Authority
89I should say at the outset it is clear in my opinion that Mr Harvey did not have actual authority to execute the CBIA nor any of the "exclusivity agreements". There is simply no written material in his employment contract, his delegations and/or the relevant power of attorney which could confer actual authority upon him. Actual authority was never seriously in issue.
90However before I analyse the CBIA in any detail I propose to make some general observations about the relationship that developed between Mr Harvey on the one hand and Mr Makucha on the other. It is fair to say that Mr Makucha's plans for the joint venture and the ultimate commercialisation of bottled water were ambitious if not grandiose. There is no doubt that Mr Makucha was both infatuated and obsessed by his plans and he seemed to have a very strange but potent influence upon Mr Harvey. Mr Harvey, a well educated man who I had the opportunity to observe over a number of days, whilst he was cross examined appeared to be a perfectly reasonable, sensible and relatively capable property manager. However, whilst he might have put up some resistance at least in principle to the ideas and machinations of Mr Makucha his evidence leaves me in little doubt that he was ultimately powerless to resist Mr Makucha's requests and demands, very much to his obvious disadvantage.
91Mr Makucha insisted that Mr Harvey keep his dealings with Mr Makucha secret from everybody else in Sydney Water. Mr Harvey abided by that until his dealings were discovered in January 2010. There is simply no evidence that any person at Sydney Water had any inkling at all about the dealings which were taking place between Mr Harvey and Mr Makucha or for that matter the extent of them.
92Mr Makucha frequently required Mr Harvey to assure him that he had not spoken to anyone about their dealings. He was clearly concerned that his ideas, which he was entirely convinced were the product of a brilliant entrepreneurial mind, should be kept confidential lest they be stolen. He did not want to take any chances that anyone, in particular at Sydney Water, might wish to utilise any of the ideas or concepts that he had dreamt up. This became especially important to him once he discovered that Sydney Water had not registered a trademark in relation to class 32.
93Mr Harvey gave evidence to the effect that he abided by Mr Makucha's request and did keep his dealings secret. He said and I accept that he did not discuss these dealings with anyone else at Sydney Water or for that matter any person external to Sydney Water. He certainly did not disclose to anyone at Sydney Water Mr Makucha's discovery in relation to class 32 until at least 27 January 2010. The subterfuge undertaken by Mr Harvey was seemingly quite elaborate. He was of course in total control of the proceedings in relation to the property at Baxter Road. He managed to keep entirely secret from employees, most importantly those persons to whom he reported at Sydney Water during 2009, that he was in fact contriving consent orders with Mr Makucha which had the effect of staying the execution of the writ of possession. Further, he did not disclose the fact or the extent of his contact with Mr Makucha notwithstanding that many of their meetings took place at Sydney Water's premises either in the foyer or in meeting rooms on the premises. He never told anyone about his negotiations over the many drafts of the agreements, nor the roles of Mr Malacco or Mr Stafford. Until Ms Valentine made her discovery in relation to the various invoices rendered by Mr Makucha, Mr Harvey quite dishonestly facilitated them being processed. In his evidence he accepted that in no case did he believe any invoice represented a genuine transaction which benefited Sydney Water.
94Mr Makucha rather proudly identified this secret process of dealing with Mr Harvey as "single channel focussing". Indeed, Mr Makucha put to Mr Harvey during cross examination that he had told Mr Harvey that he did not trust any of the executives at Sydney Water and that his greatest fear was that he would get "shafted" and that was the principal reason for him requiring Mr Harvey to maintain confidentiality in relation to their dealings.
95As I have already observed, the CBIA was executed by Mr Harvey in early December 2009. It was drafted by Mr Michael Stafford, solicitor, between August and December. In the end there were twenty seven (27) increasingly complex drafts of that agreement.
96Somewhat bizarrely, notwithstanding it had gone through so many drafts, Mr Harvey in his evidence said that he merely signed the document ultimately when requested to do so by Mr Makucha. He did not read through the document in any detail but merely flicked through some of the pages. Mr Harvey insisted that he wanted to finalise what he described as an executive summary to append to the agreement which could ultimately, according to him, be presented to the Board of Sydney Water.
97A matter (not pleaded) arose in the proceedings whereby Mr Makucha asserted that a version of the CBIA had been manipulated or improperly altered. The argument Mr Makucha advanced was that because one copy of the CBIA appeared not to have been signed by Mr Harvey, it followed that his signature had been removed as part of some sinister plot directed at him in order to defeat him in the litigation.
