AUTUMN TREE LIMITED v BISHOP WARDEN PROPERTY HOLDINGS LIMITED [2017] NZHC 2838 [17 November 2017]

AUTUMN TREE LIMITED v BISHOP WARDEN PROPERTY HOLDINGS LIMITED [2017] NZHC 2838 [17 November 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-001944[2017] NZHC 2838BETWEEN AUTUMN TREE LIMITEDApplicantAND BISHOP WARDEN PROPERTYHOLDINGS LIMITEDRespondentHearing: 12 September 2017Appearances: B P Rooney for the ApplicantN Tabb for the RespondentJudgment: 17 November 2017JUDGMENT OF HINTON JThis judgment was delivered by me on 17 November 2017 at 5.00 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarCounsel/Solicitors:Brian Rooney, Barrister, AucklandNatalie Tabb, Auckland[1] In this case Autumn Tree Ltd (Autumn Tree) challenges a sale and purchase agreement entered into by Xioayuan Niu (Tina) who was arguably a director at the time.The application[2] Autumn Tree applies under s 143 of the Land Transfer Act 1952 (LTA) to remove a caveat from the title of its property at 18 Appleyard Crescent, Meadowbank.[3] The respondent, Bishop Warden Property Holdings Ltd (Bishop), lodged the caveat on 4 August 2017, claiming an interest on the basis of a sale and purchase agreement dated 3 August 2017, signed by Mr Blomfield as director of Bishop andTina as "director of Autumn Tree".[4] Autumn Tree says that the agreement is invalid on the basis that Tina did not have authority to enter into it on behalf of Autumn Tree, and that the caveat should accordingly be removed.[5] Tina has not sworn an affidavit, or otherwise taken part in this proceeding.Facts[6] Autumn Tree was incorporated on 7 August 2015. The undisputed evidence is that it was incorporated for the sole purpose of buying and subdividing/developing Appleyard Crescent.[7] As at 2 August 2017, the day before the agreement, the shares in Autumn Tree were owned 50 per cent by Junjue Zhao ("Junjie"), 30 per cent byGaiyu Ma (Gaiyu) and 20 per cent by Tina and Tina was the sole director of Autumn Tree.[8] Back on 31 July 2016, Junjie and Tina had entered into a written agreement that Tina would be paid $20,000 by Junjie; be a "nominal director" only and "take noobligations, corporate and legal affairs and irregular conduct consequences in the operation of Autumn Tree".[9] In January 2017, Autumn Tree had obtained a valuation for mortgage purposes of Appleyard Crescent. Autumn Tree submits on the basis of the valuation, and its own evidence that a building is now complete, that the property is worth $3.35m, which Bishop has not disputed. Tina had seen the valuation, according toJunjie's affidavit of 23 August 2017.[10] Gaiyu's daughter, Lanhua Zhang (Anna) says that between 9.30 and 11.00 am on 3 August 2017 (the day of the sale and purchase agreement), Tina had a meeting with her over issues around another unrelated company, Oak Tree Home Care Limited (Oak Tree). During that meeting, according to Anna, Tina said she wanted to surrender her 20 per cent shareholding in Autumn Tree to Anna and that she resigned as a director of Autumn Tree and wanted Anna to take over.[11] Anna says that after the meeting, she conferred with Junjie (the 50 per cent shareholder), who then directed Autumn Tree's accountants to remove Tina from the Companies Register records as a shareholder and director of Autumn Tree; to recordthat Tina's shares in Autumn Tree were transferred to Anna, and to record that Anna had become a director of Autumn Tree.[12] The Companies Register records a change of the 20 per cent shareholding from Tina to Anna as being registered at 11.54 am on 3 August 2017. Anna was registered as a new director of Autumn Tree at 1.10 pm on 3 August 2017. Tina'sremoval as a director was not recorded on the Companies Register until 5 August 2017 at 10.21 am, with effect from 3 August 2017.[13] In the afternoon or evening of 3 August 2017, Tina met Mr Blomfield, the director of Bishop, for the first time. In that meeting, according to Mr Blomfield, Tina sold a debt she said she was owed by Oak Tree, to one of his companies, Bishop Warden Limited (a different company to Bishop).1 According to1 Oak Tree's financial statements show Tina owed the company money, rather than the reverse.According to Junjie, Bishop asked for Oak Tree's financial statements some time after thetransaction, so presumably the transaction took place without that information.Mr Blomfield, Tina mentioned that Autumn Tree owned Appleyard Crescent and said she would rather sell it than carry on with subdividing it. Mr Blomfield says he conducted a Companies Office search which showed Tina as sole director. He also looked the property up on QV Online. The QV Online search was conducted at 6.12 pm on 3 August 2017. On behalf of Bishop, Mr Blomfield says he offered to buy Appleyard Crescent for $1.1 million, having ascertained from QV Online that its rateable value as at 1 July 2014 was $1.17 million. Tina then signed his offer "as director of Autumn Tree", that leading to the 3 August 2017 agreement. It is accepted that the agreement was signed after the QV online search at 6.10 pm on 3 August 2017. The agreement records a deposit of $5,000, is unconditional, and the settlement date is 3 August 2018, a year after signing.