Junker v Hepburn [2010] NSWSC 88 (19 February 2010)

NEW SOUTH WALES SUPREME COURT

CITATION:
Junker v Hepburn [2010] NSWSC 88
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:

FILE NUMBER(S):
2008/290371

HEARING DATE(S):
8, 9 February 2010

JUDGMENT DATE:
19 February 2010

PARTIES:
Martin Junker - First Plaintiff
Irene Bondarew - Second Plaintiff
Scott Anthony Hepburn - First Defendant
Veronica Roller - Second Defendant

JUDGMENT OF:
Hammerschlag J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
D.A. Caspersonn [Plaintiffs]
S.A. Hepburn- self-represented [First Defendant]
R.I. Bellamy [Second Defendant]

SOLICITORS:
Mark Hodges Solicitor [Plaintiffs]
Kemp Strang [Second Defendant]

CATCHWORDS:
AGENCY – CORPORATIONS – company has two directors each of which guarantees repayment by company of loan from plaintiffs - authority of a single director to give a direction to pay under loan agreement where the company was borrower – implied actual authority – requirements for – ostensible authority – requirements for – Corporations Act 2001 (Cth) – assumption in section 129(2)(b) that director has authority – whether plaintiffs were entitled to make that assumption – CONTRACT – deed of guarantee – construction – joint guarantee – effect of joint obligation

LEGISLATION CITED:
Real Property Act 1900 (NSW)
Corporations Act 2001 (Cth)

CATEGORY:
Principal judgment

CASES CITED:
Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 at 205
Perkins v National Australia Bank Ltd (1999) 30 ACSR 256
Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
Re Hodgson (1885) 31 Ch D 177
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367

TEXTS CITED:
Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell
G E Dal Pont, Law of Agency, 2nd ed (2008) LexisNexis Butterworths
R P Austin, H A J Ford, I M Ramsay on Company Directors: Principles of Law and Corporate Governance (2005) LexisNexis Butterworths
G Williams, Joint Obligations (1949), Butterworths

DECISION:
Verdict in favour of the plaintiffs against the defendants in the amount of $472,081.43 together with interest accruing at a daily amount of $213.19 from 10 February 2010 to the date of payment.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMERSCHLAG J

19 FEBRUARY 2010

2008/290371 MARTIN JUNKER & ANOR -V- SCOTT ANTHONY HEPBURN & ANOR

1 HIS HONOUR: Hepler Pty Ltd (“Hepler”) (in liquidation) borrowed money from the plaintiffs. Hepler failed fully to discharge its obligations under the loan. The defendants guaranteed Hepler’s obligations to the plaintiffs. The plaintiffs now sue the defendants under their guarantees.

FACTUAL BACKGROUND

2 The defendants were at all material times the only shareholders and directors, and the second defendant was secretary of Hepler.

3 On 21 June 2004, Hepler made a written proposal to the plaintiffs to borrow $150,000 from them for a period of two months. The proposal was on Hepler letterhead, signed by the first defendant under the word “Director”. The purpose of the loan was stated to be “investment purpose to secure another property transaction”. The proposal offered the security of a second mortgage over a number of lots at 34-44 Pidcock Street Camperdown, New South Wales, and guarantees by each of the defendants. The proposal was accompanied by copies of documents relating to the Pidcock Street properties, including a Primary Application under the Real Property Act 1900 (NSW) and copy of the front page of a contract for the sale of one of the lots.

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:

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:

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.

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:

13 The direction to pay was forwarded to the plaintiffs’ solicitors under cover of a letter dated 25 June 2004 on Hepler letterhead together with the following documents, which the letter described as “duly executed”: “Loan Agreement, Mortgage, Authority to complete an undertaking, 3 x Certificates, Direction to pay, Statutory Declaration, Deed of Guarantee and Indemnity, Withdrawal of Caveat AA603413”. The letter was signed by the first defendant as Director.

14 In an email to the plaintiffs’ solicitor on the same day the first defendant requested the amount to be paid to the National Australia Bank be “paid to S. Hepburn account” and it gave a bank account number.

15 The plaintiffs complied with the direction to pay.

16 Subsequently, on 25 July 2004, Hepler paid the plaintiffs $8,000 (being four per cent of the principal amount for the month to the date of payment).

17 On 4 August 2004, the plaintiffs had a conversation with the first defendant. Later he sent an email to them and their solicitor requesting a one-month extension of the repayment date of the loan.

18 On 6 August 2004, the plaintiffs sent an email confirming their “verbal” agreement to extend the period of the loan to 25 September 2004.

