AustLII [Home] [Help] [Databases] [WorldLII] [Feedback] MurUEJL

Murdoch University Electronic Journal of Law

You are here:  AustLII >> Australia >> Journals >> MurUEJL >> 2002 >>  [2002] MurUEJL 22

[Global Search] [MurUEJL Search] [Help]

Protecting Outsiders to Corporate Contracts in Australia

Author: Alan Krawitz
Student, Murdoch University School of Law
Issue: Volume 9, Number 3 (September 2002)

ACKNOWLEDGEMENTS

I am indebted to Professor Robert Forbes, my supervisor. Your extraordinary knowledge and practical understanding of company law is something I have admired. But, your superior ability to communicate it to students is something I have really appreciated. Thankyou for your invaluable contribution towards this paper. Jen and Gran, thankyou for your ongoing support over my last semester at law school. I must also acknowledge my two best friends, my dogs, who kept me company late at night whilst writing this paper. Lastly, but most importantly, mum and dad. Thankyou for your continuous support and love. Given the "learning challenges" I faced in my younger years, I certainly would not be writing this paper today if it were not for you two. I therefore dedicate this paper to the two of you.


Contents

    INTRODUCTION

  1. In practice, a company will usually enter into a contract with an outsider though an agent acting on the company's behalf. This paper analyses how the law protects a bona fide outsider, who contracts with a purported company "agent", from later claims by the company that it is not bound by the contract with the outsider because the purported company "agent" lacked authority. This analysis is undertaken in three parts.

  2. PART ONE considers how a company authorises agents to contract on its behalf. PART TWO considers how the law protects outsiders to corporate contracts by critiquing: 1. the common law ["CL"] indoor management rule ["IMR"]; and 2. the provisions in sections 128 and 129 of the Corporations Act 2001 (Cth)["CA"].[1] PART THREE analyses the need for, and the effectiveness of, the provisions in sections 128 and 129. It will be submitted that these provisions are needed to repair the CL's failings. However, they are complex in structure and may not afford outsiders the protection actually intended by Parliament. Therefore, further legislative reforms are needed.

    PART ONE: HOW A COMPANY AUTHORISES AGENTS TO CONTRACT ON ITS BEHALF

    CONTRACTING THROUGH COMPANY AGENTS

  3. A contract will only be binding on a company if it is entered into by an agent of the company with authority. This creates problems for outsiders who wish to enter into contracts with a company through the company's agents. Often an agent's authority will be "denied" by a company which later seeks to escape from a contract. Therefore, outsiders need to be certain that the agent with whom they are dealing has actual or ostensible authority to bind the company in the transaction.

    ACTUAL AUTHORITY TO ACT FOR A COMPANY

  4. Actual authority is the authority granted to an agent by a principal under a consensual agreement or contract to which they alone are parties.[2]

  5. In relation to companies, an agent's actual authority may stem from:

  6. Agents may be vested with express or implied actual authority to contract on a company's behalf.

    EXPRESS ACTUAL AUTHORITY

  7. Express actual authority is the actual authority of an agent created by a principal who purposely appointed the agent, whether orally, by deed or in writing. Typically, express actual authority is conferred on an agent by agreement with the principal. This agreement need not technically amount to a contract.[3]

  8. Where a principal expressly appoints an agent, the scope of the agent's actual authority will appear, if conferred by writing, from interpreting the deed or writing. However, if the appointment is oral, the scope of the agent's actual authority is determined from the principal's oral statement (subject to difficulties of proof inherent in any oral statement).

    The board's power to grant express actual authority

  9. The board has the power to grant express actual authority to persons to act for the company in matters over which the board has authority. The board's power to grant such authority to other persons is derived from section 198A or any similar internal governance provision. However, section 198A does not grant the board the power to appoint persons to do those things which the CA or the company's constitution requires the directors to do themselves. The situation is similar for a sole director/shareholder of a proprietary company under section 198E(1).

  10. When a board grants express actual authority, it passes a resolution in the appropriate form. Usually the passing of the resolution is enough to authorise the agent to engage in transactions on the company's behalf.

    IMPLIED ACTUAL AUTHORITY

  11. The principal's consent may be impliedly given. Implied consent arises when the conduct or statements of the parties towards each other makes it reasonable to infer consent.[4]

  12. Implied actual authority most frequently arises where an appointor appoints an appointee to a particular position to act on the appointor's behalf. It will be implied that the appointee has authority to do all things usually done by an appointee in that position. The extent of the appointee's authority is based upon the more specific idea of settled and well understood trade, business or professional usages and customs.[5]

  13. As previously stated, section 198A (or any similar internal governance provision) gives the board the power to grant authority to other persons to act for the company in matters over which it has authority. When the board appoints a person to a particular standard office, an implied actual authority will normally follow that appointment. Subject to some contrary indication it may be assumed that the board intended the appointee to have all the usual authority associated with that office.[6]

  14. Although the scope of an officer's implied authority may differ depending on the circumstances, it is possible to suggest general guidelines as to the "usual" authority of particular categories of company officers. These categories are now discussed.

    Managing director ["MD"]

  15. The board of a company having several directors, with the power to appoint[7] a person to the position of MD, may appoint a MD and confer on that person any of the powers which the directors can exercise.[8] Even if the directors do not expressly list the powers to be delegated to the MD, the courts have said that the mere fact of being appointed to that position involves an implied grant of actual authority to "do all such things as fall within the usual scope of that office".[9]

  16. The usual scope of a MD's powers depends on what is customary or usual for a MD in a similar company carrying on a similar business. The courts have suggested that:

    Individual directors

  17. In most multi-director companies, the company constitution or replaceable rules will usually confer management powers on the directors collectively as a board. An individual director will not usually be granted the power to bind the company. While the board can act collectively to pass resolutions that bind the company, an individual director does not have any implied actual authority to bind the company in contracts with outsiders.[15]

  18. For a single director in a multi-director company to have power to bind the company, the director must:

  19. In a proprietary company with only one director/shareholder, section 198E(1) (a mandatory rule) effectively confers all the company's powers on that director.

  20. Where a proprietary company has a sole director who is not the sole shareholder, the actual authority of the sole director may be limited by the company's constitution. This would mean that the director's actual authority is less than the wide authority given by section 198A. However the sole director may have implied authority to do what would usually be within the authority of a sole director of the kind of company in question. This might result in the sole director's implied powers being wider than his/her actual authority.[16]

    Company secretary

  21. In Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd[17] it was held that the company secretary is now considered to be a company officer with extensive duties and responsibilities and is no longer a mere clerk. The secretary can make certain representations on the company's behalf and can enter into contracts for the company which come within the day-to-day running of its business. The secretary also has implied actual authority to sign contracts relating to administrative matters, such as employing staff and ordering cars. The secretary can now be referred to as the company's "chief administrative officer".[18]

  22. In Northside Developments Pty Ltd v Registrar-General[19] ["Northside Case"] it was held that the position of company secretary would in many companies have attached to it the implied actual authority to countersign the affixation of the company's seal, and to witness the fixing of the common seal to documents which the company requires to be executed pursuant to a board resolution.

    Chairperson

  23. The chairperson is only one member of the board of directors, a body that acts collectively. The chairperson does not normally have the implied actual authority to make binding contracts on the company's behalf.[20] If the chairperson is a member of the company's executive management as well as being on the board of directors, then when wearing that "executive hat", he/she may have considerable powers to bind the company.

  24. There is case law to suggest that the chair does not have any more authority to bind the company than does any other director acting alone.[21] However, Ford[22] claims that there may be certain things that the chair of a public company is impliedly authorised to do which are beyond a single director's usual authority.

    Actual authority implied from acquiescence

  25. An example of acquiescence (similar to the following) is given by Hanrahan[23]

  26. Company_X has never appointed a MD. D, a director of Company_X, has been purporting to enter into transactions on Company_X's behalf. D has no express actual authority to do this, and no implied actual authority simply from being a director. The other directors are aware of D's actions and do nothing to prevent him from acting in this way. Here the courts say that the board of directors has "acquiesced" in what D has been doing. In effect: Often, the amount of implied actual authority involved will be the same as a MD would have in a similar company. This would be the situation where the person acting with the board's acquiescence has been doing the kind of things a MD of that type of company would usually do.[24]

    OSTENSIBLE AUTHORITY TO ACT FOR A COMPANY

  27. An agent's ostensible authority[25] is the authority as it appears to others, regardless of any limit to the agent's authority agreed between principal and agent.[26] Ostensible authority can arise as a matter of law even where the principal did not give consent. This is in contrast to actual authority which does not exist without the principal's consent, either expressed or by acquiescence.

    REQUIREMENTS FOR OSTENSIBLE AUTHORITY TO EXIST

  28. A company, just like an individual, can represent (by words or conduct) to an outsider that another person has a certain extent of authority. If the outsider becomes aware of the representation and, acting reasonably, transacts business with the apparent agent on the faith of it, the company will be estopped from denying the representation. The person held out by the company will be treated as having had ostensible authority.[27]

  29. For a company to be bound by acts of persons having ostensible authority to act on its behalf, several CL requirements must be satisfied. In Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd[28] ["Freeman & Lockyer"], Diplock LJ stated four conditions, three of which are relevant to Australian companies:[29]

    (1) Holding out

  30. There must have been a representation, by words or conduct, to the outside contracting party that the person purporting to act on the company's behalf did have authority to enter into a contract of the type in question on behalf of the company. That is, the agent must be "held out". The sort of conduct that can create implied actual authority can also amount to a representation for the purposes of ostensible authority. For example, acquiescence by the board can amount to a representation by the board.[30]

    (2) By someone with actual authority

  31. The representation or conduct must emanate from the company, or someone with actual (as opposed to ostensible) authority to act for the company either generally (for example, the MD) or in relation to the things to which the contract relates. The actual authority may be found in the company's constitution or some act taken pursuant to the constitution.

    (3) On which the other person relied

  32. The person making the representation must have intended it to be relied upon and it must be shown that the representation was in fact relied upon.

    SITUATIONS WHERE OSTENSIBLE AUTHORITY WILL NOT BE FOUND

  33. An outsider cannot claim a contract with any supposed principal where the outsider has knowledge that there was no actual authority given to the "agent". Furthermore an outsider cannot argue for an ostensible authority if a reasonable person in the outsider's position would have had doubts as to whether the "agent" had the authority to enter the transaction.[31]

    RATIFICATION

  34. Ratification is where a company adopts the actions of a person who (without the company's actual or ostensible authority) purports to contract on the company's behalf. Where a company adopts a contract made by an "agent" on the company's behalf, the company is bound by that contract as if the company had made it personally.[32] Ratification operates as a retrospective grant of actual authority to the agent.[33] The principal-agent relationship is deemed to have existed as from the time of the contract. Certain requirements need to be met for a valid ratification, including:

    PART TWO: PROTECTING OUTSIDERS TO CORPORATE CONTRACTS

    BALANCING COMPETING INTERESTS

  35. The law protecting outsiders to corporate contracts is formulated to balance competing policy issues. To illustrate, assume D, a director of Company_X, purports to enter into a loan agreement on Company_X's behalf with O, a bank. Later, Company_X claims that it is not bound by the agreement because D acted without authority. Although the "correct" signatures are on the document, Company_X claims that D had no "substantive" authority to enter into the transaction on its behalf.

