Junker v Hepburn

Junker v Hepburn - [2010] NSWSC 88 - NSWSC 2010 case summary — Zoe

4 On 25 June 2004, the plaintiffs entered into a Deed of Loan ("the Deed of Loan") with Hepler under which they agreed to lend to Hepler $200,000 repayable on 25 August 2004 at an interest rate of four per cent per month (or 48 per cent per annum) or eight per cent per month (or 96 per cent per annum) in the event of default. 5 The Deed of Loan was signed by the first defendant under the following execution notation: "Signed by Hepler Pty Limited ACN 105 964 234 in accordance with S127 of the Corporations Act 2001 in the presence of: - " 6 His signature was attested by the second defendant, as witness. The common seal was not affixed. 7 On the same day, the defendants executed a Deed of Guarantee and Indemnity ("the Guarantee") under which they guaranteed to the plaintiffs Hepler's obligations under the Deed of Loan. 8 The Guarantee defines the first and second defendants as "the guarantor". Clause 1 of the Guarantee provides as follows: "In consideration of the Loan Agreement and these presents the guarantor agrees that they unconditionally and irrevocably guarantee to the lender the performance of the Loan Agreement by Hepler Pty Limited." 9 Simultaneously, Hepler executed in favour of the plaintiffs as security for its obligations, a second mortgage over the properties at Pidcock Street. Hepler executed an authority to complete and date the mortgage and a certificate acknowledging that it had declined to obtain legal and financial advice. The mortgage, authority to complete and certificate were each signed on behalf of Hepler by the first defendant as director and the second defendant as director/secretary. The first defendant also signed a statutory declaration as a director of Hepler declaring certain facts. 10 The Deed of Loan recited that: "[t]he Lender has agreed to lend to the Borrower the sum of two hundred thousand dollars ($200,000.00) (the "Principal Sum") the receipt of which the Borrower acknowledges subject to and on the following terms and conditions". 11 Notwithstanding this acknowledgement, at the time the Deed of Loan was executed, Hepler had not received the loan monies. 12 In fact, later that day a written direction as to how the loan monies were to be advanced was given to the plaintiffs. The direction was signed by the first defendant on behalf of Hepler. It was in the following terms: DIRECTION TO PAY TO: Martin Junker and Irene Bondarew SECURITY: 34-44 Pidcock Street, Camperdown NSW You are directed to draw the advance of $200,000.00 in favour of: Office of State Revenue $ 741.00 Summit Law $ 1228.60 Martin Junker & Irene Bondarew (fee for transferring funds) $ 25.00 Balance National Australia Bank Limited $ 198,005.40 $ Balance TOTAL: $ 200,000.00

[16]

43 An implied grant of actual authority can result from acquiescence in the course of behaviour by persons who have actual authority to delegate. For example, if directors as a board stand by whilst a single director enters into transactions outside his or her authority, the board's acquiescence in that course of dealing can constitute the grant, by implication, of actual authority to enter into those transactions. 44 In Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 134, Clarke JA and Cripps JA said in relation to implied actual authority: A recent example of the application of the principle in Australia is to be found in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, where (at 360-361) the Appeal Division of the Supreme Court of Victoria applied Hely-Hutchinson v Brayhead Ltd . In the joint judgment there was a finding of implied actual authority in relation to one Goldberg to manage the business and to hold out a person as secretary who was in fact not the secretary. The facts and circumstances there relied upon to justify such a finding included the following: Goldberg had actual control over the group of companies and invariably asserted control over each of the companies in the group; Goldberg was known as the alter ego of group companies; Goldberg made decisions for the group companies; there was no evidence that he found it necessary to refer to any board to seek approval for the course of action he proposed; the boards in question had never previously attempted to interfere with his action; Goldberg had obtained board approval of transactions to which he had already committed Brick and Pipe without first seeking authorisation from the board; and that individual directors in evidence confirmed the acquiescence of board members in the activity of Goldberg which culminated in completed transactions for which the board gave no prior approval. One final and, perhaps, decisive element in the scope of the authority the court was prepared to find vested in Goldberg, was that: "… in most, if not all, cases, the transactions committed assets of Brick and Pipe or its subsidiaries as security for borrowings by other Goldberg companies". Whether authority is to be implied and, if so, the scope of the authority implied is, in our view, to be found in a close analysis of the evidence before the court which is relied upon to support the implication of actual authority. 45 The authors of Company Directors: Principles of Law and Corporate Governance (2005), LexisNexis Butterworths at par 3.41, citing Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 opine that to confer implied actual authority there would have to be not only the acquiescence of the individual board members but evidence of communication by word or conduct of their respective consents to one another and to the agent. 46 Apparent or ostensible authority is conferred where a principal represents that another has authority. The principal will be bound as against a third party by the acts of that other person within the authority which that person appears to have, though the principal had not in fact given that person such authority or had limited the authority by instructions not made known to the third party: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 466; Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell par 3-005. 47 Ostensible authority often coincides with, but sometimes exceeds, actual authority. For instance, when a board appoints a managing director, they may expressly limit his authority, but his ostensible authority will include all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583 per Lord Denning M.R. 48 An ordinary individual director of a company does not have ostensible authority to bind it. Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205. 49 Section 127(1) of the Act provides as follows: A company may execute a document without using a common seal if the document is signed by: (a) 2 directors of the company; or (b) a director and a company secretary of the company; or (c) for a proprietary company that has a sole director who is also the sole company secretary - that director.

