Essington Investments Pty. Ltd. & Ors. v. Regency Property Pty. Ltd. [2004] NSWCA 375

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC50058/03 FILE NUMBER(S) : LOWER COURT McDougall J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41097/03 SC 50058/03

SHELLER JA HODGSON JA McCOLL JA

Tuesday 19 October 2004 ESSINGTON INVESTMENTS PTY. LIMITED & ORS. V. REGENCY PROPERTY GROUP LIMITED & ANOR. HEADNOTE

FACTS EGNS, a member of the Essington companies (Essington), had agreed to buy land in Mount Street North Sydney from Telstra for $16 million (the Mount Street project). In investigating ways of financing the Mount Street project, Mr. Edwards, the director of Essington, was introduced to Mr. Drummond, an independent property consultant.

Essington's solicitors prepared a draft agreement (the Heads of Agreement), requiring the proposed purchaser/financer to acquire all shares in EGNS for $100,000.00, on condition that the purchaser/financer make payments of approximately $26 million. These payments would enable Essington to complete the Mount Street Project.

On 4 April 2003, Mr. Drummond, on a letterhead of his own company, sent to Mr. Johns, the sole director of Regency, a letter providing inter alia for an equity of 20% for Mr. Drummond or his company in the completed development, if Mr. Johns or his associates proceeded with the Mount Street project. Mr. Johns signed an acceptance of the terms of this letter.

From early April 2003, Mr. Johns was aware that Mr. Drummond was negotiating for Regency to become the purchaser/financer under the Heads of Agreement, and took no steps to discourage him from doing so. Although there was no direct contact between Mr. Johns and anyone associated with Essington until 13 May 2003, from April 7 2003 Regency appeared as the proposed purchaser/financer in successive versions of the draft Heads of Agreement.

On 21 April 2003, Mr. Drummond and Mr. Johns met and Mr. Drummond requested Mr. Johns to put his signature on the Heads of Agreement to demonstrate to Essington that he was interested in continuing negotiations. Mr. Johns signed the agreement on the last page, in the position designated for execution on behalf of Regency, but instructed Mr. Drummond not to release the document without his prior approval.

After 21 April 2003, there were a number of conversations between Mr. Edwards and Mr. Drummond, in which Mr. Drummond said he was in possession of the executed Heads of Agreement, but not in a position to release the document.

On 28 April 2003, Mr. Drummond sent the signed document, containing a number of unauthenticated handwritten alterations, by facsimile to Essington. Mr. Edwards signed the document on behalf of Essington, and sent it by facsimile to Mr. Drummond.

It was this exchange of facsimiles that Essington claimed gave rise to a contract. Regency denied the existence of any contract.

Essington commenced proceedings against Regency for breach of contract, and Regency cross-claimed against Mr. Drummond for any damages Regency might be liable to pay to Essington. The primary judge dismissed both claims, finding Mr. Drummond had neither actual nor ostensible authority to forward the signed Heads of Agreement as either the first step in an exchange of contracts, or as an offer capable of acceptance.

On appeal, the primary issue was whether an agreement was made between the appellants and respondent on 28 April 2003.

HELD Mr. Drummond did not have actual authority to make the contract.

(Per Sheller and Hodgson JJA, McColl JA dissenting) Mr. Drummond did not have ostensible authority to make the contract.

(Per Sheller JA) Regency had not placed Mr. Drummond in a position that, objectively viewed, carried ostensible authority to take the first step in an exchange of contracts or make an offer capable of acceptance on behalf of Regency. Mr. Edwards in dealing with Mr. Drummond was aware that his authority was limited, and in such circumstances, where an agent is found to have exceeded authority, the principal cannot be made responsible: Russo-Chinese Bank v. Li Yau Sam [1910] AC 174 at 184.

(Per Hodgson JA) Ostensible authority occurs where the principal, by words or conduct, represents that the agent has the requisite actual authority, and the party dealing with the agent enters into a contract in reliance on that representation: Armagas Ltd. V. Mundogas SA [1986] AC 717 at 777. A case of ostensible authority was not made out on the facts. Mr. Johns did not either represent or knowingly permit Mr. Drummond to represent that the document, or a copy of it, could be realised to Essington with contractual effect. The possession and use of mere copies of a document, containing unauthenticated handwritten alterations, does not suggest authority in the same way as possession and use of an original absent such alterations. Mr. Edwards only ever saw or received a copy. His reliance was on Mr. Drummond's word, not the actual original document.

(Per McColl JA contra) Regency held Mr. Drummond out as having ostensible authority. Mr. Johns permitted Mr. Drummond to make representations that the document or a copy of it could be released to Essington with contractual effect, when he handed the executed original to Mr. Drummond without qualifying his signature in any manner. In doing so, Mr. Johns failed to take "proper safeguards against misrepresentation": Pacific Carriers Ltd v. BNP Paribas (2004) 208 ALR 213 at [38]. The fact that Essington received a facsimile of the document rather than the original is of no moment, and was a foreseeable consequence of arming Mr. Drummond with the original.

ORDERS 1. Appeal dismissed with costs. 2. Cross-appeal dismissed. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41097/03 SC 50058/03

SHELLER JA HODGSON JA McCOLL JA

Tuesday 19 October 2004 ESSINGTON INVESTMENTS PTY. LIMITED & ORS. V. REGENCY PROPERTY GROUP LIMITED & ANOR. Judgment 1 SHELLER JA: This appeal is from the decision of McDougall J on 10 October 2003. The facts are set out in the judgment of Hodgson JA, which, together with the judgment of McColl JA, I have had the benefit of reading. I do not repeat them except to the extent necessary to explain the conclusion I have reached. His Honour held that Mr Drummond's limited authority to act on behalf of the respondent, Regency Property Group Pty Ltd (Regency), did not extend to forwarding "the signed Heads of Agreement to the plaintiffs [the three Essington companies (Essington) which were the appellants], either as the first step in an exchange of contracts (with the result, upon completion of exchange, being a legally binding contract), or as an offer capable of acceptance (with the result, upon acceptance of the offer, being a legally binding contract)." Further, his Honour held that the case of Essington, based on ostensible authority failed. For the reasons given by the trial Judge, and particularly the findings made by his Honour, and for the further reasons given by Hodgson JA, I am satisfied that Essington's case on actual authority must fail. 2 McDougall J carefully reviewed the evidence when coming to deal with Essington's case of ostensible authority. His Honour made these points: 1. By 21 April 2003, it was clear that Essington and Mr Drummond understood that the Heads of Agreement was to be signed by Mr Johns, the sole director of Regency, in the near future and that Mr McWilliam, Essington's solicitor, contemplated that there would "after execution" be an exchange of documents by facsimile. From this the inference could be drawn that Mr McWilliam considered that this process would lead to the formation of a binding agreement on the terms of the signed and exchanged document.

