Borg & Ors v Northern Rivers Finance & Ors [2004] QSC 29

SUPREME COURT OF QUEENSLAND CITATION: Borg & Ors v Northern Rivers Finance & Ors [2004] QSC 029 PARTIES: ANDREW JAMES BORG (first plaintiff) JASON MARK BYRNE (second plaintiff) ROBERT STUART CHRISTENSEN (third plaintiff) GLEN ANGELLO COPPO (fourth plaintiff) LAURENCE ROY DIXON (fifth plaintiff) IAN ANTHONY GLAZEBROOK (sixth plaintiff) MICHAEL CHARLES GOTTKE (seventh plaintiff) BRIAN KENNETH HINCHEY (eighth plaintiff) ROBERT MICHAEL McCLOY (ninth plaintiff) NANCY MARY MONTGOMERY (tenth plaintiff) HENRY ALEXANDER MONTGOMERY (eleventh plaintiff) GORDON EDWARD PARISH (twelfth plaintiff) GORDON JOHN REID (thirteenth plaintiff) JAMES MICHAEL ROACH (fourteenth plaintiff) GLEN ALAN SCOTT (fifteenth plaintiff) GASPAR SICH (sixteenth plaintiff) NEIL GREGORY CAMERON (seventeenth plaintiff) COLIN SCOTT PURDIE (eighteenth plaintiff) GEOFFREY DAVID RAPSON (nineteenth plaintiff) DREW KINGSLEY WOODMAN (twentieth plaintiff) NIKO JOZINOVIC (twenty-first plaintiff) v NORTHERN RIVERS FINANCE PTY LTD -- 1 of 16 -- 2 (first defendant) INVESTMENT LICENCING PTY LTD (second defendant) NORTHEN RIVERS PLANTATION MANAGEMENT LTD (third defendant) DARREN PAWSKI and RALPH MARCEL NUNIS trading as “SecurInvest Accounting Services” (fourth defendant) DREW GRAHAM FRANCIS (fifth defendant) BASE METALS EXPLORATION NL (sixth defendant) EXPLORERS AND PROSPECTORS FINANCE LIMITED (seventh defendant) DARREN CHARLES HORNER (eighth defendant) JOHN MEARES (ninth defendant) BANALASTA OIL PLANTATION (tenth defendant) SAFEINVEST PTY LTD (eleventh defendant) KAREN EVANS (twelfth defendant) PLANTATION EQUITY PTY LTD (thirteenth defendant) FILE NO/S: SC No 191 of 2000 DIVISION: Trial Division PROCEEDING: Civil Trial – Hearing of Counterclaim ORIGINATING COURT: Supreme Court at Mackay DELIVERED ON: 27 February 2004 DELIVERED AT: Brisbane HEARING DATE: 10 November 2003 JUDGE: Mackenzie J ORDER: 1. I give judgment for the thirteenth defendant against the first plaintiff in the sum of $113,105.34 comprising the sum lent of $73,125 and interest in accordance with the agreement of $39,980.34, with costs to be assessed. 2. I give judgment for the thirteenth defendant against the fourth plaintiff in the sum of $52,773.65 comprising the unpaid balance of the sum lent of -- 2 of 16 -- 3 $36,988.98 and interest in accordance with the agreement of $15,784.67, with costs to be assessed. 3. I give judgment for the thirteenth defendant against the seventh plaintiff in the sum of $67,851.60 comprising the unpaid balance of the sum lent of $47,557.11 and interest in accordance with the agreement of $20,294.49, with costs to be assessed. 4. I give judgment for the thirteenth defendant against the twelfth plaintiff in the sum of $52,773.65 comprising the unpaid balance of the sum lent of $36,988.98 and interest in accordance with the agreement of $15,784.67, with costs to be assessed. 5. I give judgment for the thirteenth defendant against the sixteenth plaintiff in the sum of $101,795.58 comprising the sum lent of $65,813 and interest in accordance with the agreement of $35,982.58, with costs to be assessed. 6. I give judgment for the thirteenth defendant against the seventeenth plaintiff in the sum of $90,484.27 comprising the sum lent of $58,500 and interest in accordance with the agreement of $31,984.27, with costs to be assessed. 7. I give judgment for the thirteenth defendant against the eighteenth plaintiff in the sum of $101,795.58 comprising the sum lent of $65,813 and interest in accordance with the agreement of $35,982.27, with costs to be assessed. 8. I give judgment for the thirteenth defendant against the nineteenth plaintiff in the sum of $60,311.67 comprising the unpaid balance of the sum lent of $42,272.50 and interest in accordance with the agreement of $18,039.17, with costs to be assessed. 9. I give judgment for the thirteenth defendant against the twenty-first plaintiff in the sum of $79,174.51 comprising the unpaid balance of the sum lent of $51,188.00 and interest in accordance with the agreement of $27,986.51, with costs to be assessed. CATCHWORDS: CORPORATIONS – CONSTITUTION AND LEGAL CAPACITY – CONTRACTS – FORMALITIES – whether -- 3 of 16 -- 4 sufficient acceptance of loan application – whether authority to affix company seal – whether sufficient evidence of ratification TAXES AND DUTIES – STAMP DUTIES – UNSTAMPED AND IMPROPERLY STAMPED DOCUMENTS – QUEENSLAND – whether document ‘duly stamped’ – whether Court can inquire as to information upon which stamping based BANKING AND FINANCE – INSTRUMENTS – BILLS OF EXCHANGE – NEGOTIATION – BY DELIVERY – where common director and secretary – whether sufficient evidence of delivery CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – PERFORMANCE – where ‘round robin’ transaction with Bill of Exchange – whether genuine transaction and performance of obligation – whether ‘payment’ Bills of Exchange Act 1909, s 4 Corporations Law, s 128, s 129 Duties Act 2001, s 512 Stamp Act 1894 (Qld), s 4A, s22, s 67A Castrique v Buttigieg (1855) 10 Moo PCC 