[22]

62 There is no challenge to the first defendant's authority to have concluded the extension agreement on Hepler's behalf. To the contrary, the second defendant formally admits that the plaintiffs and Hepler concluded it. The first defendant, the only other director, entered into it on Hepler's behalf. He does not challenge his own authority. 63 The existence and acceptance of this agreement is irreconcilable with the second defendant's stance that the first defendant had no authority to give the direction to pay. The underlying purpose of the extension agreement was to give Hepler additional time to pay the monies which had been advanced under the Deed of Loan. The contention that the bulk of the advance had not been made (because the direction to pay was partially without authority) cannot stand with the existence of a binding agreement between Hepler and the plaintiffs that that very advance could be repaid later than the Loan Agreement provided. 64 The existence of the extension agreement brings with it the necessary implication that the first defendant had implied actual authority to bring about the advance by giving the direction to pay in its entirety. 65 Beyond this, the evidence establishes that Hepler made a series of payments to the plaintiffs. Though the formal admission by the second defendant that these payments were made in reduction of the principal debt and interest in accordance with the Deed of Loan was withdrawn, the admission that they were paid still stands. The payments are explicable only as repayments of the loan. 66 There is no direct evidence of knowledge or participation by the second defendant in the making of these payments. The second defendant gave no evidence concerning her state of knowledge (or ignorance). 67 The second defendant, having not given evidence, it may be inferred that her evidence would not have assisted her: Jones v Dunkel (1959) 101 CLR 298. 68 Given that the second defendant had the power to produce evidence of her knowledge (or absence of it) and did not do so, very little will be enough to enable a finding that she knew and acquiesced in the payments: Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371 per Dixon CJ.

[26]

a the 21 June 2004 proposal on Hepler's letterhead which, they put, held out that the first defendant was "the director of Hepler to meet with the plaintiffs and explain the funding proposal"; b the 25 June 2004 letter which, they put, held out that the first defendant was "the director of Hepler to arrange for due execution by Hepler and deliver back" to the plaintiff's solicitors the documents listed in it; c the second defendant's admission of paragraph 8 of the third Amended Summons of the payments which Hepler made; and d the acceptance by the second defendant that "at least some" of the payments under direction to pay were "valid dispersal of the loan monies". 74 The 21 June 2004 proposal went no further, in my view, than to hold out that it was within the first defendant's authority to put the proposal. Even as particularised, the holding out was no more than that the first defendant had authority to meet with the plaintiffs and explain it. Additionally, the Primary Application and front page of the contract for the sale of land which accompanied it were signed by both directors. The holding out did not extend to authority on the first defendant's part to enter into the Deed of Loan or to exercise on behalf of Hepler any rights under it. 75 The 25 June 2004 letter was undoubtedly a holding out that the enclosed documents, including the direction to pay had been "duly executed" by Hepler (and accordingly, with its authority). The letter was however, signed by the first defendant himself, purportedly on behalf of Hepler and the plaintiffs elicited no evidence that he had either actual or ostensible authority to hold out, in accordance with its contents. Accordingly, this letter is not sufficient for the plaintiffs to establish the ostensible authority for which they contend. 76 Hepler's payments were made well after the direction to pay and could not constitute a holding out of authority in respect of it. 77 There is, however, no challenge with respect to that part of the direction to pay to recipients other than the first defendant. There is also no challenge to his authority to have transmitted duly executed documents. The contention is that there was no authority to give that part of the direction to pay which directed payment to him. 78 There is no suggestion that the plaintiffs knew of any such limitation. The investing by Hepler in the first defendant of authority to give a direction to pay is sufficient holding out that he had authority to give a direction to pay irrespective of the identity of any recipient. 79 It follows that even if the implied actual authority which I have found extended only to giving a direction to pay recipients other than the first defendant, the first defendant had ostensible authority to give a direction to pay, whoever the objects of it were. 80 I accordingly find that the first defendant had ostensible authority to give the direction to pay in its entirety. Section 129(2)(b) of the Corporations Act 2001

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