There was no evidence that the terms of the email of 17 April 2003 from Mr McWilliam to Mr Drummond and to Mr Grant, of the Cornerstone Property Group, who had introduced Mr Edwards, Essington's director most concerned with the arrangements, to Mr Drummond, with a copy to Mr Edwards, was ever communicated to Mr Johns. It was in that email that Mr McWilliam spoke of Mr Johns picking up the Heads of Agreement for signature on 20 April 2003 and suggesting exchange by facsimile. As McDougall J said: "In other words, there is no evidence, and it was not put to Mr Johns, that Mr Johns knew that the plaintiffs were contemplating that his signature on the document would be the first step in an exchange that would happen shortly thereafter, and would lead to the formation of a legally binding contract."

As at 24 April 2003, it was clear to Mr Edwards that the decision as to whether the executed document would be released was not a decision to be taken by Mr Drummond.

Mr Edwards "relied on what Mr Drummond said he could do within his capacity, like any director" although he was aware that Mr Drummond was not a director of Regency.

Mr Edwards understood that Mr Drummond could only deal with the executed document in so far as that was in accordance with instructions he received from Regency.

It was plain to Mr Edwards that such instructions might never be given.

According to Mr Edwards "Mr Drummond had to get his instructions but it wasn't for me to question whether he had instructions or not".

In the context of the proposition that instructions to release the document might be made subject to conditions, Mr Edwards said "whatever issues were being dealt with within Regency, we would get the document and on receipt of that document it wasn't a question for us once we had the document". 3 In his reasons for judgment, McDougall J cited what Diplock LJ (as his Lordship then was) said about the distinction between an actual authority of an agent and an apparent or ostensible authority in Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502-3. After referring to apparent or ostensible authority as a legal relationship between the principal and the contractor created by representation, Diplock LJ said at 503-4 that the representation which creates apparent authority may take a variety of forms of which the commonest is representation by conduct "that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually 'actual' authority to enter into." 4 Again at 505 Diplock LJ said: "The commonest form of representation by a principal creating an 'apparent' authority of an agent is by conduct, namely, by permitting the agent to act in management or conduct of the principal's business." 5 Such principals have been most recently discussed by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045 at 1053 [36]. Their Honours there said: "It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company's conduct must be the source of the representation. In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company's constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon an assumption that company officers have the authority that people in their respective positions would ordinarily be expected to have. In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal's conduct as a whole." 6 McDougall J cited the speech of Lord Keith of Kinkel in Armagas Ltd v Mundogas SA [1986] 1 AC 717 at 777 drawing a distinction between what his Lordship called "ostensible general authority" and "ostensible specific authority". In the present case, Mr Drummond was not an officer of Regency. McDougall J observed that it might be doubted whether, in the true sense, Mr Drummond was an agent at all before 17 April 2003 as opposed to an intermediary between Essington and Regency. As such, Mr Drummond had an interest in their reaching an agreement. To adopt Lord Keith's distinction, Mr Drummond had not been placed by Regency in a position that, objectively viewed, carried authority to take the first step in an exchange of contracts or make an offer capable of acceptance on behalf of Regency. There had to be a representation, if a case of ostensible authority was to be made out by the respondent, that Mr Drummond had authority to take the first step in the proposed exchange which could lead to a binding contract or the authority to make an offer capable of acceptance on behalf of Regency. 7 McDougall J, after referring to the judgment of Robert Goff LJ (as his Lordship then was) in Armagas in the Court of Appeal ([1986] 1 AC 717 at 732-3), said: "111 His Lordship pointed out, at 734, that where a representation of authority is said to be derived from the position held by an agent, the representation is limited to the fact that the agent had the usual authority possessed by a person in that position." 8 At this point McDougall J's findings are critical. Mr Edwards knew as at 24 April that the decision to release the executed Heads of Agreement was not one to be taken by Mr Drummond and that Mr Drummond could only deal with the executed document in so far as that was in accordance with the instructions he received from Regency. Mr Edwards knew that such instructions might never be given but took the view that it was not for him to question whether Mr Drummond had instructions or not. McDougall J referred to the opinion of Lord Atkinson, delivering the advice of the Privy Council, in Russo-Chinese Bank v Li Yau Sam [1910] AC 174 at 184 that "a person who deals with an agent, whose authority he knows to be limited, … does so at his peril, in this sense, that should the agent be found to have exceeded his authority, his principal cannot be made responsible." 9 McDougall J said: "127 It will be seen that the understanding held by Mr Edwards, in relation to the limited authority of Mr Drummond, post-dated the e-mail of 17 April 2003, but preceded the events of 28 April 2003. Unless there were some change in Mr Edwards' understanding between 24 and 28 April 2003, and, more importantly, unless that change in understanding were engendered by some words or conduct of Regency, the plaintiffs' case based on ostensible authority cannot succeed. By 24 April 2003, Mr Edwards knew (or believed) that the draft Heads of Agreement had been signed on behalf of Regency and that they were held by Mr Drummond. He knew that the decision to 'release' the document - i.e., to initiate the process of exchange - was not one for Mr Drummond to make.

128 The key to Mr Edwards' attitude seems to me to lie in his evidence that it was not for him to question whether or not Mr Drummond had instructions to release the document; by inference Mr Edwards' view was that he was entitled to rely, for proof of Mr Drummond's authority, upon the fact that the document had been released. In context, and in terms of the formulation of Diplock LJ (see para [107] above), that must be reliance on a representation by the (alleged) agent.

129 There is no evidence of any relevant act or communication on the part of Regency, between 24 and 28 April 2003, that could amount to a representation that Mr Drummond had authority, on 28 April 2003, either to initiate an exchange of contracts, or to make an offer capable of acceptance, in either case so as to lead to the formation of a legally binding contract. All of the events upon which the plaintiffs relied in submissions occurred prior to 24 April 2003. If, as Mr Edwards said, they were not capable of inducing in him a belief that Mr Drummond himself had authority, absent instructions from Regency, to 'release' the document, then it is impossible to understand on what he could reasonably (or at all) have relied thereafter to ground such a belief.

130 In any event, I think that the attitude expressed by Mr Edwards was, in law, incorrect. It is impossible to regard Mr Drummond as an agent of a kind whose usual authority extended to the exchanging of contracts. Indeed, as I have noted, up until the time that he took the signed Heads of Agreement from Mr Johns, he may not have been an agent at all. Mr Edwards knew that Mr Drummond's authority was limited. If, without enquiry, the plaintiffs relied upon him having authority to do that which they knew he needed authority to do, they did so at their peril.

