NSW Mutual Real Estate Fund Ltd v Brookhouse [1979] FCA 7; (1979) 38 FLR 257 (8 March 1979)

FEDERAL COURT OF AUSTRALIA

N.S.W MUTUAL REAL ESTATE FUND LTD. v. BROOKHOUSE (1979) 38 FLR 257
Trade Practices

COURT

FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
Franki(1), St.John(2) and Deane(3) JJ.

CATCHWORDS

Trade Practices - Misleading and deceptive conduct - Agency - Liability of principal - Trade Practices Act 1974 (Cth.), ss. 52, 82, 84. (1) An appeal court is not able to reverse a finding of fact by a trial judge, unless it is convinced that the trial judge had to come to the wrong conclusion.

Whim Creek Consolidated N.L. v. Federal Commissioner of Taxation (1977), 31 FLR 146, followed.

(2) There was sufficient basis in the evidence to ground the trial judge's finding that the misleading and deceptive conduct constituted by the making of false representations as to the availability of a loan by a member company of an interlocking group of companies was engaged in by it as agent for another member of the group without the need to have recourse to s. 84(2) of the Trade Practices Act 1974.

(3) Appeal dismissed.

HEARING

Sydney, 1978, October 24-25; 1979 March 8. 8:3:1979
APPEAL.

The relevant facts appear in the judgment of Franki J.

D.A. Staff Q.C. and P.R. Graham, for the appellants.

R.A. Conti Q.C. and A.J. Sullivan, for the respondent.
Cur. adv. vult.

Solicitors for the appellants: T.F. Bodor & Associates.

Solicitors for the respondent: N.G. Green & Co.
R.W. DAVIS

DECISION

March 8.

The following judgments were delivered.
FRANKI J. Reginald Sydney Brookhouse, the respondent herein, obtained

judgment from a single judge of this Court against three defendants, N.S.W. Mutual Real Estate Fund Ltd., ("the fund company"), Members Management Pty. Ltd. ("the management company") and Newbridge Finances Pty. Ltd. whose name was previously N.S.W. Mutual Loans Agency Pty. Ltd. ("the agency company"). The agency company was wound up on 8th February, 1977. The fund company and the management company have appealed against the judgment ordering the appellants and the agency company, inter alia, to pay the sum of $8,050 to the respondent together with certain costs. (at p226)

2. So far as is relevant the proceedings were based on an allegation that during February 1975 Mr. Emdur, an employee of the agency company, and Mr. Ollis, at all relevant times the manager of the agency company and a director of the management company and from January to October 1974 a director of the fund company, had represented to the respondent that by investing $8,000 in the fund company he would be able to borrow $30,000 from the fund company within fourteen to sixteen weeks at what was a very favourable rate of interest. (at p258)

3. The claim was made under s. 82 of the Trade Practices Act 1974 ("the Act") and was based on s. 52(1) which, at the relevant time, read: "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive." (at p258)

4. The substantial argument for the respondent proceeded upon the basis that Mr. Ollis, as the manager of the agency company, made a misleading or deceptive statement and that the agency company was an agent in the relevant sense for the fund company and the management company and that this statement was therefore misleading or deceptive conduct engaged in by the fund company and the management company. (at p258)

5. Section 84 (2) of the Act, which was also relied on, provides: "Any conduct engaged in on behalf of a body corporate by a director, agent or servant of the body corporate or by any other person at the direction or with the consent or agreement (whether express or implied) of a director, agent or servant of the body corporate shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate." (at p258)

6. It was also submitted for the respondent that Mr. Ollis, as a director of the management company, in making the relevant statement made it on behalf of that company and that that company was the agent of the fund company and therefore both the fund company and the management company were liable for the statement made by Mr. Ollis. (at p258)

7. The basic finding of the learned trial judge was: "It was in the course of performing the task assigned to it by the fund company and the management company, that is, of finding purchasers for shareholders who wished to sell their shares in the fund company that the agency company by its two servants made the false representation to the plaintiff. Having acted, as I believe it did, within the scope of the authority conferred upon it by both the fund company and the management company for the performance of that task, those two companies are liable for its conduct." (at p258)

8. The nature of such an appeal as this was considered by the Full Court of this Court in Whim Creek Consolidated N.L. v. Federal Commissioner of Taxation (1977) 31 FLR 146 where, after referring to Edwards v. Noble [1971] HCA 54; (1971) 125 CLR 296 , the court said: "Before this Court will reverse such a finding of fact, it will have to be convinced that the trial judge came to a wrong conclusion" (1977) 31 FLR, at p 151 . (at p259)

