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Papua New Guinea Law Reports |
PAPUA NEW GUINEA
[SUPREME COURT OF JUSTICE]
SANGARA (HOLDINGS) LIMITED
V
HAMAC HOLDINGS LIMITED (IN LIQUIDATION)
Port Moresby
Minogue ACJ Frost Prentice JJ
23-26 February 1970
1 June 1970
COMPANIES - Validity of deed - Rule in Turquand’s case - Onus of establishing - Common officers - Duties and obligations of common officer - Lack of good faith - Inquiry - Failure to comply with Articles of Association[dlxxxii]1.
On 1st May, 1962, Hamac (Hamac (Holdings) Pty. Ltd.) as vendor purported to enter into a deed with Sangara (Sangara Holdings Limited) evidencing the sale of certain shares in Morobe Hotels Ltd. a subsidiary of the vendor, and other related matters. The shares were the only valuable asset of Hamac, whose business was that of a holding company and whose assets consisted principally of shares in 7 other companies. On 31st May, 1962, a second deed purporting to clarify and vary the deed was also entered into.
The deed was the result of negotiations carried out by one Fox. Fox was the effective representative and owner in New Guinea of a firm E. A. James and Co. which was the secretary for both Hamac and Sangara. In September 1961, Fox was one of four persons appointed to the board of directors of Hamac without holding the share qualification required by art. 74 of the Articles of Association. The deed was signed and sealed for Hamac by Fox: it was not authorized by a resolution of the board of directors and was not sealed and countersigned in accordance with art. 107 of the Articles of Association, it had not been certified by a general meeting of the company’s shareholders which was required by art. 102 of the Articles of Association in the event of a sale of the “main undertaking” of the company.
All of the directors of Sangara were resident in Australia. Fox and his employees were alternate directors in New Guinea and Fox was negotiating agent for it in relation to the purchase of the shares in Morobe Hotels Ltd. The deed was signed and sealed for Sangara by two of the Australian directors T. and N. in the presence of “E. A. James and Co.” and the second deed was signed for Sangara by Fox alone. Of 18 meetings held by the board of directors of Sangara between March 1961 and June 1962, 15 where formal matters only were transacted were attended by Fox and employees only as alternate directors and T. and N. were present at one meeting only on 28th April - 2nd May, 1962.
Held
(1) &##160; Frert J st J and Prnd Prentice J) A party relying upon the rule in Royal British Bank v. Turquand (1856), 2 amp; 119 E66 bears the onus of establishing itself within the principles of the cthe case.
Freeman and Lockyer v. Buckhurst Park Properties, [1964] 2 Q.B. 480 at pp. 505-506; [1964] 2 All E.R. 630 at p. 639 referred to.
(2) (ier Me ogu anCJFros J) U J) Up to the date of the deed of 1st May, 1962, Fox was a common director of Hamac and Sangara and under the rule in In re Hampshire Land Company by which knowledge which has been acquired by the officer of one company will not be imported to the other company unless the common officer had some duty imposed upon him to communicate that knowledge to the other company, and had some duty imposed on him by the company which is alleged to be affected by the notice to receive the notice . . . Fox’s knowledge of the non-compliance by Hamac with arts 74, 102 and 107 of its Articles of Association was not to be attributed to Sangara.
Rule in In re Hampshire Land Company, [1896] UKLawRpCh 122; [1896] 2 Ch. 743 at pp. 748-50 adopted and applied.
(3)  lowilg the meeting of g of Sangara on 28th April—2nd May, 1962, the conduct of Fox was such that he knew that the transaction pursuant to the deed of 1st May, 1962, could not be effectedss he actintrary to hito his duts duty to y to Hamac, and in the absence of any evidence being called on the matter, the only justifiable conclusion was, that, in this respect, Fox was dealing with Hamac less than honestly and this lack of good faith must be attributed to Sangara, and according to the rule in Turquand’s case render both deeds void.
Rule in Royal British Bank v. Turquand [1856] 2 El. & Bl.; 119 E.R. 886 applied.
(4) ټ (Per Mier Minogue ACJ and Frost J) Even if there had been good faith on the part of Sangara, it was put on inquiry by the mode of execution of ted ofMay 1on two grounds, firstly non-comp-compliance with art. 107 of the Articles cles of Asof Association of Hamac, a public document of which Sangara was deemed to have knowledge, and secondly having regard to the fact that Fox acted for Sangara in negotiating the contract, the fact that the deed of 1st May, 1962, bore no signature on its face on behalf of Hamac other than Fox’s was sufficient to place Sangara on inquiry whether the deed had been validly entered into, and having made no such inquiry the defence based on Turquand’s case could not apply.
Equity Nominees Ltd. and Anor v. Tucker and Anor [1967] HCA 22; (1967), 116 C.L.R. 518 referred to by Frost J
(5) &  rule in
(6) & (Per Frost J and Prenticentice J, Minogue ACJ dissenting) An instrument of transfer of shares in Morobe Hotels Ltd., dated 1964, held by an equitable mortgage of Hamac and endorsed “as per agreement of 1st May, 1962”, could only be treated as being made under the void deed and accordingly void also.
(7) ـ The appe appeal should be dismissed with costs.
Appeal
This was an appeal against a judgment and orders of OllerenJ deld and on 17th July, 1969, whereby he declareclared void and of no effect a deed of salf sale of e of 1st May, 1962, between the plaintiff and the defendant purporting to effect the sale by the plaintiff to the defendant of 345,823 fully paid 5/- shares in the capital of a company, Morobe Hotels Limited, and also a further deed of 31st May, 1962, relating to this sale, and made consequential orders that transfers of shares from the plaintiff to the defendant were also void and of no effect and that the defendant held the whole of the issued shares in the capital of Morobe Hotels Limited in trust for the plaintiff.
The defendant sought the protection of the rule in Turquand’s case but the trial judge found an absence of good faith on the part of the defendant and refused to apply the rule. The defendant appealed.
Counsel
R. G. Henderson QC and E. A. Francis, for the appellant (defendant).
W. P. Deane QC and A. J Croft, for the respondent (plaintiff).
Cur. adv. vult.
1 June 1970
MINOGUE ACJ: This is an appeal against the judgment and orders of Ollerenshaw J delivered and made on 17th July, 1969, whereby he declared void and of no effect a deed of sale of 1st May, 1962, between the plaintiff and the defendant purporting to effect the sale by the plaintiff to the defendant of 345,823 fully paid 5/- shares in the capital of a company, Morobe Hotels Limited, and also a further deed of 31st May, 1962, relating to this sale, and made consequential orders that transfers of shares from the plaintiff to the defendant were also void and of no effect and that the defendant held the whole of the issued shares in the capital of Morobe Hotels Limited in trust for the plaintiff.
The trial was unusual in that no oral evidence was led by either party dealing with the negotiations leading to the alleged sale of shares nor indeed of any circumstances surrounding the transaction save the evidence of Mr. Pike, the current liquidator of the plaintiff. This evidence consisted in the main of his analysis of the balance sheets of the plaintiff and its subsidiary or related companies, and his inferences drawn both from these balance sheets, certain books of account and company minutes. There were tendered what were thought to be the relevant minutes of meetings of directors and shareholders of both plaintiff and defendant, of subsidiary or related companies and such other companies as appeared to be concerned with the tangled affairs of both parties.
To achieve an understanding of the way in which the plaintiff attacks the so-called deeds and agreement and the subsequent transfers of shares which were effected in purported reliance on those documents it is necessary to look in some detail at the situation of the parties as it existed in May 1962 so far as this can be discovered from the documents before the learned trial judge.
The plaintiff, to whom I shall hereafter refer as Hamac, was incorporated on 4th October, 1956, and seems to have had both a chequered and unfortunate history. By February 1960 its position was financially hopeless, winding up proceedings were in train on the petition of a creditor and in a circular to shareholders issued early in that month the directors advised against any opposition to the petition. In the circular it was stated that the company’s liabilities amounted to approximately £544,000 of which £110,000 was secured and the remainder unsecured. Apart from a house at Lae, a motor vehicle and some plant and equipment Hamac had no fixed assets. Its business was that of a holding company and its assets consisted principally of shares in the following companies: Aroana Estates Limited, Eriama Estates Limited, Ela Services Limited, Wanigela Plantations Limited and Morobe Hotels Limited. The latter company owned the whole of the issued capital in a company called Coffee Products Limited which in turn owned all the shares in another company called Hotel Cecil Limited. Hamac also had seven shares in each of Eriama Shipping Company Limited, Moresby Importers Limited and Territory Finance Corporation Limited. The two former do not appear to have carried on any business after 1960 and Hamac’s shares were the only on shares issued. Territory Finance Corporation Limited had a large issued capital and for all practical purposes Hamac’s shareholding can be regarded as negligible. Hamac also had substantial amounts owing to it by Aroana Estates Limited and Wanigela Plantations Limited.
On 1st April, 1960, Hamac, Aroana Estates Limited, Eriama Estates Limited, Ela Services Limited, Eriama Shipping Company Limited, Wanigela Plantations Limited, Morobe Hotels Limited and Hotel Cecil Limited were ordered to be wound up. At this time Hamac owed large amounts to a number of its subsidiaries totalling over £76,000.
No evidence was given of the course of liquidation but it appears that steps were being taken or negotiations were in train to put Hamac and its subsidiaries back on their feet. On 30th December, 1960, a company called Papua and New Guinea Development Corporation Limited was incorporated for the purpose of acquiring the assets and liabilities of Hamac and the Hamac group and the next step so far as the material before the court discloses was the submission of a scheme of arrangement between Papua and New Guinea Development Corporation and Hamac and its eight subsidiaries and with each and all of the creditors of these companies whereby the creditors were offered either notes for the amount of their debts or a combination of notes and shares in the Corporation. The scheme of arrangement was approved by a majority of the creditors of the Hamac group.
