FAIRWORLD HOLDINGS PTY LTD -v- BURRUP FERTILISERS PTY LTD (Receivers and Managers Appointed) [No 3] [2012] WASC 190 (8 June 2012)

At a meeting on Tuesday 23 March 2010 attended by Mr Peter Belcastro, Mr Nick D'Ercole and Mr Walter Zorzi (on behalf of the plaintiff), and the second defendant and Mr Lindsay Allen (Mr Allen) (on behalf of the first second and third defendants) (Meeting), the second defendant said in substance that the first, second and third defendants wished to compromise the 2009 Proceedings on the basis set out in paragraphs 21.1 to 21.4 above. Mr Belcastro on behalf of the plaintiff said in substance the plaintiff agreed to compromise the Main Proceedings on that basis.

3 None of the defendants disputes that the meeting took place.

4 The plaintiff alleges that at the meeting the second defendant acted as agent for both the first defendant and the third defendant. The plea regarding the third defendant is not in issue in this application.

5 In May 2011, I heard applications by the second and third defendants to strike out, in part, the statement of claim. Relevantly, on the second defendant's application, parts of pars 24 and 25 of the statement of claim were struck out.

6 On 23 March 2012, the plaintiff filed a further reamended statement of claim. The plaintiff maintains its allegation that at the meeting on 23 March 2010, the second defendant made an agreement with the plaintiff to compromise the 2009 proceedings and that he did so also on behalf of the first defendant.

1. At all material times, the Board of Directors of the first defendant comprised:

24.1 the second defendant who acted as a full time Executive Director and who held the position of Managing Director and Chairman of the Board of Directors by virtue of inter alia his personal shareholding in the first defendant and the majority shareholding in the first defendant held by Burrup Holdings Pty Ltd, [the] company of which he and the third defendant held a combined majority shareholding;

24.2 Mr Tor Holla (Holla) who at all material times resided in Oslo, Norway, and who held his position as a NonExecutive Director by virtue of inter alia the majority shareholding in the first defendant held by Burrup Holdings Pty Ltd of which at all material times Holla was also a Director;

24.3 Mr Vinojit Ambalavaner (Ambalavaner) who held his position as a NonExecutive Director of the first defendant by virtue of inter alia the fact he was an employee of the first defendant and a business associate of the second defendant and who it is understood to have acted at all times in accordance with the directions of the second defendant.

1. Due to a combination of the following material facts:

25.1 Holla did not reside in Australia;

25.2 Ambalavaner was an employee of the first defendant with no shareholding in the first defendant either directly or indirectly and was dependent for his income on [a] salary paid by the first defendant;

25.3 the second defendant and third defendant held the controlling interest in the first defendant by virtue of their combined majority shareholding in Burrup Holdings Pty Ltd;

25.4 the second defendant through his private companies had loaned significant sums of money to the first defendant exceeding US $400 million to the first defendant to fund cost overruns in the construction of its plant located on the Burrup Peninsula;

25.5 the second defendant provided personal guarantees for the financial obligations of the first defendant to third parties;

25.6 the second defendant was the fulltime Executive Director of the first defendant;

the second defendant was in fact responsible for overseeing the day to day and ongoing business operations of the first defendant and had the authority of the board of directors to make decisions on behalf of the directors of the first defendant to do all things necessary and incidental thereto including discharging actual liabilities or potential liabilities of the first defendant and he did so from time to time.

1. The purpose of the Meeting was for all parties to the proceedings to attempt to resolve the 2009 proceedings. By virtue of the matters set out at paragraphs 24 and 25 above, and the second defendant's attendance at the meeting without Holla or Ambalavaner, the plaintiff was entitled to assume, and in fact did assume, that the second defendant had the authority of the first defendant to compromise the 2009 proceedings on the first defendant's behalf on such terms as he deemed appropriate pursuant to an express agency.

The express agency arose because of the matters set out in paragraphs 24 and 25 above.

1. Additionally, and taking into consideration the matters set out in paragraphs 24, 25 and 26, as the purpose of the Meeting was to attempt to resolve the 2009 proceedings and the second defendant had attended the meeting without Holla or Ambalavaner the plaintiff was entitled to rely on sections 129(3)(b) and 129(4) of the Corporations Act in that in the particular circumstances, given the intention of the Meeting was to attempt to resolve the 2009 proceedings, negotiating with the plaintiff in the manner the second defendant did (and ultimately reaching an agreement) would be a duty customarily exercised or performed by a company director.

8 In its reamended defence, filed 26 April 2012, the first defendant admits:

1. the second defendant was at all material times the managing director and chairman of the board of directors;
2. the second defendant and third defendant directly or indirectly owned a majority of shares in Burrup Holdings, the holding company of the first defendant;

1. Mr Holba (the name is corrected) was a director of Burrup Holdings and the first defendant;

1. Mr Ambalavaner was a director of the first defendant;
2. Mr Holba did not reside in Australia;
3. Mr Ambalavaner was an employee of the first defendant with no shareholding in it.