[14] At 8.37 pm on 3 August 2017, Tina sent Anna a text telling Anna that any further communications had to be with her "lawyer". Tina attached Mr Blomfield'sbusiness card to that message.[15] Bishop lodged the caveat in question on 4 August 2017, according to Mr Blomfield in accordance with its standard practice after entering into an unconditional agreement to purchase.[16] Junjie has sworn that Tina had no authority to sign the agreement and that Tina was not a director (or a shareholder) at the time she signed it.[17] As noted, there is silence from Tina. It seems she went overseas shortly after signing the agreement and has not returned.[18] Mr Blomfield, in his affidavit sworn 28 August 2017, records that he spoke with Tina after these proceedings commenced, and that she told him that she had not resigned as a director of Autumn Tree. In the absence of evidence from Tina, I putno weight on Mr Blomfield's indirect report.Relevant lawRetention or removal of a caveat – general principles[19] Section 143 of the LTA provides:(1) Any such applicant or registered proprietor, or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the [High Court] for an order that the caveat be removed.(2) The Court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the Court seems meet.[20] Section 143 gives no guidance as to the circumstances in which the Court may make an order that a caveat be removed.2[21] The following principles apply in relation to applications under s 143 of the LTA.[22] The caveator generally, under s 143, 145 and 145A of the LTA, has the onus of showing a reasonably arguable case for the interest claimed.3 The interest must come within s 137(1) of the LTA, whereby they must claim to be "entitled to, orbeneficially interested in, the land or estate or interest by virtue of any unregisteredagreement or other instrument or transmission or of any trust expressed or implied."4[23] The caveator must show an entitlement to a beneficial interest in the land under the caveat.5 A personal or contractual right will not suffice.[24] An unconditional agreement for sale and purchase of land passes an equitable interest to the purchaser.6 That interest is caveatable.2 Harrison v Harrison [2016] NZHC 574 at [18] (footnotes omitted).3 Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2823 at [11]. See also Sims v Lowe [1988] 1 NZLR 656 (CA) at 660.4 Land Transfer Act 1952, s 137(1)(a).5 Clear White Investments Ltd v Otis Trustee Ltd, above n 3, at [12].6 Murrie v Chryssoulis HC Wellington CIV-2005-485-1368, 1 August 2005 at [29]-[31].[25] Once a caveator has established an arguable case for the interest claimed, the Court retains a discretion to make an order removing the caveat, although it will be exercised cautiously.7[26] Faire J in Harrison v Harrison said:8The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:" that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so. Sims v Lowe [1988] 1 NZLR 656 at pp 659-660."[27] The dictum of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331 at 341 is of assistance in summary judgment proceedings, and equally applicable here:9Although in the normal way it is not appropriate for a Judge to attend to resolve conflicts of evidence on affidavit, that does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbably in itself it may be.Actual or apparent authority[28] Bishop's claimed interest arises from the agreement. The issue is whether theagreement is valid, or arguably so. Both parties approach this proceeding on the basis that if the agreement is invalid, Bishop has no interest in the property. Whether the agreement is valid turns on whether Tina had actual or apparent authority to enter into the transaction on behalf of Autumn Tree.7 Norman v Normal Glass Services Ltd at [17(c)]. See also Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).8 Harrison v Harrison, above n 2, at [18(i)]. See also Sims v Lowe [1988] 1 NZLR 656 (CA) at 659; Lombard Finance & Investments Ltd v Albert Street Ltd HC Auckland CIV-2004-404-2120, 14 October 2004 at [14].9 Eng Mee Yong v Letchumanan [1980] AC 331 at 341.[29] The Court in Giltrap City Ltd v Commerce Commission considered what actual authority is, and said as follows:10Actual authority can be of two kinds – express or implied. Express authority is authority which is expressly given by the principal to the agent for or covering the transaction in question. One form of implied authority is the authority which the law regards as existing by reference to the position held by the agent vis-à-vis the principal. In the corporate arena, as here, the role performed by the servant or agent in the corporate structure will influence the extent of that person's implied authority. In general terms the more senior the role the greater the person's implied authority is likely to be.[30] In relation to apparent authority, Associate Judge Sargisson stated inStaples Rodway Ltd v Crisford that:11Apparent authority arises when an agent does not have actual authority but the principal allows the agent to appear to have authority to third parties. The principal (being persons with the company's actual authority to do so)must make an express or implied representation in some way to the third party. The essence of the doctrine of apparent authority is that it is the principal's representation that creates the authority, not the agent's assertion that he has that authority.Preliminary issue – Were the Companies Register dealings of 3 August 2017 invalid?