9. The fund company was incorporated in 1973. It purported to provide loans to holders of redeemable preference shares on favourable terms at a date to be determined according to a priority number associated with the particular preference shares. The fund company had no staff and it is perfectly clear that the management company, which was incorporated about the same time, was authorized to act as a manager for the fund company. Mr. Russell Bruce King was a director of all three companies. (at p259)

10. The learned trial judge accepted the evidence of the respondent as to the representations which were made and neither Mr. Ollis nor Mr. Emdur were called in evidence. (at p259)

11. The respondent, in about February 1975, was seeking to borrow money to purchase a house. He saw an advertisement in a newspaper and visited the premises of the agency company which at that time were also the premises of the fund and management companies and there the relevant representations were made to him. (at p259)

12. The respondent's primary interest in responding to the advertisement was to obtain a loan at a favourable rate of interest to enable him to purchase the house in which he was then living in the Sydney suburb of Cronulla. The purchase of shares was not an object itself. It was the means to obtain such a loan. There never was any suggestion that the loan would be obtained otherwise than from the fund company acting through the services of its manager, the management company. When the appellant went to the premises indicated in the advertisement, it was, to use his words, to inquire "after a loan to buy a house". (at p259)

13. The business of the fund company was the making of loans. The representation made to the respondent was as to the availability of loan moneys and related to the activity of the fund company acting through the management company. The respondent borrowed $8,000 from a bank, the loan being guaranteed by his father, and paid this money to Mr. Ollis at the agency company for the purchase from existing shareholders of two parcels of partly-paid redeemable preference shares in the fund company. In the result, which in all the circumstances does not seem surprising, no money was forthcoming from the fund company within the stated period. (at p259)

14. The first question to be determined is whether I am convinced that the trial judge came to a wrong conclusion in holding that the representation, which was clearly misleading or deceptive, was made by the agency company within the scope of the authority conferred upon it by the fund company and the management company. (at p259)

15. Mr. King gave evidence, inter alia, that: (a) After the incorporation of the fund company, the agency company acted as a dealer in securities, introducing new members into the fund company and also arranging transfers of the shareholdings of various members in the fund company. (b) For introducing new members into the fund company the agency company received a commission from the management company. (c) The agency company and its only licence to deal in shares was for the shares of the fund company. (d) He had no knowledge that the fund company ever authorized any party to offer loans on its behalf, but that he regarded the fund company and the management company as the same thing. (at p260)

16. A prospectus dated 16th August, 1973, which had been registered by the fund company with the Corporate Affairs Commission of New South Wales, for the issue by it of redeemable preference shares was in evidence as was a prospectus dated 10th December, 1974, also registered by it with the Corporate Affairs Commission of New South Wales. No shares, the subject of this second prospectus, were ever alloted. Both prospectuses however were signed by the directors of both the fund and management companies. (at p260)

17. The first prospectus under the heading "Additional Statutory Information", in dealing with the interests of directors, set out that Mr. King was a director and shareholder in the agency company "which is interested in the promotion of the fund company". (at p260)

18. The second prospectus contained the following passage:

"TRANSFER OF SHARES. Shares can be transferred on a form approved by the directors and by payment of stamp duty and the prescribed transfer fee. If any shareholder desires to transfer any of his shares they should contact Members Management Pty. Ltd. Shares will be offered for sale by N.S.W. Mutual Loans Agency Pty. Ltd. as agent but a loss may be incurred if shares are held for a short period. A brokerage fee will be charged for this service." This prospectus also provided: "THE PROMOTER COMPANY is N.S.W. Mutual Loans Agency Pty. Ltd. which has been appointed by Members Management Pty. Ltd. to act as its agent in the promotions of new memberships into the fund but neither the fund nor the management company have entered into any agreement in this regard with them. Members Management Pty. Ltd. pays a commission to the N.S.W. Mutual Loans Agency Pty. Ltd. for the introduction of new memberships into the fund. The fund does not pay remuneration for any services supplied by N.S.W. Mutual Loans Agency Pty. Ltd." (at p260)