  36. Should Company_X be able to escape from the agreement because O failed to investigate D's actual authority? Alternatively, should there be a rule which entitles O to assume that D had authority in order to promote "efficient business" transactions, even if this may penalise Company_X and indirectly its shareholders and other creditors?

  37. There are two competing interests which need to be balanced here. The first interest is the promotion of "business convenience" "which would be at hazard if persons dealing with companies were under the necessity of investigating their internal proceedings in order to satisfy themselves about the actual authority of officers and the validity of instruments".[34]

  38. The second interest is the protection of innocent shareholders and creditors of companies. Caution must be taken not to over-extensively apply the first interest. Mason CJ[35] explains that an over-extensive application of the first interest might "facilitate the commission of fraud and unjustly favour those who deal with companies at the expense of innocent creditors and shareholders who are the victims of unscrupulous persons acting or purporting to act on behalf of companies."

  39. The CL, through the doctrine of "indoor management", and the legislature, through sections 128 and 129, have adopted more of a "business convenience" approach to protect outsiders dealing with companies. This policy of "business convenience" requires that the efficacy of business transactions generally is put above the financial and other interests of the innocent officers, members and creditors of a particular corporation. However it seems that the CL and the legislature differ on the extent to which the balance should be tilted towards outsiders. The CL and statutory rules, which extend greater protection to outsiders, are now discussed.

    THE COMMON LAW 'INDOOR MANAGEMENT RULE'

    PRESUMING REGULAR INDOOR MANAGEMENT

    Background

  40. At CL, if an outsider entered into a contract with a person who purported to act for the company but who did not have the relevant authority, the contract was (unless ratified) voidable at the company's option. This was considered a harsh outcome for outsiders (especially creditors) who dealt with the company in good faith, and who had no means of establishing that all the necessary internal approvals and requirements had been satisfied.[36] To overcome this problem, the CL developed the indoor management rule ["IMR"], also known as the rule in Royal British Bank v Turquand[37] ["Turquand's Case"].

    The rule explained

  41. When a company's board of directors wants to give an agent actual authority, some procedural conditions must be fulfilled.[38] If these conditions are applied strictly, they may include requirements that:[39]

  42. The issue is: should a bona fide outsider be expected to prove that all these and any other conditions were fulfilled?

  43. Under the IMR, an outsider dealing with a company in good faith and without any notice or reasonable grounds for suspicion of irregularity or impropriety is not affected by any actual irregularity or impropriety in a matter of internal regulation or management. This means an outsider is relieved from the need to check whether internal action has been taken and may assume that all the company's internal steps have been fulfilled. The assumption is called the rule of indoor management because it covers all those matters inside the company's management which are not public.[40] Applying the IMR requires identification of those acts regarded as ones of "internal management". The outsider can assume that[41] Although the occasions for applying the IMR mainly involve persons contracting with a company, it can be applied to assist persons having other dealings in relation to a company.[42] Furthermore, the IMR is not confined to companies: it applies to other private corporations.[43]

    Example

  44. An outsider dealing with the MD or a company is not bound to ensure that the board meeting at which the MD was appointed was properly convened and had the requisite quorum. These are matters of internal management between the company, its members and officers, in respect of which the outsider may remain aloof.

    EXCEPTIONS TO THE 'IMR'

    "Actual knowledge" of irregularities

  45. The IMR will not apply where an outsider has "actual knowledge" about an irregularity at the time of entry into the transaction. Actual knowledge requires subjective knowledge. However, the IMR will not apply if the court discovers that the outsider deliberately "kept his/her eyes shut" in order not to discover an irregularity that they thought existed.[44]

    "Put on inquiry" exception

  46. A court will deny the outsider the benefit of the IMR where[45]

  47. The leading authority is the Northside Case[46] which illustrates that although a person is found not to have known about an irregularity, he/she may, as a matter of law, be supposed to have known what was discoverable if a reasonable person would have made inquiries after being prompted to do so by something learned. The facts in which someone fails to inquire after being put on inquiry may differ - in one situation the facts known may be such as would make it obvious to a reasonable person that something was definitely wrong. In another situation the facts known may raise only a question in the mind of a reasonable person as to whether something is wrong. Nevertheless, under the IMR, a failure to inquire in either situation would disallow the outsider from assuming that everything was "correct".[47]

  48. The Northside Case[48] determined that a reasonable person would usually be prompted to make inquiries if on the facts there is an apparent absence of a benefit to a principal of an agent or a beneficiary of a trust; for example where a company's asset is being charged to secure a loan to an unrelated company at the request of a common director without any apparent benefit to the charging company.

    Constructive Notice v Section 130

    Former position

  49. At CL, there was a doctrine of "constructive notice" whereby an outsider dealing with a company was deemed to have notice of all the company's public documents.[49] The outsider was barred from relying on the IMR in circumstances where:[50]

  50. In Irvine v Union Bank of Australia[51] the court would not apply the IMR where the outsider could search public registers. That case was decided at a time when the doctrine of constructive notice of information on public registers operated generally. As the IMR operated subject to the doctrine of constructive notice, the information in documents lodged with the regulatory authority were considered to be notionally known to an outsider. An outsider could not make assumptions in respect of documents of which he had constructive notice. The doctrine of constructive notice overreached any question of whether the outsider as a reasonable person was put on inquiry as to the existence of restrictions and any question whether the outsider had failed to make the inquiries that a reasonable person would make. An outsider would have to search the register to see what knowledge would be attributed to him/her.[52]

  51. An outsider dealing with a company was therefore denied the benefit of any doctrine of usual authority and was fixed with constructive notice of the contents of the company's public documents, including any relevant restrictions on the board or any officer. The doctrine was a counter-balance to the IMR. It arbitrarily shifted the onus back to the outsider (to search the register) without considering whether the doctrine of constructive notice, a doctrine sometimes thought not suitable to commercial transactions, should be imported.[53]

    New position

  52. The operation of section 130 abolishes the doctrine of constructive notice in relation to documents lodged with ASIC. However that section retains the doctrine for documents lodged with ASIC where the documents relate to a charge that is registrable under Pt 2K.2.

  53. Section 130 represents a policy change that favours outsiders. That policy change allows the IMR to operate broadly and without the doctrine of constructive notice. Furthermore it has enabled the CA to abolish the requirement for proprietary companies to lodge with ASIC any constitution it may have adopted because such lodging is now of no benefit to the company. A company is no longer able to escape liability under a contract by arguing that an outsider should have been aware of certain restrictions (in its constitution) placed on the company's powers.

    The company cannot benefit from the IMR

  54. A company cannot rely on the IMR for its own benefit. The IMR protects persons who want to enforce a transaction with a company and who are unable to know the company's internal workings.[54]

  55. Where a company and another person, Z, are together trying to uphold a certain transaction against a claim by a third party that the transaction is invalid, the rule can apply for the benefit of Z. The rule can apply even though the company has the same interest in upholding the transaction as Z.[55]

    Cannot use IMR to assume that a power to appoint an agent has been exercised

  56. The better view seems to be that there must be something more than the mere existence of a power within a company's constitution, for instance the power to appoint a MD (which may or may not have been exercised), upon which to base an apparent exercise of authority which will bind the company.

    Example

  57. The power to appoint a MD will usually be derived from a company's constitution or section 198C. A person who is appointed to MD of a large company will have a wide amount of implied actual authority to bind the company in a contract. It seems that the IMR does not apply so as to allow an outsider to assume that a single director with whom they have been dealing has been made MD of the company.

  58. The existence of a provision in the company's constitution under which authority might be conferred, if known to the to the outsider, is a circumstance to be taken into account in determining whether that person is being held out as possessing that authority. It may be consistent with that person having the authority which he/she purports to have. However, before an outsider relying on the IMR is entitled to assume that an appointment has been made, the company must have made some representation of agency such that an outsider acting reasonably could conclude that an appointment had been made.[56] If every power of appointment could be assumed to have been exercised, most companies could be committed to a transaction by a single director and the principle of collective administration by the board would be subverted.[57]

    The IMR cannot benefit an insider

  59. In Morris v Kanssen[58] the court gave two reasons why the IMR cannot benefit an insider of the company (such as a director). The first reason was that a director is not for the purpose of the IMR in the same position as an outsider. The IMR was designed to protect outsiders who had no means of knowing the company's internal workings. Therefore a director is prevented from relying on the rule.

  60. The second (narrower) reason given was that the transaction involved a director who purported to act on the company's behalf in the transaction with himself. It was this director's duty to know the company's internal procedures. Therefore the director could not use the IMR to his own advantage by claiming that he did not know whether things had been done properly.

    THE CONTINUED ROLE FOR THE INDOOR MANAGEMENT RULE

  61. The IMR is now contained in sections 128 and 129, although the IMR still has residual application.[59] The IMR may still assist an outsider and will continue to be relevant to companies for:

  62. Sections 128 and 129 contain assumptions which may, like the IMR, assist an outsider. These assumptions are now discussed.

    THE STATUTORY ASSUMPTIONS OUTSIDERS DEALING WITH COMPANIES MAY MAKE

    BACKGROUND

  63. In 1984 the legislature attempted to modify the rules about actual and ostensible authority along with the IMR through sections 68A -68D of the Companies Code 1981. Those original legislative provisions were re-enacted into sections 1[64] to 166 of the Corporations Law 1989. In 1998 these legislative provisions were reformed by the Company Law Review Act 1998 (Cth) ["CLRA"]. Since their inception these legislative provisions have received considerable judicial and academic consideration.[63]

  64. The purpose behind the provisions was to ensure that an outsider, who deals in good faith with persons who can be reasonably supposed to have the authority of the company, is protected against later claims by the company that the persons purporting to act for it lacked authority.64 The provisions, which are now contained in sections 128 and 129 of the CA, provide added protection to outsiders by allowing outsiders to make certain assumptions "in relation to dealings with a company". In legal proceedings, the company cannot argue that the statutory assumptions are incorrect. However outsiders may not rely on the assumptions if they "knew or suspected" that the assumptions were incorrect.

  65. The statutory assumptions overlap with the CL principles discussed above. They are an alternative mechanism for an outsider who is trying to ensure that a company performs its obligations under a contract that is technically defective due to an irregularity in the way the company entered the contract.[65]

  66. Sections 128 and 129 apply only to contracts executed after 1 July 1998. The law governing pre-1 July 1998 contracts are the statutory predecessors to section 129 (if any) that were in force on the date the contract was executed. The pre-1 July 1998 statutory assumptions are worded differently to sections 128 and 129. Due to this change in wording, those cases interpreting the former assumptions must be treated with caution before relying on them for contracts executed post-1 July 1998.