[31] Bishop contends that the Companies Register transactions of 3 August 2017 relating to both change in directors and in shareholding of Autumn Tree were invalid, such that Tina remains as the only validly appointed director. This isrelevant both to Tina's authority to enter the agreement and Autumn Tree's ability tobring this proceeding, absent Tina's authority. Bishop submits that Anna has not been validly appointed as a director, as there is no evidence that she was appointed in accordance with s 153(2) of the Companies Act 1993, (ie by ordinary resolution). Bishop also submits that Tina has not been lawfully removed as a director, there being no evidence that she ceased to hold office under s 157 of the Companies Act.[32] I consider that, particularly in the absence of evidence from Tina contesting her removal as a director and shareholder, I have to proceed on the basis of theapplicant's evidence regarding those matters, and the Companies Register. I note that Junjie and Gaiyu at all points have owned 80 per cent of Autumn Tree between10 Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA) at [40].11 Staples Rodway Ltd v Crisford [2015] NZHC 670 at [64] [footnotes omitted].them. Furthermore, given the 31 July 2016 agreement that Tina would be a"nominal director" only, her appointment would be more questionable than the3 August 2017 dealings.[33] I note that Anna says Tina resigned as a director early on 3 August 2017, and the Companies Register records that Tina was removed as a director with effect from 3 August 2017. None of that is directly contested by Tina. Therefore, it is likely that Tina was not a director at all at the time she signed the agreement. However, I proceed for purposes of this application on the basis that she was a director at the time of the agreement.[34] Anna is currently listed as the sole director of Autumn Tree. Section 127 of the Companies Act confirms that where there is a sole director, that director is the"board" or "board of directors". Section 128(1) confirms that the board has all thepowers necessary for managing and directing and supervising the business andaffairs of the company. With no clear evidence to the contrary regarding Anna'scurrent status as a director, I consider Anna has authority to bring this proceeding on behalf of Autumn Tree.Did Tina have actual authority to enter into the agreement?[35] Ms Tabb for Bishop submits that Tina had actual authority because she was the sole director at the time of the agreement, on the basis of Mr Blomfield's searchof the Companies Register.[36] First, assuming as I do that Tina was still a director, she was not sole director at the time of the agreement. Anna's appointment had already been registered.[37] On the evidence available, Tina did not have actual authority to enter into the agreement. The only direct evidence before me on behalf of Autumn Tree is from Junjie and Anna who swear Tina did not have express authority. It is clear that Tina did not have implied authority either, given all of the circumstances and in particular the terms of the 31 July 2016 agreement.[38] Further, the evidence is that Appleyard Crescent was the only asset of Autumn Tree. Therefore, assuming Tina was still a director at the point of sale, or even the sole director, the sale constituted a major transaction under s 129 of the Companies Act.12 Such a transaction requires approval by special resolution.13"Special resolution" means a resolution approved by a majority of 75 per cent, orhigher if required by the company's constitution if one exists, of the votes of thoseshareholders entitled to vote and voting on the question.14 There is no evidence that this requirement was met in relation to any decision to sell the property to Bishop. The evidence is that the agreement was made effectively on the spot, and without Tina consulting the shareholders of Autumn Tree. Therefore on the further basis that there was no special resolution, I find Tina had no actual authority to enter the agreement.Did Tina otherwise have authority to bind Autumn Tree to the agreement?[39] Bishop, not being able to demonstrate an arguable case that Tina had actual authority from Autumn Tree to enter into the agreement, can only succeed if it can demonstrate that Tina arguably otherwise had authority.[40] Bishop relies in this regard on s 18 of the Companies Act 1993. It says that by virtue of s 18(1)(b) and/or (c), Autumn Tree cannot assert that Tina did not have authority to sign the agreement.[41] The Court of Appeal said in Norman v ANZ National Bank Ltd,15 that s 18(1) of the Companies Act affirms, and extends the common law principles known as the"indoor management rule". It restricts the circumstances in which a company can assert that the company, or a person the company held out as acting on its behalf, lacked authority to enter into a relevant transaction. As the Court said, the justification behind the rule is that a person dealing with a company is entitled to12 Under s 129(2)(b), the sale of the property would constitute a major transaction as it would dispose of assets of the company the value of which is more than half the value of the company'sassets before the disposition.13 Companies Act 1993, s 129(1).14 Section 2.15 Norman v ANZ National Bank Ltd [2012] NZCA 356, (2012) 21 PRNZ 261 at [23].assume that the company's internal requirements have been complied with and that the company's officers are acting lawfully.