131 Another way of putting the same conclusion is that, as the cases show, there must have been a representation of authority, and the person to whom the representation is made must have relied upon it. In the present case, what was needed, after 24 April 2003, was some representation from Regency that Mr Drummond was authorised to release the signed Heads of Agreement so as to initiate a process whereby a legally binding contract would be formed. There was nothing on the evidence that occurred after that date upon which Mr Edwards could have (reasonably) relied.

132 I therefore conclude that the plaintiffs have failed to make out that Mr Drummond was held out as having the requisite authority, or that they relied on any such holding out." 10 With due respect, I agree with his Honour. The appeal should be dismissed with costs. 11 HODGSON JA: On 10 October 2003, McDougall J gave judgment determining certain questions in proceedings in which the appellants (the Essington companies) claimed damages against the first respondent (Regency) for breach of contract, and in which Regency had put on a cross-claim against the second respondent (Mr. Drummond) seeking in substance that Mr. Drummond compensate Regency for any damages Regency might have to pay to the Essington companies. As a result of his determination of those questions, on 30 October 2003 the primary judge directed the entry of judgment for Regency on the Essington companies' claim and for Mr. Drummond on Regency's cross-claim, ordered the Essington companies to pay Regency's costs of the claim and Regency to pay Mr. Drummond's costs of the cross-claim, and ordered that the costs payable by the Essington companies to Regency include the costs payable by Regency to Mr. Drummond. 12 The Essington companies have appealed from those orders, and Regency has cross-appealed from the orders on the cross-claim (seeking orders against Mr. Drummond in the event that the Essington companies succeeds on their appeal). We were told at the hearing of this appeal that there was no need for us to deal with the cross-appeal, because that had been resolved as between Regency and Mr. Drummond.

CIRCUMSTANCES 13 By contract for sale dated 27 September 2002, the second appellant (EGNS) had agreed to buy certain land in Mount Street North Sydney from Telstra for $16 million, for the purpose of re-development (the relevant project being called the "Mount Street project"). On 15 August 2003, Telstra terminated that contract, forfeited the deposit and claimed damages. The Essington companies claimed in these proceedings that on 28 April 2003, they had entered into an agreement (referred to as the Heads of Agreement) whereby Regency agreed to acquire all shares in EGNS for $100,000.00, on condition that Regency make payments between May 2003 and about October 2003 totalling about $26 million, which would have enabled EGNS to perform its contract with Telstra and carry forward the Mount Street project. The Essington companies say that Regency repudiated its obligations under that agreement and that they terminated the agreement, and they claim damages including losses arising from the termination of the Telstra contract. 14 The essential issue in the case was whether an agreement was made on 28 April 2003 as claimed; and that in turn raised a question whether Mr. Drummond had actual or ostensible authority to do acts on behalf of Regency such as to give rise to this agreement. 15 I will outline the relevant history. 16 In early 2003, Mr. Edwards, the director of each of the Essington companies most concerned with the Telstra contract, was investigating ways of financing the Mount Street project; and to that end he had discussions with a Mr. Grant of the Cornerstone Property Group, who introduced him to Mr. Drummond, who appears to have been an independent property consultant. The obtaining of this finance had some urgency, because the Telstra contract required an instalment of the purchase price of $6,525,000.00 to be paid by 1 March 2003. The Essington companies were negotiating with Telstra for more time to pay this instalment, and it appears that Telstra had indicated that it would give some more time. In fact, the Telstra contract was formally varied on 22 May 2003 so as to extend that time. 17 On 31 March 2003, Mr. Edwards sent to Mr. Grant a draft of what became the Heads of Agreement; and on 4 April 2003, Essington's solicitor, Mr. McWilliam, prepared a further draft. These drafts showed Cornerstone as the proposed purchaser/financier. 18 However, by this time Mr. Drummond had discussed the Mount Street project with Mr. Johns, the sole director of Regency, and also with Mr. Bain, who from time to time carried out projects in joint venture with Mr. Johns; and on 4 April 2003, Mr. Drummond, on a letterhead of his own company National Commercial Finance Pty. Limited, sent to Mr. Bain and Mr. Johns a letter providing inter alia for an equity of 20% for Mr. Drummond or his company in the ownership of the completed development, in the event that Mr. Bain and Mr. Johns or their associates proceeded with the project. From this time onwards, it appears that Regency was the proposed purchaser/financier, although Mr. Bain and also Mr. Grant appeared to continue to have some interest in the matter. Mr. Johns signed an acceptance of the terms of this letter, apparently by about 15 April. 19 Mr. Johns gave evidence, accepted by the primary judge, that he made it clear to Mr. Drummond that, because of cash-flow concerns, he could not take on the Mount Street project unless it could be subject to approval of a development application or delayed until the end of the year; and Mr. Drummond undertook to seek to negotiate along these lines. However, Mr. Johns did know, at least from early April 2003, that Mr. Drummond was negotiating with the Essington companies to seek to structure a deal between these companies and Regency, and Mr. Johns took no steps to stop or discourage him from doing so. Mr. Johns expected Mr. Drummond to report back to him concerning those negotiations. Mr. Johns himself had no direct contact with Mr. Edwards, or anyone else associated with the Essington companies, until 13 May 2003. 20 On 7 April 2003, Mr. McWilliam produced a further draft of the Heads of Agreement, showing Regency as the proposed purchaser/financier, and containing a schedule showing the time and amounts of payments to be made, including a payment of $6,525,000.00 to be made on 10 April 2003, which was to be passed on to Telstra as an instalment of the purchase money required under the Telstra contract. Mr. Drummond received a copy of this draft, and sent it by fax to Mr. Connolly, a legally qualified consultant who gave advice on contractual matters to Regency. 21 On 8 April 2003, Mr. Drummond and Mr. Connolly inspected the Telstra contract, taking some hours to do so. 22 On 16 April 2003, Mr. Drummond sent a facsimile to Mr. Connolly which proposed further amendments to the draft Heads of Agreement, including changes to the schedule of payments, notably a provision for the $6,525,000.00 to be paid by instalments of $1,000,000.00 on 30 April 2003 and the balance on 30 May 2003. This document was also sent to Mr. Edwards, who forwarded it to Mr. McWilliam. Mr. McWilliam revised the draft Heads of Agreement to take account of most of Mr. Drummond's proposals, and sent the amended document to Mr. Drummond. 23 Two further versions of the draft were prepared on 17 April 2003. At just after 6pm on that day, Mr. McWilliam sent an email to Messrs. Grant and Drummond, with a copy to Mr. Edwards, enclosing the latest draft and containing the following message (in which "Richard" refers to Mr. Drummond): At about 6pm tonight I was contacted by John Connelly (sic) who said that Dean Johns was picking up the document for signature on Sunday, so notwithstanding Richard's kind offer in our phone call this afternoon that the corrections can easily be dealt with after signing, our client has suggested we send you a clean copy for execution.