  67. To date, there have been no cases decided on the current wording of sections 128 and 129. Consequently there is much "confusion" as to the scope and application of nearly all the assumptions. The remainder of PART TWO addresses this "confusion" by critiquing sections 128 and 129.

    THE ENTITLEMENT TO MAKE ASSUMPTIONS

    Who can rely on the assumptions?

  68. Persons "dealing" with companies may make assumptions: section 128(1)

    Section 128(1) provides:

    "A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect."

  69. A person may make the assumptions in section 129 in relation to "dealings" with a company. In Gye v McIntyre[66] the court said the word "dealings" is of "very wide scope which embraces far more than a legally binding contract or deal". The term has been given a wide interpretation to include:

    Only persons having dealings with the company may make assumptions

  70. An issue arising from the wording of section 128(1) is that the section can be interpreted as allowing anybody to make the assumptions in section 129 (not just a person dealing with the company) provided that the assumptions being made are in relation to dealings to which the company is a party. To illustrate this issue, assume O purports to enter into a contract with Company_X. TP becomes interested in this transaction. A question arises about the proper execution of that contract by Company_X. Can TP take advantage of O's dealings with Company_X and make one of the assumptions in section 129 in relation to Company_X's participation in that dealing with O?[70]

  71. According to Ford[71] the better view is that TP cannot plead reliance on the assumptions in section 129. Only O may make one of the section 129 assumptions. Section 128(1) is probably best interpreted as referring only to a person who is dealing, or purports to deal with a company. A third party (that is, a person/company that is not a party to these dealings with Company_X) probably cannot rely on the statutory assumptions.[72] This view is supported by section 128(2) which allows a person to make the assumptions in section 129 in relation to dealings with another person who has directly or indirectly acquired property from a company. If section 128(1) was read to allow TP to make a specified assumption in relation to O's past dealing with Company_X, section 128(2) would have no real use.[73] In support of this conclusion, the Explanatory Memorandum ["EM"] to the CLRA in para 8.7 states that "New Pt 2B.2 deals with assumptions that can be made about a company by a person dealing with the company ...".

    A person currently dealing with the company making assumptions about past dealings between the company and a third party

  72. Does section 128(1) permit a person who is currently dealing with a company to make the assumptions in section 129 in relation to past transactions between the company and a third party? This question can be illustrated as follows. Assume O_Corporation is currently dealing with Company_X for the purchase of business assets. To determine with certainty Company_X's title to the assets to be purchased, O_Corporation needs to be assured that certain contracts made by Company_X with TP were "validly" entered into by the directors with the relevant authority and who were correctly appointed. Can O_Corporation make the assumption in section 129(2) that the directors had the relevant authority and were duly appointed, even though they are assumptions about past transactions between Company_X and TP?[74]

  73. According to Ford[75] it is arguable that even though they are assumptions about past transactions, they are nevertheless assumptions "in relation to" the current dealings with Company_X . However, without judicial confirmation, the position remains unclear.

    Where a third party asserts that there was an irregularity in an earlier dealing between the company and an outsider

  74. The CL IMR can apply where someone other than the company asserts that there was an irregularity in an earlier dealing with a company. However according to Gummow J in ACT Pty Ltd v Minister for Transport and Communications[76] ["ACT Case"], sections 128 and 129 would be inapplicable in that situation. Assume O sues TP for damages in tort for inducing Company_X to break its contract with O. TP denies formation of the contract on the ground of an irregularity in Company_X's internal management. O could possibly rely on the CL IMR to meet the allegation by TP. That is, because O has had dealings with Company_X in the past, O can rely on the CL IMR in relation to that dealing against TP who questions whether Company_X became bound in the dealing.[77] However according to Gummow J, sections 128 and 129 would be of no use to O because it is TP (rather than Company_X) who is asserting that there was an irregularity in an earlier dealing between Company_X and O.

    The outsider need not have actually made the assumption(s) in order to rely upon them

  75. It is not necessary for the outsider, who is dealing with the company, to actually make the assumptions in section 129 in order to rely on them. In Lyford v Media Portfolio Ltd[78] Nicholson J said (in relation to the predecessor assumptions) that [sections 128 and 129] refer to the outsider's entitlement to make the assumptions. Sections 128 and 129 do not make any requirement that an assumption be proven to have been made. They do not operate to impose obligations of proof on the outsider that the outsider actually made the assumptions that the outsider is now intending to rely upon.[79]

    Dealings concerning title to property from a company: section 128(2)

  76. Section 128(2) provides:

    "A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect."

    Section 128(2) allows the assumptions in section 129 to be made in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company.

  77. Included within the ambit of section 128(2) is the situation where the company transfers (or purports to transfer) property it owned to another person. For example, O deals with Company_X and as a result Company_X purports to transfer its estate in fee simple in Redacre to O. TP and O engage in dealings in relation to Redacre. An issue arises about the validity of the transfer of Redacre by Company_X to O. Here section 128(2) enables TP to make use of the assumptions contained in section 129.

    Relying on the assumptions in the presence of forgery: section 128(3)

  78. In cases which attract sections 128 and 129, the provision in section 128(3) about forgeries can lead to a company being bound by a document which bears a forged sealing.

    Section 128(3) provides:

    "The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings."

  79. The purpose behind section 128(3) is to protect persons dealing with a company by imposing responsibility on a company for the fraud of its officers and agents and those held out as having the authority of officers and agents. When is a document a "forgery"? At CL, the courts use the forgery concept in a narrow sense and a wide sense:[80]

  80. At CL, the IMR cannot apply where there is a forgery in the narrow sense.[81] Where there is a forgery in the wide sense, some courts[82] have held that the IMR still cannot apply. However, other courts[83] have expressed the view that where the seal and signatures are genuine, the question is whether the seal and signatures were affixed by persons held out by the company to have authority to do so. If so, the IMR would apply.

  81. In relation to section 128(3), it is submitted that its exact operation is unclear because it does not explain the meaning of "fraudulently" or "forge". As explained, the courts at CL have differed in their interpretations of the meaning of "forgery" and whether it was a true exception to the IMR. It is therefore unclear whether section 128(3) is directed at:

    Who cannot rely on the assumptions: section 128(4)

    Correctly interpreting section 128(4)

  82. Section 128(4) provides:

    "A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect."

  83. It is submitted that section 128(4) should be interpreted as requiring the company to convince the court to make a finding of fact that the persons who are attempting to rely on an assumption actually knew or suspected that the assumption was incorrect. It is submitted that section 128(4) applies the same test of knowledge or suspicion to anyone who seeks to rely on the assumptions. However, not all commentators agree with this interpretation.

  84. Section 109H provides that in interpreting a provision of the CA, a construction that would promote the purpose or object underlying the Law is to be preferred to a construction that does not. Section 109J(3) provides that the EM and the Parliamentary second readings speeches are materials which may be considered in determining the purpose or object of the CA. So although not determinative, the EM to the CLRA (para 8.7) can be used as an aid to interpretation. It states:

    "This objective test is stricter than the current law and makes it clear that the common law 'put on inquiry test' has no application to the statutory provisions".

  85. Despite the strange reference to an objective test, section 128(4) seems to expressly exclude the former objective test[84] of whether a person's relationship with the company meant they 'ought to have known' that an assumption was incorrect. Section 128(4) changes the concept from what an outsider ought to have known or should have done, to one of the actual knowledge or suspicion of the outsider.[85] In the past, when courts have been faced with legislation referring to a person "knowing" something, they have required a subjective knowledge or subjective suspicion.[86] Using prior interpretation as a guide, it might be inferred that the same construction of "knew" and the process of finding knowledge that the courts have used in relation to other statutes will apply to section 128(4). According to Loxton[87] the position is clear:

    "It is clear to me, particularly in light of the wording of the Explanatory Memorandum, that the state of mind required is actual knowledge, rather than constructive knowledge; and actual suspicion, rather than the more usual test (which appears in the insolvency provisions of the Corporations Law and in the Bankruptcy Act) of 'having reasonable grounds to suspect'".

  86. The above interpretation of section 128(4) has not been accepted by all commentators. According to Hammond[88] the test of "knowledge and suspicion" in section 128(4) is unclear. Hammond speculates[89] that the test may be objective stating that "a likely interpretation of section 128(4) is that a person will not be entitled to make an assumption if, at the time of their dealings with a company, and taking into account all of the circumstances, a reasonable person in their position would have had a real apprehension or fear that the assumption was incorrect". Hammond then goes on to conclude that the application of the new wording in section 128(4) is unlikely to produce results which are any different from the cases dealing with the CL "ought to know" and "put upon inquiry" exceptions.

  87. It is submitted that an objective interpretation of section 128(4) is incorrect and inconsistent with the intention of Parliament. The second reading speech states that: "the assumptions that third parties may make about the internal management of a company have been strengthened."[90] This reference to the assumptions being "strengthened", when read in conjunction with the reference in the EM that the test in section 128(4) "is stricter"[91] clearly seems to create a provision which is more favourable to outsiders than that which existed under the earlier law. Furthermore, the fact that the legislature has not used the phrases "put on inquiry" or "ought to know", which have distinct legal meanings, implies that those objective tests are not intended to be incorporated. That means that it is Parliament's intention that section 128(4) must, at the very least, be interpreted to produce results which are "different"[92] from the cases dealing with "ought to know" and "put upon inquiry".

