KEN JONES BUILDING SUPPLIES LIMITED t/a Placemakers Cranford, Cranford Street, Christchurch v EDENDALE INVESTMENTS LIMITED [2013] NZHC 3429

KEN JONES BUILDING SUPPLIES LIMITED t/a Placemakers Cranford, Cranford Street, Christchurch v EDENDALE INVESTMENTS LIMITED [2013] NZHC 3429 [17 December 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-004404[2013] NZHC 3429UNDER Land Transfer Act 1952IN THE MATTER of an Application for an order pursuant toSections 145 and 145A of the Act fororders that daveat not lapse.BETWEEN KEN JONES BUILDING SUPPLIESLIMITED t/a Placemakers Cranford,Cranford Street, ChristchurchApplicantAND EDENDALE INVESTMENTS LIMITEDRespondentHearing: 9 December 2013Appearances: Mr D J Clark for ApplicantMr D A Wood for RespondentJudgment: 17 December 2013JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on17.12.13 at 4 p.m. pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateBackground[1] There is no substantial dispute about the background facts in this matter. The applicant is a Joint Venture Operator with Fletcher Distribution Limited. Togetherthey trade as "Placemakers". In this case the applicant is the Placemakers Cranfordbranch.[2] The applicant has registered a caveat under s 137 of the Land Transfer Act 1952 against the property registered as Identifier 131246 ("the subject property").The respondent is registered proprietor of the subject property and has applied to the Registrar-General of Land that the caveat lapse.[3] It is the applicant's case that it has an interest in the property that entitles it to sustain the caveat on the grounds that:it is owed the sum of $114,579.29 ("the debt") in respect of goods and servicessupplied by it to CH & PM Waters Limited from time to time;that the debt was secured by an Agreement to Mortgage between the Applicant and the Respondent as Covenantor;that Colin Waters, as Director of the Respondent executed the Agreement to Mortgage which states that the land to be secured is the subject property.[4] It is accepted that the reference to Mr "Watson" is mistaken and that it ought to have been to a Colin Waters.[5] It is necessary to mention a separate company from the parties to thisproceeding, CH & PM Waters Limited ("Waters Ltd"). That was a propertydevelopment company which had a credit account with the applicant. The applicant supplied goods and services from time to time as requested by Mr Waters who was a director of and the main contact which the applicant had with Waters Ltd. WatersLtd paid for goods and services in accordance with the applicant's standard terms of trade.[6] However in 2007 Waters Ltd encountered financial difficulties. The applicant says that in order for it to continue to supply Waters Ltd and to pre-empt the applicant from taking any legal steps to recover the sums outstanding at the timethe respondent agreed to enter into what is claimed to be an Agreement to Mortgage secured over the subject property. It is alleged that C H Waters, as a director of the respondent company, executed, in that capacity, the agreement to mortgage which states that the land to be secured is the subject property. It is further the case for the applicant that it is the rights that are generated by that agreement which are secured by caveat number 7695618.1.[7] The respondent, as stated, has now applied to the Registrar-General of Lands to have the caveat lapse.[8] In addition to Mr Waters, his son, Mr J Waters, is a director of the respondent. The position that Mr J Waters takes is that the respondent company, the registered proprietor of the property referred to, says it knows nothing of any agreement to mortgage.[9] The agreement is headed "agreement to mortgage". It contains the narration:To: Ken Jones building Supplies Ltd[10] It further states that:In consideration of Ken Jones Building Supplies Ltd (the lender) at the request of the covenantor/s agreeing from time to time at its absolute discretion to makeavailable to the customer/borrower ("borrower") named in the schedule advances,credits, financial accommodation or forbearing to sue for indebtedness, whether such accommodation has been made or is to be made, the covenantor/s will executein favour of the lender a good registerable mortgage over the land referred to inthe schedule hereto to, such mortgage to secure all moneys owing or to becomeowing by the borrower to the lender.[11] The agreement contained an agreement to charge the land. The evidence of the applicant is that the document had been annexed to it a further document which was produced in evidence and which was in the following terms:ScheduleBorrower: CH and PM Waters LtdMortgaged land: lot two DP 331966...SIGNED by the covenantor "CH Waters"[12] Ms Baker is an employee of the applicant. She is an accountant. It is Ms Baker's evidence that the whole document was filled out by Mr Waters, other than the date and the witness signature and witness details. On the other hand, the respondent asserts that the legal description of the land was not in the document at the time that Mr Waters signed it and that it was inserted into the agreement later. Ms Baker rejects that last assertion.