94, considered Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, considered In Re Land Credit Company of Ireland; Ex parte Overend, Gurney, & Co (1869) LR4ChApp 460, considered Reuter v Electric Telegraph Company 6El & Bl 341, considered Porteous v Donnelly [2002] FCA 862, distinguished Rothwells Ltd (in liq) v Connell (1993) 93 ATC 5106, cited Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666, considered COUNSEL: P E Hack SC, with Dr R C Schulte, for the first, fourth, seventh, twelfth, sixteen, seventeenth, eighteenth, nineteenth and twenty-first plaintiffs P A Keane QC, with C Wilson, for the thirteenth defendant SOLICITORS: Macrossan & Amiet for the first, fourth, seventh, twelfth, sixteenth, seventeenth, eighteen, nineteenth and twenty-first -- 4 of 16 -- 5 plaintiffs. Mullins and Mullins for the thirteenth defendants [1] MACKENZIE J: The hearing of the counterclaim by the thirteenth defendant against the first, fourth, seventh, twelfth, sixteenth, seventeenth, eighteenth, nineteenth and twenty-first plaintiffs was, by agreement of the parties, heard after the primary findings on the plaintiffs claims had been delivered. Although, since it is a counterclaim, the thirteenth defendant is plaintiff in the counterclaim, it is convenient to retain the description of the parties in the original action in these reasons. Evidence was led only by the thirteenth defendant, essentially for the purpose of proving the existence of the loan agreements and sums of damages allegedly recoverable. None of the plaintiffs to the original claim gave evidence. The only evidence tendered on their behalf consisted of a deposit agreement between Banalasta and Plantation Equity and the financial accounts of an associated company Armidale Management Development Centre Pty Ltd for the year ending 30 June 1999.The points put in issue by the relevant plaintiffs may conveniently be summarised as follows: 1. Plantation Equity did not execute the loan applications or communicate acceptance of them. 2. There was no payment from Plantation Equity to Banalasta. 3. The agreement contemplated payment of “real money”; the “round robin” transaction entered into was not performance of that obligation. 4. There had been no valid delivery of the bills of exchange to effect their negotiation. 5. No authority was given by Plantation Equity to its directors to affix the company seal to the bills of exchange. 6. The loan agreements were dutiable and were not “duly stamped”; therefore they were inadmissible. [2] With respect to the seventeenth plaintiff, there was a separate issue of whether there was a loan application signed by him and also an issue about the execution of the bill of exchange relating to his transaction. With respect to the twenty first plaintiff the claim referred to in the certificate of indebtedness relating to him (part of Ex 167) as “further amount lent (paragraph 181)” in the sum of $52,500 was expressly abandoned by the thirteenth defendant during the course of the hearing. Loan agreements not duly stamped [3] It is convenient to deal with this argument first since it is of fundamental importance. Each of the loan applications was submitted (apparently belatedly) to the Queensland Office of State Revenue and stamped to the effect that Queensland duty is not payable. It is common ground that, although the Stamp Act 1894 is now repealed by the Duties Act 2001, the Stamp Act remains the relevant legislation by operation of s 512(1) of the Duties Act. -- 5 of 16 -- 6 [4] Section 4A(1) of the Stamp Act provided that, subject to exceptions in s 4A(2), an instrument chargeable with stamp duty under the Stamp Act shall not be given in evidence or be available for any purpose whatever unless duly stamped. On the face of the loan applications they have been submitted to the Office of State Revenue and an assessment made that Queensland duty is not payable. There is nothing to suggest on the face of the documents that they have not been duly stamped. Unless there is some compelling reason, the loan applications may be admitted in evidence. [5] The argument on behalf of the relevant plaintiffs was that the documents had not been “duly stamped” because s 67A of the Stamp Act appeared to apply to them and that they would be dutiable. However even on its face, s 67A permits categories of instruments to be stamped as not being chargeable with duty in Queensland. No facts were pleaded or evidence led to support a conclusion that the loan applications were not duly stamped. It is unnecessary to consider whether and, if so, to what extent a challenge to admissibility can be based on an argument that the court should go behind the apparently due stamping of a document. In light of s 22(5) of the Stamp Act which provides that every instrument stamped with the particular stamp, denoting either that it is not chargeable with any duty or is duly stamped, shall be admissible in evidence and available for all purposes notwithstanding any objection relating to duty, an objection raised in the way in which the present one has been