On 5th October, 1961, orders were made staying the winding up of Hamac and its subsidiary companies.
As considerable time was taken up both at the trial and in the appeal before this Court to show that at all relevant times the shares in Morobe Hotels Limited were the main undertaking of Hamac, it is convenient at this point to look at the financial situation as it existed in May 1962. This best appears from a series of balance sheets as at 6th October, 1961, prepared by the then liquidators of the Hamac group supplemented in part by evidence given of subsequent sales and disposals. It does not appear that Hamac acquired any assets subsequent to the stay of the winding up order. Its balance sheet shows that £267,219.16.8 of its total assets of £320,624.16.2 consisted of shares in its group companies. I deal with these in turn.
AROANA ESTATES LIMITED
This had an issued capital of £20,500 and debts other than amounts owing to other companies in the group of nearly £15,000. Its only asset was a plantation property and plant at Galley Reach. These were sold in February 1962 and after payment of secured debts some of the proceeds of sale went to Papua and New Guinea Development Corporation Limited and some to Hamac.
ELA SERVICES LIMITED
The main asset in this company, a service station in Port Moresby, was sold on 14th November, 1961, and after satisfaction of its overdraft to its bank the balance of the proceeds of sale, £13,817, was paid to Papua and New Guinea Development Corporation Limited in January 1962. I assume this was in satisfaction of the liabilities taken over by that company. Ela Services Limited carried on no business after April 1962 and the liquidator’s balance sheets show that from the period 1st April to 6th October, 1961, it suffered a trading loss of £1,656.
ERIAMA SHIPPING COMPANY LIMITED, MORESBY IMPORTERS LIMITED AND TERRITORY FINANCE CORPORATION LIMITED
The Shipping Company had an issued capital of £7 only and was hopelessly in debt. The interests in the other two companies were not worth more than the £7 shown in each balance sheet.
ERIAMA ESTATES LIMITED
This was a wholly owned subsidiary. As at 6th October, 1961, the liquidator’s accounts show that it had an issued capital of £69,200 and shareholders’ funds of £16,942. The company leased two large areas of land, one of 7,200 acres at Embi near Popondetta and the other of 4,790 acres known as Tiaba, 14 miles from Port Moresby. The latter was sold by the mortgagee in December 1963 for £7,500 and the whole of this money appears to have been appropriated to satisfaction of the mortgage debt. In evidence were the minutes of a meeting of directors of Hamac held on 24th April, 1962. At this stage it appears as if the directors had every intention of carrying on the business and some confidence seems to have been felt as to the future profitability of the company despite the fact that from the liquidator’s accounts for the April to October period in 1961 the income received was £806 and the outgoings £3,388. However, the evidence shows that by May 1962 Tiaba had come to a stop as a working plantation—without machinery, funds or employees. At the directors’ meeting no mention was made of the Embi property which was subsequently relinquished by Mr. Pike in 1967 as being valueless. He had not seen the property but it had been reported to him that it was run-down and overgrown. In 1967 six years’ land rentals were unpaid.
WANIGELA PLANTATIONS LIMITED
This also was a wholly owned subsidiary. Its main asset was a plantation at Wanigela which was sold in March 1963 for £5,150 pursuant to a charge held over it by the Australia and New Zealand Bank Ltd. Hamac received £66 from the sale. From 1st April, 1961, to 6th October, 1961, the income received by the plantation company was £50 and it suffered a trading loss of £2,487. It appears that there had been an offer to buy the plantation for £30,000 at some time in late 1962 but this obviously must have fallen through. In May 1962 this Company had ceased to carry on business in any real sense and a witness who had been manager of the plantation until January 1962 deposed that at that time it had come to a stop in terms of production or useful activity.
MOROBE HOTELS LIMITED
The assets of Morobe Hotels Limited consisted of fixed assets which in substance were the Goroka Hotel and the Wau Hotel, amounts owing by other members of the group and all the issued shares in the company called Coffee Products Limited. This Company had only one real activity, that engendered by its ownership of all the issued shares in another company Hotel Cecil Limited, the business of which was owning and conducting the Hotel Cecil in Lae. Trading profits of this hotel from 1st April to 6th October, 1961, were £3,912 and its subsequent history shows that from 1st April, 1962, to 30th June, 1963, there was a trading profit of £17,443 and for the financial year 1963-64, £16,476. However, as at 6th October, 1961, from an analysis submitted to the Court by Mr. Henderson for the defendant the capital position of the company appears to be as follows:
| Value of Hotel and Stock | £45,413.13.3 |
| Debts due by group companies (including an amount owing by Hamac of £24,509.15.0) | 27,048.10.2 |
| Other Current Assets | 20,569.19.9 |
| Total Assets: | £93,032. 3.2 |
| Current Liabilities | £97,744. 4.6 |
| Group Liabilities (including an amount owing to Coffee Products Limited of £20,339.0.8) | 21,967.8.11 |
| Total Liabilities: | 119,711.13.5 |
| Excess of Liabilities over Assets: | £26,679.10.3 |
From an analysis of the position of Coffee Products Limited it would appear that it had an excess of liabilities over assets of £4,793.16.0.
The position of Morobe Hotels Limited then appears to be as follows:
| Fixed Assets, i.e. Goroka and Wau Hotels and | | ||
| Stock | & | | |
| Other Current Assets | | <8,968.14.9 | |
| Amounts Owing: | | | Hamac Holdings | £2,269. 0.2 |
| Coffee Products Limited (£20,505.11.6 at 15/3 in the £) | 15,635.10.0 | 17,904.10.2 | |
| Shares in Coffee Products Limited | | ||
| Total Assets: | | top"> | £80,041.18.5 |
| Liabilities—secured | £5,000. 0.0 | | width="113" val" valign="top"> |
| Current Liabilities | 39,176. 3.8 | | |
| Amounts owing to group companies | 5,061.13.8 | | /td> < |
| Total Liabilities: | | | £49,237.17.4 | |
| Excess of Assets over Liabilities:< | | ||
The liquidator’s balance sheets from 1st April, 1961, to 6th October, 1961, show thatGoroka Hotel made a tradingading profit during this period of £6,105 whilst the Wau Hotel made a loss of £1,601. Although both the Goroka and Cecil Hotels were trading profitably it would seem that the capital position of Morobe Hotels Limited was shaky and it was probable that it would be some time before the company could be put on a sound footing. However, despite the faint optimism which apparently existed in respect of Eriama Estates and Wanigela Plantations it is clear that the only Hamac asset of any substantial value was its shareholding in the Hotel company.
I turn now to consider the events leading to the sale agreements of 1st and 31st May, 1962.
Apparently with the sanction or under the direction of the Court an extraordinary general meeting was called on 28th September, 1961, for the purpose of appointing directors of Hamac. At this meeting were present: Mr. C. P. W. Kirke, representing Ela Holdings Limited, Mr. H. H. Stubbs, representing John Stubbs & Sons (Papua) Limited, Mr. Stephenson Fox, representing Samboga Limited and representing the acting secretaries. I take it that the companies which these persons represented were creditors of Hamac. It was reported to the meeting that an order to stay the liquidation of the company was expected to be made within a few days and in anticipation of this order it was necessary to appoint directors even though the company was still formally in liquidation. It was resolved that Messrs. Kirke, Peter Drake, Harrie Hamilton Stitt and Stephenson Fox be appointed directors of the company. No consideration seems to have been given to the Articles of Association of Hamac. Article 74 provided: “the qualification of a director shall be the holding of not less than two thousand shares in the Company; directors shall hold their requisite share qualification at time of appointment or election.” None of the persons appointed at this meeting held the requisite share qualification as is obvious from a subsequent meeting of directors held on 16th October, 1961, at which 2,000 shares were allotted to Messrs. Kirke, Fox and Drake. For some reason which was not explained no allotment was made to Mr. Stitt.
At the so-called meeting of directors on 16th October those present were Mr. Kirke and Mr. G. R. Brook who had been appointed as his alternate director by Mr. Fox. Mr. Fox together with a Mr. Guy Newton Moore and a Mr. Bruce Edward Fordham were at this time the persons registered as proprietors of the business named E. A. James and Co. This firm was at this meeting appointed secretaries of Hamac. Mr. Brook was an employee of the firm. At this meeting one share each were allotted to Mr. Brook and Messrs. Davis and Sinclair, two other employees of E. A. James and Co. After this allotment of shares Messrs. Kirke and Brook signed and sealed a number of transfers of shares in Hamac, amounting in all to 833,155, to Papua and New Guinea Development Corporation Limited. Hamac’s issued capital at this time was 930,905 shares. It was obviously intended that the Corporation should take over control of Hamac. At the fourth annual general meeting of shareholders of Hamac held at the office of E. A. James and Co. in Port Moresby on 3rd November, 1961, the only persons present were Brook, Sinclair and Davis, the latter of whom was also stated to represent the secretaries. It will be remembered that the three gentlemen present at the meeting were those to whom a single share had been allotted at the meeting of directors of 16th October. At this meeting the persons who had ostensibly been appointed as directors on 28th September offered themselves for re-election and were re-elected. Mr. Stitt still had no shares. The general meeting confirmed the actions taken by the directors since their appointment at the extraordinary general meeting of 28th September.