19. It is to be noted that the agency company is said to have been appointed by the management company as its agent for the "promotion of new memberships into the fund". The prospectus also shows on the same page that employees of the agency company had various shareholdings in the fund. On the next page under a heading "Answers to Important Questions" appears the following: "Q. Can I sell my shares? A. Yes. You can do so yourself at any time. Should you require your shares sold by us we can arrange this for you providing you have been in the fund for twelve months and your calls are not in arrears. Shares will be offered for sale by N.S.W. Mutual Loans Agency Pty. Ltd. as agent but a loss may be incurred if shares are held for a short period. A brokerage fee will be charged for this service." It is to be noted that the words used are "Should you require your shares sold by us . . .". These words indicate that the fund company regarded the agency company as its agent for the sale of the shares of shareholder. Under "Additional Statutory Information" reference is also made to the agency company being "interested in the promotion of the fund" and states that it "has been paid $196,290 as commission up to 16th May, 1974, by Members Management Pty. Ltd.". (at p261)

20. Two receipts which the respondent received at the time of the purchase of the shares were on the receipt form of the agency company but contained the notation: "It should be clearly understood that any moneys paid for shares are not subject to a refund" and "application of . . . redeemable preference shares of $25 each in the N.S.W. Mutual Real Estate Fund Ltd.". On one receipt a figure of $8,000 was entered against this second notation. (at p261)

21. At the time of the payment of the money the respondent signed a document which was witnessed by Mr. Ollis and which was entitled "Prospectus Acceptance Acknowledgment and Agreement to Purchase Shares". It reads as follows: "I/We (Reginald Sydney Brookhouse) of (22 Tullimba Road, Cronulla) hereby agree and confirm as follows: 1. I/We am desirous of acquiring (300) shares in the N.S.W. Mutual Real Estate Fund Ltd., held under registered No.(s) (74-10 and 83) and in consideration pay the amount of $(8000) and acknowledge receipt of a statement relating to an offer for sale of shares dated 16th February, 1974, by Members Management Pty. Ltd., for redeemable preference shares of $25 each in N.S.W. Mutual Real Estate Fund Ltd., and also a copy of the prospectus of N.S.W. Mutual Real Estate Fund Ltd., dated 16th August, 1973. 2. I/We hereby authorize N.S.W. Mutual Loans Agency Pty. Ltd. to bank this money in your trust account and authorize them to pay out of your trust any amount owing upon such shares whether by way of arrears, fines or otherwise and further to pay various amounts due and payable in order to effect the purchase of such shares including transfer fees and stamp duty. 3. I/We request N.S.W. Mutual Loans Agency Pty. Ltd. to act on my/our behalf to arrange the transfer of the said shares and to pay out the transferror the net purchase price after calculating your agency's commission as agreed by the transferror. 4. It is hereby agreed that I/We warrant that these shares are purchased in our name and entered in the share register in the N.S.W. Mutual Real Estate Fund Ltd., and that they are NOT SUBJECT TO ANY REFUND to me, by the N.S.W. Mutual Loans Agency Pty. Ltd. 5. I/We acknowledge that I/We have arranged to buy these shares on the strict understanding that no guarantees or promises have been give to me by any representative of N.S.W. Mutual Loans Agency Pty. Ltd., or Members Management Pty. Ltd., as regards allocations or time period as to when a loan under this registered number will be granted. 6. Fines are payable on monthly calls outstanding after the 14th of the month and shares may be forfeited if monthly calls are more than three months in arrears. 7. Before listing for sale, these shares must be held in my name for a period of at least twelve months before asking Members Management Pty. Ltd., or their agents to list them for sale. 8. Shares can only be transferred, if share calls are paid up to date and transfer fees and stamp duty have been paid to N.S.W. Mutual Real Estate Fund Ltd. 9. I/We am aware and agree that in the case of a sale made by Members Management Pty. Ltd., or their agents then I will be responsible for a deduction of an agreed agent's commission out of the price obtained." The words and figures shown in brackets were handwritten in the document. This document, to which Mr. Ollis had obtained the respondent's signature, contained acknowledgments in favour of both the management company and the fund company. (at p262)

22. Mr. Ollis plainly spoke for the fund company and the management company when, in discussing the contract to purchase the house, he informed the respondent that it was unnecessary for him to have a solicitor in relation to the respondent's proposed purchase for the reason that "we have our own solicitor who will look after the matter". He would seem to have spoken for the prospective mortgagee (the fund company managed by the management company) when he informed the respondent that a valuation of the subject property would be necessary and that "they had a fellow who lived at Brighton to carry out the valuation". He would seem to have been speaking for the prospective lender (the fund company managed by the management company) when he initially informed the respondent that the loan would be "through within fourteen to sixteen weeks" and that there was no need to pay a deposit "because we will be paying the whole amount on the exchange of contracts". He would seem to have been speaking for the prospective lender when, in answer to a question by the solicitor for the vendor of the property which the respondent desired to purchase as to "how long normally he required", he said "sixteen weeks is the normal time required to process applications for loans". The fund company, the management company and the agency company were clearly associated companies. (at p263)