    A corporation's state of mind

  88. Where the outsider is a corporation, who has to do the "knowing or suspecting" is not straightforward. A corporation knows or suspects what its controlling mind knows or suspects.[93] Under the doctrine of identification, a company acquires whatever information is known by its board of directors and, in general, anything which its individual directors and agents have a duty to tell it. That will extend to employees of the corporation to whom managerial powers have been delegated.[94]

  89. In a proprietary company which only has one director, the company knows whatever that director knows.[95]

    Company must prove "actual" knowledge or suspicion to disentitle

  90. It has been submitted (above) that section 128(4) concentrates on actual knowledge and state of mind. The section requires proof that a person actually knew or suspected an irregularity. Proof that a person knew or suspected an irregularity may be:

    As actual knowledge is tested subjectively, the inference (which the court can make) may be made on the basis of the person's statements and conduct, his/her circumstances and facts certainly known to that person from which he/she could make conclusions of fact by deduction. For example: O, an outsider, is seeking to rely on the assumptions in section 129. O denies knowing that D was not appointed as a director. The court, in reaching its decision on whether O is telling the truth or not, can consider (and draw inferences from) O's conduct as well as what O claims to have know or not known.[96]

  91. The court, in arriving at an inference whether O had knowledge, may take into consideration the conclusions that a hypothetical reasonable person in O's position would have drawn from the facts known. The court may then presume that O would have reached the same conclusions. However the court's view of what a reasonable person would know cannot be conclusively attributed to O because section 128(4) requires actual knowledge. O can deny that he/she knew or suspected, at the time of the dealings, that the particular assumption was incorrect. It is then a question of whether the court believes O's denial.[97]

  92. For the purposes of section 128(4), in determining whether there is a basis for drawing an inference of knowledge or suspicion, the court may give consideration to the experience and general knowledge possessed by the person who claims to make a section 129 assumption. If O has little commercial or legal experience, O may be able to show that he/she did not know or suspect any irregularity, and therefore O will be able to rely on an assumption. Conversely if, in the same circumstances, O is a commercial lawyer, it might be easier for the court to infer that O did have knowledge or suspicion, and therefore O will be prevented from relying on the same assumption.[98]

    Inferring actual knowledge from a calculated omission to inquire

  93. A dishonest failure to inquire (which is something more than mere negligence) may lead to an inference of actual knowledge. In the context of liability for knowing participation in another's breach of fiduciary duty, the Court of Appeal in USSC v Hospital Products International Pty Ltd[99] was of the view that an intentional (dishonest) failure to inquire, for fear of unearthing fraud or breach of duty, or the unreasonable failure to recognise fraud or breach of duty, may well be equivalent to actual knowledge of the fraud or breach of duty.[100] In these circumstances ignorance of the fraud or breach of duty is a "mere affectation and disguise".[101]

    The test to determine if a person "suspected" that an assumption was incorrect

  94. A company may be unable to persuade the court that the person "actually knew" that an assumption was incorrect. Nevertheless the company may still be able to preclude the person from relying on that assumption if the company can show that the person "suspected" that the assumption was incorrect. However it is not enough for the company to merely show that the person should have suspected that the assumption was incorrect. The company must show that the person had an actual suspicion (at the time of the relevant dealings) of the truth.

  95. In the context of bankruptcy law a useful definition of "suspect" was given by Kitto J in Queensland Bacon Pty Ltd v Rees[102] as follows:

    "A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension of mistrust, amounting to a slight opinion, but without sufficient evidence. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence."

    In the same case, Barwick CJ said[103] "it is one thing to suspect a man's solvency in the sense that one doubts whether he is solvent or insolvent. It is another thing to suspect that he is in fact insolvent".

  96. In another case[104] it was held that "the word 'suspect' requires a degree of satisfaction, not necessarily amounting to belief, but at least extending beyond speculation as to whether an event has occurred".

  97. Therefore to "suspect" does not necessarily require a belief that something is occurring. To "suspect" requires something more than merely considering the possibility. It requires a degree of satisfaction extending beyond speculation.[105]

    Example

  98. Assume the MD of Company_X, who appears on ASIC's public records, negotiates a contract on Company_X's behalf with O. O does not know the MD's position and has not formed an opinion on the matter. O might wonder whether the MD was validly appointed and whether the MD had the usual authority of a MD. That itself would not produce a case of "suspicion" on O's part. Even if it can be inferred that O had learned something which would cause a reasonably prudent person to make inquiries, that will still not amount to "suspicion". O could be alerted to make inquiries without having formed an opinion and without knowing that the MD had not been correctly appointed and that the MD lacked the usual authority.[106] Here section 128(4) will not prevent O from making the assumption in section 129(2) about the MD's appointment and extent of authority.

  99. In this sense, Hanrahan[107] observes that, section 128(4) is "narrower"[108] than the CL "put on inquiry" exception. Under the CL IMR, if O had seen something which would make a reasonable person inquire, this would preclude O from being able to justify an assumption that all was well. In the context of section 128(4) O will be found to have "suspected" only if the company can show, probably by inference, that O had formed a positive opinion, however weak, that there was something irregular about the MD's appointment or the scope of MD's authority. Therefore, as noted by Ford[109] while every case of "suspicion" in the sense described by Kitto J[110] would be a case of being "put on inquiry", not every case of being "put on inquiry" amounts to "suspicion".

    An expectation of prudent conduct from persons dealing with the company

  100. In requiring proof that a person actually knew or suspected, section 128(4) does not contain any expectation that a person dealing with the company will as a matter of prudence typical of reasonable persons initially make inquiries on the matters on which section 129 assumptions can be made. A person dealing with a company is free to make no inquiries about those matters. However, as suggested by Ford[111] there may be something in the state of affairs at the time of the dealings which, upon examination of the evidence, enlivens an expectation of prudent conduct by a court. This expectation may lead the court to draw an inference of knowledge, or suspicion, of an irregularity where it is not persuaded by a denial. Ford[112] gives a similar example to the one outlined below.

    Example

  101. An experienced loans officer of a bank authorises a loan to Company_X. This loan is to be secured by a mortgage over the property of Company_Y. The loans officer is aware that the person acting for Company_X is a director of both companies and that only Company_X is to gain a benefit from the loan. At CL the bank could not rely on the IMR because the loans officer will be found to have been "put of inquiry" by what he knew.[113] Under section 128(4) the issue would be whether the bank officer in fact suspected irregularity. The court would probably think that as a matter of prudence the hypothetical bank officer with the same experience would have made inquiries. In weighing the evidence of a denial the court might well expect experienced loans officers to be suspicious. That expectation would favour the drawing of an inference that the actual officer suspected. This may lead the court to disbelieve the loan officers denial of suspicion.

    RE-BALANCING THE INTERESTS

  102. Before examining the assumptions in section 129 that persons dealing with a company are entitled to make, one must realise that if the submissions made in relation to section 128(4) are correct, the result is that the legislature will have tilted the "balance" in favour of outsiders to a greater extent than that at CL.

  103. At CL, in order to prevent an "over-balance" in favour of outsiders, the courts have thought it appropriate to place an obligation upon a person dealing with a company to make further inquiries if that person is "put on notice" about an irregularity. In these circumstances it is thought that the cost imposed upon a person making the further inquiries or obtaining proof of authority for a particular transaction would be minimal. Furthermore, Mason CJ[114] believed that "such a principle will compel lending institutions to act prudently and by so doing enhance the integrity of commercial transaction and commercial morality".

  104. It is for this reason that Lipton[115] has criticized the submitted interpretation of actual "knowledge and suspicion" in relation to section 128(4). Lipton argues that this interpretation tends to encourage banks and others dealing with a company to "don blinkers" when faced with warning signs. That point was observed by the court in Morris v Kanssen[116] Here the Court stated that this interpretation may "encourage ignorance and condone dereliction of duty" where lenders fail to make reasonable inquiries. Lipton further argues that by failing to make reasonable inquiries, a person dealing with a company may unwittingly assist company officers in breaching their duties and acting without authority to the detriment of the company, its innocent shareholders and creditors. Lipton seems to favour an "objective" interpretation of "suspicion" for section 128(4) suggesting that it should prevent "a person from making a section 129 assumption if the circumstances surrounding the dealing would result in a reasonable person suspecting the assumption is incorrect".

  105. Finally, Clark[117] argues that it is desirable for persons who are in business to be taken to have knowledge of what is customary authority in the industry in which they work. Clark claims that virtually all businessmen will in fact have such knowledge and a rule based on what each outsider "actually" believed would "simply invite litigation and perjury".

  106. For these reasons the courts[118] in relation to the predecessor of section 128(4), were reluctant to depart from the CL "put on inquiry" formulation unless "more direct and clear language"[119] was given which indicated that the CL test was to no longer apply. It seems those decisions were based on the presumption against altering the CL.[120] Nevertheless, even if those decisions can be justified on the basis of this presumption, a consideration of the value of this presumption should be undertaken given the current emphasis by the courts on examining the purpose of the legislation.[121] Clearly the purpose of these latest statutory reforms was to afford greater protection to outsiders dealing with companies than was previously accorded to them under the CL.[122] For this reason and those previously given, it is submitted that as Parliament intended section 128(4) to tilt the "balance" further in favour of outsiders, it should be interpreted as requiring subjective knowledge or subjective suspicion. The assumptions in section 129 are now discussed.

    THE ASSUMPTIONS IN SECTION 129 THAT PERSONS DEALING WITH A COMPANY ARE ENTITLED TO MAKE

    The statutory indoor management rule: section 129(1)

  107. The assumption in section 129(1) is concerned with the company's constitution and any replaceable rules in the CA that apply. Section 129(1) provides:

    "A person may assume that the company's constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with."

    Section 129(1) represents a statutory adoption of the CL IMR. As previously discussed, under that rule persons contracting with a company and dealing in good faith may assume that acts within the company's constitution and powers have been properly and duly performed, and are not bound to enquire whether acts of internal management have been regular.[123]

    Example

  108. Assume Company_X's constitution requires authorisation for the use of its seal by the directors and attestation by a director and secretary. D purports to affix Company_X's seal to a mortgage and S purports to sign as secretary. D was not authorised to do this and S was never appointed as secretary in accordance with Company_X's constitution. Therefore Company_X's seal was affixed to the mortgage in breach of Company_X's constitution. In this situation the mortgagee will be entitled to rely on the assumption in section 129(1) (provided that the mortgagee did not have the requisite section 128(4) disentitling knowledge or suspicion). The mortgagee can assume that the relevant provisions of Company_X's constitution had been complied with. Company_X cannot be heard to deny the mortgagee's assumptions.[124]

  109. Even though section 129(1) is a statutory adoption of the CL IMR, it is important to remain aware of the CL IMR. The ACT Case[125] pointed out that there may be situations where section 129(1) does not apply, but the CL IMR still might.[126] Furthermore, section 129(1) is probably narrower than the CL IMR because it relates only to requirements in the company's constitution and those provisions of the CA that apply to the company as replaceable rules. It is submitted that the CL IMR goes beyond this to allow assumptions about compliance with requirements in the CA's provisions that govern internal management and are not replaceable rules. For example, the requirements in section 249J(1) as to notice of a meeting of members and the requirements of section 112(4) about tribute agreements in no liability companies.[127]

    Assumption about authority of certain officers stemming from information provided to ASIC: section 129(2)

    The section 129(2) assumption

  110. Section 129(2) provides:

    "A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:

    (a) has been duly appointed; and

    (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."

    How information about a company's directors and secretaries could be provided

  111. There is an array of forms which companies are required to lodge with ASIC. These forms give details about the company's directors and company secretary. They form part of the ASIC records that are available to the public. These forms include:

    Section 129(2) information is information available to the public at "the time of the dealing"

  112. The information referred to in section 129(2) is information available to the public "at the time of the dealing". The "time of the dealing" is critical to the operation of section 129(2). This is illustrated by the operation of section 128(4). Under that section persons are not entitled to make an assumption if "at the time of the dealing" they knew or suspected that the assumption was incorrect.

  113. Therefore from the members' perspective sections [128] and [129] provide a strong incentive to ensure that all notices regarding a change of director or company secretary are promptly lodged with ASIC. As explained by Ford128, the legislative incentive deems it appropriate that, as between a company and a person dealing with it, any inconvenience flowing from failure to notify promptly should rest on the proprietors of the company who have elected to operate through the corporate form.