raised cannot succeed (see Rothwells Ltd (in liq) v Connell (1993) 93 ATC 5106). Non-acceptance of loan application by thirteenth defendant [6] Paragraph 7A(a) of the amended Reply and Answer to the defence and counter claim pleads the basis of this defence as being that the thirteenth defendant never executed the loan agreement or otherwise communicated acceptance of the offer contained in the loan application to the particular plaintiff. It is admitted by the thirteenth defendant that it did not execute the loan agreements. However the thirteenth defendant submits that a number of factors point to acceptance of the offer contained in the loan application. [7] Acceptance by conduct is alleged to be a necessary inference from the receipt by each plaintiff of a letter from the tenth defendant (but not the thirteenth defendant) advising that the application had been accepted and, later, a letter of demand based on the existence of the agreement from the thirteenth defendant. In each case the loan application was an offer and the intention of the offeree to accept could be inferred because the offeree had performed acts contemplated in the offer. [8] By way of response to the thirteenth defendant’s arguments, it was submitted by the plaintiffs that if the acceptance was not communicated to the plaintiff the counter claim should fail. It was pointed out that the steps of participation in the scheme and the borrowing were essentially separate steps. It was also submitted that subsequent conduct in the form of a demand for payment was incapable of constituting acceptance. [9] The authorities relied on by the thirteenth defendant, Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 and Dover Fisheries Pty Ltd v -- 6 of 16 -- 7 Bottrill Research Pty Ltd (1995) 63 SASR 557 (which relied on passages from the former) were more concerned with the content of the contract formed between the parties but Empirnall is useful for its statement of the concept relied on by the thirteenth defendant. At 530, Kirby P inferred that the offeree assented to a printed form of contract tendered to it for signature by the offeror saying: “I reach that conclusion because I consider that the objective bystander, looking at all of the facts would conclude that Empirnall had accepted that Machon Paull was carrying out its performance of their agreement according to the printed contract which it had supplied and agreed to that course.” [10] McHugh JA with whom Samuels JA agreed, said at 535: “The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.” [11] Subject to remaining issues being resolved in favour of the thirteenth defendant there is ample basis for concluding objectively that there was acceptance of each of the plaintiff’s offers by the thirteenth defendant. Transactions entered into by various individuals and entities were consistent only with the thirteenth defendant having accepted and a contract in terms of the relevant documents having been formed. As the thirteenth defendant points out, although the thirteenth defendant did not formally communicate its acceptance, the letter from an associated entity, the tenth defendant, referring to acceptance of the particular plaintiff’s application was sent to each of them. It is evident that steps contemplated by the parties to be taken by the tenth and thirteenth defendants were carried out and that what were, at least at the time, believed to be benefits were availed of by the plaintiffs. I am satisfied that non-execution of the loan agreement and absence of formal acceptance by the thirteenth defendant are not fatal. [12] It was also submitted that the plaintiffs were estopped from denying acceptance because loan application fees were paid and participations in the project were received. Their absence of denial that a loan had been made or that they had applied to purchase participations founded the estoppel. I am satisfied that at the time when the agreements were entered into by relevant plaintiffs, each of them acted in the belief that they would receive the predicted tax benefits which were an integral component of the scheme. They accepted, without demur, the payments made on their behalf under the agreements which were instrumental in enabling them to claim benefits. While there was a spectrum of degrees of care taken by relevant plaintiffs to assure themselves of the validity of the claims made concerning the efficacy of the schemes under the law as it was then understood, the reality is that each, having applied to purchase participations, accepted the benefits promised under the agreements and the scheme. There is nothing to suggest that any plaintiff would have acted differently if he had been aware of the irregularity. There is no basis for avoiding the conclusion that as between each relevant plaintiff and the thirteenth defendant, an estoppel should operate with respect to whether there had been accepted by the thirteenth defendant. -- 7 of 16 -- 8 [13] Further, the thirteenth defendant submitted that the allegation that there had been no contract formed was