23. Some criticism was directed, on behalf of the appellants, to a statement in the judgment of the learned trial judge to the effect that all three companies were controlled by Mr. King and to a statement that Mr. King, in the case of the three companies, and Mr. Ollis, in the case of one company, were authorized to sign cheques whereas each was so authorized only as a co-signatory. Be this as it may, his Honour's reference to "the interlocking found in the structure by which the companies carried on their commercial activities, in the common control of those activities and in the every-day working relationship that existed between them in the performance of those activities" was clearly warranted by the evidence. (at p263)

24. There was, in my view, sufficient basis in the evidence to ground his Honour's finding that the agency company acted as agent for the fund company and its manager, the management company, when it procured the respondent as a purchaser of shares and collected any arrears of instalments and fines owing by the outgoing shareholder. I therefore consider that the appeal should fail. (at p263)

25. The learned trial judge also expressed some views upon s. 84(2) of the Act which he indicated were unnecessary in view of the conclusion which he had reached on the question of agency. Section 84(2) raises a number of difficulties and, in view of the conclusion to which I have come, I do not consider that this is an appropriate case to discuss the section in any detail. It is unnecessary for the respondent to rely upon this section and in addition the section did not assume great importance in the arguments presented to us. The difficulty with it mainly arises from the use of the words "on behalf of". It is clear that the section does not extend to all conduct engaged in by a director, agent or a servant of a body corporate or by any other person at the direction or with the consent or agreement (whether express or implied) of a director, agent or servant of the body corporate but that the relevant conduct must be engaged in "on behalf of" the body corporate. It may be that the words " on behalf of" in s. 84(2) do not lend themselves to any general statement concerning the cases to which they apply and that whether any conduct was engaged in "on behalf of" a body corporate must depend upon the circumstances of the particular case. It is difficult to think that the legislature intended s. 84(2) of the Act to apply to a wholly unauthorized, but misleading or deceptive statement, made by a bystander with the implied consent of a servant of a corporation conducting retail stores who was employed only as a truck driver. (at p263)

26. I propose that the appeal be dismissed and that the appellants be ordered to pay the respondent's costs. (at p264)

ST. JOHN J. I have read the reasons for judgment of Franki J. and his conclusions. I agree with both reasons and conclusions and would dismiss the appeal with costs. (at p264)

2. It is, as Franki J. points out, unnecessary to consider s. 84(2) of the Trade Practices Act 1974 in its operation on the facts as found by the learned trial judge, Nimmo J. Examination of the relationship between the three companies involved in this case could lead to the conclusion that the relationship was specially designed so that the assets of the management company and the fund company would not be available to satisfy judgments consequent upon false or misleading statements made by employees or agents of the agency company. It was partly because the division of function between the agency and the management company was not adhered to that the latter company became liable. It will be necessary in the future to consider whether the legislature intended s. 84(2) to go beyond the ordinary principles of agency. Its enactment would seem, in itself, to be a strong argument for it to be so interpreted, but again, that does not arise for decision. (at p264)

DEANE J. The context in which this appeal falls to be determined appears from the judgment of Franki J. which I have had the benefit of reading. I agree with Franki J.'s conclusion that the appeal should be dismissed with costs and, subject to what is said hereunder, am in general agreement with his reasons for that conclusion. (at p264)

2. The question for this Court is not whether, on an independent assessment of the evidence, it should be found that Mr. Ollis, when making the representations which he made, was acting, through the interposed agency of N.S.W. Mutual Loans Agency Pty. Ltd. (now in liquidation), as agent for the two appellant companies. The question before this Court is whether the learned trial judge's finding of such agency was either without proper foundation in the evidence or was so affected by wrongful application of principle or misunderstanding or erroneous assessment of evidence as to warrant the interference of this Court. In my view, the appellants have failed to establish any wrongful application of principle or any particular misunderstanding or wrongful assessment of evidence by his Honour which would warrant the interference of this Court. The essential question involved in the appeal is whether the evidence accepted by his Honour contained any sufficient foundation for the finding of agency which he made. In this regard, it is relevant to note that it is common ground between the parties that, for present purposes, it is unnecessary to draw any distinction between the two appellant companies in that if the agency company was acting as agent for the fund company, it was also acting as agent for the management company which was the manager of the fund company. (at p264)