As I don't have John Connelly's email (or confirmed fax) Richard could you please send the signing copy to him? After execution please fax it to me on fax no. 9263-4111 and we will let you have a copy singed (sic) by our client by return. 24 Mr. Drummond sent a copy of this draft to Mr. Johns, who received it by hand on 21 April 2003 at the Westin Hotel, together with the following letter signed by Mr. Drummond: Attached is heads of agreement for the Mount Street transaction for your signature.

I will catch up with you Wednesday or Thursday to bring you up date with Manly and North Sydney. 25 Thereafter, Mr. Johns and Mr. Drummond met in a coffee shop under the Westin Hotel on 21 April 2003. The substance of Mr. Johns' evidence about this meeting was accepted by the primary judge, and this acceptance is not challenged on appeal. The primary judge said this about that conversation: Mr Johns says that, at the meeting, Mr Drummond complained that Mr Johns was "making this incredibly difficult for me" because, as Mr Drummond saw it, Mr Johns had not been demonstrating any interest to the plaintiffs. Mr Johns said that Mr Drummond asked him "to sign the back of this agreement" which was "only a draft and ... non committal" on the basis that, by so doing, it will demonstrate to Essington that you are interested in continuing negotiations".

Mr Johns says that there was a further discussion in which, among other things, Mr Drummond assured him that "this can be changed at any time" and "is a non committal document ... just a draft" but that by signing it "it is non committal and I can show the document to the Essington Group to demonstrate that there is a level of interest" (emphasis supplied). That, Mr Drummond said, "will assist in furthering negotiations". Mr Johns says that he replied as follows: "I will sign it on one condition. It is only to assist you in further negotiations. You can show the document to the Essington Group but you must not handover [sic] copy, fax or release the document to anyone without my consent. It must remain in your briefcase. I would like the document back at some stage once you are finished with it." (emphasis supplied)

Thereupon, Mr Johns says, he signed the document and handed it to Mr Drummond. He says that, when he handed it over, he reiterated that Mr Drummond was not "to release this document to anyone without my prior approval" and that Mr Drummond assured him that he would not. Finally, Mr Johns says, he pointed out to Mr Drummond that he would not entertain "the deal seriously until I have certainty of cash flow", that without "the money from overseas there simply can't be a deal" and "there is nowhere near enough information or due diligence for me to make a serious consideration of the deal at this point".

Mr Johns did not take any step to communicate to the plaintiffs the limitations that he placed upon the authority of Mr Drummond to deal with the document. Nor did Mr Johns take any step to communicate to the plaintiffs anything that would suggest that Regency did not wish, or was not in a position, whether for want of money, want of information, or for any other reason, to conclude a contract with the plaintiffs "at this point". 26 Although Mr. Johns said that, in this conversation, he was requested to sign "the back of the agreement", in fact he signed it on the last page, in the position designated for execution on behalf of Regency. 27 The document later sent by facsimile to the Essington companies, containing Mr. Johns's signature, had a number of alterations in handwriting, including further changes to the payment schedule, notably the deletion of the payment of $1,000,000.00 on 30 April 2003, and the substitution for that payment of payments of $500,000.00 on 8 May 2003 and $500,000.00 on 25 May 2003. According to Mr. Johns, these alterations were there when he signed the document. According to Mr. Drummond, they were put by him on the document at the time of a telephone conversation with Mr. Johns on 27 April. On this particular matter, the primary judge said that the probabilities favoured Mr. Drummond's version; although on other matters, the primary judge preferred the evidence of Mr. Johns to that of Mr. Drummond where they conflicted. 28 After 21 April, there were a number of conversations between Mr. Edwards and Mr. Drummond, in which Mr. Drummond said that he was in possession of executed Heads of Agreement, but not in a position to release the document. However, on 28 April, the signed document was sent by facsimile to the Essington companies, though not with any covering letter. Mr. Edwards decided to accept the terms of that document, and he initialled and signed the document on behalf of each of the Essington companies, and the document thus signed was sent by facsimile to Mr. Drummond under cover of a letter, which included the following: On behalf of our client Essington Group North Sydney and affiliated companies, we are faxing through to you the amended agreement accepting your changes as contained in your draft faxed through to EGNS this afternoon.

It was this exchange of facsimiles that the Essington companies claimed gave rise to a contract. Regency denied the existence of any contract. 29 Finally, in this history, I note that one piece of evidence not referred to by the primary judge in his judgment, except indirectly in relation to his tentative preference of Mr. Drummond concerning the timing of the handwritten alterations to the Heads of Agreement, was Mr. Drummond's evidence of a phone call on 27 April. That evidence was to the following effect: On or about 27th April 2003 at about 4:51 pm I telephoned Dean Johns at his home on his mobile telephone and said to him in words to the following effect "are you in a position to release the signed document to Essington?" and he replied in words to the following effect "Can we obtain better payment terms?" and I then took up a copy of the original document which he had signed and which I had already prepared and we then proceeded to discuss alterative payment dates and details. I made various notes upon the document and this is one of those document (sic) which I handed to J. Connolly at our meeting on 2nd July 2003. This meeting is referred in paragraph 59 below.

During the telephone conversation referred to in paragraph 47 D. Johns said to me in words to the following effect "is the agreement still subject to due diligence and payment?" and I replied in words to the following effect "Yes" and he then said in words to the following effect "it is okay then to send a copy of it to Essington to show good faith".

The conversation referred to in paragraph 47 above was interrupted at one point and re-commenced about an hour later. During the second part of the conversation the changes I had made to the document were again discussed and I then faxed to D. Johns two pages from the document containing the proposed payment schedule. These pages had on them my amendments which I had discussed with D. Johns and which are referred to in the proceeding paragraphs.

After I had faxed the document referred to in paragraph 49 to D. Johns I again telephoned him to confirm that he had received the fax and to confirm that the revised payment dates were acceptable. He said to me in words to the following effect "I have received it and the dates (sic) okay" and I then notated the document on the left hand margin with the notation "OK" against the revised dates. 30 Mr. Johns agreed there was a phone call at this time, but said that it was only as to his initialling of the handwritten alterations, which he refused to do.

DECISION OF PRIMARY JUDGE 31 The primary judge found Mr. Drummond had no actual authority from Regency to forward the signed Heads of Agreement to the Essington companies, either as a first step in an exchange of contracts, or as an offer capable of acceptance. 32 He rejected the claim based on ostensible authority, giving the following reasons: For the plaintiffs, reliance was placed upon the terms of Mr McWilliam's e-mail to Mr Drummond of 17 April 2003 (see para [36] above), and on the terms of Mr Drummond's letter to Mr Johns of 21 April 2003 (see para [39] above).

