Section 129(5) of the Corporations Act permits a person dealing with a company to assume that a document has been duly executed by that company if it appears to have been executed in accordance with section 127(1) of the Corporations Act. For a company with two or more directors, that means when the document appears to have been executed by two directors or a director and a secretary.
The application of that section was considered by the Court of Appeal in Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd [2013] NSWCA 459.
The case concerned a guarantee provided by Frenmast Pty Limited to ANZ. The document appeared to bear the signatures of two directors but one of the signatures was forged.
ANZ relied on the assumption provisions of section 129(5). The trial judge, Adams J., found against ANZ. His reasoning process was that:
- The assumption only applies where a person is "dealing" with the company
- For a person to have dealings with a company in relation to a guarantee, that person must deal with
- someone with actual or ostensible authority to enter into the guarantee
- ANZ dealt only with one director of Frenmast
- There was no evidence that the director had actual or ostensible authority to enter into the guarantee
- Therefore ANZ's communications with the director were not "dealings" with the company.
The Court of Appeal found Justice Adam's reasoning to be flawed. In overturning the decision, it found that it was not necessary for ANZ to deal with a person that has authority to bind the company. All that was required by the Act was that ANZ had dealings with a person with authority to negotiate the transaction.
The Court found that the director had authority to negotiate. The director had been the principal point of contact for ANZ for a number of years and the other director was aware of that fact. ANZ was entitled to assume that the director had authority to negotiate the guarantee with the bank.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
