on 10 July 2003, at a time when he was still disqualified from managing a company. The notifications were not accepted by ASIC.

83 It would seem from Mr Goerke's e-mail of 15 April 2004 that, particularly given the role that Peter Errichetti had played in the various transactions, the defendants wanted his appointment to each company to be put in order and to be put into effect from the earliest possible date, namely 11 July 2003. A proposal from Mr O'Brien that Peter Errichetti be appointed as of 1 April 2004 was rejected. In his reply to Mr O'Brien, of 15 April 2004, Mr Goerke said that the defendants wished Peter Errichetti to be appointed with effect from 11 July 2003. The same day, 15 April 2004, Galluccio Griggs sent to ASIC new Form 484s which stated that Peter Errichetti had been appointed a director of each plaintiff on 14 July 2003. Copies were sent to Mr Goerke. On what basis it was now said that the appointment had been made on 14 July 2003, rather than 10 July 2003, was not (and is not) clear.

84 The defendants were therefore aware that at the time Peter Errichetti signed the Deed it was on the basis of his ostensible appointments as a director on 10 July 2003. At that stage Peter Errichetti did not appear from the public records of ASIC to be a director of either plaintiff, so the assumption in s 129(2) was not available. Following the delivery to ASIC of the Form 484s specifying the appointment date as 14 July 2003, Mr Goerke, on behalf of the defendants, conducted searches to verify that those notifications had been accepted by ASIC and that the public records of ASIC showed the appointment. It seems the relevant record, based on the second form 484s, became available to the public in about early June 2004, some six weeks or more after the Deed had been signed by Peter Errichetti.

85 Whether or not, in order to enliven s 129(6), there must be a holding out by the company, in my view it must at least appear that the person who signed the document, or in whose name it was signed, was a director (or secretary) of the company as they purported to be. In the circumstances, there seems to me to be a genuine dispute as to whether, in respect of Peter Errichetti, it is open to the defendants to say that the fixing of the seal to the Deed appeared to have been witnessed by a person who appeared at that time to be a duly appointed director of the plaintiffs. There is therefore a genuine dispute as to whether the defendants are entitled to rely on the assumption in s 129(6) that the Deed had been duly executed in accordance with s 127(2) of the Act.

86 In any event, I consider that in the circumstances there is a genuine dispute as to the state of knowledge or suspicion of the defendants as to the validity of Peter Errichetti's re-appointment as a director. Establishing the state of mind of a person is plainly a matter of some difficulty in circumstances such as the present and due allowance must be made for that. It is often only at a trial when the facts can be fully explored that the true picture will emerge. But given the circumstances surrounding the execution of the Deed, I consider the plaintiffs' contention that the defendants suspected the Deed had not been validly executed, in that Peter Errichetti had not been validly re-appointed as a director of the plaintiffs, cannot be dismissed as spurious and gives rise to a genuine dispute.

87 Whether or not the defendants in fact had such knowledge or suspicion is not, of course, a matter for determination on this application and, moreover, on the necessarily limited materials available on an application of this nature it would not be possible to express any view on it. The question before me is simply whether there is a genuine dispute as to those matters, according to the relatively low threshold described in Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd (supra).

88 I consider that on the evidence there is a genuine dispute as to the plaintiffs' liability under the Deed. I would therefore set aside the statutory demands.