A sublessee was entitled to rely on the assumption of due execution under section 129(5) of the Corporations Act 2001 (Cth) in respect of a sublease which appeared to have been signed by the sublessee under section 127, irrespective of the fact that ASIC’s records indicated that the signatory was not in fact a director of the sublessor.  However the Court found that while the sublessor was prevented from denying execution of the sublease, the entitlement of the sublessee to rely on due execution did not confer a proprietary right enforceable against a third party who had been validly granted a lease from the registered proprietor.  Contracting parties should be aware that the statutory due execution assumptions only apply to regulate the legal relations between the parties to the relevant contract and do not create rights and obligations enforceable against third parties.

Esperance Cattle Company Pty Ltd (Esperance) claimed to be entitled to possession of Young River Station by virtue of a lease granted by Navarac Pty Ltd (Navarac) (the registered proprietor).  Granite Hill Pty Ltd (Granite Hill) claimed to be entitled to possession by virtue of a sublease granted by Mammoth Investments Pty Limited (Mammoth) who was the lessee pursuant to a lease granted by Navarac at the time Granite Hill claims that the sublease was executed.

The relevant facts were as follows:

  • John Caratti and his mother Mrs Caratti took steps to remove Allen Caratti (John’s brother) as director of the Caratti family companies (and appoint Aaron Caratti in his place);
  • Allen Caratti, purporting to still be a director of Mammoth, executed a sublease by Mammoth in favour of Granite Hill (and also simulated the signature of his mother as a director of Mammoth without authority); and
  • Esperance then executed another lease with Navarac executed by Mrs Caratti and Aaron Caratti as directors of Navarac.

Martin CJ found that:

  • the legislative history suggests that it was the legislature’s intention that the assumption in section 129(5) of the Corporations Act 2001 (Cth) that a document has been duly executed if it appears to have been signed in accordance with section 127 would apply irrespective of whether or not the person who had apparently signed the document was a person who, on the information available to the public from ASIC, was an officer of the company;
  • case law in relation to section 129(6) (which for this purpose is substantially similar to section 129(5)) was that the affixation of signatures apparently as office holders of the company was, of itself, sufficient to create the appearance that the document had been executed in accordance with section 127, with the result that the assumptions in section 129(6) would apply unless the person dealing with the company knew or suspected that the assumption was incorrect; and
  • on the basis of the above, Granite Hill was entitled to assume that the sublease had been duly executed by Mammoth pursuant to sections 128 and 129(5) of the Act despite the fact that it was evident that it had been signed by Mr Caratti who was neither a director of Mammoth nor a person who appeared to be a director from information available from ASIC.

However, His Honour also found that the statutory assumption only applies to regulate the legal rights and obligations between Granite Hill and Mammoth and did not confer a proprietary right on Granite Hill that was good as against third parties such as Esperance.  As such, Esperance was entitled to an order for possession and damages against Granite Hill for trespass.

See the case.