9 The first defendant otherwise does not admit or denies the matters in par 24 and par 25. In its plea to pars 25.4, 25.5, 26 and 27, the first defendant pleads that it does not admit those paragraphs 'on the basis that those allegations are embarrassing and capable of being struck out'.

10 The first defendant applies to strike out pars 25.4, 25.5, 26 and 27. Before dealing with the first defendant's arguments, it is convenient to turn to the submissions made on behalf of the plaintiff. In its written submissions, the plaintiff says that the pleading in pars 24 and 25 'is plainly a plea of actual authority', and that par 26 pleads the conduct of the second defendant to be pursuant 'to an express agency'. Counsel for the plaintiff at the hearing expressly disavowed a plea of ostensible authority.

11 The distinction between actual and apparent authority was summarised by McLure JA in Durban Roodepoort Deep, Ltd v Newshore Nominees Pty Ltd [2005] WASCA 231 where her Honour said:

Actual authority and apparent authority are independent, although generally they coexist and coincide but either may exist without the other. Actual authority is a legal relationship between the principal and agent. Apparent authority, on the other hand, is a legal relationship between the principal and the third party created by representation, made by the principal to the third party, intended to be acted upon by the third party, that the agent has authority to enter on behalf of the principal into a contract of the kind within the scope of the apparent authority, so as to render the principal liable under the contract [58].

12 In both cases, it is necessary to look to the conduct of the principal to see whether it has either conferred authority on the agent, or represented that it has: see Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [36].

13 The actual authority of a director to bind the company may be express or implied. See Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50:

Actual authority arises where a principal grants, and an agent accepts, authority for the agent to perform specific tasks on behalf of the principal in short there must be a consensual agreement between the principal and agent. Notwithstanding the absence of an express agreement, the parties, that is, the principal and agent, may conduct themselves in such a way that it is proper to infer that the relevant authority has been conferred on the agent.

Accordingly, where the question is whether the agent has implied authority to act in a particular way the court directs its attention to the conduct of the parties in order to decide whether the inference of authority should be drawn (132).

See also Tiao v Lai [No 2] [2010] WASCA 189 [104] [105] (Buss JA, Owen & Murphy JJA agreeing); Junker v Hepburn [2010] NSWSC 88 [41] [45] (Hammerschlag J).

14 In Ford's Principles of Corporations Law, the learned authors state at [13.030]

Where a person who has not been appointed agent nevertheless assumes to act as agent for a principal and over a period the principal, knowing what is going on, acquiesces in the 'agent' continuing to act for the principal in new transactions, the conduct of the principal gives authority for the new transactions by implication. The authority so given can amount to actual authority, at least where the question is between the principal and the third person.

15 Where the principal is a company, regard must also be had to the particular rules of company law, including the provisions of the Corporations Act 2001 (Cth) regarding the assumptions that a person is entitled to make when dealing with a company. The plaintiff relies on those assumptions in its plea in par 27.

16 The first defendant does not apply to strike out the plea that the second defendant was in fact responsible for overseeing the day to day ongoing business operations and had the authority of the board of directors to make decisions on behalf of the directors of the first defendant. Its objection is confined to the two subparagraphs.

17 There are two aspects to the first defendant's objection: first, that the facts pleaded in those paragraphs are not relevant to the claim of actual authority; second, they would introduce a substantial discovery burden and significantly broaden the scope of the issues on which the court would be required to rule at trial.

18 The question in this application is whether it is arguable that the matters identified in pars 25.4 and 25.5 support a finding of implied actual authority.

19 Paragraph 25 is properly read as a plea of actual authority (and the plaintiff has confirmed that is its case). The plaintiff may prove that the first defendant expressly authorised the second defendant to enter into particular transactions on its behalf, although it has not pleaded any provision of the company's constitution, or any act such as a resolution of the board of directors. The plaintiff may also prove acts by the first defendant from which that authority would, objectively, be implied. The issue in this application arises because the actual authority is said to be due to a combination of the facts set out in pars 25.1 to 25.6.

20 Neither par 25.4 nor par 25.5 directly alleges that the first defendant had previously incurred liability by acting through the second defendant. The plea that the second defendant lent significant sums to the first defendant by funding cost overruns is, however, relatively open-ended. In particular, it may permit the plaintiff to lead evidence that the second defendant incurred liabilities on behalf of the first defendant and used his own funds (or those of his private companies) to pay those liabilities, with the first defendant accepting that he had its authority to do so. Paragraph 25.4 cannot be read in isolation from the other (admitted) allegations that the second defendant was one of three directors of a proprietary company and was the managing director and chairman of the board, or from the allegation (not admitted) that he did from time to time discharge actual or potential liabilities of the first defendant. I am not satisfied that the pleaded facts are so unconnected to proof of an allegation of implied actual authority that the plea should be struck out.