At a directors’ meeting held on 10th March, 1962, at which were present Messrs. Kirke, Fox and one Aitken-Quack who appeared as an alternate director for Stitt, the persons acting as directors stated that in view of the fact that the only two assets of Hamac making a profit were the Goroka and Cecil Hotels the Board resolved that its policy should be to dispose of all assets except these two hotels. At a further directors’ meeting on 24th April at which were present Messrs. Stitt and Fox, who apparently was at the meeting in a double capacity both as a director and as representing the secretaries, there was some discussion about the sale of Hamac’s shareholding in Wanigela Plantations Limited and Eriama Estates Limited to what appears to be an outside company by an exchange of shares. At this meeting Fox reported that there had been discussions with the Board of Sangara as a result of which an offer was expected for the whole of Hamac’s Papua and New Guinea Development Corporation Limited’s interest in shares and credit in Morobe Hotels Limited. As at 11th August, 1959 Hamac was shown as owning 340,127 5/- shares of an issued capital of 342,326 shares in this latter company. A further 2,000 shares were held by then directors of Hamac. There appears to have been a further issue of 500 shares to each of Messrs. Fox, Drake and Kirke, and on 17th November, 1961, Hamac is shown as holding the same number of shares in an issued capital of 343,823 shares.
So far I have concentrated on what was happening within Hamac. It is now necessary to look at how the defendant (to which I will refer as Sangara) stood in May, 1962. It was incorporated in Papua in December, 1952. At all relevant times E. A. James and Co. were its secretaries. There was no evidence of its progress until 1961 when the annual report and balance sheet for the 12 months ended 31st January, 1961, shows that of its authorized capital of £1,000,000, £295,883 had been subscribed for 305,956 6% cumulative preference shares of 5/- each and for 877,576 ordinary shares of 5/- each. At this stage its only asset was a wholly owned subsidiary company, Sangara Plantation and Development Company Limited, in which it had invested £294,279. The consolidated balance sheet showed the plantation property, plant and machinery as being valued at £312,365. Current liabilities including a secured overdraft of £3,416 were £22,766. Sangara had incurred a trading loss for the year of £5,513 due, so the report stated, to loss of production brought about by considerable damage caused in the plantation by a cyclone in December, 1959. Large costs had been incurred in clearing and rehabilitating the plantation area. However the Board expressed itself as looking forward to a successful year. The annual meeting was held in Sydney on 26th June, 1961, and it was there resolved to pay a first and final dividend of 3% on the cumulative preference shares. The chairman supplemented the report giving the shareholders details of the effect of the cyclone, and informed the meeting that the operating company had made a profit of approximately £1100 for the first quarter of the current year (i.e. from 31st January to 30th April, 1961) and stated that the Board had every confidence that results would continue to improve. Fox was present at the meeting as a shareholder and as representing E. A. James and Co. He had previously attended a number of directors’ meetings in Port Moresby as an alternate director and from the minutes of a meeting held on 19th November, 1960, it appears that Sangara’s directors relied on his assistance in the management of the plantation undertaking.
Several directors’ meetings were held in the second half of 1961 and early in 1962 at the company office, that is the office of E. A. James and Co., Port Moresby. These meetings were attended only by Fox and either Brook or Davis whom, as I have stated earlier, were both employees of Fox. Each of these three persons attended either in the capacity of an alternate director for one of the directors, all of whom resided in Australia, or as representing the firm of E. A James and Co., the “secretaries” of Sangara. At a meeting late in June 1961 a great deal of detail was gone into with regard to the conduct of the plantation and the purchase and refurbishing of equipment therefor. Other meetings were exclusively concerned with approval of share transfers and the entry of the transfers in the company’s register of members which was in Port Moresby. However, on 28th April, 1962, a meeting of directors was begun which concluded at a second meeting on 2nd May. At this meeting Messrs. Tytherleigh, the chairman, and Notson, a director, were present as was Fox apparently in his capacity as an alternate director and also as representing the secretaries. At this meeting it was resolved that the next annual general meeting be held at the Collingwood Football Club in Melbourne on 25th June and that shareholders and their friends be invited to attend a viewing of films showing the Company’s assets, which I take to mean a film showing the activities on the plantation. There was general discussion about the possibility of purchasing a controlling interest in a company known as Guinea Brewery Limited, a brewery company operating in Lae. The minutes record that the secretaries reported that two persons named Nydam and Meier had undertaken to obtain 51,170 fully paid £1 shares in that company for a purchase price of 204,700 fully paid ordinary shares in Sangara and £51,170 in cash. The next item of business was a report from the secretaries (i.e. from Fox) that Hamac had offered to sell 345,823 fully paid 5/- shares in Morobe Hotels “which fully owned the Hotel Cecil through its subsidiary Coffee Products Limited and the Goroka and Wau Hotels.” According to the offer the consideration for the sale was to be:
1.
(a) ټ Tme su&#of £2,63;2,500 to be paid in cash to the vendor upon the execution of a deed.
(b) The sum#of &4763;0 t50be p be paid in cash to the vendor on the 31st day of May, 1962.
(c) ҈ sse ito e to the vehe vendor on the last mentioned date of 565,000 fully paid 5/- shares in the capital of Sangara.
(a)p>(a) &##160;bale ce once of prin principal moneys together with all interests, costs, charges and expenses due under a certain equitable mortgage dated 22nd August, 19nd matweenvendor and Flora Shaw Stewart and not enot exceedxceeding &ing £7,500.
(b) ټ The sume sum of £14,000 owing by Eriama Estate Ltd. a subsidiary of the vendor and in respect of which sum the vendor was contingently liab the agee Simons.
(c) & Sangara to fulo fully inde indemindemnify nify the vendor in respect of these two liabilities.
It was resolved that the offer be accepted and approval was given for the signing and sealing of the relative agreement.
It is left to conjecture as to how Fox’s report to Stitt or to Stitt and himself at the Hamac board meeting of 24th April, that an offer was expected from the Sangara board of directors for the whole of Hamac’s interest in Morobe Hotels Limited was translated into a report from Fox as secretary to his Australian directors of this detailed offer made by Hamac followed as it was by the immediate execution of a document embodying the offer and its acceptance. Fox was obviously a major actor in the conversations and negotiations which must have been taking place between the arrival in Port Moresby of Notson and Tytherleigh on or shortly prior to 28th April and 2nd May. It was he who instructed Mr. Cromie, a solicitor, on behalf of both parties to prepare the “Deed” which bears date of 1st May. But there is not the slightest evidence to show what actual knowledge Tytherleigh and Notson had of the Hamac situation and in particular of the fact that they were taking part in acquiring its only viable asset. It could well be thought that whether infected by Fox or not they were gripped by the prospect of grazing in wider and more luscious pastures.
At the same meeting it was resolved that the board offer to shareholders new shares in the company in the proportion of one new share for each two shares of their registered holding. This would involve an issue of 591,766 shares. Such issue if fully subscribed would raise £140,000 in cash and amply cover the proposal to buy the interest in the Brewery and the Hamac shares in Morobe Hotels Limited. An air of optimism must have prevailed for the secretaries were instructed to prepare and despatch a circular to shareholders which was to say: “Your Board confidently expects that the reorganization of the Company will ensure an annual dividend of 10% on the ordinary shares of the Company and the full payment of the 6% preference dividends on the 6% cumulative preference shares.” The directors went on to discuss further matters of reconstruction and the appointment of directors in the Hotel group and the Brewery company. The minutes show and this seems to be confirmed by the subsequent accounts presented at the next annual general meeting that for the year ended 31st January, 1962, the plantation property showed a consolidated profit of £6,432.17.9 and that the directors proposed to recommend to the general meeting that a final dividend of 9% on the preference shares be paid bringing arrears of dividend up-to-date. The possibility of purchasing yet a further hotel at Kainantu was also discussed.
This then was the situation as far as I can deduce it from the minutes and balance sheets. On 1st May, 1962, a deed evidencing the agreement for sale of Hamac shares in Morobe Hotels was executed. To this I now turn and I set it out hereunder:
“THIS DEED is made the first day of May One thousand nine hundred and sixty-two BETWEEN HAMAC HOLDINGS LIMITED a Company duly incorporated and having its registered office situate at James Buildings Cuthbertson Street Port Moresby in the Territory of Papua and New Guinea (hereinafter called “the Vendor”) of the one part and SANGARA HOLDINGS LIMITED a Company duly incorporated and having its registered office at the same address in the said Territory (hereinafter called “the Purchaser”) of the other part WHEREBY IT IS AGREED as follows:
1. ; T60 Veneor will sell and and the Purchaser will buy the whole of the 5/- fully paid shares of which the Vendor is the owner whether at law or in equity in the capital of the Company Morobe s Limnamel,823 shares in alin all numl numberedbered 1 to 345,823.
2. &##160; T60; The constderafoon he the sale of the said shares is as follows:
(a) & the sume sum of £2500 to be paid in cash to the Vendon thcutiothis Deed,
(b) #160;  the s £47,500 to be p be paid in cash to the Vendor on the thirty- day y 196>
(c
(c)) the issue to ehe V odorhat that last mentioned date of 565,000 fully paid 5/- shares in the capital of the Purchaser the same being only entitled to rank for dividends declared after the thirtieth day of June 1962,
(d) ټ tre Puerhaser shallshall accept liability for and pay:
(i) the balance of pral motog tith all interests costs charges and expenses due under a certain Equitaquitable Mble Mortgaortgage dated the twenty-second day of Aug957 ade be the r anda Shawart, and, and not not exceeexceeding ding ££7500;7500,
(ii) &  sumeof &#of £1463;14,000 owing by Eriama Estates Limited a subsidiary of the Vendor and in respect of which sum the Vendor is contingently liable to ortgars. S,
(e) & T60; The The Purchaurchaser hereby fully indemnifies the Vendor in respect of those two liabilities mentioned in Sub-Clause (d) hereof.
