This case provides some useful analysis and application of the law of implied actual, and ostensible, authority for a single director to bind a company. It reinforces the importance of the relevant circumstances and in particular, any acquiescence by the other directors (which must be evidenced by words or conduct) and any reliance on such acquiescence by the other party.
This case arose out of a dispute between a syndicate of investors who had interests in a property development project owned by the Twentieth Green Unit Trust, of which Twentieth Green Pty Ltd (TG) was the trustee. Among the issues on appeal was whether certain payment authorities (Payment Authorities) purportedly signed on behalf of Grovan Pty Ltd (Grovan) (one of the unit holders) by one director Mr Price (but not his wife and co-director) were binding in circumstances where there was no express authority for Mr Price to sign alone under the constitution or by board resolution.
Ultimately it was not necessary to decide the issue (due to the Court’s findings that it was otherwise unconscionable in the circumstances for TG to rely on the Payment Authorities). However, Rares, Murphy and Davies JJ in the Full Federal Court made the following observations and findings in relation to the lack of implied actual, or ostensible, authority of Mr Price to sign the Payment Authorities for Grovan:
- ordinarily, where a company has more than one director, a single director’s normal power is to bind the company only by joining with other directors in a resolution of the board;
- an implied grant of authority can result from acquiescence in a course of behaviour by persons who have actual authority to delegate (provided there is also evidence of a communication by word or conduct of the individual directors’ respective consents to one another and to the agent);
- the following pointed away from a conclusion that Mrs Price impliedly authorised Mr Price to enter into the Payment Authorities:
- they fell outside the ordinary course of business for Grovan (they required it to agree to pay 100% of the future liabilities of the project builder in circumstances where it only had a 10% interest in the project and none of the other unit holders took on similar obligations);
- they were entered into at a time when Mr Price was suffering significant financial and emotional stress and dealing with other personal issues, and
- Mrs Price’s evidence was she was not aware of the Payment Authorities until these proceedings and had she been, she would have urged Mr Price not to sign them
- the following evidence did not establish that Mrs Price stood by and acquiesced in Mr Price representing that he was able to bind Grovan on his signature alone:
- Mr Price’s attendance at investor meetings alone and the fact that he signed all Grovan correspondence alone (which did not show that he had any power beyond a director);
- the fact that Mr Price alone signed the accounts for Grovan (which was very different to entering into the Payment Authorities and in any case, the Directors’ Declarations accompanying the accounts stated that they were made in accordance with a board resolution);
- the fact that the first Payment Authority was drafted by TG to require execution by both Mr and Mrs Price showed that TG gave some thought as to who was required to execute the First Payment Authority. Further, the failure of TG to explain why Mrs Price’s signature was not insisted upon (in circumstances where Mr Price revealed his personal difficulties just before the first Payment Authority was drafted) suggested that TG did not enter into the Payment Authorities with the understanding that Mr Price had power to bind Grovan alone. Nor did it rely on any acquiescence by Mrs Price in the conduct of Mr Price;
- apparent or ostensible authority may exceed implied actual authority but in the absence of some representation by the company, an ordinary individual director does not have ostensible authority to bind the company; and
- the Court was not satisfied that TG in fact relied upon any representation that Mr Price had apparent or ostensible authority to execute the first Payment alone. Had it done so, Mr Power, as a director of the company, would have drawn the first Payment Authority to require only Mr Price’s signature.