[13] While the respondent filed a very comprehensive notice of opposition to the application sustaining the caveat, the principle issues appear to be the following. First, the respondent denies that there was any binding contract entered into between the applicant and the respondent. It says Mr Waters had no authority to commit the respondent to such an agreement. It asserts other grounds of defence as well. It says that the respondent is not even referred to in the contract. Further, the respondent asserts that there was no consideration for any supposed agreement.Relevant principles to be applied[14] In determining the application I intend to be guided by the following statements of principle which relate to applications to remove and sustain caveats. The first is from the case of Raiser Developments Ltd v Trefoil Properties Ltd, citingSims v Lowe:1In truth there is no difference between the s 143 procedure (on the one hand) and the ss 145 and 145A procedures (on the other) other than the identity of the party entitled to initiate the application. Irrespective of the procedure adopted, the onus is on a caveator to justify the clog that it seeks to put onthe registered proprietor's ability to deal with its property: see Sims v Lowe [1988] 1 NZLR 656 (CA) at 660, per Somers and Gallen JJ.[15] Further, as the Court of Appeal observed in the Boat Harbour case: 2There is no dispute about the principles applicable under s 143 of the Land Transfer Act, which provides for the removal of a caveat. The key principles in terms of this case are first, that the onus under s 143 lies on the caveator to show it has a reasonably arguable case for the interest claimed. Secondly, what the caveator must1 Raiser Developments Ltd v Trefoil Properties Ltd [2008] NZCA 73, (2008) 9 NZCPR 161 (CA) at [34].2 Boat Harbour Holdings Limited v Steve Mowatt Building & Construction Limited [2012] NZCA 305, (2012) 13 NZCPR 489 at [26]..establish is an arguable case for claiming an interest of the kind in s 137. Finally, even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously. It is also recognised that the summary procedure for removal of a caveat is wholly unsuitable for the determination of disputed questions of fact.[16] For the purpose of the application, the caveator must show that he/she is entitled to, or beneficially interested in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or transmission or of any trust (expressed or implied).3 What the caveator must establish is an arguable case for claiming an interest of the kind in s 137. Even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously.4[17] Finally, the summary procedure for removal of a caveat against dealings is unsuitable for the determination of disputed questions of fact. Accordingly, the Court in Sims v Lowe said:5That 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.Was there a binding contract?[18] The first issue is whether the parties in fact came to a contractually bindingagreement for the respondent to give a mortgage over its property. This involves aninquiry into the authority, if any, that Mr Waters had the contract on the company'sbehalf.[19] Mr Waters, as a director of the respondent, purported to provide security for the debt of Waters Ltd of which he was also director. Mr Waters says that he resigned as a director of the respondent company in September 2009. It is not disputed that he was a director at the time that the transaction took place 31 December 2007. The issue arises as to whether he could bind the respondent to the guarantee that the applicant said it gave of the debts of Waters Ltd.3 Land Transfer Act 1952, s 137.4 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).5 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659-660.[20] Mr Waters says that he was not expressly authorised by Edendale to enter into an agreement to mortgage. The other director of the company, Jeremy Waters confirms that was correct.[21] In those circumstances, the applicant, not being able to demonstrate that it is arguable that Mr Waters had actual authority from Edendale to enter into the transaction, can only succeed by demonstrating that Mr Waters had implied authority from the company to enter into the arrangement.[22] The only way in which the applicant can surmount this hurdle is by showing that it was entitled to assume that Mr Waters had the usual authority of a director of a company to enter into the transaction, or Mr Waters conducted himself in a way which led the applicant to reasonably believe that the company had assented to Mr Waters binding it.[23] The position that Mr Clark took for the applicant was that it was to be assumed in favour of the applicant that the director was appropriately authorised to enter into the contract on behalf of the company and bind the company. This was said to stem from the rule in Turquands Case6 and from the operation of s 18 of the Companies Act 1993. The section provides as follows: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 of this Act—(i) Is not a director of a company; or(ii) Has not been duly appointed; or6 The Royal British Bank v Turquand (1855) 5 El & Bl 248 (QB).