98There is no doubt that both Mr Harvey and Mr Makucha executed the CBIA on 3 December 2009. Sydney Water has never disputed (and has pleaded from the outset) that Mr Harvey executed that agreement.
99Mr Harvey gave evidence that Mr Makucha had two copies of the CBIA on 3 December when the two met. Mr Harvey said that he signed one copy and was given a suitcase by Mr Makucha in which Mr Makucha indicated that it contained, "all the CBIA documents". He also said the execution page had both his and Mr Makucha's signatures.
100In his cross examination however Mr Harvey said he signed two copies of the CBIA. It does seem to me that he is mistaken in that recollection.
101The CBIA was executed by Mr Harvey and Mr Makucha at page 57 of the document. A complete copy of the CBIA, which is in the plaintiff's tender bundle, does not bear Mr Harvey's signature but does bear that of Mr Makucha and also that of Mr Stafford. This document clearly came from Mr Harvey.
102I accept Mr Stafford when he said that he witnessed Mr Makucha's signature in his offices and before Mr Harvey had executed the document.
103The copy of the execution page which Mr Sesel says Mr Harvey gave him at the end of their interview on 27 June 2010 and which is attached to Mr Sesel's affidavit, bears both Mr Harvey's and Mr Makucha's signature.
104On the facts the most obvious conclusion is that Mr Harvey, when he received the suitcase full of documents from Mr Makucha, simply did not execute every copy and kept one with Mr Makucha's signature alone. I should also say there is no evidence whatsoever that the complete copy of the CBIA that was in Sydney Water's possession has been interfered with or manipulated, nor does it make sense that that would have been the case as the plaintiff has at all times accepted Mr Harvey executed the CBIA.
105The allegation of impropriety in relation to the "missing" signature was however agitated on numerous occasions by Mr Makucha, including as recently as 22 November when he sought my leave to file a cross claim to yet again ventilate this issue. I refused such application.
106The innocuous and obvious conclusion that Mr Harvey was simply mistaken in his belief that he had signed all copies of the CBIA escaped Mr Makucha who by far much preferred his own sinister conspiracy theory. His theory had no place in the case, the only relevant issue being Mr Harvey's authority.
107As I have already observed and in any event during the course of the hearing Mr Makucha appeared to accept that Mr Harvey had no authority to execute the CBIA.
108Mr Makucha conceded in his evidence that he knew that the approval of the Board was required for "anything beyond a confidentiality agreement". At another point in his evidence he accepted that that Board approval was needed for the "final agreement between himself and Sydney Water". At another point in his evidence he accepted that Board approval was needed for the "joint venture".
109It is plain that on Mr Makucha's evidence he did not believe that Mr Harvey had authority to do anything more than execute a confidentiality agreement. Everything else was a matter for the Board.
110Both his legal and accounting advisers, that is Mr Stafford and Mr Malacco, were at pains to draw to Mr Makucha's attention the potential limitations on Mr Harvey's authority. It is clear to me that Mr Makucha knew or did not really want to know what the true position was. That rather explained to my satisfaction why Mr Makucha insisted that Mr Stafford for example remove a clause which Mr Stafford had proposed be inserted in the CBIA which would have obliged Mr Harvey to provide evidence of his delegated authority. Mr Makucha in my mind had had sufficient commercial experience to know that the joint venture agreement, including the provisions about trademarks, would likely be way outside the scope of any authority on the part of someone like Mr Harvey. Leaving aside its grandiose aspects it could not have been regarded in my view by Mr Makucha as a reality that Mr Harvey could have bound Sydney Water to an agreement as complex as the CBIA.
111In his judgment in Sydney Water Corporation v Makucha [13] to [30] White J analysed the CBIA. As his Honour observed "the agreement is complex and requires execution of numerous additional agreements".
112It is not possible in my opinion to improve upon the concise but thorough analysis of the CBIA undertaken by White J. I respectfully adopt his analysis. For present purposes however it is sufficient for me to simply observe that amongst other things the CBIA contemplated all manner of commercial dealings between Sydney Water and Mr Makucha and/or his corporate entities (for example Paul Makucha Holdings Pty Limited (PMH).