It is clear from both those documents that the plaintiffs and Mr Drummond understood that "the document" - i.e., the Heads of Agreement - was to be signed by Mr Johns in the near future. Further, it is clear that Mr McWilliam contemplated that there would "after execution" be an exchange of documents by facsimile. The inference is that Mr McWilliam considered that this process would lead to the formation of a binding agreement on the terms of the signed and exchanged document.

There is no evidence that the terms of the 17 April e-mail were communicated to Mr Johns. It was not put to him that, before, on or after that day, he knew (or approved) of the arrangements that, apparently, Mr Connolly had made. In other words, there is no evidence, and it was not put to Mr Johns, that Mr Johns knew that the plaintiffs were contemplating that his signature on the document would be the first step in an exchange that would happen shortly thereafter, and would lead to the formation of a legally binding contract.

The plaintiffs, in final submissions, placed particular weight in this context on the unexplained absence of Mr Connolly from the witness box. However, on the evidence, the last material event in respect of which Mr Connolly's evidence might have shed light, was the discussion (or series of discussions) leading up to Mr McWilliam's understanding as recorded in his e-mail of 17 April 2003. Having regard to the matters that I have referred to in the preceding paragraph, it does not seem to me that Regency's failure to call Mr Connolly assists materially in the resolution of the issue of ostensible authority.

The other key piece of evidence in this context comes from Mr Edwards. He said, or agreed, that: (1) As at 24 April, it was clear to him that the decision as to whether the executed document would be released was not a decision to be taken by Mr Drummond; (2) He "relied on what Mr Drummond said he could do within his capacity, like any director" although he was aware that Mr Drummond was not a director of Regency; (3) He understood that Mr Drummond could only deal with the executed document in so far as that was in accordance with instructions he received from Regency; (4) It was plain to him that such instructions might never be given; (5) "Mr Drummond had to get his instructions but it wasn't for me to question whether he had instructions or not"; and (6) In the context of the proposition that instructions to release the document might be made subject to conditions, "whatever issues were being dealt within Regency, we would get the document and on receipt of that document it wasn't a question for us once we had the document".

It will be seen that the understanding held by Mr Edwards, in relation to the limited authority of Mr Drummond, post-dated the e-mail of 17 April 2003, but preceded the events of 28 April 2003. Unless there were some change in Mr Edwards' understanding between 24 and 28 April 2003, and, more importantly, unless that change in understanding were engendered by some words or conduct of Regency, the plaintiffs' case based on ostensible authority cannot succeed. By 24 April 2003, Mr Edwards knew (or believed) that the draft Heads of Agreement had been signed on behalf of Regency and that they were held by Mr Drummond. He knew that the decision to "release" the document - i.e., to initiate the process of exchange - was not one for Mr Drummond to make.

The key to Mr Edwards' attitude seems to me to lie in his evidence that it was not for him to question whether or not Mr Drummond had instructions to release the document; by inference Mr Edwards' view was that he was entitled to rely, for proof of Mr Drummond's authority, upon the fact that the document had been released. In context, and in terms of the formulation of Diplock LJ (see para [107] above), that must be reliance on a representation by the (alleged) agent.

There is no evidence of any relevant act or communication on the part of Regency, between 24 and 28 April 2003, that could amount to a representation that Mr Drummond had authority, on 28 April 2003, either to initiate an exchange of contracts, or to make an offer capable of acceptance, in either case so as to lead to the formation of a legally binding contract. All of the events upon which the plaintiffs relied in submissions occurred prior to 24 April 2003. If, as Mr Edwards said, they were not capable of inducing in him a belief that Mr Drummond himself had authority, absent instructions from Regency, to "release" the document, then it is impossible to understand on what he could reasonably (or at all) have relied thereafter to ground such a belief.

In any event, I think that the attitude expressed by Mr Edwards was, in law, incorrect. It is impossible to regard Mr Drummond as an agent of a kind whose usual authority extended to the exchanging of contracts. Indeed, as I have noted, up until the time that he took the signed Heads of Agreement from Mr Johns, he may not have been an agent at all. Mr Edwards knew that Mr Drummond's authority was limited. If, without enquiry, the plaintiffs relied upon him having authority to do that which they knew he needed authority to do, they did so at their peril.

Another way of putting the same conclusion is that, as the cases show, there must have been a representation of authority, and the person to whom the representation is made must have relied upon it. In the present case, what was needed, after 24 April 2003, was some representation from Regency that Mr Drummond was authorised to release the signed Heads of Agreement so as to initiate a process whereby a legally binding contract would be formed. There was nothing on the evidence that occurred after that date upon which Mr Edwards could have (reasonably) relied.

I therefore conclude that the plaintiffs have failed to make out that Mr Drummond was held out as having the requisite authority, or that they relied on any such holding out.

GROUNDS OF APPEAL 33 The Essington companies relied on the following grounds of appeal: 1. The Trial Judge erred in holding (at paragraph 120) that the Second Respondent had no actual authority from the First Respondent to forward the signed Heads of Agreement to the Appellants, either as the first step in an exchange of contracts or as an offer capable of acceptance.

The Trial Judge erred in holding that an embargo on the release of the signed Heads of Agreement for a period of time (such embargo being communicated only by the Second Respondent to Mr. Edwards, the principal of the Appellants) was relevantly a limitation on the authority of the Second Respondent to exchange contracts on behalf of the First Respondent within the principles enunciated by the Privy Council in Russo-Chinese Bank v. Li Yau Sam [1910] AC 174.

The Trial Judge erred in holding that the Appellants were not justified in believing that the Second Respondent had authority to exchange contracts on behalf of the First Respondent and thus to bind the First Respondent in circumstances where the principal and sole Director of the First Respondent, Mr. Johns, had signed the Heads of Agreement and had provided the signed document to the Second Respondent knowing that the Second Respondent was the only person to have been dealing with the Appellants and knowing that the Appellants had been pressing for an exchange at least from 17 April 2003.

The Trial Judge erred in holding (at paragraphs 130 to 132 of the Judgment) that the Second Respondent's authority did not extend to exchanging contracts on behalf of the First Respondent.

The Trial Judge erred in finding (at paragraph 124) that there was no evidence that Mr Johns knew that the Appellants were contemplating that his signature on the document would be the first step leading to an exchange of the Heads of Agreement thereby leading to the formation of a legally binding contract.