3. ;ټ The Pure Purchaserhaser hereby acknowledges that the shares the subject of this sale are at present subject to encumbrances in favour of Australia & New Zealand Bank Limited and FShaw rt thdor agrr agrees wees with tith the Purchaser that the same will be fully discharged on or before the thirty-first day of May, 1962.
4. &ـ T6e Pure Purchaserhaser hereby agrees with the Vendor that it will do all acts and things necessary to ensure the appointment to its Board of Directors of two nominees of the Vendor and will provide that such appointment shall be made as soon as practicable after the execution of this Deed.
IN WITNESS whereof this Deed has been duly executed the day and year first above written.
THE COMMON SEAL of HAMAC HOLDINGS LIMITED has been hereunto affixed by us AND WE do hereby certify that we are the proper officers of the said Company by whom or in whose presence the said Common Seal is to be affixed to all documents executed by the said Company.
Signed:
S. FOX Director
E. A. JAMES & CO.
THE COMMON SEAL of SANGARA HOLDINGS LIMITED has been hereunto affixed by us AND WE do hereby certify that we are the proper officers of the said Company by whom or in whose presence the said Common Seal is to be affixed to all documents executed by the said Company.
Signed:
A. W. TYTHERLEIGH
GEOFF NOTSON
E. A. JAMES & CO. Secretaries
5. It is h rebyesxpr delyaredlared by the Vendor that the foregoing sale and purchase has been arranged upon the footing that the Vendor will from the proceeds of such sale fully satisfy the wof thbilitf Morobe Hotels Limiteimited andd and all all its subsidiaries to Territory Finance Corporation Limited; and the Vendor covenants with the Purchaser so to do.
A. W. TYTHERLEIGH
GEOFF NOTSON.”
It will be noted in the first place that the seal of Hamac was not expressed to be affixed pursuant to any resolution of the board nor does Hamac’s directors’ minute book show any such resolution having been passed. There is therein an unsigned memorandum of a resolution of directors expressed to be passed pursuant to art. 101 of the Articles of Association wherein it was stated to be resolved that the agreement be approved and that approval was also given for the signing and sealing of the relative agreement. There is a pencil note on the document showing that it had been sent to Mr. Stitt for signature. Article 101 provides that a resolution in writing signed by all the directors at the time in the Territory of Papua and New Guinea or in the Commonwealth of Australia entitled to vote shall be as valid and effectual in all respects as if it had been passed at a meeting of directors duly convened provided the directors so signing constitute a majority of the board. However, there is no evidence that this resolution was ever signed. Article 107 provides that the directors shall provide for the safe custody of the seal and the seal shall never be used except by the authority of the directors previously given and in the presence of one director who shall sign every instrument to which the seal is affixed and the same shall be countersigned in each case by the secretary or some other person appointed by the directors. The seal on the purported deed of 1st May was affixed in the presence of Fox who as has been seen was invalidly appointed as a director on 28th September, 1961, and it was countersigned twice with the name E. A. James and Co.: the first of these counter-signatures was written by Brook and the second by Fox. The seal of Sangara was affixed in the presence of Tytherleigh and Notson and countersigned by E. A. James and Co., secretaries, in the handwriting of Brook. I will return later to the effect of the sealing on behalf of Hamac in the way I have set out.
There was also a document produced purporting to be a deed of 1st May, 1962, made between Hamac and Territory Finance Corporation Limited. For a reason which was not and I imagine could not be explained there was a recital in this document that the “vendor” is indebted to the “purchaser” in the sum of £367,000 and it has been agreed that £80,000 of that sum should be liquidated. The operative part of the document provides that £80,000 shall be paid or satisfied:
(a)  the ayment by Hamac tmac to Territory Finance Corporation of £2,500 in cash on 1st May, 1962;
(b) by the eurth oentm 1su;4 o3;4 on 31st May, 1962;
(c
(c))
& by0; by the transfer by Hamac to Territory Finance o,000 paidsharethe cl of Sangara on 31sn 31st Mayt May, 196,
1962.
According to Mr. Pike he could find no record of the indebtedness of , apply re in thin this docs documentument.
On 14th May, 1962, a deed was executed between Sangara and Territory Finance Corporation Limited in which it was recited that the latter had agreed to lend to the former a sum of £45,000 and that Sangara by way of lien had executed blank transfers in 250,000 fully paid shares of 5/- each in the capital of Morobe Hotels Limited. The document recites the payment of £45,000 to Sangara which covenants to repay this sum by half-yearly instalments of £15,000 beginning in July 1962, with the appropriate interest. The seal of Sangara was affixed to this document in the presence of Brook as a director and was countersigned by Fox as secretary and by E. A. James and Co., as secretaries, the latter counter-signature being in the handwriting of one Browne another employee of Fox. The seal of Territory Finance Corporation Limited was affixed in the presence of Fox as director with three counter-signatures: the first of Fox as secretary, the second of E. A. James and Co., as secretaries in the handwriting of Browne and the third of E. A. James and Co., secretaries, in the handwriting of Fox. For good measure a Mr. Kilduff, who was then a solicitor practising in Port Moresby, added his signature below each of the foregoing. There is nothing in the minutes of either company to explain this transaction.
The 15th May saw a flurry of activity on the part of Sangara, or perhaps more accurately of Fox on its behalf. Firstly, he presided at a meeting of the board at 2.00 p.m. at which were present himself and Brook, and to which the secretary (i.e. Brook) reported a profit of £16,813 from 1st February to date. I interpolate to say that, as Mr. Deane pointed out, that profit could only have come from the purchase of shares cum dividend of Coffee Products Limited which was apparently effected on the following day, 16th May. It was next resolved that an interim dividend on the ordinary shares be declared for payment on 27th June, 1962, provided that the annual general meeting confirmed the directors’ recommendation for the payment of a 9% preference dividend on the 6% cumulative preference shares. This was apparently to bring the arrears of dividend on cumulative preference shares up-to-date. Then a further meeting was held at 4.15 p.m. again of Fox and Brook, the minutes thereof stating that pursuant to the agreement signed at the meeting of the board held on 2nd May it was resolved that 565,000 shares in the ordinary capital of the company be issued to Hamac. The relevant share certificates were then signed and sealed.
At some time on this same day three cheques were drawn, each for £45,000. The first was drawn by Territory Finance Corporation Limited in favour of Sangara, signed by S. Fox and countersigned by E. A. James and Co., in the handwriting of Brook, the second by Sangara in favour of Hamac signed by Fox and also countersigned by E. A. James and Co., in the handwriting of Brook, and the third by Hamac in favour of Territory Finance Corporation Limited also signed by Fox and countersigned by E. A. James and Co., in the handwriting of Brook. For what it is worth the first and third cheques were consecutive cheques from the same cheque book, the second was from another book. Territory Finance’s cheque was credited to Sangara’s account at the Australia and New Zealand Bank on 16th May, and on the same day Sangara’s cheque to Hamac was debited. Before and after this transaction Sangara’s account was £651 in debit. Sangara’s cheque to Hamac was credited to its account and Hamac’s cheque to Territory Finance Corporation was debited, Hamac’s account being then overdrawn to the extent of £17,835. Also on that day Hamac’s cheque to Territory Finance Corporation was credited to its account and its cheque to Sangara was debited. There was no other transaction in that account. As far as Sangara is concerned the receipt of this amount of £45,000 would appear to be the amount of the loan made to it by Territory Finance Corporation Limited. I am not clear whether its payment to Hamac was in part-satisfaction of the moneys agreed to be paid on 1st May or in payment of a purchase of shares in Coffee Products Limited. Hamac’s payment to Territory Finance Corporation Limited seems only supportable on the basis of the agreement to repay £80,000 of a debt of which no trace can be found in the books. It could equally be thought I suppose that the ubiquitous Mr. Fox was trying to juggle things to the satisfaction of everybody. On 16th May, yet another Sangara board meeting was held by Fox and Brook. Its only business was to pass a resolution that Sangara purchase 30,000 fully paid £1 shares in Coffee Products Limited for the sum of £45,000 cum dividend. The relative transfer was signed and sealed.
Hamac must have been aware of what Fox was doing but whether Sangara was so aware is the crux of the matter which I will have to endeavour to analyze in a little more detail later.
On 30th May, Hamac executed a letter of lien to the Australia and New Zealand Bank over 300,000 of the fully paid ordinary shares in Sangara which had been transferred to it on 15th May. It is not entirely clear but it seems that at this time the Bank released to Hamac 254,307 shares in Morobe Hotels Limited which it already held in return for the deposit of these Sangara shares.
A meeting of the Hamac Board was held on 31st May, at which were present this time Messrs. Drake and McEachern, the latter of whom seems to have had a very large if not the major shareholding in Papua and New Guinea Development Corporation Limited, which by now, owing principally to the purported directors’ transfers of 833,155 shares to it on 16th October, 1961, owned some 894,000 shares out of an issued capital of 936,000 shares in Hamac. At this meeting Drake who was chairman reported that in telephone discussions which preceded the drawing up of the contract of 1st May it had been made clear that the assumption of liability by Sangara to creditors dissenting from the scheme of arrangement was a condition precedent to the signing of that agreement. Fox reported that at the time he as a director of Hamac negotiated the contract with Sangara he was well aware that this was a condition precedent and that he conveyed to the directors of Sangara this condition and it was acceptable to them but that it appeared to have been omitted from the formal contract which was subsequently executed (i.e. the deed of 1st May). The meeting resolved that a supplementary deed which was then tabled be executed to protect the Company’s position. It was also resolved to forward to Sangara a fresh draft of a deed to replace the original of 1st May, and that the Sydney directors of that company be asked to discuss the matter in Sydney. At the same meeting the board passed a vote of thanks to Fox for his efforts in the sale of Hamac investments in Morobe Hotels Limited to Sangara.