  114. Section 129(2) enables outsiders to assume that the information contained in ASCOT (ASIC's publicly accessible database) is accurate. ASIC may certify that a person was a director or secretary of a company at a particular time or during a particular period. A certificate is proof of the matters stated in it, unless there is evidence to the contrary.129

    The outsider need not know of the information contained in the ASIC records

  115. If a company names a person in its return (which it lodges with ASIC) as a director, an outsider dealing with the company may, without reason, assume that the person so named in the return is a company director. The assumption made by the outsider will be incontestable by the company even if the outsider was unaware that the person was named as director in the return lodged by the company with ASIC. That is because section 129(2) does not require the outsider, dealing with the company, to be aware of the appearance of authority provided by the information lodged with ASIC. In a case[130] concerning a predecessor of section 129(2), it was said that it is the assertion by the company that an assumption was not correct that brings what is now sections 128 and 129 into operation: not proof that the assumptions were in fact made.

    Section 129(2) operates in addition to common law ostensible agency

  116. Section 129(2) is not merely a legislative adoption of the CL doctrine of ostensible agency, as the outsider does not actually need to have seen the ASIC records to be able to rely on the assumption. If section 129(2) was simply a restatement of ostensible authority at CL, the outsider could only rely on the information available from ASIC if they had seen it. This is because the CL doctrine of ostensible authority is a branch of estoppel. It requires that a representee must have acted on the faith of a representation made by the representor. Therefore section 129(2) operates in addition to CL ostensible agency.[131]

    Section 129(2) and implied actual authority

  117. According to Ford[132] the lodging of a return by a company with ASIC can be viewed as creating an implied actual authority. If that is so, there is no need to view section 129(2) as being concerned with ostensible authority. This would therefore provide a justification as to why outsiders dealing with a company do not have to prove that a representation was actually made to them by the information lodged with ASIC. This view of section 129(2) seems correct when viewed in light of section 129(3) which deals with the company holding out that someone is an officer. If the outsider does actually see the return, both implied actual authority and ostensible authority will be present.

    The extent of section 129(2) authority

  118. In some respects, section 129(2) operates in a similar way to the CL principles under which a certain amount of implied actual authority flows from the appointment of a person to a particular position in the company. Section 129(2) provides the extent of the authority of a person appearing from ASIC information to be a director or company secretary as authority to exercise the powers and perform the duties "customarily exercised or performed" by a director or company secretary of a similar company. The CL refers to "all ... things that fall within the usual scope of that office". The concepts "customarily" and "usual" would appear to be similar.[133]

  119. Ford[134] explains that the authority under section 129(2), like implied usual authority under the general law, depends on the particular office held, the type of company and the kind of business it conducts viewed against what is customary or usual in a similar office in a similar company carrying on a similar business. As was explained earlier[135] the courts (at CL) have laid down some broad "guidelines" as to the usual powers of directors[136] and secretaries. It may be possible to refer back to those "guidelines" when interpreting the extent of section 129(2) authority.

    Assumption about ostensible authority: section 129(3)

    The section 129(3) assumption

  120. Section 129(3) provides:

    "A person may assume that anyone who is held out by the company to be an officer or agent of the company:

    (a) has been duly appointed; and

    (b) has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company."

  121. Where there is a dispute regarding the authority of a company's officer or agent in relation to dealings with a company, the onus of proof is on the outsider to establish:

    Who is an "officer" for the purposes of section 129(3)?

  122. The CA contains two definitions of "officer" in sections 9 and 82A. Both sections 9 and 82A define "officer" to include a director or secretary. However section 82A, unlike section 9, refers to employees of the company. Furthermore section 9, unlike section 82A, includes as officers a person:

    Lipton[137] is unsure which definition applies. Bottomley[138] assumes that the section 82A definition applies. It is submitted that, without judicial clarification, it is unclear which definition applies.

    Does section 129(3) allow for an ostensible authority based on an ostensible authority?

  123. For section 129(3) to operate there must be a holding out "by the company". This raises the same issue as that which arises under the CL rules of ostensible agency: who can make a "holding out" for the company? It may appear that section 129(3) is attempting to codify the CL concept of ostensible authority. Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd[139] ["Crabtree-Vickers Case"] confirms that at CL there can only be a holding out by someone with the company's actual (as opposed to ostensible) authority. That is, at CL a mere ostensible authority is not sufficient to confer ostensible authority on another agent. Thus you cannot have an ostensible authority based on an ostensible authority. However it is arguable that section 129(3) goes further than the doctrine of ostensible authority at CL. The issue is whether that limitation on the CL doctrine of ostensible authority applies in relation to section 129(3).

    Example

  124. The MD (who has actual authority) of Company_X represents to O (an outside contracting party) that A1 (a person purporting to act on Company_X's behalf) does have authority to enter into (on Company_X's behalf) the contract of the type in question. If O, relying on the MD's representations, enters into the contract, Company_X will be bound by the contract at CL.

  125. However, A1 (who now has ostensible authority) holds out to O that A2 (another person purporting to act on Company_X's behalf) has the authority to enter into (on Company_X's behalf) the contract of the type in question. O, relying on A1's representations, enters into the contract with Company_X.

  126. At CL, Company_X will not be bound by the contract because A2 never had the authority to enter into the contract on Company_X's behalf. This is because A1 only had ostensible authority and not the necessary actual authority to hold out A2 as having ostensible authority. A1's lack of actual authority to make the representation would be fatal to any subsequent attempt by O to argue that Company_X was bound by the transaction by virtue of the CL IMR.

  127. However can O, relying on section 129(3), nevertheless enforce the contract? Section 129(3) says that a person may assume that anyone who is held out by the company to be an officer or agent of the company has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.

  128. One might interpret section 129(3) as saying that A1, who was originally held out by the company as having ostensible authority, now has under section 129(3) the authority (whether actual or otherwise) to hold out A2 as having authority. O would argue that unlike the CL rule, section 129(3) does allow ostensible authority to be derived from ostensible authority. If this is the case, Company_X will be bound by the transaction. The position is not clear.

  129. In Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd[140] Ormiston J in applying the forerunner to sections 128 and 129 accepted that a person held out could himself hold out. However on appeal the Appeal Division[141] took Ormiston J to have found that it was a case of a person with actual authority who was holding out.

  130. According to Lipton[142] section 129(3) merely restates the CL agency rule[143] that a holding out by the company can only be made by a person who has actual authority to manage the business of the company either generally or in respect of those matters to which the contract relates. It is submitted that, without further judicial guidance, Lipton's view cannot be sustained.

  131. Ford[144] suggests that it may be possible, if one reads sections 129(2) and 129(3) together, to attribute to the company a holding out by a MD listed in the last return that another person has authority even though the company had denied actual authority to the MD to make that representation. The company's lodging of the return could be regarded as providing the MD implied actual authority to the extent of usual authority.

    Must the outsider "rely" on the holding out in entering into the contract?

  132. In order to establish ostensible authority in relation to an Australian company at CL, the outsider must "rely" on the holding out in entering into the contract.[145] However it is unclear whether the requirement of "reliance" needs to be proven in order to gain the benefit of section 129(3). Hanrahan[146] suggests that the requirement of "reliance" may be impliedly contained in the words of section 129(3). In contrast, Lipton[147] and Bottomley[148] argue that no reliance is needed.

    The extent of section 129(3) authority

  133. Section 129(3), like section 129(2), operates in a similar way to the CL principles under which a certain amount of implied actual authority flows from the appointment of a person to a particular position in the company. Section 129(3) requires the outsider to establish that the particular power exercised by the person so held out is within the scope of the powers "customarily exercised or performed" by an officer or agent of a similar company. The CL refers to "all ... things that fall within the usual scope of that office". The concepts of "customary" and "usual" would appear to be similar. Therefore the customary authority under section 129(3), like implied usual authority under the general law, depends on the particular office held, the type of company and the kind of business it conducts viewed against what is customary or usual in a similar office in a similar company carrying on a similar business.[149]

  134. As was explained earlier[150] the courts (at CL) have laid down some broad "guidelines" as to the usual powers of directors and secretaries. It may be possible to refer back to those "guidelines" when interpreting section 129(3). However, although the courts have laid down some guidelines in relation to the usual powers of directors[151] and secretaries, there are no such guidelines in relation to the other officers and agents of a company.[152]

    Proper performance of duties by company officers and agents: section 129(4)

    The section 129(4) assumption

  135. Section 129(4) provides:

    "A person may assume that the officers and agents of the company properly perform their duties to the company".

    The scope of section 129(4)

    Issue: the meaning of "duties"

  136. Former section 164(3)(f) is now expressed, in similar terms, in section 129(4). There was some confusion over the circumstances in which a person dealing with a company was entitled to rely on section 164(3)(f). In particular debate arose over whether section 164(3)(f) entitled a person dealing with a company to assume that the company's agents with whom they had dealt had not breached their "fiduciary duties" to the company. Here a breach of "fiduciary duty" means an "abuse of authority". This issue arose because the courts[153] in relation to other company law statutes, have made a distinction between "duties", referring to tasks undertaken by directors and other officers, and "duty", referring to the fiduciary duty of a director (for example, to exercise care and diligence).

  137. In Vrisakis v ASC[154] Ipp J remarked[155] that the "duties" of a director differ from case to case and are dependent entirely on the circumstances. His Honour recognised that the term "duties" referred to the tasks undertaken by directors, in discharge of their office as such. He stated "duties", in that sense, does not connote the duty to exercise a reasonable degree of care and diligence, the content of which remains constant.

  138. This "concern" over the meaning of "duties" in section 129(4) is recognised by Lipton[156] who states the "section 129(4) assumption is unclear as to the type of duties to which it refers. The duties may refer to one or more of the following duties:

  139. The meaning of "duties" is critical to determining the scope and application of section 129(4). Its meaning determines what protection is available to a person who has dealt with a company where that company seeks to avoid a transaction on the ground that its agents were acting in breach of fiduciary duty by causing the company to enter into the transaction.

    The narrow and wide meaning of duties in the context of section 129(4)

  140. In the context of section 129(4) a "narrow" and a "wide" meaning of "duties" has now emerged. However, it is submitted that there is a third way to interpret the scope of section 129(4). These three interpretations are discussed below.