The Trial Judge should have held that the Second Respondent had ostensible authority on behalf of the First Respondent to send the signed Heads of Agreement to the Appellants as the first step intended to lead to the formation of a binding legal contract.

SUBMISSIONS 34 Mr. Bannon SC for the appellants submitted first that the primary judge erred, on the question of actual authority, in not considering Mr. Drummond's evidence concerning the telephone call of 27 April. He should have found that Mr. Drummond's act of passing the signed document to the Essington companies was authorised, and that this objectively showed an intention of Regency to make a contract. Why else, Mr. Bannon submitted, would Mr. Drummond have done this, if he was not authorised to do so? Furthermore, Mr. Bannon submitted, Mr. Drummond acted immediately after 28 April consistently with a belief that he did have authority to do what he did. Furthermore, the primary judge rejected the reason advanced by Mr. Drummond for asserting there was no legally binding contract, namely that there would not be such a contract until, among other things, Regency had paid or caused to be paid money into the trust account of the Essington companies' lawyers. 35 As regards ostensible authority, Mr. Bannon submitted that it was shown by the conversation on 21 April that Mr. Johns recognised the significance of Mr. Drummond releasing or sending the signed document to the Essington companies: he recognised that he was arming Mr. Drummond with the power to affect Regency's rights. Mr. Drummond was authorised to hold the executed document, communicate that fact to the Essington companies, show the document to the Essington companies and, with Mr. Johns's consent, release the document to them. Thus, Mr. Drummond had actual authority to represent himself as the authorised holder of the executed agreement and as being the prospective releasor of the document. Accordingly, the actual release of the document was within an apparently authorised class of acts. In addition, Mr. Bannon submitted, Mr. Drummond was authorised to communicate to the Essington companies whether or not he had authority to release, so that a communication on that matter, even if in error, was a communication by Regency. There was no additional act that the Essington companies could have expected from Regency, to convey Mr. Drummond's authority. There was no requirement imposed by Mr. Johns that there be direct communication between the Essington companies and Regency, so Mr. Johns knew that any overt act by way of releasing the document by Mr. Drummond would be the same, whether he had given his consent or not. The primary judge was in error, inter alia, in that he did not address the actual authority given to Mr. Drummond to hold the executed document and to represent that he was the person through whom the document would be delivered.

DECISION 36 On the question of actual authority, it is to be noted that the primary judge generally preferred the evidence of Mr. Edwards to that of Mr. Johns, and preferred the evidence of Mr. Johns to that of Mr. Drummond. He gave cogent reasons for finding that Mr. Drummond was not a reliable witness. Although the primary judge thought that the probabilities favoured Mr. Drummond's evidence that the handwritten alterations to the Heads of Agreement were made on 27 April rather than 21 April, this said nothing about Mr. Drummond's version about other matters in the telephone conversation of 21 April, and it does not support a finding by this Court that the telephone conversation dealt with matters other than the insertion and/or attestation of alterations. Although the primary judge did not directly address the matter, it would seem that he did not accept Mr. Drummond's version of that conversation; so that actual authority could not have been established through that version. 37 I would add that, even on Mr. Drummond's version of the conversation, the conversation did not amount to actual authority to Mr. Drummond to do something which objectively manifested an intention in Regency to make a contract. I accept that a contract could have arisen if Mr. Johns had authorised specific conduct which was such as to manifest an intention to contract; and that this would not have been precluded by the circumstance that both Mr. Drummond and Mr. Johns may have mistakenly believed that this conduct would do no more than show good faith, and that there would be no binding legal relationship unless and until there was due diligence and payment of money. However, on Mr. Drummond's version of the conversation, Mr. Johns did not authorise specific conduct, but at most gave actual authority to send a copy of the document in such a way as to show good faith, and to maintain the position that any terms being negotiated were subject to due diligence and money being paid to the Essington companies' solicitors; and in my opinion, that could not amount to actual authority to make a contract. 38 Mr. Bannon in effect submitted that the Court should infer that there was some unqualified authorisation because of the subsequent conduct and belief of Mr. Drummond. However, particularly having regard to the primary judge's assessment of Mr. Drummond's credibility, this is not a sound basis for inferring actual authority. The primary judge did not draw any inference of actual authorisation, and I would not do so. 39 Turning to ostensible authority, the relevant principles are stated as follows by Diplock LJ in Freeman & Lockyer v. Brockhurst Park Properties (Mangal) Ltd. [1964] 2 QB 480 at 503-4: An "apparent" or "ostensible" authority, on the other hand, is a legal relationship between the principal and the contractor by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter contract. …

The representation which creates "apparent" authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually "actual" authority to enter into. 40 This statement has been endorsed by the High Court of Australia: Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising and Addressing Co. Pty. Ltd. (1975) 133 CLR 72 at 78; Northside Developments Pty. Ltd. v. Registrar-General (1990) 170 CLR 146 at 159 and 172. And see also Pacific Carriers Ltd. v. BNP Paribas (2004) 78 ALJR 1045 at [36]-[38]. 41 There is also a useful statement of the basic principle is stated as follows in Bowstead & Reynolds On Agency (17th Ed), Article 74: Where a person, by words or conduct, represents or permits it to be [represented] that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the face of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority. 42 In para.8-018, Bowstead & Reynolds suggest that there are two types of cases. First, "where there is something that can be said to be a genuine representation (orally, in writing, by course of dealing or by allowing the agent to act in certain ways, eg entrusting him with the conduct of particular negotiations or allowing him to run a business that appears to be the principal's business) by the principal of the agent's authority, on which the third party relies". Second, "where the representation is only of a very general nature, and arises only from the principal's putting the agent in a specific position carrying with it a usual authority". The present case plainly does not fall within the second type of case, exemplified by Freeman & Lockyer itself. It must fall within the first type of case, if it is to amount to a case of ostensible authority. 43 Accordingly, the following statement by Lord Keith of Kinkel in Armagas Ltd. v. Mundogas SA [1986] AC 717 at 777 is pertinent: Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and the party dealing with the agent has entered into a contract with him in reliance on that representation. The principal in these circumstances is estopped from denying that actual authority existed. In the commonly encountered case, the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question. Ostensible general authority may also arise where the agent has had a course of dealing with a particular contractor and the principal has acquiesced in this course of dealing and honoured transactions arising out of it.

