The New South Wales Supreme Court held that despite the managing director of one company making certain decisions and supervising the staff of another, he had not been held out by the second company as having authority to make decisions concerning the consequences of late repayment by an investor under a loan agreement between the investor and the second company. This case serves as a reminder of the importance of ensuring that a person has actual or ostensible authority to bind a company before relying on representations made by them.
This case involved managed investment schemes in connection with which Mr Wardle entered into:
- a loan agreement with Agricultural and Rural Finance Pty Ltd (ARF) to finance his investment (Loan Agreement); and
- an indemnity agreement with Oceania Agriculture Ltd (OAL) (who filed the prospectus for the scheme) (Indemnity Agreement) under which OAL agreed to indemnify the repayment obligations under the Loan Agreement, provided that the Indemnity Agreement would only become “effective and enforceable” if the repayments had previously been “punctually paid”.
Mr Wardle planned to be overseas when one of the payments under the Loan Agreement fell due and had arranged for his accountant (Mr Giannuzzi) to fax directions to his finance provider to make payments. Having been informed by his finance provider that the funds would take 24 hours to transfer, Mr Giannuzzi called Mr Lloyd (the managing director of OAL) who replied that it would be “ok”.
The schemes were subsequently terminated and ARF commenced proceedings against many of the investors (including Mr Wardle) seeking repayment of the loans.
In his defence, Mr Wardle pleaded that ARF was estopped (by conventional estoppel and estoppel by representation) from seeking repayment on the basis of Mr Gianuzzi’s conversation with Mr Lloyd. However, Ball J in the Supreme Court of New South Wales rejected Mr Wardle’s estoppel defence for 3 reasons:
- at most, Mr Lloyd’s reply could be understood to mean that he did not propose to take any action to accelerate repayment or impose penalty interest if the payment was a day late, rather than a statement about the effect of the Indemnity Agreement;
- even assuming that Mr Lloyd’s representation had the meaning contended by Mr Wardle, Mr Lloyd had no actual or ostensible authority to make such a representation on behalf of ARF. Mr Lloyd was the managing director of OAL and took an active role in the preparation of the scheme and investor documents and in marketing the project to investors. In addition, OAL and ARF shared an office and together had 4 staff. Mr Lloyd supervised the staff who worked for ARF and initiated correspondence from ARF to investors reminding them of their repayment obligations. However, the only evidence that Mr Lloyd had any authority to do anything on behalf of ARF was a board resolution authorising him to operate ARF’s account by telephone banking and the correspondence to investors was always signed by ARF’s financial controllers or one of its directors. Furthermore, ARF had not held out Mr Lloyd as having authority to make decisions concerning the Loan Agreement and nothing in the correspondence with Mr Wardle suggested Mr Lloyd was an appropriate contact person in relation to the Loan Agreement; and
- Mr Wardle had not acted to his detriment based on anything Mr Lloyd said to Mr Giannuzzi and there was no suggestion that Mr Wardle was in a position to pay the sum earlier or that he delayed payment relying on what Mr Lloyd had said.