an abuse of process because it had been pleaded by each plaintiff and admitted by the defendant that the plaintiffs had entered into the loan agreement and that loss comprising the liability pursuant to the loan agreement had been suffered by each plaintiff. It was submitted that this was evident because it was not pleaded as an alternative, as required by r 154 UCPR. Even if the allegation was intended to be considered as an alternative, I am satisfied that, for similar reasons to those expressed above, the underlying argument that no contract was formed would fail. No payment by thirteenth defendant to tenth defendant [14] Paragraph 7A(b) of the amended Reply and Answer to the defence and counterclaim pleads a denial that the thirteenth defendant lent the sum alleged or any other sum to individual plaintiffs on the basis that the thirteenth defendant did not pay the sum alleged or any other sum to the tenth defendant. [15] Documentary evidence led by the thirteenth defendant showed that, subject to issues discussed under following headings, a series of meetings of directors of the tenth defendant were held on various days in June 1999 (the last of which concluded at 11.35pm on 30 June 1999), at which bills of exchange of values between $455,000 and $500,500 were drawn on The Armidale Management Development Centre Pty Ltd, requesting that the sum in the bill be paid to the tenth defendant on demand. The value of each bill of exchange was the aggregate of loan amounts attributable to several investors including one or more of the plaintiffs, listed in a schedule to the documentation. [16] Sequentially down the document, below the request to pay the sum are the following: • Affixation of the seal of the thirteenth defendant with an assertion that it was done by authority of the board, with the signatures of a director Mr Blickling and the secretary Mr Ho affixed. • An endorsement “please pay to the order of Plantation Equity …..”. • Affixation of the seal of the tenth defendant in the same format as above. • “Acceptance by drawee Accepted for payment. Paid & Discharged.” • Affixation of seal of The Armidale Management Development Centre in the same format as above. [17] In respect of the bill of exchange relating to the seventeenth plaintiff’s participation, the format is the same except that neither the director’s nor the secretary’s signature is affixed. Mr Blickling who was a director of all three companies gave evidence that he had taken advice from a commercial and taxation solicitor, Mr Jessup, about the procedure to be adopted. Mr Blickling and Mr Ho sat together, signed the documents and affixed the seal sequentially on each occasion. He said that Mr Ho signed first, then he signed, and then he affixed the seal. He maintained this evidence under cross- examination although he said he could not explain how the documents relating to the seventeenth plaintiff’s contribution had come into existence without counter-signing having occurred. In particular he denied a suggestion that the seals had been affixed prior to the meetings. -- 8 of 16 -- 9 [18] It is not easy to understand how the document relating to the seventeenth plaintiff came to be in the form it is if the procedure sworn to was followed. It is not easy to see how the seal could have been applied if the two men were contemporaneously present and followed the procedure sworn to. It is much easier to explain the document’s form if the seals were affixed first and the signatures were not endorsed on it because the document was inadvertently not signed when the batch was being processed. The absence of both signatures increases the likelihood that both officers were unaware that the document had not been signed, and one explanation for that was that they were together when the failure to sign it occurred. If one had signed documents out of the other’s presence the likelihood of each failing to sign would be more remote. [19] It is not possible, on the state of the evidence, to draw a conclusion as to the sequence of events relating to execution of the documents in other cases. In particular, it would involve an unacceptable level of speculation to extrapolate, from the defect in respect of the document relating to the seventeenth plaintiff, to reach a conclusion that the sequence of events was not as given in evidence in respect of the documents relating to the other relevant plaintiffs. In any event, in the cases where the signatures have been affixed, the sequence of events is not critical. Article 84 of the thirteenth defendant’s articles requires only that the seal is to be used only with the authority of the directors and that “every document to which the seal is affixed” is to be signed and countersigned. [20] In respect of the seventeenth plaintiff, there has been non-compliance with the requirements of the Articles. However, in my view, that does not render the transactions invalid merely for that reason. [21] A chartered accountant, Mr Jennings, then a partner in the firm of which the thirteenth defendant was a client gave