21 The first defendant referred also to the potential burden of discovery and to the fact that the allegation in par 25.4 is hotly contested both in these proceedings and in proceedings in the Federal Court between the first defendant and the second defendant. Further, the first defendant referred to comments of McKerracher J in the Federal Court, in his judgment on an application for security for costs, that there was a 'complete absence of any reference to anything remotely resembling [the second defendant's] claim in the official and formal documents' of the first defendant, and no explanation from the second defendant for the absence of any record: see Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal (No 3) [2011] FCA 1502 [27]. Those are not considerations that I can take into account on this application. I should determine the application to strike out accepting that the facts alleged are true: Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986).

22 I am required under the rules of court to construe and apply the processes and procedures as the court so as best to ensure the attainment of the objects set out in O 1 r 4B(1) of the Rules of the Supreme Court 1975 (WA). That requirement applies also, in my opinion, to the decision on this application. But one of the objects is to promote the just determination of litigation. The rule that a pleading should only be struck out in a clear case is not displaced by case management considerations. The continued relevance of the considerations set out in Kimberley Downs was confirmed in Neilson v City of Swan [2006] WASCA 94 [18] (Buss JA, Wheeler & Pullin JJA agreeing).

23 Paragraph 25.5 is more difficult to support. Counsel for the plaintiff relied, in particular, on the comments of Diplock LJ in Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480:

An 'actual' authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties (502).

24 The plaintiff submits that the matter alleged in par 25.5 is part of the course of business between the first defendant and the second defendant. That may be so, but the inference which must ultimately be drawn is that the first defendant authorised the second defendant to act on its behalf and with the capacity to affect its legal relationships: see, for example, International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16; (1958) 100 CLR 644, 652. There must be some logical basis to draw the inference of authority from the facts asserted. I am not satisfied that the allegation in par 25.5, even arguably, can support the drawing of that inference from all of the facts pleaded.

26 A pleading may be embarrassing where it contains inconsistent allegations or alternatives that are confusingly intermixed: Shelton v National Roads & Motorists Association Ltd [2004] FCA 1393 [18]. Paragraph 26 is confusing. It refers on two occasions to an express agency while also pleading that the plaintiff 'was entitled to assume, and in fact did assume, that the second defendant had the authority of the first defendant'. The plaintiff denies that par 26 is intended to plead an ostensible authority. If the plaintiff relies solely on express authority, the allegation regarding its assumption of actual authority is otiose.

28 Paragraph 27 is pleaded to be additional to par 25. The plaintiff pleads s 129(3)(b) and s 129(4) of the Corporations Act. The first defendant challenges this plea also on the basis that it is inconsistent with the plaintiff's case that the second defendant had actual authority to make the agreement, and the plaintiff's stated position that it does not rely on apparent authority.

29 But in its reliance on the assumptions in s 129, par 27 is not a plea of apparent authority. Section 129 does not require a representation, made by the company to the third party, and intended to be acted upon by the third party, that the agent has authority on behalf of the company to enter into a contract of that kind. The section is not concerned with a representation as to the scope of the officer's or agent's authority. It does not, in its terms, require that the person making the assumption knew of the holding out, or relied on it, at the time of the dealings. The section is directed to the kind of company, the nature of the purported office or agency, and the powers customarily exercised by that kind of officer or agent: see Dr Andrew RobertsSzudzinski Pty Ltd v .au Domain Administration Ltd [2006] NSWSC 950 [27] [28] (Barrett J); and see Ford's Principles of Corporations Law [13.390].

30 Paragraph 27, as pleaded, is not strictly in terms of s 129. The references to the particular circumstances, and to the intention of the meeting, do not reflect the content of the section. But that is not a sufficient reason to strike it out. Nor is this the occasion to comment on the questions of fact raised by the plea. I simply note that the current form of par 27 does not accurately identify the factual issues that will need to be determined.

31 The first defendant also argued that, should the challenged paragraphs be struck out, the plaintiff should not be given leave to replead or should be first required to file a minute of any proposed amended plea. It is not necessary to determine this issue, due to the limited extent to which I would allow the application. But I am not satisfied that the stage has been reached where the considerations of case management should preclude the plaintiff from remedying its pleading in the ordinary way.

32 In my opinion, par 25.5 and par 26 should be struck out. To the extent that the plaintiff wishes to remedy any defects in the statement of claim that may have been identified in the course of argument, I see no reason why the provisions of O 21 should not apply.