It is possible to envisage circumstances which might give rise to a case of ostensible specific authority to enter into a particular transaction, but such cases must be very rare and unusual. Ex hypothesi the contractor knows that the agent has no general authority to enter into the transaction, as was the position here. The principal might conceivably inform the contractor that, in relation to a transaction which to the contractor's knowledge required the specific approval of the principal, he could rely on the agent to enter into the transaction only if such approval had been given. In such a situation, if the agent entered into the transaction without approval, the principal might be estopped from denying that it had been given. But it is very difficult to envisage circumstances in which the estoppel could arise from conduct only in relation to a one-off transaction such as this one was. 44 It is to be noted that the representation of authority must either be made, or at least be permitted to be made, by the principal. In the present case, all the relevant representations were made by the agent, so that the real question is whether they were themselves authorised by the principal and so made by the principal, or were relevantly "permitted" to be made by the principal. Bowstead & Reynolds do not enter into a discussion of what can amount to permitting a representation to be made. However, Bowstead & Reynolds do note a representation may be made by permitting an agent to act in some way in the conduct of the principal's business with other persons, and also by entrusting the agent with the indicia of ownership of property: see para.8-017. The present case was not one in which the agent was entrusted with the indicia of ownership of property, but rather where the agent was entrusted with a signed contractual document; but there is arguably an analogy between these two situations. 45 In my opinion, one circumstance in which it may be said that representations are permitted to be made is where a principal knows that an agent engaged on the principal's behalf is making representations as to the agent's authority, is able to prevent such representations being made or countermand them, but does not do so. There is arguably, in these circumstances, something like a representation by silence: the circumstances call for some action by the principal to ensure that persons are not misled by the agent, and the principal does not take that action. 46 That does not appear to be the principle operating in cases where a principal has "armed" someone with the indicia of title, or, as in this case, the indicia of contractual intention. Although this was not spelt out in argument before this Court, in my opinion the principle in these cases is that the principal has created a substantial risk that other persons may be misled if the person entrusted with the relevant document does something unauthorised with that document. If the principal has acted unreasonably in creating the risk and/or allowing it to continue, then it may be found that the principal has "permitted" a representation to be made on the basis of the document in question. Although I have not found any cases where that principle has been stated in circumstances such as the present, a similar principle has been stated other circumstances. 47 For example, in Heid v. Reliance Finance Corporation Pty. Limited (1983) 154 CLR 326, at 337-8, Gibbs CJ said this: The appellant gave the receipted memorandum of transfer and the certificate of title to an employee of the purchaser believing that he was a solicitor and trusting him to deal honestly and fairly with the documents entrusted to him. The appellant trusted Gibby because he trusted McKay. The case is indistinguishable from any other in which an unpaid vendor trustingly puts a purchaser in a position to represent himself as absolutely entitled to the land in law and in equity. It was imprudent of the appellant to have accepted, without further inquiry, the statements by McKay and Gibby that the latter was a solicitor. However, even if Gibby was a solicitor, there is no proof of any custom whereby a vendor delivers to a solicitor employed by the purchaser, but acting for the vendor as well, a receipted memorandum of transfer before payment of the purchase price has been received, and judicial notice cannot be taken of the existence of any such custom. If, contrary to my opinion, the appellant acted reasonably in accepting without inquiry that Gibby was a solicitor, his knowledge that Gibby was an employee of Newman, McKay & Company meant that in giving the documents of title to Gibby he failed in his duty to those persons into whose hands the documents might subsequently come to take care that they would not be misled by them. If it is necessary to find a breach of a duty of that kind before an estoppel comes into existence, the breach occurred when the vendor delivered the indicia of title to the purchaser or his servant or agent notwithstanding that he had not received the purchase price. The present case falls squarely within the principle 48 In a somewhat different context, in Gallie v. Lee [1971] AC 1004 at 1027, Lord Wilberforce said this: In my opinion, correct rule … is that, leaving aside negotiable instruments to which special rules may apply, a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor. I would add that the onus of proof in this matter rests on him, ie, to prove that he acted carefully, and not upon the third party to prove the contrary. 49 In the present case, whether or not there was actual authorisation of Mr. Drummond to make the following three representations, so that these representations were actually "made" by Mr. Johns, it is plain that Mr. Johns at least knowingly permitted the following representations to be made by Mr. Drummond: (1) that Mr. Drummond was negotiating terms of a possible agreement on Mr. Johns's and Regency's behalf; (2) that Mr. Johns had signed Heads of Agreement, in the place appropriate for execution of the Heads of Agreement by Regency; and (3) that this document was in the possession of Mr. Drummond. 50 However, it is also plain that Mr. Johns did not either make, or knowingly permit Mr. Drummond to make, either of the following representations: (4) that the document, or a copy of it, could be released to the Essington companies with contractual effect; or (5) that (a) the document or a copy of it could be released to the Essington companies with contractual effect, if and when Regency gave consent for this to happen; and (b) that such consent had in fact been given.