evidence that he had been involved in reconciliations of the books of the tenth and thirteenth defendants personally. He gave evidence that the bills of exchange were reflected in the accounts of each. If the documents are taken as genuine and represent what purports to have occurred, I am satisfied that this ground cannot be sustained. Other issues yet to be discussed concerning the nature and substance of the transactions may, however, impact upon that provisional conclusion. “Real Money” or Genuine Transaction in Performance of Obligations [22] There were competing submissions concerning the effect of the transaction involving the bills of exchange as a means of performing the obligations under the agreement. On behalf of the plaintiffs, it was not submitted that the transactions were a sham, but nevertheless it was submitted that they were governed by the same kinds of considerations as arose in Australian Horticultural Finance Pty Ltd v Jekos Holdings Pty Ltd [1997] QCA 440 and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2002] QCA 380. (Special leave to appeal has been granted in Equuscorp by the High Court). -- 9 of 16 -- 10 [23] On behalf of the thirteenth defendants, it was submitted that the transactions were of the same character as those involved in Howland-Rose v Commissioner of Taxation (2002) 118 FCR 61 (the Budplan Case). [24] In Jekos, the fundamental point was that the capacity to make the venture viable was to be derived from acquisition of units by investors obtaining finance from the financier. The “round robin” of cheque transactions was held not to be payment of the principal sum under the agreement. The financers had no funds to pay the sums involved in acquisition of the interests. The financers did not “lend” money and was held not to be entitled to recover the amount of the alleged loan. No loan had been made in reality. Although the factual issues in Equuscorp were more complex, the Court of Appeal held that the scheme was, in essence, of the same nature as that in Jekos. [25] Para 7A(c) alleges that to the extent that the thirteenth defendant purported to pay money to the tenth defendant, it sought to do so by a “round robin” transaction which was not payment of money. It was common ground that the nature of the obligation had to be construed from the relevant documents in conjunction with the factual matrix. [26] Counsel for the plaintiffs submitted that there was a focus on research and development in the prospectus with a view to commercialisation of the product. He drew attention to several sections in it referring to research fees and management fees. He submitted that the whole “Financial Options” section would suggest to a reader that money was to change hands. He submitted that the independent taxation expert’s opinion implied that there would not be a “round robin” financial arrangement. He relied on a passage at p21 of the prospectus to the effect that it was the independent taxation expert’s opinion that arms’ length, legally justified debtor-creditor relationships were created and that participants borrowed the relevant funds for the purposes intended. In the circumstances, they should not be caught by the ATO taxation ruling based on Fletcher v Commissioner of Taxation (Cth) (1991) 173 CLR 1 relating to “round robin” financial arrangements. Reference was also made to Recital B of the Loan Deed and other aspects of the documentation. [27] The fundamental point in the arguments is whether, factually, the series of transactions involving the bills of exchange fall within the category identified in Jekos and Equuscorp or whether they discharged the obligations under the transactions. The thirteenth defendant’s position was that as a matter of construction, the documents in the present case were distinctly different from those in Jekos and Equuscorp. There were, it was said, no indications of the kinds in those cases that cash payments were to be made. It was submitted that in this case, there were some indications that what was in contemplation was a series of transactions involving bills of exchange; it was apparent that the thirteenth defendant did not have funds of its own to advance. [28] The financial report for the year ended 30 June 1999, despite criticisms levelled at it, shows that Armidale Management Development Centre Pty Ltd was apparently operating profitably and had assets and positive shareholders’ equity. There is no compelling evidence that it could not perform its obligations. In my view, the transactions have not been shown to be ones which were not a proper means of -- 10 of 16 -- 11 performing the obligations under the agreement. The plaintiffs’ arguments to the contrary fail. No valid delivery of bill of exchange [29] Section 7A(d) of the amended reply and answer to the defence and counter-claim alleges that the thirteenth defendant did not comply with the requirement of delivery in order to effect negotiation of any bill of exchange by which it purported to pay money to the tenth defendant. The further and better particulars alleged