[42] Section 18 provides, as relevant:18 Dealings between company and other persons(1) A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—(a) this Act or the constitution of the company has not been complied with:(b) a person named as a director of the company in the most recent notice received by the Registrar under section 159—(i) is not a director of a company; or(ii) has not been duly appointed; or(iii) does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise:(c) a person held out by the company as a director, employee, or agent of the company—(i) has not been duly appointed; or(ii) does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise:(d) a person held out by the company as a director, employee, or agent of the company with authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power:(e) a document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine—unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be.Section 18(1)(b)[43] If s 18(1)(b) applies, Autumn Tree cannot assert against Bishop that Tina did not have authority to exercise a power which a director of a property developing business would customarily have authority to exercise.[44] Section 18(1)(b) does not, on its face, require a finding that the company held out an individual as being its authorised agent. Rather, it prevents a company from asserting that a director "named in the most recent notice received by the Registrar", was not a director, not duly appointed or did not have authority to exercise a power a director of such a company would customarily have authority to exercise. In this way, it does not require a third party to have relied on any outwards representation of who is a director.[45] I take it that when the section refers to the "most recent notice", that relates back to the opening words of s 18(1) and refers to the time of the person's dealingwith the company.[46] I do not have any clear evidence as to what was the most recent notice under s 159 as at 6.10 pm on 3 August 2017. The most recent notice (whether it is under s 159 or not, I am not sure) named Anna as a director, and did not name Tina, such that on the face of it s 18(1)(b) would not prevent Autumn Tree from denying Tina had authority. I acknowledge that this is an awkward subsection to apply.[47] Even if Tina is "a person named as a director in the most recent notice", forpurposes of s 18(1)(b), then the subsection still only provides protection to Bishop if Tina was exercising a power that a director of a property-developing company would customarily have authority to exercise. Under the following section, I find that Tina had no such customary authority, so on that basis also, I find that s 18(1)(b) does not apply.Section 18(1)(c)[48] If s 18(1)(c) applies, Autumn Tree cannot assert against Bishop that, if Tina was held out as a director, she did not have authority to exercise a power which a director, employee or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise.[49] Again I consider that the time of "holding out" is at the date of the dealing, inthis case the agreement.[50] I have to accept that Tina told Mr Blomfield she was a director of Autumn Tree at the time of the agreement. Mr Blomfield says that he saw only Tina's nameas a director on the Companies Register. However, it is only at the time the agreement was signed, that the Companies Register can be relied on as the basis for finding Autumn Tree was "holding out" Tina as a director. The time of the agreement was after 6 pm on 3 August 2017, and Anna was registered as a director earlier that day at 1.10 pm. This evidence is not contested. Therefore, at the material time, namely when the agreement was signed, the Companies Register would have recorded both Anna and Tina as directors, Tina's removal as a directornot being recorded until 5 August 2017. Autumn Tree therefore held both out as directors at the time the agreement was signed. I consider that such a representation suffices for the purposes of s 18(1)(c), regardless of whether the Companies Register had received a valid notice that the director had changed, or whether in fact Tina had ceased to be a director of Autumn Tree.16 The representation came from the company,17 even if it was potentially in error.16 Mardon & Stephens Group Limited v Zenn Holdings Limited HC Auckland CIV-2006-404-707, 1 August 2006 at [58]. The Court held that while the person claimed to have apparent authority was no longer a director of the company in question at the time he signed an amended loan agreement on behalf of the company, the other party did not know that and could not be deemed to have been aware of it.17 Levin Meats Ltd v Perfect Packaging Ltd (2011) 10 NZCLC 264,950 (HC) at [51], where French J held that "what matters for the purposes of apparent authority is the representationmade by [the company], not [the person held out as having authority]". That is also clear on the face of s 18(1)(c) which expressly says "held out by the company".