In my opinion, the question then is, did Mr. Johns nevertheless "permit" Mr. Drummond to make these representations on behalf of himself and Regency, because he unreasonably created the risk that these representations would be made on his behalf and on Regency's behalf. 51 On the findings of the primary judge, representation (4) was not in fact made by Mr. Drummond, in those terms; but rather what Mr. Drummond did amounted to a combination of representations 5(a) and 5(b). Furthermore, it is clear that the version of 5(a) and 5(b) that must be relied on by the appellants is the version that relates to a copy of the document, not to the original; because it was only a copy that was released. 52 In my opinion, Mr. Johns did not permit representations 5(a) and 5(b) to be made, particularly in the version referring to a copy. 53 In my opinion, the risk that an original will be misused so as to mislead third parties is a substantial risk, and is a risk which in many cases would be an unreasonable risk that could give rise to a finding that this misuse amounted to a representation permitted by the signer of the document. However, the risk that a copy would be misused so as to mislead other people is a much lesser risk, because the possession and use of mere copies does not suggest authority in the same way as does possession and use of originals, and copies are very readily made, and made available, to various people, and they are also readily falsified. Furthermore, in my opinion the representation in 5(b) is not one sufficiently within the ambit of any risk created by the entrusting of the original document to Mr. Drummond. 54 There is another factor which in my opinion makes it even more difficult to make a finding that the representations (4) and/or (5) were in this case permitted. The document in question was not executed as one would expect it to be, where there is a formal document providing for formal execution, but with handwritten alterations. In such a case, one would expect the handwritten alterations to be authenticated in some way, and they were not in this case. 55 It is true, as submitted by Mr. Bannon in response to a memorandum from the Court, that the focus of judicial discussions concerning the arming of another with indicia of title, or other signed documents, is on the conduct of the arming party; and that in this case Mr. Johns did arm Mr. Drummond with an original signed document. But in my opinion that does not answer the problem that what Mr. Edwards relied on was the release of a copy, with the additional problems referred to in the previous paragraph. 56 It is true also that the primary judge accepted Mr. Edwards' evidence that Mr. Drummond said to him "We are all big enough and experienced enough to exchange by fax"; and held that the facsimile exchanges manifested an intention to contract. But this is not enough to bind Mr. Johns or Regency, to the extent of making reliance on receipt of a copy equivalent to reliance on receipt of an original signed document. Although it was true that Mr. Drummond had an original signed document, Mr. Edwards only had Mr. Drummond's word for this; and he only ever saw or received a copy. So it was Mr. Drummond's word he relied on, not the actual original document provided to Mr. Drummond. This was not within the risk created by Mr. Johns giving the original to Mr. Drummond, so as to fix Mr. Johns with the relevant representation of authority. 57 For those reasons, in my opinion a case of ostensible authority was not made out, and the conclusion reached by the primary judge was correct. 58 In my opinion, the following orders should be made: 1. Appeal dismissed with costs. 2. Cross-appeal dismissed. 59 McCOLL JA: I have read Hodgson JA's judgment. I do not agree with his Honour's conclusion. My reasons can be expressed shortly. 60 The facts are set out fully in Hodgson JA's judgment. I shall not repeat them except insofar as is necessary to make my own views clear. 61 Mr Johns signed an original of the Heads of Agreement. He did not qualify his signature on that original document. He did, on the primary judge's findings, hand it to Mr Drummond with instructions limiting the use to which Mr Drummond could put it: he could use it "to assist [Mr Drummond] in further negotiations" and he could "show the document to the Essington Group" but he must not "handover [sic] copy, fax or release the document to anyone without my consent". 62 These were undoubtedly significant qualifications. None were communicated to the appellant. To all intents and purposes, Mr Johns "armed" Mr Drummond with the document critical to perfecting a contractual relationship with the appellants. He created a substantial risk that other persons may be misled if Mr Drummond did something unauthorised with the executed document. 63 As the primary judge concluded (at [140]) "… [T]he intention of the parties, viewed objectively, was to enter into a legally binding contract. It is very difficult to see what else could have been intended to have been achieved by the actions they took". 64 The primary judge rejected the appellants' case based on ostensible authority on the basis (at [131]) that Regency had not itself represented that Mr Drummond was authorised to release the signed Heads of Agreement so as to initiate a process whereby a legally binding contract would be formed. In his Honour's view (at [130]) "[i]f, without enquiry, [Essington] relied upon [Mr Drummond] having authority to do that which they knew he needed authority to do, they did so at their peril." In my view his Honour erred in this respect. 65 In order to decide whether Regency held Mr Drummond out as having ostensible authority to release the Heads of Agreement it was necessary to consider Regency's conduct as a whole: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 78 ALJR 1045 at [36]. 66 Hodgson JA has set out at [49] the representations he says Mr Johns "knowingly permitted" Mr Drummond to make. The point at which he and I part company is that, in my view, Mr Johns also permitted Mr Drummond to make the representations that (a) the document or a copy of it could be released to the Essington companies with contractual effect, if and when Regency gave consent for this to happen; and (b) that such consent had in fact been given. 67 In my view Regency made those representations when Mr Johns handed the executed original to Mr Drummond without qualifying his signature in any manner. By providing Mr Drummond with the signed original, Regency permitted him to publish it to the respondent, without taking what, in my view, would have been "proper safeguards against misrepresentation": Pacific Carriers Ltd v BNP Paribas, above, at [38]. 68 The minimum safeguards Regency should have taken to limit the use which could have been made of the signed original was to place on that document the conditions upon which Mr Johns had hitherto insisted: namely that Regency's execution of the Heads of Agreement was subject to finance and to due diligence. 69 It is true that the "final" representation, that the Heads of Agreement or a copy could be released as evidence of Regency's contractual intention, was, in one sense, made by Mr Drummond in actually releasing the document. But that representation was effectively made by Regency which, by Mr Johns' conduct, put Mr Drummond in the position from which Essington could infer that his actual representation of authority to release the executed Heads of Agreement was correct: see Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 at 78.

70 In my view, the fact that Essington received a facsimile of the executed Heads of Agreement rather than the original document is of no moment. As Hodgson JA has said, the risk that the original would be misused so as to mislead third parties was a substantial one. The fact that one aspect of the misuse involved transmitting the document by facsimile was a foreseeable consequence of arming Mr Drummond with the original. 71 It must be recalled that ostensible authority is based in estoppel: Northside Developments Pty Ltd v Registrar-General and Others (1990) 170 CLR 146 at 200 per Dawson J, at 211 - 212 per Gaudron J; referred to with approval in Pacific Carriers Ltd v BNP Paribas, above, at [38]. 72 The appellants' reliance upon the receipt of the facsimile version of the original executed Heads of Agreement was based upon their dealings with Mr Drummond who Regency had expressly represented was authorised to negotiate on its behalf. At the critical point, Regency represented by its unqualified execution of the Heads of Agreement that it intended to enter into contractual relations with Essington. Regency acted imprudently, when care was required. Its imprudence was a proximate cause of Essington adopting and acting on the fact of the assumption that the document represented Regency's intention. Rather than it being a matter of the appellants acting at their peril, it was Regency's perilous conduct which leads, in my view, to the conclusion that it entered into a binding contract with the appellants. 73 As to the handwritten alterations, I note that an unchallenged finding of the trial judge (at [138]) was that neither the handwritten alterations, nor the manner of execution of the Heads of Agreement by Regency, precluded a binding contract being concluded as: "In my opinion, on the hypothesis that Mr Drummond was acting within authority (actual or ostensible), the proper conclusion would be that a contract was concluded, at the latest, when Mr Drummond received by facsimile transmission a copy of that which he had sent to the plaintiffs, signed on behalf of the plaintiffs and with the amendments initialled by the signatory." 74 As the appellants submit, the alterations themselves were not of great moment and, in any event, all favoured the respondent. As appears from the trial judge's analysis of the alterations at [48] - [49] the alterations: (1) effected an adjustment to the payment schedule; and (2) provided that a reference to "24 April 2003" was deleted so that instead of requiring payment into Gilbert + Tobin's trust account by 24 April 2003, the Heads required the relevant payments to be paid on or prior to "the date specified". The logic of initialling alterations is to avoid a suggestion that they were not agreed to by the executing party. In the circumstances it was not likely that Regency would disown these alterations.

Orders 75 I would make the following orders: (1) Appeal allowed. (2) That the Judgment and Orders of this Court given and made on 30 October 2003 against the appellants be set aside. In lieu thereof, order that each of the preliminary questions set out in paragraph 6 of the judgment be answered, respectively, "yes", namely in favour of the appellants; (3) That the first respondent pay the appellants' costs of the proceedings to date. (4) Remit the proceedings for further hearing on the issue of damages. (5) Respondent to pay the appellants' costs of the appeal. **********

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