that the requirements for delivery are those specified in the Bills of Exchange Act 1909 (Cth) and that there was non-compliance because there was no transfer of possession. [30] It was submitted by the thirteenth defendant with respect to this that the evidence of Mr Blickling established that the bills were validly negotiated. Reliance was placed on s 4 of the Bills of Exchange Act which defines delivery as “transfer of possession, actual or constructive, from one person to another”. Reliance was also placed on the concept that a person has constructive possession of an instrument when the actual possession is that of its servant or agent on its behalf and delivery may therefore be effected without exchange of actual possession. It was submitted that by parity of reasoning where two companies with a common director and secretary endorse a bill from one to the other under the hand of the same officer, the necessary constructive possession exists for the purpose of delivery. Reference was also made to a passage in Castrique v Buttigieg (1855) 10 Moo PCC 94 to the effect that a contract between the indorser and the immediate indorsee depends on their contract which arises out of the words, either spoken or written, of the parties in the circumstances under which the delivery takes place. [31] I am satisfied that there is evidence of delivery sufficient for the purpose of the law relating to bills of exchange. No authority to affix company seal to the bill of exchange [32] Paragraph 7A(e) of the amended Reply and Answer alleges that the thirteenth defendant did not accept the loan application because: (i) the thirteenth defendant did not endorse the bill of exchange; (ii) the signatories to the bill of exchange were not authorised to affix the seal of the thirteenth defendant to the bill of exchange, and (iii) the signatories to the bill of exchange knew that they were not authorised to affix the seal of the thirteenth defendant to the bill of exchange in that no meeting of directors or shareholders had occurred to authorise the affixation of the seal. This was a late amendment, not objected to by the thirteenth defendant, arising from late disclosure of documents including those comprising Ex 165. -- 11 of 16 -- 12 [33] Mr Blickling’s evidence was that at the time the transactions occurred in June 1999, there were two directors of the thirteenth defendant, himself and his wife. His wife, according to him, took no active role in the company’s affairs. There is no evidence putting the proposition more highly than this. In particular, there was no evidence of any formal resolution determining that Mr Blickling was authorised to act alone in respect of the company’s affairs. According to the prospectus Mr Blickling was one of two directors of the tenth defendant at that time. He and his wife were directors of Armidale Management Development Centre. There is an assertion on the face of the documents evidencing the bills of exchange and the transactions connected with them that the seal had been affixed with the authority of the thirteenth defendant but no evidence that authority had actually been given to do so. [34] Reliance was placed by the thirteenth defendant on article 68 of the articles of association which relevantly provides for a bill of exchange to be “signed and drawn, accepted, endorsed or otherwise executed” by any two directors or in such other manner as the directors determine. Reliance was also placed on that part of article 84(2) which requires every document to which the seal is affixed to be signed by a director and counter-signed by another director, the company secretary or another person appointed by the director to counter-sign it. [35] However the other part of article 84(2) provides that the seal shall be used only by authority of the directors or a committee of directors authorised to give authority for its use. The two parts of article 84 read together do not assist the thirteenth defendant’s argument in this regard. The counter-signing by Mr Blickling and Mr Ho complies with the requirement as to the manner of affixation of the seal but the underlying question of authority to do so is not resolved by that alone. Reliance on article 68 begs the question whether the directors had determined that the bill of exchange should be executed in the manner it was. [36] The assumptions available to a person dealing with a corporation by reason of ss 128 and 129 of the Corporations Law do not assist the corporation itself if validity of an act in respect of which the assumptions are available is challenged. The corporation must rely on other principles to support the validity of the transaction. [37] It was submitted in this regard that even if drawing of the bills of exchange by affixation of the seal was not authorised at the time, adoption of the transactions in the thirteenth defendant’s financial report for that year ratified them. It may be accepted that as a general proposition, an act or transaction done or entered into on behalf of a company may be validated by ratification by