I set out the deed tabled and sealed at this meeting:
“THIS DEED is made the Thirtyfirst Day of May One Thousand Nine Hundred and sixty-two BETWEEN HAMAC HOLDINGS LIMITED (hereinafter called “the Vendor”) of the One Part and SANGARA (HOLDINGS) LIMITED (hereinafter called “the Purchaser”) of the Other Part both Companies being incorporated in the Territory of Papua & New Guinea and having their registered office at James Building, Cuthbertson Street, Port Moresby
WHEREAS
A. ټ The parties hereto reto executed a document dated the First day of May One thousand nine hundred and sixty-two (hereinafter called the “Principal Agreement”) relating to the sale by the Vendor to the Purchaser of the Vendor’s shares in Morobe Hotels Limited.
B. &ـ A60; A disagdisagreement has arisen between the Parties hereto as to the validity and effect of the Principal Agreement.
C. &##160; In ord resohe diemediement tent the Pahe Parties have agreed to execute and exch exchange a new Agreement prepared by the Vendor but pending such executioexchaave a withrejudice to complete the Prin Principalcipal Agre Agreementement on the following terms
NOW THIS DEED WITNESSETH:
1. & Without prejutice to the rthe rights and liabilities of either party in the disagreement hereinbefore recited the Parties hereto agree to complete the Principal Agreement tomorrow EXCEPT that the Vendor will not transfer to the Purchaser those of the Vendor’s shares in Morobe Hotels Limited subject to the equitable charge in favour of FLORA SHAW STEWART and EXCEPT that the purchaser will not pay Fifteen Thousand Pounds (£15,000) of the purchase price to the Vendor.
2. Immediately acter etmpl ofon of the Principal Agreement the Purchaser will hand back to the Vendor its shares in Morobe Hotels Limited to be held by the Vendor as Mortgagee with all the rights, powers and privileges of a Mortgagee as set out in the New South Wales Conveyancing Act to be held by the Vendor as security for the Purchaser’s performance of this Agreement.
3. ټ&#T60; aie said sum sum of Fifteen thousand pounds (£15,000) shall in any event be payable by the Purchaser to the Vendor immediately the Vendor assigns and transfers its house at Lae to the said FLORA SHAW STEWART.
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and affixed their seals the day and year first hereinbefore written.
THE COMMON SEAL of HAMAC HOLDINGS LIMITED was hereunto affixed by authority of a Resolution of the Directors in the presence of:
E. A. JAMES & CO.
Peter Drake.
Signed:
L. F. McEachern.
FOR AND ON BEHALF OF SANGARA (HOLDINGS) LIMITED in the presence of:
J KAAD
Signed:
S. FOX
It is difficult to understand what this document was designed to achieve. Although it refers to a disagreement between the parties it does not make any reference to dissenting creditors. However, it does appear to release Hamac from its obligation to transfer to Sangara its shares in Morobe Hotels Limited subject to the equitable charge in favour of Flora Shaw Stewart. Further, it contemplates the execution of another agreement wherein apparently all matters outstanding between the parties would be dealt with. This agreement, if ever it was engrossed and executed, was not before the Court. The document was signed by Fox on behalf of Sangara but there is no record of nor reference to it at all in the Sangara directors’ minutes.
At a meeting in Port Moresby of the Sangara Board on 8th June, at which were present Fox and Brook the secretaries reported that Hamac were seeking a rearrangement of the agreement of 1st May and it was noted that this agreement did not fit in with the “requirements of the present circumstances” (whatever these may have been). It was resolved that Territory Finance Corporation Limited be approached to ascertain whether that company would treat the original deed made between Sangara and it as void and enter into another agreement providing for a loan of £40,000 repayable as to £10,000 when Mrs. Stewart’s shares were released to Sangara. Fox, involved as he was in the financial intricacies of both companies, could not have been thinking too clearly because on paper at any rate Territory Finance had already loaned £45,000 to Sangara on 14th May. According to the minutes a deed was signed and sealed in the presence of the board. Whatever effect was given to this document (which was not before the Court) Mrs. Stewart’s shares were not then released to Sangara.
At this time it was clear to Sangara, or rather to Fox in Port Moresby, that the offer of new shares to the existing Sangara shareholders was proving unsuccessful. Only about 1700 shares had then been applied for and Fox stated that Territory Finance Corporation Limited had undertaken to apply for the balance of the shares and had already made application for the full amount of 560,000 fully paid shares. At a later meeting on 12th June, again consisting of Fox and Brook, it was resolved that 300,000 of the new share be issued to Territory Finance Corporation Limited and the minutes state that share certificates were signed and sealed for this number. At a Sangara board meeting later that month held in Melbourne, at which neither Fox nor Brook were present, approval was given to future directors’ meetings being held in Australia, and it appears to have been decided that a minute book be kept in Port Moresby mainly for the purpose of share transfers. This seems to have been the procedure followed thereafter but it is impossible from this meagre fact to say that the Australian directors had lost confidence in Fox. Be that as it may the Sangara directors’ minute book shows that no matters of policy were thereafter discussed at meetings in Port Moresby.
Before attempting to pronounce upon the validity or effect of the deed of 1st May, 1962, or that of 31st May it is necessary now to consider the shareholding of Mrs. Flora Stewart to which reference has been spasmodically made. In 1957 Mrs. Stewart, the then owner, offered the Hotel Cecil to Morobe Hotels for £85,000. The actual purchasers appear to have been Hamac and Hotel Cecil Limited and they agreed to purchase the hotel for that sum, £45,000 in cash being payable in September 1957 and the balance of £40,000 being satisfied by the issue of a debenture by Hamac, such debenture being secured by the deposit of shares with a face value of £80,000. Included amongst these shares was share certificate No. 37 for 80,000 shares owned by Hamac in Morobe Hotels Limited. The share certificate was dated 29th August, 1957, which was about the time of the agreement of sale with Mrs. Stewart. On the back of that share certificate there appeared a blank transfer form showing Hamac as the transferor and the seal of Hamac was affixed in the presence of one Burton who was then a director, and countersigned by E. A. James and Co., in Fox’s handwriting.
In May 1962 Mrs. Stewart was still unpaid as to part of the principal and interest owing to her and obviously would not surrender her shares which were part of the 345,823 shares ostensibly contracted to be sold by the deed of 1st May. At this stage she was equally obviously the beneficial owner of these shares and Hamac had no right to sell them nor was there any possible equity in Sangara which could compel their transfer to it. From various minutes it seems that negotiations were being conducted from time to time with Mrs. Stewart but it was not until May 1965 that the moneys owing to her were paid. In a letter written by her on 11th May, 1965, to Sangara she confirms the receipt of that company’s remittance of £17,269.10.1 which she states to be in full settlement for payment of shares which stood to her name in Morobe Hotels Limited and which as she said “I have sold to Sangara (Holdings) Limited”. By the same letter she confirms that this transaction settles all liability due to her from Sangara and that she has no further claim against Sangara or its subsidiary companies. It must have been at some time after this latter date that the transferee’s name and the number of shares was inserted in the blank transfer and the document styled transfer of shares for the 80,000 shares was signed on behalf of Sangara by its then directors Eskell and Sutherland. It must have been then, too, that in the blank form of transfer on the back of the share certificate the consideration “as per agreement of 1st May 1962” was inserted. However, I will shortly consider the legal position with regard to the transfer of these shares.
It will be convenient at this place to see what happened to the balance of the shares allegedly sold by Hamac to Sangara in Morobe Hotels Limited. As I have said 254,307 shares seem to have been released by the Australia and New Zealand Bank to Hamac on or about 31st May, 1962. These included 61,764 shares in Morobe Hotels Limited covered by share certificate No. 26 in the name of Hamac Holdings and 40,000 shares in the Hotel company covered by share certificate No. 36. These shares were originally deposited at the Bank under a letter of lien of 7th October, 1957. The remaining shares, viz. 152,543, were those contained in the ten share certificates, Exhibit “NN”, which I assume to have been held by the Bank under a supplementary lien or liens. The history of all these shares after their release by the Bank is uncertain. There is reference to their being redeposited with Hamac as security for the carrying out of the agreements or agreement, whatever it was, that was arrived at in May 1962 but the documents before the Court do not enable me to say in whose physical possession they were at this time. What is certain is that the blank form of transfer for the 61,764 shares which had been deposited with the Bank in August 1957 was filled in by describing Hamac Holdings as the transferor, Sangara (Holdings) Limited as the transferee, and the number 254,307 being inserted as the number of shares being transferred, with the share particulars contained in certificate No. 26, No. 36 and the other ten certificates set out in the margin and at the foot of the document. Again the consideration was stated as being “as per agreement of the 1st May, 1962”. The transfer does not contain any date to show when it was signed or sealed (it was executed at some time after Mr. Eskell joined the board of Sangara which was at the end of June 1964). It is this document which was described by Mr. Deane as a forgery.
It only remains to say that from the latter part of 1962, although Sangara utilized the services of Fox in raising finance and apparently at the same time getting itself deeper into financial difficulties, it does not appear to have entrusted him with any matters of policy-making, and control over the affairs of the company seems to have been exercised exclusively by the directors’ meeting usually in Sydney. Whatever financial difficulties Sangara found itself in seem to have stemmed from the misplaced optimism of its directors with regard to its share issue in June 1962 and its subsequent attempts to raise finance.