113The agreement involved for example payment of monies by the plaintiff to PMH upon the happening of certain events with for example no obligation on the part of either PMH nor Mr Makucha to contribute funds. There was a labyrinth of so called project entities contemplated by the agreement comprising in total thirty (30) companies. Further, the agreement contemplated the payment of royalties, the setting up of a banking business predominately providing finance into the home unit market and the issue of free computers to all customers of the plaintiff to facilitate the electronic payment of their accounts. As White J observes, additional projects were contemplated by the CBIA to be conducted through different project entities which included analysis of narcotics from sewerage, diabetes analysis, the operation of offshore desalination plants and ships operated by nuclear power or liquid gas, water trading and the purchase and resale of drinking water around the world using ships specifically designed according to the specifications of Mr Makucha. Other clauses dealt with topics such as the payment of Mr Makucha's health insurance premiums and arranging his transport and admission to the Mayo Clinic or St Vincent's Hospital if seriously injured or sick. Further, should Mr Makucha become aware of a terrorist attack the plaintiff was to ensure that his concerns were properly investigated by the relevant authorities.
114As White J further observed at [57] the agreement contained onerous terms for Sydney Water. Examples of such terms included clauses 4.3 and 4.4 dealing with the assessment of damages, clause 10, dealing with the valuation of what is described as the Makucha Intellectual Property, the failure to specify the Makucha intellectual property and the substantial payments running into millions of dollars (as least $16 million for the royalties payable by Sydney Water P) to be made for the use of Sydney Water's own name and logo albeit in respect of a new class of goods.
115When one looks at its complexity and the diverse topics dealt with by the CBIA and the numerous additional entities and agreements contemplated by it, it is inconceivable as I have said in my mind that Mr Makucha could ever have thought that Mr Harvey had authority to enter such an agreement. I am quite confident that his state of mind was that he was engaged in an elaborate strategy at Sydney Water's expense to create an edifice in order to gain some commercial leverage which he could exploit in due course.
116I am satisfied and so find that Mr Harvey for example believed he had no authority to execute the CBIA and he repeatedly told Mr Makucha about his perceived lack of authority. In particular, aside from entering a confidentiality arrangement, Mr Harvey was at pains to make clear to Mr Makucha that whilst he could deal with him to a point, he would have to provide or present a detailed executive summary of the joint venture proposal to the Board for its consideration. Mr Harvey stated in his evidence that he told Mr Makucha and I so find that whilst he was happy to sign a confidentiality agreement he did not otherwise have the delegated authority to bind Sydney Water. Mr Harvey however was prepared for example in the letter of 10 September 2009 to state that he did have appropriate delegated authority to act on behalf of Sydney Water in dealings with Mr Makucha. He said in his evidence that he did not believe that was true. He accepted that what he told Mr Makucha was a false statement and that he did not believe he had authority to deal with any party in relation to a proposed joint venture.
117Importantly, Mr Malacco gave evidence that on or about 10 September 2009 Mr Harvey said in his and Mr Makucha's presence that he could negotiate but that he did not have any authority to bind Sydney Water to the joint venture. Further, he went on to say that any deal had to be given to the Board of Sydney Water for approval. I accept Mr Malacco's evidence. I also accept that Mr Harvey said just that.
118It is difficult to identify precisely why Mr Harvey made some of the statements he did in relation to his alleged authority. One can only surmise he felt some compelling desire to please Mr Makucha and was accordingly from time to time provoked to state that he did have authority to negotiate the "project on behalf of Sydney Water", when he did not believe he did.
119It is abundantly clear as White J pointed out at [43] of his judgment of 25 February 2010 that Mr Makucha only ever dealt with Mr Harvey.
120For a principal to be bound by authority ostensibly but not actually conferred on its agent there must be a representation by the principal and not by the agent himself as to the extent of the agent's authority.
121The High Court in Pacific Carriers Ltd v BNP Paribas said at [36]:
"In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, and in Northside Developments Pty Ltd v. Registrar-General, this Court followed and applied Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd as to the general principles concerning the apparent or ostensible authority of an officer of a company dealing with a third party. Where an officer is held out by a company as having authority, and the third party relies on that apparent authority, and there is nothing in the company's constitution to the contrary, the company is bound by its representation of authority. "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 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."
122As Diplock LJ pointed out in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd at 503 the most common activity on the part of a company from which it may be inferred that the agent is acting with ostensible authority is the way in which a company conducts itself by, for example, permitting the agent to act in some way in the conduct of the principal's business with other persons.
123It is one thing for Mr Harvey to have instructed solicitors for Sydney Water in the eviction proceedings concerning the property at Baxter Road. As a manager in the property division of the company that type of activity would and should be regarded as wholly unexceptionable. But entering into contracts such as the CBIA in my opinion fell into an entirely different category.