    Narrow meaning

  141. The narrow meaning of "duties" in section 129(4) is articulated by Carroll[157] Carroll argues[158] that "properly perform their duties to the company" in section 129(4) means that the company's agents have duly performed the tasks and duties assigned to them by the company in the constitution or by other means.[159]

  142. On this view, the fiduciary duties imposed on directors and agents under the general law are inapplicable to the application of section 129(4) and cannot be assumed. Carroll argues section 129(4) only applies to assertions by a company that its "officers and agents" acted without authority and does not apply to assertions that there has been an abuse of authority by them. Carroll claims that, as the assumptions were intended to be a statutory adoption of the CL IMR, this interpretation of "duties", when read with section 129(1), gives section 129(4) a meaning which is consistent with the rule in Turquand's Case[160] That rule states that outsiders dealing with a company in good faith are entitled to assume that: "acts within its constitution and powers have been properly and duly performed and are not bound to inquire whether acts of internal management have been regular". [161]

  143. Carroll emphasises that Turquand's Case[162] concerned proceedings in which the validity of the transaction was denied for lack of authority, and did not involve proceedings for any form of relief consequent upon a breach of duty by the directors.[163] On this analysis, section 129(4) is simply part of the IMR which applies to the regularity of internal management and has no application to breach of fiduciary duties.[164]

  144. If the narrow interpretation of "duties" is applied, the general law principle governing abuse of authority by an agent continues to apply to company agents. This means that persons dealing with companies need to ensure that they have not been put on notice that the directors and other agents with whom they deal are abusing their powers. It may also be seen as reducing the effectiveness of the protection afforded to outsiders by the statutory assumptions.

    Wide meaning

  145. The wide meaning is that section 129(4) allows an assumption as to the performance of those duties referred to in the first view along with the fiduciary duties imposed on directors and agents under the general law. The fiduciary duties, broadly stated, require directors and other fiduciary agents to act at all times for the benefit and proper purposes of the company and with care and diligence in the performance of their duties. Fiduciary duties are attracted by the fiduciary character of the position held, and are not dependent on the particular terms on which the duties of the office are to be performed. According to Loxton[165] section 129(4) "now makes it clear that a person may assume that the officer and agents of the company perform their duties, and that the "duties" referred to are "duties of the company" which must include fiduciary duties".

  146. If "duties" in section 129(4) is interpreted to include fiduciary duties, a person dealing with a company will be protected against assertions that the agent acting for the company has abused his/her authority. A person dealing with a company will also be protected against assertions that the company is not bound by a transaction because its agent was unauthorised.

    Third meaning

  147. It is submitted that it is better to interpret the scope of section 129(4) having regard to the other assumptions in section 129. In particular if section 129(4) is read in conjunction with sections 129(1), 129(2) and 129(3) it seems that cases concerning "excess of authority" are meant to be dealt with under those provisions rather than under section 129(4). Section 129(4) should only apply to assertions by the company that there has been an "abuse of authority" by a particular officer or agent of the company. This view is implicitly agreed to by the analysis of section 129(4) in Ford[166]

  148. The EM to the CLRA para 8.9, can be read as implying that cases concerning "excess of authority" are to be dealt with under sections 129(2) and 129(3) rather than under section 129(4) when it states, [in relation to section 129(8)], "when making an assumption that an officer of the company has properly performed his duties to the company [section 129(4)], a person may rely on an assumption that the officer has been duly appointed and has authority to perform those duties [section 129(3)]". Furthermore, when section 129(4) is read in light of section 129(1), it becomes apparent that Carroll's[167] (narrow) interpretation of "proper performance of duties" will usually be contemplated by section 129(1) when section 129(1) refers to compliance with a constitution or replaceable rules. Although Carroll does give an example[168] where section 129(4) would [on Carroll's interpretation of section 129(4)] apply but section 129(1) would not, it is submitted that that situation is limited and would in many cases be covered by section 129(2) and 129(3).

  149. Therefore it is submitted that section 129(4) would (like the wide view but unlike the narrow view) apply to assertions by the company that there has been an abuse of authority by a particular officer or agent of the company. However, it is submitted that unlike the wide or narrow view, section 129(4) would not apply to assertions by a company that its officers and agents acted without authority because those situations should be dealt with under sections 129(2) and 129(3).

    Conclusion

  150. Although the "third view" has been submitted to be the better approach to interpreting section 129(4), it is without authoritative judicial conformation. There are conflicting views amongst the available commentaries about whether section 129(4) entitles a person dealing with a company to assume that the company's agents have not breached their fiduciary duties.[169] From an outsider's point of view, interpreting section 129(4) as entitling a person dealing with a company to assume that the company's agents have not breach their fiduciary duties has two major advantages:

    Persons dealing with a company may assume that a document has been duly executed by the company: sections 129(5) and 129(6)

    Protection under sections 129(5) and 129(6)

  151. Sections 129(5) and 129(6) provide that in certain circumstances an outsider having dealings with a company may make an assumption not contestable by the company that a document has been duly executed by a company unless the outsider actually knew or suspected [section 128(4)] that it had not been duly executed. The critical time for not having actual knowledge or suspicion is the time of the "dealings". Here it would seem that the "dealing" will usually be the execution of a document by the company.[172]

  152. As will be seen, an outsider dealing with the company is only entitled to make the assumptions of due execution in sections 129(5) and 129(6) if the document appears to be in accordance with sections 127(1) or 127(2). However section 127(4) recognises that a company may validly execute a document by methods other than those set out in sections 127(1) and 127(2). Therefore it would be prudent for outsiders dealing with a company and requiring a document formally executed by the company to insist that the document be executed in accordance with sections 127(1) or 127(2). This will then entitle the outsider to make the assumptions in either sections 129(5) and 129(6), provided that the outsider does not have the requisite section 128(4) disentitling knowledge.[173]

    Assuming due execution of documents without seal: section 129(5)

  153. Under section 129(5), a person may assume that a document has been validly executed where the document appears to have been signed in accordance with section 127(1). Section 129(5) was introduced to reflect the fact that a common seal is now optional.

  154. Section 129(5) provides:

    "A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices."

  155. In order to rely on section 129(5) regard must be had to section 127(1). Section 127(1) provides that a company may execute a document without using a common seal if the document is signed by:

    Assuming due execution of documents with seal: section 129(6)

  156. Section 129(6) provides:

    "A person may assume that a document has been duly executed by the company if:

    (a) the company's common seal appears to have been fixed to the document in accordance with subsection 127(2); and

    (b) the fixing of the common seal appears to have been witnessed in accordance with that subsection.

    For the purposes of making the assumption, a person may also assume that anyone who witnesses the fixing of the common seal and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices."

  157. Section 129(6), requires two conditions to be met before a person may assume that a document has been validly executed. The first condition requires that there must be something on the document which appears to be the result of fixing what appears to be the common seal of the company in question. However the company's common seal which appears to have been fixed to the document must be in accordance with section 127(2). The second condition requires that the fixing of the common seal appears to have been witnessed. However that witnessing must be in accordance with section 127(2).

  158. Therefore in order to satisfy the two conditions in section 129(6), regard must be had to section 127(2). Under section 127(2), a company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is "witnessed" by:

    The word "witnessed" should be taken as involving the officers signing next to the seal, as well as watching the fixing of the seal.[174]

  159. Lipton[175] notes that unlike the former assumption in section 164(3)(e) which dealt with valid sealing, there is no requirement under sections 129(5) and 129(6) that the persons signing the document or witnessing the fixing of the seal need to be held out or named by the company as relevant officers. According to Lipton it is sufficient if the document appears on its face to have been signed, or the company seal witnessed, by the required officers.

    Sections 129(5) and 129(6) make a distinction between substantive and formal authority

    Issue

  160. In relation to section 129(6), Ramsay[176] asks: Is a document binding on a company when it appears to be duly sealed but where the company has not authorised the transaction to which the document pertains? The cases interpreting the predecessor provisions[177] of section 129(6) are inconsistent in their approaches to that question.[178] Ramsay[179] Ford[180] and Hanrahan[181] all agree that the better approach to interpreting section 129(6) is to distinguish between "formal" authority and "substantive" authority. It is submitted that the approach of those commentators is the better approach to interpreting section 129(6) and therefore that approach is described below. Section 129(5) was only introduced in 1998 and therefore all the cases concerning due execution are in relation to the predecessor provisions of section 129(6). Nevertheless the discussion below applies equally to section 129(5).

    The better approach

  161. If a document has been duly executed in accordance with sections 127(1) and 127(2), it does not necessarily follow that the company will be bound. Sections 129(5) and 129(6) should be regarded as only going to formal authority (ie having the document executed by the proper people in the proper way). Compliance with section 127 does not, of itself, provide authority where none exists.

  162. A completely separate issue which must also be addressed by a person trying to show that the company is bound is the issue of substantive authority. That is, the authority for the company to enter into the transaction concerned. A person dealing with a company cannot assert that a document is binding on a company merely because the document has been executed in accordance with either sections 127(1) or 127(2). The document will only be binding on the company if it is also demonstrated that the company has authorised the transaction in question (ie substantive authority must also be shown to exist).[182]

  163. Therefore sections 129(5) and 129(6) cures any lack of "express actual" formal authority. It does not assist the outsider in relation to whether substantive authority exists for the company to enter into the transaction in question. This interpretation of sections 129(5) and 129(6) is in accordance with those judgements which have considered formal authority and substantive authority as two separate issues.[183] Furthermore this interpretation may be found in the legislative history of section 129(6) as a provision substituted for section 164(3)(e) and originating as an item in a programme of simplification[184] rather than substantive amendment. The EM for CLRA contains no statement of any intention that section 129(6) was intended to have an operation different from that of section 164(3)(e).

  164. In order to establish substantive authority, the outsider may rely on either[185]

    Therefore, an outsider can rely on the statutory assumptions (other than the assumptions about due execution) to establish both formal and substantive authority. The assumptions about due execution [in sections 129(5) and 129(6)] can assist only in relation to formal authority. Section 129(8) gives all of the assumptions in section 129 cumulative operation. So, for example, recall the assumption in section 129(2) which allows a person to assume that anyone who appears, from ASIC's public information, to be a director or a company secretary of the company has been duly appointed. Also recall the assumption in section 129(3) about persons held out to be company officers. When one (or both) of the people attesting the use of the seal is not a formally appointed company officer, the assumptions about due execution in sections 129(5) and 129(6) could be relied upon in combination with (either or both) the assumptions in sections 129(2) and 129(3) in order to establish formal and substantive authority.[186]

    Conclusion: policy issues

  165. The above approach is submitted as the better approach on the policy grounds argued by Ramsay.[187] Ramsay observes that a company would not be bound by a contract made on its behalf by officers who lacked actual or ostensible authority to commit the company to it. Ramsay argues that there is no policy reason for treating the company more harshly (by coming to a different conclusion) simply because the document is executed by the company under seal and witnessed by the same unauthorised officers.

  166. Although it has been submitted that the above approach is the better one, it must be recognised that it will mean that outsiders will not be able to rely on the validity of documents that appear to be properly executed. Further inquiries will have to be made about the authority of the company's officers and agents. This will cause outsiders to be unnecessarily inconvenienced and may cause the costs of doing business to rise. Lipton[188] observes that this is precisely what Parliament wanted to avoid when it replaced the previous assumptions. No doubt this issue will remain a topical issue. Woodward[189] notes that financial institutions, in particular, are faced with the uncertainty of not knowing which representations they can rely on and what independent searches and enquiries they should make.