Hamac’s claim before the learned trial judge was, inter alia, for a declaration that the deed of 1st May was void. In its statement of claim it alleged that the shareholding represented by its shares in Morobe Hotels Limited was its main undertaking and that by art. 102 (a) of its Articles of Association any sale or disposal by the directors of its main undertaking had to be subject to ratification by the shareholders in general meeting. The sale to Sangara was never so ratified nor was it ever authorized. In argument Mr. Deane submitted further that any contract of sale of this shareholding should have been expressed to be subject to such ratification and, as I understood him when reiterating this argument before us, the fact that it was not so expressed should have put the purchaser on inquiry. It was also alleged that contrary to art. 107 of the Articles of Association Hamac’s seal was affixed to the deed without the authority of the directors previously given and it was not signed and countersigned as required by that article. Further it was alleged that at all relevant times Hamac had no directors or officers and no person had authority to bind it. As a consequence the deed was never authorized, entered into, ratified or executed by Hamac, and further it was alleged that Sangara knew of all the foregoing attributes of invalidity. Before the learned trial judge and before us Mr. Henderson, for Sangara, submitted that Hamac’s shareholding in Morobe Hotels Limited was not its main undertaking and that its seal to an outsider would appear to have been regularly affixed. He did not and could not really contend that the provisions of art. 74 of Hamac’s Articles of Association had been complied with nor say that there were any validly appointed directors to authorize or enter into the contract of sale of the shares. But, so he argued, even if in fact the shareholding in the Hotel company was Hamac’s main undertaking and its seal was improperly affixed there was nothing in the evidence from which it could be reasonably inferred that Sangara knew of these matters or that it was not entering into a contract with a properly constituted and authorized board of directors.
The learned trial judge found that Hamac’s main undertaking at the relevant date was its interest in Morobe Hotels Limited and he found further that at the relevant time Sangara left its acquisition of Hamac’s interest in Morobe Hotels Limited to Stephenson Fox as its agent and that his interest in and knowledge of Hamac’s affairs was entirely complete. He went on to find that Fox knew of the disability of the alleged directors of Hamac, that he knew that Hamac’s interest in Morobe Hotels was its main undertaking and that the sale or disposal of this interest had not been ratified by the Hamac shareholders in general meeting or in any way at all. He found also that good faith was absent and that a plan was devised to strip Hamac of its valuable hotel interests and pass them to Sangara and that Fox was the executive of this plan. In his view Sangara could not rely upon the principle of Royal British Bank v. Turquand[dlxxxiii]2 because Sangara mustaken toen to have known that the internal regulations of Hamac had not been complied with in the sale. On the appeal Mr. Henderson, for Sangara, strenuously contended that the principles of Turquand’s case[dlxxxiv]3 as expounded and developed in later cases were applicable and that there was nothing in the evidence to fasten Sangara with any knowledge which Fox may have possessed of the irregularities existing both within the Hamaccture and in its conduct ofct of its affairs.
It is clear enough that the so-called directors of Hamac were invalidly appointed and that the subsequent share issues or transfers made under their direction were equally invalid. It is equally clear that there was no resolution authorizing the making of the agreement for sale with Sangara nor for affixing the seal of Hamac to the so-called deed of 1st May and further that the seal was not affixed in the presence of a director and countersigned by the Secretary as required by art. 107. If reliance had to be placed upon the fact of this document being a deed it would be a nullity as such (see Equity Nominees Ltd. & Anor. v. Tucker & Anor.[dlxxxv]4).
The question whether the sale of Hamac shares in Morobe Hotels Limited was a sale by the purported directors of its main undertaking has occasioned me more difficulty. Mr. Henderson argued that one must look at the legal reality of the situation existing at the time of the agreement for sale and at this time it is clear so he said that Hamac’s main undertaking was the holding of shares in subsidiary companies and that when one looks at the position of these companies they all are of relatively equal importance. He was at pains to point out the difficult financial situation in which Morobe Hotels found itself and that although two of the hotels which formed part of the assets of the Hotel company were making trading profits the capital position of the company was not at all good. Further, of the shares which were contracted to be sold 254,307 were hypothecated to the Bank as security for an overdraft and 80,000 to Mrs. Stewart as security for payment of the balance of the purchase money owing on the Hotel Cecil which had been purchased from her nearly five years previously. In addition, their secured debts were piling up and in fact receivers were appointed six months later to recover £58,000 of such debts. However, I think it reason able to infer that by March 1962, those in de facto control of Hamac felt that the only assets of any potential that the company had were the hotels at Goroka and Lae and the detailed financial analysis made by Mr. Deane amply bears this out. Indeed it seems to me that unless Hamac at or about this time could have obtained a massive infusion of new capital its position overall was hopeless. Whilst I cannot share the learned trial judge’s certainty that Hamac’s main undertaking at the relevant date was its interest in Morobe Hotels Limited I cannot on the other hand conclude that he was wrong in finding as he did.
Mr. Deane submitted that the rule in Turquand’s case[dlxxxvi]5 only operates whenumber of r of circumstances are found to exist. These include good faith on the part of the person invoking the rule and absencknowledge or notice of any matters which would make the transaction in question void or invr invalid, the absence of suspicious circumstances putting the person invoking the rule on inquiry and his acting on the basis that the person with whom he was dealing had the necessary authority. He argued that the contract for the sale of the Hotel company shares should have been expressed to be subject to ratification by the shareholders in general meeting and such a qualification not being present in the document Sangara should have been on notice that Hamac’s Articles had not been complied with. However, before this argument could succeed it would be necessary in my view for Sangara to be aware that the shares in the Hotel company were Hamac’s main undertaking. It was argued to the contrary that the matters relied upon by Mr. Deane were matters arising within the internal conduct of Hamac’s business and not such as to put the directors of Sangara on inquiry.
I begin by asking the question whether an outsider acting in good faith and with no reasonable ground for suspicion entering into such a contract as is evidenced by the document of 1st May would be entitled, at any rate after consideration had moved from him, to hold the vendor to its agreement. In my opinion the invalid appointment of directors and allotment of shares stemmed from a properly constituted meeting of shareholders (and that this meeting was properly constituted was not contested), and as it seems that the meeting was directed to be called by the Court for the purpose of electing directors it is reasonable to assume that Hamac held out the persons elected (albeit invalidly) as directors of the company. Of itself the fact that the entry into the contract or the affixing of the seal to the deed was not authorized by a meeting of the board of Hamac is clearly vis-à-vis the outsider a matter of internal regulation and one into the regularity of which he is neither bound nor has any right to inquire. With some hesitation I think the same can be said of the improper affixing of the seal. To the outsider acting in good faith and with no reasonable ground for suspicion the seal might well appear to be properly affixed. Fox of course must be taken to have had at all relevant times detailed knowledge of the financial position of Hamac and its subsidiaries and, as a professional secretary, of the requirements of Hamac’s Articles of Association. However, I cannot escape the suspicion that his failures to see that proper procedures were followed could have been due to crass and invincible ignorance. It is perhaps worthy of note that at the meeting of 28th September, 1961, at which the pseudo directors were elected the chairman was a solicitor of this Court.
The real question is whether Sangara is such an outsider as I have been positing and the answer to this question involves a close consideration and determination of the relationship between that company and Fox. As well as his close involvement in the affairs of Hamac he seems also at all relevant times to have been a director of Territory Finance Corporation Limited and of Papua and New Guinea Development Corporation Limited which by now had a controlling interest in Hamac. He or his firm were also the secretary of these companies but in my opinion there was no evidence to fasten Sangara with knowledge of his activities, whatever they were, in relation to this group of companies.
The directors of Sangara all resided in Australia and up to May 1962 the business undertaking of the company was the plantation at Sangara. E. A. James and Co., or Fox as its secretary, seems to have been relied upon both to keep the books of the company and to generally supervise the management of the plantation. He was present at the annual meeting in Sydney on 26th June, 1961, advising of the financial position of the company. He presided as an alternate director in Port Moresby at a directors’ meeting on 28th June at which a great deal of detail was gone into concerning the equipment for and the running of the plantation. However, I deduce no more from this than that on his return to Port Moresby from the general meeting as the man on the spot he could have been acting as the intermediary between the Australian board and the plantation manager. At all material times he obviously had the confidence of the directors. He was also a shareholder of the company.
Mr. Deane submitted that during the relevant periods Fox was for all practical purposes the person who represented Sangara: he was its eyes, ears and hands, and in fact was the board of directors. As he correctly stated during the period from 24th March, 1961, to 12th June, 1962, there were 18 meetings of the Sangara board of directors. At 15 of these the only persons present were Fox and either Brook or Davis who were both his employees and who were both alternate directors of Sangara. At two of these meetings the only persons present were Brook and Davis and at only one were any other directors present. This was the meeting of 28th April at which Fox, Tytherleigh and Notson were present. However, as Mr Henderson riposted, ten of the meetings were concerned solely with the transfer and issue of shares. At a further three meetings there were other formalities dealt with; for example, fixing the date of the annual meeting and a formal recommendation of a dividend, and one such meeting (that to which I have earlier referred) dealt with the local management of the plantation. When it came to a really important matter of policy members of the board came to Port Moresby from Australia. This was for the meeting which was spread over two days between 28th April and 2nd May, 1962. So far as the documents show this was the first occasion on which Hamac obtains any mention in the affairs of Sangara. This is not to say that there had not been correspondence or conversations between Fox and the Australian directors prior to their arrival in Port Moresby, but it is a matter of sheer conjecture as to what information they possessed before that date. It seems reasonable to infer that this major change in policy or direction brought the Australian directors, Tytherleigh and Notson, to Port Moresby in April after Fox had interested Papua and New Guinea Development Corporation and Stitt, who seems to have had an interest in this company, in being associated with Sangara.