20 The loan fell due on 25 September 2004, but was not then, as required by the Deed of Loan, repaid.

Date	Payment
10 December 2004	$132,749.41
17 January 2005	$5,000
18 January 2005	$40,000
24 January 2005	$5,000
27 January 2005	$10,000
28 January 2005	$5,000
31 January 2005	$5,000

24 Mr D A Caspersonn of Counsel appeared for the plaintiffs. The first defendant was self-represented. Mr R I Bellamy of Counsel appeared for the second defendant.

25 The first defendant did not dispute liability. He correctly took issue with the plaintiffs’ initial calculation of the outstanding debt. Secondly, the first defendant adopted a proposition put on behalf of the second defendant that the liability of the defendants was joint and that this meant that each was liable for, and only for, one half of Hepler’s liability to the plaintiffs.

26 The plaintiffs’ initial position was that the two amounts of $8,000 paid before the repayment date were not to be taken into account as payments of principal, even though no payment of interest was due before that date. That untenable position was properly abandoned. During the hearing the parties agreed that those payments are to be applied to principal. The amount owing by Hepler to the plaintiffs as at 9 February 2010 is agreed at $472,081.43 with interest accruing at a daily amount of $213.19.

27 The plaintiffs claim that amount plus interest to the date of payment.

28 The second defendant’s primary defence is a denial that the sum of $198,005.40 paid over by the plaintiffs (under the direction to pay) to the nominated bank account in the name of the first defendant had been advanced to Hepler, and accordingly she puts in issue that that amount is secured by her guarantee.

29 Although not expressly pleaded, the denial is founded on the proposition that the plaintiffs have not on the probabilities established that the first defendant had authority on behalf of Hepler to give any direction to pay any part of the loan to his personal account. Although there was no evidence as to ownership of the account, the hearing was conducted on the basis that it was his.

30 In her statement of Real Issues for Determination provided under the Usual Order for Hearing, the second defendant articulated the issue as follows:

31 The second defendant accepts (and admits in her pleadings) that of the $200,000 the subject of the direction to pay, $1,994.60 (that is the total of the amounts paid to persons other than the first defendant under the direction to pay) was advanced by the plaintiffs to Hepler. She pleads that the plaintiffs advanced the balance ($198,005.40) without her knowledge or consent.

32 As is apparent from the second defendant’s articulation of the issue and her admission that $1,994.60 was advanced to Hepler, she limits her challenge to the first defendant’s authority to have given a direction to pay an amount to his personal account. Her challenge does not extend to his authority so far as he directed payments to other recipients.

33 The plaintiffs did not put that the first defendant received the monies paid to him as Hepler’s agent for receipt. They also did not put that the first defendant had express actual authority from Hepler to give the direction to pay to his own account.

34 They put that the first defendant either had implied actual authority or ostensible (or apparent) authority to give the direction to pay.

35 They put further that they have the benefit of the statutory assumption under s 129(2)(b) of the Corporations Act 2001 (Cth) (“the Act”) that the first defendant had authority.

36 The second defendant’s secondary proposition is that she is on the proper construction of the guarantee, liable for only 50 per cent of the amount owing by Hepler to the plaintiff.

THE LAW

38 The plaintiffs bear the onus of establishing on the balance of probabilities that the direction to pay was the act of Hepler.

Agency

a actual (either express or implied) where it results from a manifestation of consent that the agent should represent or act for the principal expressly or impliedly made by the principal to himself; or
b apparent, where it results from such a manifestation made by the principal to third parties: Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell at Ch 3, Art 22.

40 The rules concerning actual and apparent authority apply where the principal is a company. They are supplemented by provisions of the Act where companies are concerned. The usual starting point in any consideration of a director’s actual authority is the constitution of the company, which invariably provides for directors’ powers. Express actual authority of a director usually derives from the constitution of the company or from some antecedent act such as a resolution of the board of directors: Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 at 205; Perkins v National Australia Bank Ltd (1999) 30 ACSR 256 at 262.

41 Implied actual authority is the authority which the law regards as having been given to an agent because of the interpretation put by the law on the relationship and dealings of the two parties: Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell par 3-003. The Court’s inquiry concerns the intention of the principal in conferring authority on the agent: Gino Evan Dal Pont, Law of Agency, 2nd ed (2008) LexisNexis Butterworths par 8.1.

42 Ordinarily, where a company has more than one director, a single director does not have authority to bind it. A director’s normal power is to bind the company only by joining with other directors in a collective resolution of the board of directors: Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 at 198, 205.

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:

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] HCA 35; (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] HCA 32; (1990) 170 CLR 146 at 205.

(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.

50 Section 128(1) of the Act provides, relevantly as follows:

(b) has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.