    Warranting documents genuine: section 129(7)

  167. Section 129(7) provides:

    "A person may assume that an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or is a true copy."

    Under section 129(7), a company secretary may be assumed to have the requisite authority to warrant that a share certificate or a copy of a board resolution is genuine. At CL it was doubtful whether a company secretary had authority to do this.[190] The assumption in section 129(7) specifically clarifies this situation. Thus a company cannot escape liability for a false document where the issuing officer or agent was authorised to issue a true document.[191]

  168. Section 129(7) is particularly useful for a solicitor when giving a legal opinion based on a document (or a certified copy of a document). For example: S, who purports to be the secretary of Company_X, gives L, a solicitor, a document. L is required to give a legal opinion based on this document. L can search the ASIC records to see if S is listed as the secretary of Company_X. If so, L can thereby make the assumption [in section 129(2)] that S had the authority to issue the particular document. L can then make the assumption in section 129(7) that the document is genuine and can therefore rely on the document's authenticity when giving his/her legal opinion. Company_X cannot be heard to deny S's authority to issue the document or to deny the document's authenticity.

    Assumptions have cumulative operation: section 129(8)

  169. Section 129(8) provides:

    "Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section."

    The assumptions in section 129 are separate and discrete.[192] This means that if an outsider is unable to rely on one assumption, this in itself does not prevent the outsider from relying on any of the other assumptions. While the assumptions are discrete, they overlap. Hence an outsider may rely upon more than one assumption.[193] Section 129(8) ensures that all of the assumptions in section 129 have cumulative operation.

    Example

  170. When making an assumption that an officer of the company has properly performed their duties to the company [section s 129(4)], a person may rely on an assumption that the officer has been duly appointed and has authority to perform those duties [section 129(3)].[194]

    PART THREE: AN ANALYSIS OF THE STATUTORY ASSUMPTIONS

    ARE THE STATUTORY ASSUMPTIONS NEEDED?

  171. In the 19th century, the rule in Turquand's Case[195] placed a fairly heavy burden on outsiders dealing with companies. In the 1960s and 1970s decisions such as Freeman & Lockyer[196] and the Crabtree-Vickers Case[197] re-emphasised the need for outsiders to ascertain if directors had the necessary power to bind companies. Those decisions led Parliament to introduce statutory changes to re-adjust the law to create a rule of "business convenience". The first statutory regime regulating the allocation of risk of loss from fraud and the like in dealings between the company and outsiders was introduced in the mid-'80s. Finally the law was moving towards a business convenience approach in balancing the interests of outsiders against the interests of proprietors and existing creditors of companies.

  172. The statutory assumptions recognised that business transactions with companies are fundamental to our economy and form of society. The statutory assumptions also recognised that those decisions founded in the '60s and '70s (referred above) did not meet the needs of modern corporate contracting. It is true that, if the law were to require that in every case of dealing with a company those who deal must satisfy themselves about the authority of those who purport to act on the company's behalf, a few miscreants would be discovered. However, in the majority of business transactions with companies, outsiders dealing with companies are unable to realistically satisfy the proof of formalities concerning compliance by the company with its own internal rules and requirements. This is because it would be so ineffective in terms of marginal utility to investigate such authority. Furthermore, to require such satisfaction about the company's internal management procedures would involve a usually needless intrusion into its affairs and, often, the expensive production of evidentiary material which, for the normal run of cases, would be purely formal and have no practical utility. The result would usually be that no investigation would take place. The cost of failing to perform the investigation would then fall upon those who had not done so. In many cases that would be unjust.[198]

  173. The statutory assumptions were a legislative recognition that "the weak link in the chain of corporate life cannot be the ordinary transactions and dealings of the companies themselves."[199] Rather, if one or more of the company's officers purport to bind the company, but does so fraudulently or without authority, it is that company which should ordinarily bear the loss, and not the party innocently dealing with the company. As recognised by Kirby P,[200] the policy of "business convenience" requires that the efficacy of business transaction generally are put above the financial and other interests of the innocent officers, members and creditors of a particular corporation. Kirby P remarks that it is not surprising nor irrational that the legislature adopts a "business convenience" approach to the validity of apparently regular corporate activity.[201]

  174. In Morris v Kanssen[202] Simonds LJ said "The wheels of business will not go round unless it is assumed that that is in order which appears to be in order".[203] In relation to the CL IMR, Kirby P[204] stated that subject to some exceptions, the smooth operation of the "wheels of business", and the realistic statement of a rule which will be observed in practice, both acknowledge that even though the rule is old, dating from the mid-19th century, it is still needed. Kirby P further states that not only is the rule still needed, it should be given more, and not less, effect than when first formulated. Parliament has recognised this and has attempted to legislate to give more effect to the rule in Turquand's Case.[205] It is therefore submitted that the statutory assumptions in section 128 and 129 are needed. It is submitted that there is an ever increasing importance in the role of these statutory assumptions. This importance is due to the increase in the importance of the company, the increase in the number of companies and the increase in the number of transactions involving companies.[206]

    IS THE STATUTORY ASSUMPTION REGIME IN SECTIONS 128 AND 129 EFFECTIVE?

  175. It was submitted above that the assumptions in sections 128 and 129 are needed. The task now is to consider whether these statutory reforms are effective in protecting outsiders dealing with the company from limitations on the company's capacity, defects in the authority of company agents, and breaches of directors' duties.

  176. Whilst the statutory assumptions probably do improve the position of outsiders from that at CL, it is submitted that the law protecting contracts and transactions with outsiders from invalidity is still unsatisfactory. It is submitted that sections 128 and 129 are the latest legislative attempt to:

  177. However it is submitted that Parliament has failed to fulfil these objectives effectively. The following submits that in order to:

    SIMPLICITY THROUGH A CODE

  178. Gummow J in the ACT Case,[210] considered that the statutory assumptions were not a "comprehensive code" but rather a set of provisions designed to repair the CL's failings. The current assumptions originated from a programme of corporate simplification.[211]

  179. It is ironic then, that in the process of attempting to repair the CL's failings and simplify the law, the law governing companies dealings with outsiders has become more complicated with new flaws becoming apparent. Before one can attempt to determine where their potential source of relief lies, it seems that one is required to master three overlapping and intertwined areas of law: (i) the general law of agency; (ii) the body of case law on the CL IMR; and (iii) the statutory assumptions in the CA. It is submitted that it would be far more effective for the legislature to comprehensively codify the law in this area. A comprehensive "code" would help simplify the source of an outsider's relief. It would also enable outsiders to turn straight to the "code" to determine if they have a source of relief.

    AUTHORITATIVE CLARIFICATION

  180. There is no doubt that sections 128 and 129 were intended by Parliament to clarify the law and thereby reduce the uncertainties for outsiders dealing with companies.[212] It is interesting to consider whether the statutory provisions have successfully clarified the law governing this area. PART TWO discussed the confusion amongst the literature as to the scope and application of nearly all the assumptions. For the purposes of illustration, it is sufficient here to merely recap, (without going into the details discussed in PART TWO), a few of the issues arising from sections 128 and 129 which need authoritative clarification:

    A clear pronouncement from the High Court or the legislature on the correct application of the above issues would be useful to clarify the confusion surrounding these "seemingly straightforward" provisions.

    ACCORD OUTSIDERS GREATER PROTECTION

  181. One way Parliament intended that outsiders would be accorded greater protection was by making the statutory exception [in what is now in section 128(4)] less effective than the CL "put on inquiry" exception, in preventing the assumptions being made.[213] Nevertheless, commentators such as Loxton[214] and Hammond[215] cite several reasons why in actual practice there is much latitude for the court, contrary to the purpose of the legislation, to make an adverse finding of knowledge or suspicion in relation to section 128(4). In particular Hammond observes, in relation to the predecessor of section 128(4), the eagerness of the courts[216] to incorporate the CL test into the statutory provision unless "more direct and clear language"[217] was given which indicated that the CL test was to no longer apply. Therefore, in relation to section 128(4), Hammond[218] states "I do not believe that Parliament has been sufficiently clear in its wording and explanation of the provision to force the courts to alter their approach to these types of situations." If Hammond's assertion is correct, then contrary to the prior submissions made in relation to section 128(4) [219] Parliament will have failed to accord outsiders with the greater protection that it intended.

    CONCLUSION

  182. It should not be a universal and unconditional objective of the law to protect outsiders dealing with a company at the expense of all other competing considerations. The law must seek to protect such outsiders who deal in good faith and innocently. This is why the law has sought to find a balance between facilitating effective and efficient corporate transactions and protecting the interests of outsiders dealing with companies in those transactions.

  183. Parliament, through sections 128 and 129, has adopted a "business convenience" approach to protect outsiders dealing with companies. It is thought that the efficacy of business transactions generally should be put above the financial and other interests of the innocent officers, members and creditors of the company.

  184. Whilst the assumptions do help "cure" the apparent defects in the CL, further legislative reforms are needed if the law is to effectively extend the protection accorded to outsiders as intended by Parliament.

BIBLIOGRAPHY

Books

Cases

Dictionaries and Thesaurus

Encyclopaedias

Journal articles

Other secondary materials

Statutes

Websites


NOTES

[1] All section references herein are to the Corporations Act 2001 (Cth) unless otherwise stated.

[2] Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502

[3] Supra,n.2

[4] Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583

[5] Supra,n.4

[6] Supra,n.4 at 583

[7] See: section 201J (replaceable rule)

[8] Section 198C(1)

[9] Supra,n.4 at 583

[10] Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 5 ACSR 424 at 427

[11] Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72

[12] Corpers (No 664) Pty Ltd v NZI Securities Australia Ltd (1989) ASC 55-714

[13] Supra,n.4

[14] Re Qintex Ltd (No 2) (1990) 2 ACSR 479

[15] Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991) 6 ACSR 464 at 476

[16] Ford H, Ford's Principles of Corporations Law, 10th ed (Australia: Butterworths 2001), p.658

[17] [1971] 2 QB 711

[18] Supra,n.17

[19] (1990) 170 CLR 146

[20] Hughes v NM Superannuation Board Pty Ltd (1993) 29 NSWLR 653

[21] Supra,n.4 at 584

[22] Supra,n.16, p.659

[23] Hanrahan P et al, Commercial Applications of Company Law, 2nd ed (Australia: CCH 2001), p.446

[24] Supra,n.23, p.446

[25] Sometimes called "apparent authority".

[26] Supra,n.2 at 508

[27] Supra,n.16, p.664

[28] Supra,n.2 at 503

[29] The forth requirement was abolished by section 125, in relation to companies as defined in section 9.