[51] The position as to customary authority varies significantly between the customary authority of a sole (or managing) director and a director who is one of a board. The customary authority of one of a board acting alone, is very limited.[52] In this case, Tina and Anna together as directors were held out as the board at the time of the agreement.[53] Section 128(1) of the Companies Act provides that the board of a company has all the powers necessary for managing and directing and supervising the business and affairs of the company. The board, under s 127, is those directors who number not fewer than the required quorum acting together as a board of directors. The required quorum is the majority of the directors.18[54] The authors of Company and Securities Law in New Zealand state that a director acting solely in that capacity must act as part of a board to be able to bind the company.19[55] In Northside Developments Pty Ltd v Registrar-General the High Court of Australia stated that: 20 ordinary directors may have quite significant functions entrusted to them by the company, although usually these are of a more or less formal nature, such as affixing the company seal to documents which the company requiresto be executed [but] the position of director does not carry with it anyostensible authority to act on behalf of the company. Directors can act only collectively as a board, and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it.[56] In Ken Jones Building Supplies Ltd v Edendale Investments Limited, the issue was whether a director of a company, who was not the sole director, was able to bind the company to an agreement where it gave a mortgage over its property.[57] Associate Judge Doogue held that:2118 Schedule 3, clauses 3 and 4, Companies Act 1993.19 Company and Securities Law in New Zealand 2013 at 157.20 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 (HCA) at 205.21 At [25].Mr Waters as a director of the company had power and authority to bind the company to transactions that it would be within the usual authority of a single director to do. The section is not to be read as saying that because Mr Waters was a director he could bind the company to any contract that he pleased.[58] Associate Judge Doogue considered that the director was not able to bind the company to an agreement to mortgage because the authority to do so was not one customarily vested in a single director of a company carrying on the business of the kind carried on by the company.[59] Smellie J in Equiticorp Industries Group Ltd (in statutory management) v Attorney-General (No 47) held that directors in that matter were not exercising powers customarily held by directors because they entered into illegal contracts and acted improvidently.22[60] It seems that one out of a board of directors has little in the way of customary authority, absent evidence of such.[61] I consider that one out of two directors of a company such as Autumn Tree does not customarily have authority to unilaterally enter into a significant property transaction, as Tina purported to do.[62] I conclude it cannot be said that by virtue of Autumn Tree's holding out Tina as one of two directors on the Companies Register, that Tina had the authority to sell 18 Appleyard Crescent on behalf of Autumn Tree.Conclusion - no arguable case for interest in land[63] Tina did not have actual authority. Neither s 18(1)(b) nor s 18(1)(c) provides a basis for finding Tina otherwise had authority to enter into the agreement. Bishop does not assert any other basis for the agreement to be valid, nor do I consider there is any such basis.[64] The agreement is therefore invalid.22 Equiticorp Industries Group Ltd (in statutory management) v Attorney-General (No 47) [1998] 2 NZLR 481 (HC) at 720.[65] In these circumstances, Bishop does not have a reasonably arguable case for the interest it claims, namely an equitable interest in the property arising from a sale and purchase agreement.[66] I note that the parties did not argue as to the application of the proviso to s 18(1), nor would that be appropriate on a summary application of this type. However, had the applicant not succeeded on this application, there would appear to be a strong case that the proviso to s 18 would apply. "Knowledge" that a person "ought to have" includes imputed or deemed knowledge.23 Even in a very brief"relationship" such as this, Bishop was well aware of sufficient suspiciouscircumstances as to have deemed knowledge that Tina would not have authority to enter into the agreement.Result[67] The application is allowed. The caveat (no. 10868509.1) is removed from the certificate of title NA42B/644.[68] Autumn Tree seeks that the issue of costs be deferred on the basis that there are matters relevant only to costs which it wishes to put before the Court. I therefore direct that Autumn Tree submits a memorandum in relation to costs within 14 days. Bishop is to file a memorandum in reply within seven days of Autumn Tree'smemorandum.----------------------------------------------Hinton J23 Levin Meats Ltd v Perfect Packaging Ltd, above n 17, at [63].