Joint Obligations

52 A joint promise by two or more persons creates a single obligation upon both or all. The theory of a joint and several promise is that it creates both a joint obligation incumbent upon all and a number of several obligations respectively incumbent upon each one; but the several obligations are non cumulative, so that (as with purely joint obligations) performance by any one will discharge all. The presumption is that a contract made by two or more persons is joint, express words being necessary to make it joint and several: Glanville Williams, Joint Obligations (1949), Butterworths at 24; see too Re Hodgson (1885) 31 Ch D 177 at 188.

53 The fact that an obligation is joint does not mean that a joint obligor is only partly liable for the amount of the obligation.

54 A successful plaintiff is entitled to enter judgment for the full amount of its proven claim but is not entitled to double recovery. Payments effect a reduction in the amount of the liability of each defendant.

CONSIDERATION

55 As is mentioned above, the second defendant only challenges the direction to pay so far as it required an amount paid to the first defendant’s personal bank account.

56 In paragraph 6 of the plaintiffs’ Further Amended Summons they aver that on or about 6 August 2004, they agreed with Hepler to extend the repayment date under the Deed of Loan by one month from 25 August 2004 to 25 September 2004 (“the extension agreement”). In her Amended Commercial List Response the second defendant admits this averment.

57 In paragraph 8 of their Further Amended Summons, the plaintiffs aver that Hepler made the payments which it did “in reduction of the principal debt and interest in accordance with the loan agreement”. The same averment was made in the original Summons. Initially, the second defendant admitted it. With leave, and over the objection of the plaintiffs, I permitted her, during the hearing, partially to withdraw the admission so as to admit only that Hepler made the payments identified and no more.

58 The plaintiffs accept that they bear the onus of establishing on the balance of probabilities that the first defendant had authority on behalf of Hepler to give a direction to pay as he did.

59 None of the parties put Hepler’s constitution into evidence. There was no evidence of any resolution of directors authorising either or both of the defendants to execute any of the transaction documentation on behalf of Hepler. The parties’ submissions were directed to whether the plaintiffs had on the facts established the first defendant’s authority. The second defendant made no submission that there was any impediment to the informal conferring of authority on the first defendant by Hepler to give the direction to pay.

60 The defendants did not read any affidavits and neither of them gave evidence.

Implied Actual Authority

61 The evidence establishes, and there is no dispute that, on about 6 August 2004, acting alone, the first defendant “verbally” agreed with the plaintiffs that the repayment date under the Deed of Loan would be extended.

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] HCA 8; (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] HCA 28; (1957) 97 CLR 367 at 371 per Dixon CJ.

69 The established facts are that:

a she and the first defendant were the only directors of Hepler at the time;
b her signature appears on the Deed of Loan and Mortgage;
c she undertook personal liability for repayment of the loan;
d the loan was a short term one at a high interest rate;
e the Deed of Loan (albeit inaccurately) acknowledged receipt by Hepler of the advance;
f not long after the Deed of Loan, the extension agreement was entered into; and
g payments explicable only as payments of interest or repayments of the loan were made and it was not suggested that anyone other than Hepler was the source of the payments.

70 There can be little doubt that the loan was an important transaction for Hepler.

71 I am satisfied that the second defendant must have had knowledge of, and that at the lowest, she acquiesced in the payments being made by Hepler. That acquiescence is consistent only with Hepler having given implied actual authority to the first defendant to bring about the advance without which the payments would be inconceivable.

72 I accordingly find that the first defendant had implied actual authority to give the direction to pay.

73 As constituting the holding out by Hepler of the first defendant’s authority the plaintiffs relied on:

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

81 It was not established that the first defendant held any office with Hepler beyond being one of two equal directors. There was no evidence of the powers customarily exercised by such an officer in a similar company. The evidence led by the plaintiffs does not enable a finding that they have the benefit of the assumption for which s 129(2)(b) provides.

82 The second defendant submitted (and the first defendant adopted the submission) that the Guarantee was ambiguous and should be construed contra proferentem so as to render each of the defendants liable for only 50 per cent of the amount owing by Hepler under the Deed of Loan. This submission is unsustainable.

83 The terms of the Guarantee are clear. Under clause 1, the guarantor (meaning both defendants) agree that “they unconditionally and irrevocably guarantee” the performance of the Deed of Loan.

84 It is a joint promise by the both of them creating a single obligation incumbent upon each and both.

85 There will be a verdict in favour of the plaintiffs against the defendants in the amount of $472,081.43 together with interest accruing at a daily amount of $213.19 from 10 February 2010 to the date of payment.

86 I will stand the matter over to enable short minutes to be brought in to reflect this outcome, to deal with any further matters which remain to be dealt with and I will hear the parties on costs.

AMENDMENTS:

23/02/2010 - in the first line after the word "have" add "had" - Paragraph(s) 71

LAST UPDATED:
23 February 2010

Supreme Court of New South Wales

Junker v Hepburn [2010] NSWSC 88 (19 February 2010)