[30] Supra,n.23, p.447

[31] Supra,n.16, p.651

[32] Wilson v Tumman (1843) 134 ER 879

[33] Union Bank of Australia Ltd v Rudder (1911) 13 CLR 152

[34] Supra,n.19 at 164

[35] Supra,n.19 at 164

[36] Woodward et al, Corporations Law - in principle, 5th ed (Australia: LawBook Co 2001), p.113

[37] (1856) 119 ER 886

[38] Supra,n.16, p.668

[39] Supra,n.19 at 178

[40] Supra,n.16, p.668

[41] Supra,n.23, p.453

[42] Australian Capital Television Pty Ltd v Minister for Transport and Communications (1989) 86 ALR 119 at 157. In that case the minister to whom an application was made for approval of a plan as contemplated by a statute was regarded as having dealings with the applicant. The court surmised that the IMR was not limited to contractual dealings and therefore the rule enabled the minister to assume that a document in an application lodged for approval was validly executed.

[43] Halsbury's Laws of England 4th ed vol.9 para.1338 note.7

[44] Supra,n.23, p.454

[45] Supra,n.19

[46] Supra,n.19

[47] Supra,n.16, p.674

[48] Supra,n.19

[49] Ernest v Nicholls (1857) 10 ER 1351

[50] Irvine v Union Bank of Australia (1877) 2 App Cas 366

[51] Supra,n.50

[52] Supra,n.16, pp.670 and 676

[53] Supra,n.16, pp.670 and 676

[54] Supra,n.20

[55] Supra,n.42 at 157-8

[56] Supra,n.19 at 199

[57] Supra,n.16, p.678

[58] [1946] 1 All ER 586

[59] Bank of New Zealand v Fiberi Pty Ltd (1994) 12 ACLC 48 at 51

[60] See the situation referred to in n.72

[61] For example see: Supra,n.42 at 157

[62] Supra,n.43 vol.9 Corporations paras.1221, 1338

[63] Hammond C, "Section 164(4)(b) of the Corporations Law: To be put on inquiry or not to be put on inquiry: is that the question? A problem of statutory interpretation" (1998), 16 (2) Companies and Securities Law Journal, p.93

[64] Lipton P, "The Statutory Assumptions in s 164(3) of the Corporations Law", (1998) 50 (6) Australian Company Secretary, p.260

[65] Burnett B, Australian Corporations Law, (Australia: CCH 2001), p.281

[66] (1991) 98 ALR 393 at 403 ["dealings" was discussed in the context of the Bankruptcy Act 19

[66] (Cth)]

[67] Story v Advance Bank Australia Ltd (1993) 11 ACLC 629

[68] Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649

[69] Supra,n.67 at 708

[70] Supra,n.16, p.681

[71] Supra,n.16, p.681

[72] However, the third party may be able to rely on the CL IMR.

[73] Supra,n.67 at 708. Refer below to heading: "Dealings concerning title to property from a company: section 128(2)"

[74] Supra,n.16, p.682

[75] Supra,n.16, p.682

[76] Supra,n.42 at 157 (referring to former section 68A)

[77] Supra,n.16, p.688

[78] (1989) 7 ACLC 271

[79] Tomasic and Bottomley, Corporations Law in Australia, (Australia: The Federation Press 1995), p.247

[80] Supra,n.23, p.462

[81] Supra,n.19 at 199

[82] South London Greyhound Racecourses Ltd v Wake [1931] 1 Ch 496

[83] Supra,n.19 at 200

[84] See former section 164(4)(b)

[85] Loxton D, "One step forward, one step back: the effect of corporate law reform on procedures in dealing with companies borrowing or giving guarantees" (1999) 10 (1) Journal of Banking and Finance Law and Practice, p.30

[86] Supra,n.16, p.683

[87] Supra,n.85, p.32

[88] Hammond C, " 'Put Upon Inquiry' has been put to rest under section 128(4) of the Corporations Law, but have third parties dealing with companies been placed in a stronger position? - a question of statutory interpretation" (1998), 16 Companies and Securities Law Journal, p.562

[89] Supra,n.88, p.564

[90] Australia House of Representatives Hansard No 20, 1997, 11930 (1-6 December 1997)

[91] EM to CLRA para 8.7

[92] "different" in the sense that it will now be harder for companies to prove that outsiders should not be allowed to rely on the assumptions.

[93] Supra,n.85, p.31

[94] Tesco Supermarkets Ltd v Nattrass [1972] AC 153

[95] Supra,n.16, p.686

[96] Supra,n.36, p.110

[97] Supra,n.16, p.684

[98] Tomasic R et al, Corporations Law: Principles, Policies and Process, 4th ed (Australia: Butterworths, 2001), p.347

[99] [1983] 2 NSWLR 157

[100] Supra,n.16, p.685

[101] The Zamora No 2 [1921] 1 AC 801 at 812

[102] (1966) 115 CLR 266 at 303

[103] Supra,n.102 at 291-292

[104] Commissioner for Corporate Affairs v Guardian Investments Pty Ltd [1984] VR 1019 at 1025

[105] Supra,n.85, p.31

[106] Supra,n.16, p.686

[107] Supra,n.23, p.461

[108] "narrower" in the sense that section 128(4) is less effective in stopping the assumptions in section 129 from being made.

[109] Supra,n.16, p.686

[110] Supra,n.102 at 303

[111] Supra,n.16, p.686

[112] Supra,n.16, p.686

[113] Supra,n.19

[114] Supra,n.19 at 165

[115] Lipton et al, Understanding Company Law, 10th ed (Australia: LBC 2001), p.132

[116] Supra,n.58 at 593

[117] Clark R, Corporate Law, (New York: Little, Brown & Co 1986), p.121

[118] For example: supra,n.59

[119] Supra,n.59 at 54

[120] Hocking v Western Australia (1909) 9 CLR 738 at 746 the court stated that, in the absence of very clear statements by the legislature, statutes will not be construed so as to alter the existing CL.

[121] Supra,n.63, p.100

[122] See: EM to CLRA para 8.7 and Supra,n.90

[123] Supra,n.58 at 592

[124] Supra,n.59

[125] Supra,n.42

[126] Supra,n.42 at 157

[127] Supra,n.98, p.331

[128] Supra,n.16, p.689

[129] Section 1274C

[130] Supra,n.78

[131] Supra,n.16, p.689

[132] Supra,n.16, p.690

[133] Supra,n.23, p.459

[134] Supra,n.16, p.690

[135] Refer to the heading "Implied actual authority" in PART ONE for the usual powers of directors and secretaries.

[136] Including MD's

[137] Supra,n.115, p.122

[138] Tomasic, Bottomley and McQueen, Corporations Law in Australia, (Australia: The Federation Press 2002), p.226 note.49

[139] Supra,n.11

[140] Supra,n.68 at 681

[141] Supra,n.15 at 477

[142] Supra,n.115, p.122

[143] Supra,n.2

[144] Supra,n.16, p.691

[145] Supra,n.2

[146] Supra,n.23, p.460

[147] Supra,n.115, p.123

[148] Supra,n.138, p.230

[149] Supra,n.16, p.690

[150] See:."Implied actual authority" in PART ONE for the usual powers of directors and secretaries.

[151] Including MD's

[152] Supra,n.115, p.123

[153] For example: Vrisakis v Australian Securities Commission (1993) 11 ACLC 763

[154] Supra,n.153

[155] Supra,n.153 at 767

[156] Supra,n.115, p.124

[157] Carroll R, "Proper Performance of Duties by Company Officers: The Statutory Assumption in s 164(3)(f) of the Corporations Law" (1995) 69 ALJ, p.202

[158] In relation to former section 164(3)(f)

[159] Presumably "other means" is referring to the replaceable rules (where applicable) in the CA and/or where the company has issued its officers and agents with instructions, other than in the constitution.

[160] Supra,n.37

[161] Supra,n.43, Vol.7(1), para.980.

[162] Supra,n.37

[163] However that argument is not accepted by Pennington who contemplates that the IMR can protect innocent third persons in cases of breach of fiduciary duty. [Pennington R, Company Law, 5th.ed (London: Butterworths 1985), p.671 note.4]

[164] Supra,n.157 p.202

[165] Supra,n.85, p.30

[166] Supra,n.16, p.692

[167] See:.Carroll's view above.

[168] Where a company has issued instructions, other than in the constitution, to a director to seek approval of the board of directors before proceeding with a certain matter and the director has disregarded that instruction.

[169] Compare/contrast: Supra,n.16, p.694 with Supra,n.157 p.200

[170] Section 128(4)

[171] Meagher et al, Equity: Doctrines and Remedies, 3rd ed (Sydney: Butterworths 1992), para.860

[172] Supra,n.16, p.708

[173] Supra,n.65, p.69

[174] Supra,n.23, p.440

[175] Supra,n.115, p.126

[176] Ramsay I M et al, "Affixing of the company seal and the effect of the statutory assumption in the Corporations Law" (1999), 10 (1) Journal of Banking and Finance Law and Practice, p.38

[177] Sections 164(3)(e) and 68A(3)(e)

[178] Contrast Supra,n.67 with Pyramid Building Society v Scorpion Hotels Pty Ltd (1996) 14 ACLC 679

[179] Supra,n.176, p.38

[180] Supra,n.16, p.709

[181] Supra,n.23, p.462

[182] Note: section 129(1) could (in certain circumstances) be of assistance to an outsider here. Refer above to the example given under the heading "The statutory indoor management rule: section 129(1)".

[183] For example: Pyramid Building Society v Scorpion Hotels Pty Ltd (1996) 14 ACLC 679

[184] CLRA, EM, para 8.10

[185] Supra,n.176, p.50

[186] Supra,n.176, p.52

[187] Supra,n.176, p.38

[188] Supra,n.115, p.127

[189] Supra,n.36, p.108

[190] Ruben v Great Fingall Consolidated [1906] AC 439

[191] Supra,n.115, p.127

[192] Supra,n.15

[193] Supra,n.59

[194] EM to CLRA, para 8.9

[195] Supra,n.37

[196] Supra,n.2

[197] Supra,n.11

[198] This paragraph is paraphrased from Register-General v Northside Developments Pty Ltd (1988) 14 ACLR 543 at 550

[199] Supra,n.59 at 52

[200] Supra,n.59 at 52

[201] Supra,n.198 at 550

[202] Supra,n.58

[203] Supra,n.58 at 592

[204] Supra,n.198 at 550

[205] Supra,n.37

[206] Supra,n.198 at 550

[207] EM to CLRA para 2.11 and 8.10

[208] Supra,n.42 at 157

[209] See: EM to CLRA para 8.7 and Supra,n.90

[210] Supra,n.42

[211] EM to CLRA para 2.11 and 8.10

[212] Supra,n.85, p.25

[213] Refer to the heading "Correctly interpreting section 128(4)"

[214] Supra,n.85, p.32

[215] Supra,n.88, p.562

[216] For example: Supra,n.59

[217] Supra,n.59 at 54

[218] Supra,n.88, p.564

[219] Refer to the heading "Re-balancing the interests" Protecting Outsiders to Corporate Contracts


AustLII: Feedback | Privacy Policy | Disclaimers
URL: http://www.austlii.edu.au/au/journals/MurUEJL/2002/22.html