the directors. Ratification may in an appropriate case be inferred from part performance made or permitted by the corporation. Reuter v Electric Telegraph Company 6El & Bl 314 was concerned with an attempt by the company to resile from a contract informally entered into by the chairman of directors when sued by the other party. It is an example of a case where, for reasons developed at 348-9, the court was prepared to infer that the directors had been acquainted with the contract, approved of it and acted upon it. In Re Land Credit Company of Ireland; Ex parte Overend, Gurney, & Co (1869) LR4ChApp 460 was also relied on by the thirteenth defendant as supporting its position. This was also a case where a company sought to defend an action on the basis that a condition attached to the original authority to accept bills of exchange had not been complied with by the -- 12 of 16 -- 13 authorised director. Once again it was inferred from the lengthy history of dealings internally within the company with issues relating to the bills that they had been treated as having the authority of the board. See also London Intercontinental Trust Ltd v Barclays Bank Ltd (1980) 1 Lloyd’s Rep 241. [38] On the other hand cases can be found where circumstances relied on as supporting ratification were insufficient to do so (eg Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666, 685; Porteous v Donnelly [2002] FCA 862 paras [70], [72]). In Porteous v Donnelly, which concerned the estate of the mining magnate Lang Hancock, the proposition was raised that inclusion of transaction in the accounts of a company over a period of years amounted to evidence of ratification of the transaction. [39] The transaction was a much more complex and sophisticated one than in the present case. Hancock had sold his Life Governor’s share in a company to an associated company limited by guarantee (“the Foundation”). It was conceded that he was in control of the Foundation because of his control of a company holding the majority of voting rights. The issue was whether the Life Governor’s share had been acquired by the Foundation, at what was held to be a grossly inflated value, in breach of Hancock’s fiduciary duties as a de facto director. The strategy behind the sale was to release funds for Hancock’s personal use in a tax effective way and to protect the tax-exempt status of previous transactions. [40] The learned trial judge dismissed an argument that there had been informed ratification and authorisation by all members because the directors, who were accustomed to act in accordance with Mr Hancock’s wishes, knew that all of the members had or would have consented to the purchase. He held that there was an absence of evidence about the views of several members. He was not satisfied that an inference could be drawn that all directors and members would have consented, even though it was asserted that they were accustomed to act in accordance with Hancock’s wishes. [41] Further, they were unaware that there had been a breach of fiduciary duty and of other consequences inherent in the transaction. He was also satisfied that the directors had neither obtained independent advice nor given independent consideration to the Foundation’s interests. He said, at [70], immediately before: “For the consent of either of those groups to be capable of authorising or ratifying a transaction in breach of Mr Hancock’s duty it would need to be informed consent. By this I mean that there must be knowledge that the conduct that is being authorised or ratified involves a breach of fiduciary duty; Winthrop Investments Pty Ltd v Winns Ltd [1975] 2 NSWLR 666 per Samuels JA at 685.” With regard to a submission that if there had not been ratification and authorisation, equity would treat the situation as such, the learned trial judge said at [72]: “It was submitted by the applicant that subsequent to Mr Hancock’s death the conduct of HFMF’s members and directors is consistent with ratification of the transaction. Senior Counsel for the applicant, -- 13 of 16 -- 14 Mr Burnside QC relied on the fact that the transaction appears without comment in the accounts of HFMF over a period of years. I do not accept that this could per se, amount to ratification of the transaction. As Mr Coles submitted, this is an accounting matter. The company was not entitled to omit the transaction from its accounts. Whether or not a breach of fiduciary duty was involved, the transaction occurred and failing to record it in the accounts would not alter that. In my opinion this submission amounts to a claim that ratification can be assumed by mere knowledge coupled with lapse of time even if the period is within no relevant limitation period. Such a submission must be rejected. In my opinion there is no authority for the equitable position propounded by the applicant. Without clear and binding authority I would not accept that equity would adopt such an approach.” [42] In my view, the learned trial judge’s analysis and remarks reflect the particular facts of the case. It may be accepted