(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, of this subsection.(2) Subsection (1) of this section applies even though a person of the kind referred to in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery.[24] For the respondent, Mr Wood made the following submission:Section 18 is to be taken as no more than a further expression of the indoor management rule. The earlier comments on the presumption of regularity are also to be read in this context that ordinarily operates when a company contracts. Professor Watts has commented at some length on this. Reference is made to the article headed Company Contracts and Reckless Trading: Re Global Strategies Limited. In particular to the comment that".there is nothing in section 18 that either confers authority on, orprecludes the company from denying the lack of authority of a single director to bind the company.It is required of a director who issues a document on behalf of a company to have all of the usual express authorities, either actual or no less than apparent authority in order to do so. Reference is made to the point at which Professor Watts emphasises the presumption of regularity "kicks in":"there is a fallacy among lawyers that there is a presumption ofregularity that automatically operates with company contracts.Before the 1993 Act reference was usually made to 'the rule inTurquands case' or to 'the indoor management rule'. But thismisunderstands that rule and to the extent that section 18 encapsulates that rule, it misunderstands the operation of section 18.The presumption of regularity kicks in only once the plaintiff has established that there was a holding out of the relevant agent as having authority to make a contract of the relevant sort (by someoneother than the agent him or herself).In other words Turquand andsection 18 only cover procedural irregularities; they do not obviate the basic requirement on the outside to establish the credentials ofthose purporting to bind the company."(footnotes omitted)[25] In my view s 18 does not have the effect of conferring authority where none existed, unless the company held a person out as having authority which they did not in fact have. 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. Thesection states that he could bind the company to obligations which a "director of acompany carrying on business of the kind carried on by the company customarilyhas authority to exercise".[26] The effect of the equivalent Australian legislation was stated in the following terms by Toohey J in Northside Developments Pty Limited v Registrar-General:7But where the question is whether an officer of the company has authority to bind the company by his actions, the context moves from one of indoor management to one of agency and the ordinary rules of agency then come into play. The indoor management rule is in effect a concession to the outsider in dealing with the company; it does not confer authority on an officer of the company to enter into a contract where that authority does not otherwise exist. Authority must actually exist to enter into the transaction in question or must be found in principles of agency, as in the concept of ostensible agency.[27] The question therefore becomes what the extent of authority of a sole director normally is.7 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 (HC) at 207.[28] Professor Watts in Company Law in New Zealand states: 8The standard understanding in leading Commonwealth jurisdictions is that the usual authority of an individual director, unless a managing director, is very limited. The implication of this long line of decisions is that the individual director acting alone is assumed to be in no better position than any other person to represent the company. These legal rulings must be taken to reflect the fact that in practice there simply is no standard delegation of power from which to generalise. This is particularly understandable with boards of any size, since it would be dangerous to have all individuals on the board making their own decisions and representing to the world their power to bind the company.9[29] The same text notes the decision of the New Zealand Court of Appeal inLangley v Delmonte and Patience.10 In that case, the respondent company claimedthat it was not liable on a guarantee that had been signed on its behalf by a directorof the company. The guarantee was given to the vendor of a business who wasselling it to a third party. The purchaser failed and the vendor called on theguarantee. There were in fact three directors of the company. The director whosigned the agreement had been appointed managing director.[30] The Chief Justice for the Court of Appeal decided the case on the basis that it was a case about the authority which a person dealing with a company is entitled to assume the managing director possessed.11 The document in Langley had been impressed with the seal of the company but it was also signed by the managing director and witnessed by another person.