It would have been obvious by April 1962 to anyone controlling Hamac that no finance could be raised by it to buy the Brewery and with the legalisation of native drinking a real possibility in the near future a company which could control a brewery with hotel outlets ought to have every chance of a successful life. I cannot see any evidence to show that this transaction of 1st May was entered into other than in good faith on the part of Tytherleigh and Notson. The minutes of the meeting of 1st May show that the policy of acquiring the controlling interest in the Brewery was decided upon and that further rosy visions of hotel ownership were being entertained by the decision to inquire into the possibilities of acquiring the Kainantu Hotel. They were also prepared to add representatives of the Papua and New Guinea Development Corporation Limited on to the board. Fox, who had a finger in every pie, could easily have painted a glowing picture of the future at the same time being mindful and hopeful that £50,000 and 565,000 Sangara shares were to revivify Hamac.
Whilst a great deal had been left to Fox I cannot see that at this stage he was anything like being in the position of “the directing mind and will of the corporation, the very ego and centre of the personality of the corporation” (see per Viscount Haldane L.C. in Lennard’s Carrying Company v. Asiatic Petroleum Co. Ltd.[dlxxxvii]6). All that I think can reasonably be inferred from the evidence is that he was acting as some sort of an agent for Sangara. There is some slight evidence that before the signing of the agreement some conversation took place between Drake (another pseudo director of Hamac) and either Tytherleigh or Notson. Again I assume that some discussion was going on between 28th April and 2nd May as to the terms of the agreement. It is impossible on the evidence to say how much Fox disclosed to Tytherleigh and Notson of his connection with Hamac but to use the test propounded by Vaughan Williams J in In re Hampshire Land Company[dlxxxviii]7, i.e. was it within the scope of his duty to Hamac to give notice to Sangara of the information he had got, I cannot see that there is the slightest evidence that it was nor, secondly, that it was within the scope of his duty as the secretary of Sangara to receive such notice (see also In re David Payne & Co.[dlxxxix]8); and I can see nothing in the evidence to show that Hamac and Sangara were not both at arm’s length in the negotiations leading to the conclusion of the agreement.
However, in my opinion the method of affixing Hamac’s seal to the deed of 1st May should have put Sangara on notice that all was not well. The association of the Sangara directors with Fox would appear from the company records before the Court to have been of such long duration and so close that they could not have failed to know that he was, if not the sole proprietor of E. A. James and Co., at least the principal of the firm in Port Moresby. They must have known also that he or his firm was the secretary of Hamac. It is basic to the rule in Turquand’s case[dxc]9 that outsiders who with a ch a company are deemed to have notice of its public documents and so of its Articles of Association. Consequently, assumor the purposes of these transactions that Tytherleigh and Notson were Sangara they must best be affected with notice that the Hamac seal was affixed by Fox as director and countersigned by himself as secretary. The fact that the words “E. A. James & Co.” were also written by one of his employees does not in my view alter the position. And so they must be deemed to have notice that the deed was invalidly executed. This being so I cannot see how Sangara could rely on the validity of the deed.
After the 1st May the position becomes more confusing. One must assume I think that Tytherleigh and Notson were aware of the tight liquid position of Sangara and that its current account was in debit. There is no evidence to show what financial arrangements they had in mind to meet the immediate payment of £2,500 and the further payment of £47,500 on 31st May—both payable before subscription monies for the new share issue could be expected to be in hand. One can only assume that they left it to Fox to arrange the necessary bridging finance and that the transactions of 15th and 16th May were carried out if without their actual knowledge at least with their prior general approval. There is nothing in the Sangara minutes to show otherwise and it may be that at this stage Fox became for all practical purposes Sangara. So far as the learned trial judge held that Fox’s knowledge was Sangara’s knowledge in the negotiations at the end of the month of May leading to the purported deed of 31st May, I cannot see that he has drawn any wrong inference from the scrappy material before him nor that he is wrong in his conclusion that this document was void. In the result, although by what appears to be a slightly different route, I arrive at the same conclusion as his Honour that neither document can stand nor be relied upon and this conclusion in my opinion vitiates the subsequent transfer of the 254,307 shares effected by the “forged” transfer endorsed on the back of share certificate No. 26. Leaving aside the question of the effect of a forged transfer the transfer itself can only find support in the “Deed” of 1st May. That support being withdrawn it can find no other justification in any matter put before the Court.
However, in my view the transfer of the 80,000 shares stands on a different footing. Although the deed of 31st May can be given no effect it does I think serve to show that the intention of the parties at the time was to withdraw these shares from the purported sale pending some satisfactory arrangement being made with Mrs. Stewart to liquidate the debt owed to her. There is no evidence to show that any such arrangement was ever made before 11th May, 1965, when Sangara paid her out, apparently in full. The evidence shows that she was an equitable mortgagee, that a blank transfer was given to her duly sealed and she must have had at the least an implied power of sale of these shares. It is I think a reasonable inference from her letter of 11th May, 1965, that she regarded herself as having exercised that power. There is no evidence as to how or in what circumstances the form of transfer on the back of share certificate No. 37 was filled in, but whatever be the explanation I fail to see how the transfer could be said to be pursuant to the “Deed” of 1st May, 1962. That document purported to obligate Sangara to accept liability to Mrs. Stewart for and to pay her an amount not exceeding £7,500 and further contains an undertaking by Hamac to discharge the encumbrance in her favour (albeit with the assistance of Sangara’s £7,500) by 31st May, 1962. Obviously neither of these obligations was discharged and one must conjecture that some other arrangement superseded the provisions contained in the document.
It is true that there was no evidence before the Court of the events leading up to the handing over of the share certificate by Mrs. Stewart to Sangara save for the letter of 11th May, 1965, which was tendered on behalf of Sangara without objection by counsel for Hamac. But it is also true that as a result of the payment of £17,269.10.1 by Sangara to her she treated the transaction as a sale by her to Sangara. There is nothing in the evidence to show that she had no right to sell nor that Sangara did not acquire a good title by virtue of such sale. No interrogatories and answers were tendered to impugn this sale and there is nothing in the Hamac directors’ minutes to show that that Company had any part in the transfer of these shares to Sangara. Hamac sought a declaration that Sangara held these shares in trust for it. In my view the onus was on Hamac to show that they were affected with a trust and it has not discharged that onus. Accordingly I would allow the appeal in respect of the 80,000 shares and declare that the appellant is entitled to remain on the share register of Morobe Hotels Limited as the owner of those shares. Otherwise I would dismiss the appeal.
FROST J: In this case, the respondent, which was a company the liquidation of which had been stayed, claimed a declaration that a deed under the seal of the company dated 1st May, 1962, whereby it agreed to sell to the appellant 345,823 5/- shares owned by the respondent in a company called Morobe Hotels Ltd., and a deed supplemental thereto dated 31st May, 1962, also under seal of the company, were both void, and a declaration that the appellant holds such shares in trust for the respondent, together with other consequential relief. The respondent alleged that the deeds were void upon three grounds: firstly, as the directors acting on behalf of the respondent, although apparently properly appointed by the shareholders, did not, at the time of appointment, hold qualification shares as required by art. 74 of the company’s Articles of Association, they had no authority to bind the company in contract; secondly, as there was no minute of a resolution of the de facto directors authorizing the affixing of the seal of the company to the deed dated 1st May, 1962, the seal was affixed without the authority of those directors and thus the requirements of art. 107 were not complied with; thirdly, both deeds were void on the ground that the sale of the shares was a sale by the directors of the company’s main undertaking and that, contrary to art. 102 (a) of the Articles of Association, it had not been ratified by the company in general meeting. As the facts and issues have been fully stated by the Acting Chief Justice, it is unnecessary for me to set them out.
Although the whole issue in this case is whether the respondent can rely upon these irregularities to set aside the deed of 1st May, 1962, as the learned trial judge pointed out, any one of the three matters of irregularity would, apart from that issue, be sufficient to render the deed a nullity. The first irregularity was not disputed by Mr. Henderson and as to the second irregularity, he submitted that it was remedied by the execution of the deed of 31st May, 1962, which amounted to a ratification of the earlier deed. But if the earlier deed is void, Mr. Henderson did not argue that the second deed could stand alone, so this submission can only succeed if the first deed is upheld. Accordingly, I propose to deal with the third ground which was strongly contested by Mr. Henderson.
The question is what is the meaning to be given to the term “main undertaking”. Mr. Henderson submitted that the company had only one undertaking, which was the ownership of shares in other companies, and thus the “main undertaking” could only be constituted by these shares in their entirety. In my view, this submission cannot be right. When used in a debenture, it is well established that “undertaking” means all the property of the company. The word “undertaking” appears in the plaintiff’s Memorandum of Association, one of the objects for which the company was established being “to acquire and take over any business or undertaking, and the whole or any of the assets and liabilities of such business, or undertaking, and to carry on the same, or to dispose of, remove or put an end thereto or otherwise deal with the same as may seem expedient.” (Clause 3 (d)). Insofar as the dictionary meaning of “undertaking” is concerned, it is “anything undertaken; any business, work or project which one engages in or attempts; an enterprise” (Webster, 2nd ed.). The Shorter Oxford Dictionary includes as one of the meanings of “undertaking”, “enterprise”. These references afford a guide to the meaning of “undertaking” in art. 102 (a). In my opinion, it means business or enterprise, and more particularly, in the connotation of art. 102 (a), it means the balance of assets over liabilities of such business or enterprise. I consider that each of the subsidiary companies of the plaintiff can be considered as a business or enterprise, so that the assets of each business or enterprise means the shares in each such company. Turning to the word “main”, its meaning involves a comparison of either the parcels of shares owned in each subsidiary company or the businesses conducted by each subsidiary company. In my opinion, the appropriate measure of comparison is the value of the shares or the value of the business conducted by each subsidiary company upon the basis of profitability.