3. The legal personality of a company is distinct and independent from those who constitute its corporate organs or act as agent on its behalf. That independence of legal personality is fundamental in legal theory and of the essence of corporate existence. Corporate existence and corporate legal personality are however figments of the law. A company cannot perform a positive act either of its own violation or independently of the actions of those who constitute its corporate organs or act as agent on its behalf. Where the corporate organs of shareholders in general meeting or directors in meeting are involved, special principles of company law will ordinarily be applicable to determine whether there has been effective corporate decision or corporate action for the reason that those corporate organs do not make decisions or act for the company: they make decisions and act as the company. Where such corporate organs are not involved, the ordinary principles of the law of agency are applicable to determine corporate liability for word or act. In applying those principles, however, it would be unrealistic to be unconscious of the fact that ordinarily a corporation will speak and act through an agent. Resolutions of corporate organs apart, the alternative to agency in the case of a corporation is atrophy. Where the question is not whether express ad hoc authority has been conferred for a particular transaction but whether one purporting to act as an agent has acted within general implied authority, the inference of agency may well be more readily drawn in a case where the alleged principal is a corporation which cannot act independently of others than in a case where the alleged principal is a person who ordinarily acts for himself independently of the instrumentality agency of others. In both cases, however, a finding of actual agency cannot properly be made without a proper evidentiary basis. (at p265)

4. In the present case there was an interlocking in the control and business activities of the agency company and the two appellant companies. Mr. Ollis would seem, at all times, to have been acting in his capacity as manager of the agency company. The agency company itself was, for its part, plainly acting in the capacity of an agent. It acted as agent for the vendors of the fully-paid redeemable preference shares which Mr. Brookhouse ("the respondent") acquired. There was, however, evidence before the learned trial judge which warranted the conclusion that, in the overall dealings with the respondent involving the acquisition of shares, it was also purporting to act as agent for the fund company and its manager, the management company. The interest and involvement of the fund company in the overall dealings with the respondent was apparent. An incident of the acquisition of the shares by the respondent was that he became a member of the fund company liable for calls on the partly-paid redeemable preference shares which he acquired. Another incident of the acquisition of those shares was that the agency company procured for the fund company the payment of any outstanding calls. More important, from beginning to end of the dealings between the agency company and the respondent, it was apparent that, at least from the respondent's point of view, the whole point and end of the overall dealings was the procuring of a loan to the respondent upon the security of the house which he wished to purchase. The prospective lender at all times was the fund company. When the transfer of shares had been completed, there was no suggestion that that was the end of Mr. Ollis' and the agency company's involvement with the respondent. Plainly the continued involvement related to the proposed loan from the fund company which was the raison d'etre of the respondent's acquisition of the shares. Mr. Ollis' representations of which complaint is made related to that prospective loan. A finding that all that Mr. Ollis said and did was said and done solely on behalf of the vendors of the shares would have been utterly discordant with the whole context in which those representations were made. (at p266)

5. There remains the question whether there was a sufficient basis in the evidence for a finding that the agency company, in purporting to act for the two appellant companies when it made the representations, was acting within authority. There is no specific evidence of any express grant of either general authority to make representations of the type which were made or of ad hoc authority to make the specific representations which were made to the respondent. The question whether there was a sufficient basis in the overall evidence for an inference that the agency company did have authority to make, on behalf of the appellant companies, representations of the type which were made has caused me considerable difficulty. The relevant evidence is summarized in the judgment of Franki J. Were it not for the interlocking in the business activities and in the control of the three companies, I should have hesitated to reach the conclusion that there was sufficient in the evidence to found such an inference. In the context of that interlocking of activity and control, however, I have reached the conclusion that there was an adequate basis in the evidence before the learned trial judge for the finding that the agency company had authority to represent the appellant companies in relation to negotiations for the acquisition of shares in the fund company and that it had authority, in relation to such negotiations, to make representations on behalf of the appellant companies as to the availability of a loan from the fund company, through its manager, the management company, in the event that shares in the fund company were acquired. (at p266)

6. It is, in the circumstances, unnecessary that I express any view as to the scope or effect of the provisions of s. 84(2) of the Trade Practices Act 1974. (at p266)

ORDER

Appeal dismissed with costs.