[31] The Chief Justice went on to remark that although the formalities followed in entering into the agreement were executed by one director only, that was not adifficulty. He said:12Now, in New Zealand it is well known that there are some thousands of private companies – the public records show something like 5,500 – and it is common knowledge that a very large number of these private companiesconsist of but two shareholders, and in very many cases all the shares exceptone are hold by one person, such remaining share being held by a nomineeof that person. Frequently in the case of these private companies there is but8 Peter Watts, Neil Campbell and Christopher Hare Company Law in New Zealand (LexisNexis, Wellington, 2011) at Paragraph 11.16.29 The text refers to decision is from other jurisdictions apart from New Zealand.10 Langley v Delmonte and Patience Ltd [1933] NZLR 77 (CA) at 101.11 Langley v Delmonte and Patience, Limited [1933] NZLR 77 at 99.12 At 100.one director. I think, therefore that it would dangerous to hold that in thecase of a private company one director, especially if he be a managingdirector, may not normally have power to act for the company, especiallywhere, as here, a person is appointed by the articles and held out by thecompany as holding the position of "managing director".[32] In my opinion Langley can be distinguished from the present case because itwas concerned with the position of a managing director. The judgment in Langleyappears to have been influenced by the consideration that some particular personmust represent the company and it could be a secretary or the managing director orsome other officer who:Must have authority to bind the company by letters written on its behalf. The person chosen by the defendants for this purpose was the chairman ofthe board and the defendants have represented by their chairman that theplaintiffs could rely on the guarantee of the defendants as the act of thedefendants and are responsible for those acts which they have held him outas having authority to perform.[33] There are a number of authorities which indicate that a managing director hasbeen recognised as having or as frequently having the authority to make decisionswhich are binding on the company. Some of these decisions pre-dated Langley. Butthe important point to note in the context of this case is that in Langley the singledirector who actually signed the papers appears to have been designated "managingdirector". Having regard to the references that the Court in Langley made to othercases identifying the need for some particular person to have authority to manage theaffairs of the company, the decision is one that should properly be viewed aspronouncing upon the powers of managing directors. The additional remarks whichare to be found in the Chief Justice's judgment about the authority of directorsgenerally may be seen as being not necessary to the outcome of the decision in thatcase.[34] In my view, Langley cannot therefore be relied upon by the applicant asdemonstrating that when he signed the mortgage, Mr Waters was able to bind therespondent by virtue of authority customarily vested in a single director of acompany carrying on business of the kind carried on by the company here. In viewof the foregoing conclusion then it is incumbent on the applicant to invoke someother basis for asserting that Mr Waters had the authority to make the companyliable.[35] As I understand it, the applicant relies on the fact that Mr Waters himself represented that he had such authority. But the authorities establish that it is not sufficient for an agent himself to make the representation about his authority: Savil vChase Holdings (Wellington) Limited.13 Any representation or holding out mustemanate from the principal. The agent, to use Mr Wood's expression, cannot "self-represent" his authority.[36] The applicant is not therefore able to demonstrate that there was in this caseapparent or ostensible authority represented by the company investing in Mr Waterswhich would enable him to bind the company by assigning the agreement tomortgage. Nor was there any actual authority that the applicant was able to refer towhich would establish that Mr Waters was so authorised. That being so, theapplicant is not able to establish a key component of its case entitling it to maintainthe caveat which it has lodged against the title to the respondent's property.Conclusion[37] In the absence of any authority on the part of Mr Waters to sign theagreement to mortgage, the supposed interest in the land which is the subject of thecaveat does not exist. For that reason the application must therefore be dismissed.[38] The parties are to confer on the matter of costs and if they are unable to agreeshould file and serve memoranda not exceeding five pages on each side within tenworking days of the date of this judgment._____________J.P. DoogueAssociate Judge13 Savil v Chase Holdings (Wellington) Limited [1989] 1 NZLR 257 (PC).