Citation: De Baecque Johnsen Company Pty Ltd v JFS Hair Management Pty Ltd & Anor [2020] NSWDC 476
Court: District Court of New South Wales
Date: 26 August 2020
Judge(s): Smith SC, DCJ
Background
The plaintiff company, trustee of a family trust, lent $400,000 to the first defendant, a corporate operator of a hair salon. The loan was arranged urgently to fund a Maldives resort development project. One of the corporate borrower's two directors, Mr Banasiak, signed the loan agreement both as director/secretary of the borrower and as personal guarantor. The other director, Mr Carré, did not sign the loan agreement on behalf of the company.
The plaintiff transferred the $400,000 promptly after the agreement was signed. Neither the corporate borrower nor the guarantor repaid the principal, though the guarantor made some partial interest payments over time.
The defendants resisted the claim on the basis that Mr Banasiak lacked authority to bind the company to the loan, and that the signatures of both directors were required under the company's internal arrangements. The plaintiff argued that Mr Banasiak had ostensible authority, implied actual authority, or both, to enter into the agreement on the company's behalf, and that the assumptions available under the Corporations Act applied.
Legal Issues
- Whether Mr Banasiak had ostensible authority to bind the corporate borrower to the loan agreement by signing it as a single director
- Whether Mr Banasiak had implied actual authority to enter into the agreement on the company's behalf
- Whether the plaintiff was entitled to rely on the assumptions available under s 129 of the Corporations Act 2001 (Cth), including that the agreement had been properly executed
- Whether Mr Banasiak was liable as guarantor for repayment of the loan and interest
Decision
The District Court found that Mr Banasiak had both ostensible and implied actual authority to bind the corporate borrower. The court drew on a pattern of prior conduct: Mr Banasiak had signed at least two earlier loan agreements for entities within the same corporate group as the sole signatory for the company, and those loans had been entered into and repaid without objection from Mr Carré or the company. The company had, through that conduct, held out Mr Banasiak as having authority to enter loan agreements of this kind.
The court rejected the defendants' denial that both directors had agreed to the loan in a telephone conversation with the plaintiff's director. That evidence was corroborated by the plaintiff's wife, and importantly by a series of text and email exchanges in French in which Mr Banasiak and Mr Carré used plural language ("vous", "we") throughout the negotiations, indicating both directors were involved. The court also rejected Mr Carré's claim that a version of an earlier loan agreement bearing only Mr Banasiak's signature was a draft, finding it was the operative document.
The court found that Mr Carré's internal instruction to Mr Banasiak, directing him to use a different entity for the transaction, was never communicated to the plaintiff. Any internal limitation on Mr Banasiak's authority was therefore ineffective against the plaintiff, who had no notice of it and who relied on the company's prior conduct in good faith. Given these findings, the court also held that the plaintiff was entitled to rely on the assumption under s 129(5) of the Corporations Act that the loan agreement had been properly executed.
On the guarantee, the court noted there was no real dispute that Mr Banasiak was liable in that capacity. He had signed the guarantee personally and made some interest payments, acknowledging the debt.
Orders Made
- Principal outstanding: $400,000 (none repaid)
- Interest accrued under the agreement at 10% per annum, less payments of $48,500 already made by Mr Banasiak, leaving the following interest outstanding:
- Year 1 (5 April 2016 to 4 April 2017): $20,000
- Year 2 (5 April 2017 to 4 April 2018): $21,500
- Year 3 (5 April 2018 to 4 April 2019): $30,000
- Year 4 (5 April 2019 to 4 April 2020): $40,000 (nil paid)
- Period to judgment (5 April 2020 to 26 August 2020): $10,314.55
- Judgment entered in favour of the plaintiff against both defendants
Key Takeaways
- A company's course of dealing, particularly allowing one director to sign multiple loan agreements as sole signatory without objection, can constitute a representation of that director's authority sufficient to ground ostensible authority against the company.
- Where an internal limitation on a director's authority is never communicated to the counterparty, it will not defeat a claim by that counterparty who relied on the company's outward conduct in good faith.
- Under s 129(5) of the Corporations Act, a counterparty dealing with a company in good faith may assume that a document has been duly executed, provided the statutory conditions are met and the counterparty had no actual knowledge to the contrary.
- The District Court treated the use of plural language in pre-contractual communications as significant evidence that both directors were involved in and approved the loan transaction, even though only one signed.
- Partial interest payments made by a guarantor after the loan fell due can constitute admissions of liability, and in this case there was no substantive dispute about the guarantor's personal obligation.
Legislation and Cases Referenced
Legislation
- Corporations Act 2001 (Cth), ss 127, 128, 129
- Family Law Act 1975 (Cth), Pt VIII
- Statute of Frauds 1677, s 4
Cases
- Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72
- Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21
- Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd [2007] VSC 158
- Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480
- Junker v Hepburn [2010] NSWSC 88
- Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA 144
- Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
- Re MF Global Australia Ltd (in liq); Hopper v Campbell [2015] NSWCSC 1409
- Reade v Lowndes (1857) 23 Beav. 361; 53 ER 142
- Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166