that mere inclusion of a transaction in company accounts is by no means conclusive of ratification of the transaction and that there must be some demonstrable reason for drawing an inference that the transaction has become one accepted by the company as its transaction. In my view, the learned trial judge was not, in the context in which the remarks were made, purporting to express absolute rules applicable in every case. [43] In my view, the proper conclusion to be derived from the cases is that it is essentially a factual question whether there has been ratification of a particular transaction. In the present case, the director who effected the transaction probably acted without authority at the time through inadvertence. There is nothing to suggest concealment of the facts or dishonesty on the facts before me. As far as the evidence extends, subsequent acts were done on the assumption that transaction was validly put into effect. While a particular fact must be known to those ratifying before it can be said that the ratification has been an informed decision, the present case involves no more than a simple commercial transaction. [44] It is difficult to identify any distinct act of ratification. However, there is evidence that is uncontradicted and not improbable that the other director at the relevant time had effectively withdrawn from involvement in the day to day operations of the thirteenth defendant. Such evidence as there is suggests that she would have assented to the relevant transactions. There are none of the kinds of complications in them that led to the outcome in Porteous. In the end, it is a question whether there is sufficient evidence to establish that ratification can be inferred. Both Reuter and Land Credit were cases where the company sought to rely on the irregularity to defend an action, but that should not be a decisive consideration in applying the principle. [45] In my view, the plaintiff’s arguments on this aspect of the matter fail. The transaction involved was a simple lending of money as between them and the thirteenth defendant. Each party acted on the basis that the transaction was operative. Had the other director been involved actively, there is no doubt that she would have approved of it. There were no facts, apart from the non-authorisation of the transaction formally, which may -- 14 of 16 -- 15 have required deliberation on her part as to whether it should be assented to. Further, at a later stage, Mr Blickling became sole director. In the circumstances, I am satisfied that the lack of formal authority to affix the company seal is not fatal. Conclusion [46] Since none of the plaintiffs’ arguments has been made out, judgment on the counterclaim against each plaintiff must be entered, except to the extent that one part of the claim against the twenty-first plaintiff was abandoned at trial. Orders 1. I give judgment for the thirteenth defendant against the first plaintiff in the sum of $114,042.94 comprising the sum lent of $73,125 and interest in accordance with the agreement of $40,917.94, with costs to be assessed. 2. I give judgment for the thirteenth defendant against the fourth plaintiff in the sum of $53247.92 comprising the unpaid balance of the sum lent of $36,988.98 and interest in accordance with the agreement of $16,258.94, with costs to be assessed. 3. I give judgment for the thirteenth defendant against the seventh plaintiff in the sum of $68,460.84 comprising the unpaid balance of the sum lent of $47,557.11 and interest in accordance with the agreement of $20,903.73, with costs to be assessed. 4. I give judgment for the thirteenth defendant against the twelfth plaintiff in the sum of $53,247.92 comprising the unpaid balance of the sum lent of $36,988.98 and interest in accordance with the agreement of $16,258.94, with costs to be assessed. 5. I give judgment for the thirteenth defendant against the sixteenth plaintiff in the sum of $102,639.43 comprising the sum lent of $65,813 and interest in accordance with the agreement of $36,826.43, with costs to be assessed. 6. I give judgment for the thirteenth defendant against the seventeenth plaintiff in the sum of $91,234.35 comprising the sum lent of $58,500 and interest in accordance with the agreement of $32,734.35, with costs to be assessed. 7. I give judgment for the thirteenth defendant against the eighteenth plaintiff in the sum of $102,639.43 comprising the sum lent of $65,813 and interest in accordance with the agreement of $36,826.43, with costs to be assessed. 8. I give judgment for the thirteenth defendant against the nineteenth plaintiff in the sum of $60,853.64 comprising the unpaid balance of the sum lent of $42,272.50 and interest in accordance with the agreement of $18,581.14, with costs to be assessed. -- 15 of 16 -- 16 9. I give judgment for the thirteenth defendant against the twenty-first plaintiff in the sum of $80,515.48 comprising the unpaid balance of the sum lent of $55,930.56 and interest in accordance with the agreement of $24,584.92, with costs to be assessed. -- 16 of 16 --