As the Acting Chief Justice has shown, the assets of Aroana Estates Ltd. and Ela Services Ltd. had been sold prior to May 1962, the proceeds, in the case of the former company having been disbursed between Papua and New Guinea Development Corporation and the plaintiff, and in the case of the latter company, to Papua and New Guinea Development Corporation. The facts also show that the assets of Eriama Estates Ltd. were worthless and Wanigela Plantations Ltd. practically worthless. Even on Mr. Henderson’s analysis, the assets of Morobe Hotels Ltd. were worth in the excess of assets over liabilities £30,804. The value of the book debts owed by the subsidiary companies to the plaintiff were worthless or practically worthless. Thus the only valuable asset of the company was the block of shares in Morobe Hotels Ltd. Further, this was the only company which was carrying on business in May 1962. Both the Goroka Hotel and the Hotel Cecil were making profits and although the Wau Hotel showed a small loss for the preceding year, the Valuer-General said in evidence that under proper management he considered that it would be profitable. Thus this company was the only profitable company in which the respondent held shares. For these reasons I have come to the conclusion that the shares it owned in Morobe Hotels Ltd. constituted the respondent’s main undertaking. As the sale of these shares was not ratified by the shareholders in general meeting, his Honour, in my judgment, was right in holding that the deed of 1st May, 1962, was made in breach of art. 102 (a) of the Articles of Association.
Mr. Henderson made no submission based on art. 100, probably because it would not cover the whole of his case. But as he was concerned to argue that the learned trial judge was wrong in describing the directors’ meeting of 16th October, 1961, as a “hollow farce”, I propose to refer to it. Article 100 provides:
“All acts done by any meeting of the Directors or by a Committee of Directors or by any person acting as Director shall not withstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified be as valid as if every such person had been duly appointed and was qualified to be a Director.”
The relevant statutory provision to be found in the Companies Ordinance, 1912-1926, s. 250 (4), has the same effect. For an outsider to gain the protection of that section, good faith must be shown. Channel Collieries Trust Ltd. v. Dover etc. Light Railway[dxci]10, a case to which both counsel referred. In that case, the facts were somewhat similar to the present, in that directors were appointed who did not hold the necessary qualification shares, but the shares were allotted to them subsequently on the same day. However, after hearing the evidence of the directors concerned, the learned trial judge accepted that evidence and found that all the directors were acting “in perfect good faith, were not aware of the invalidity of the appointment by reason of the want of qualification, and they honestly believed that it was sufficient if contemporaneously with, although in point of time immediately after, their appointment they obtained the qualifying shares” (per Lord Cozens-Hardy M.R. at p. 511), and it was accordingly held that the action of the directors in allotting further shares was validated by a statutory provision similar to s. 250 (4). In the present case, there was a lapse of time after the purported appointment of directors before the allotment of the necessary qualifying shares was made to them, but this is not necessarily fatal in the application of art. 100. However, this case is distinguishable on the ground that, as none of the persons concerned was called as a witness and good faith was strongly in issue, there was no evidence to justify a finding of good faith. I consider that, unless such evidence was called, prima facie the directors would be assumed to know the meaning and effect of art. 74 and the consequent invalidity of their appointments. Oakbank Oil Co. v. Crum[dxcii]11; The People’s Prudential Assurance Co. Ltd. v. The Australian Federal Life & General Assurance Co. Ltd.[dxciii]12. Thus the onus of proof on this issue was on the appellant. Accordingly, the provisions of art. 100 or s. 250 (4) would not avail the defendant.
I turn now to Mr. Henderson’s main argument that the respondent is bound by the deed of 1st May, 1962, despite the irregularities in the appointment of the directors and the affixing of the seal and the absence of ratification of the deed by the shareholders in general meeting. He relied on the rule in Royal British Bank v. Turquand[dxciv]13 or, particularly, on the prhe principles of estoppel as laid down by Diplock L.J in Freeman and Lockyer v. Buckhurst Parkerties (Mangal) Ltd.[dxcv]14. It is logiclogical first to refer to the doctrine of constructive notice which was expressed by Lord Hatherley in Mahony v. East Holyford Mining Co.[dxcvi]15 as fs:
“E220;Every joint stock company has its memorandum and Articles of Association; ... Those Articles of Association ... are open to all who are minded to have any dealings whatsoever with the company, and those who so deal with them must be affected with notice of all that is contained in those two documents.”
The directors of the defendant are also deemed to know the proper meaning and consequences of non-compliance with those Arcticles. Oakbank Oil Co. v. Crum[dxcvii]16.
Thus, in this case, the directors of the appellant are deemed to have knowledge of the provisions of arts. 74, 102 (a) and 107, supra, and the effect of such provisions, but these irregularities could not be discovered from the public documents of the company. Under these circumstances the rule in Turquand’s case[dxcviii]17, may enable the appellant to bind the respondent to the contract.
“The so-called rule in Turquand’s case [1856] EngR 470; (1856) 6 El. & Bl. 327 is I think correctly stated in Halsbury’s Laws of England: ‘But persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to enquire whether acts of internal management have been regular’. ... I leave aside the question what in the application of the rule is the meaning of ‘good faith’ ... It is a rule designed for the protection of those who are entitled to assume, just because they cannot know, that the person with whom they deal has the authority which he claims. This is clearly shown by the fact that the rule cannot be invoked if the condition is no longer satisfied, that is, if he who would invoke it is put upon his inquiry. He cannot presume in his own favour that things are rightly done if inquiry that he ought to make would tell him that they were wrongly done”. Morris v. Kanssen[dxcix]18.
No argument was submitted by either counsel on the meaning of “good faith”, nor was any case cited in which, although it was not shown that the persons contracting had knowledge or were put on inquiry, the rule could not be invoked on the ground that there was otherwise lack of good faith on the part of those persons. But the overriding requirement of bona fides has been consistently propounded as part of the rule since Mahony v. East Holyford Mining Co.[dc]19, (in those terms by Lord Chelmsford at p. 892, and as absence of fraud by Lord Hatherley at p. 895), and I see no reason for limiting its general meaning, which I take to denote honest dealing (cf. the sale of goods legislation, Goods Ordinance 1951, s. 5 (2)).
The learned trial judge found that the appellant, through Stephenson Fox, had knowledge of the irregularities and there was an absence of good faith and thus the appellant was not entitled to the protection of the rule. Mr. Deane strongly argued that the onus of proof was on the appellant to bring itself within the rule. Upon this question, Mr. Henderson’s submission is important that the basis of the rule is estoppel, relying upon the authority of Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd.[dci]20. In that case, Diplock L.J, after analyzing the relevant law said:
“If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown:
(1) ҈& that a at a represepresentation that the agent had authority to enter on behalf of the company into a contract of the kindht tonforced was made to the contractor;
(2) ; that that such such represepresentation was made by a person or persons who had ‘actual’ authority to manage the business of the company either generally or in respect of tmatte whic contract rect relateslates;
;(3) & that he (the contractor) tor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and
(4) &#that unts medum oicles ofes of assf associatociation tion the company was not deprived of the capacity either to enter into a contract of the kind sought to be ced odeleguthoro enter a contract of that kiat kind tond to the the agentagent.” (at pp. 505-506).
The way in which Mr. Henderson put his case under this statement of the law was that, following Mahony v. East Holyford Mining Co.[dcii]21, under the constitution of the company, it was the conduct of the shareholders who were entitled to appoint the directors which the appellant must be taken to have relied upon as a representation that the persons acting as directors of the plaintiff, including Stephenson Fox, were its directors. (Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd.[dciii]22). This submission would bring the defendant’s case within pars. 1 and 2 of the statement of law made by Diplock L.J, but Mr. Deane submitted that the defendant could succeed under par. (3) only if it was proved that that company was induced by such representation to enter into the contract, that is, it in fact relied upon it. In my view, if estoppel applies generally and not only in the type of case before Diplock L.J (supra), the onus of proof would be on the party seeking to uphold the contract. As no evidence was called by the appellant, it would follow that the appellant had not sustained the onus of proof and was therefore not able to bring itself within the rule. However, as the rule was expressed by Lord Hatherley in Mahony v. East Holyford Mining Co.[dciv]23 (supra), it seems tha maximmaxim omnia praesumuntur rite esse acta is the foundation of the rule, and Lord Simonds expressly stated in Morris v. Kanssen[dcv]24 that the was an applicationation of the maxim. Upon this basis, the onus would on the usual operation of the maxim be shifted to the party which seeks to set aside theract. That was the view expressed during argument by Vaughaaughan Williams L.J in In re Hampshire Land Company[dcvi]25, and I consider that it is the rule which I should apply.
The first question is thus whether Fox’s knowledge, which can only be the knowledge he is deemed to have of the Articles and their effect, can be imputed to the appellant. Mr. Henderson submitted that Fox’s knowledge was only that of a de facto director and secretary of the appellant and director and secretary of the respondent. He relied upon In re Hampshire Land Company[dcvii]26 as establg that Fox’s217;s knowledge was not to be imputed to the appellant. In that case, Vaughan Williams J referred to Mellis L.J negativing the “general proposition that the knowledge of the common officer is always the knowledge of the two companies. But the moment you have done that you have to ask yourself this: where is the line to be drawn, or what is the test to be applied in order to say whether or not in each case the knowledge of the common officer is the knowledge of each company employing him? It seems to me that, broadly, the Lords Justices do draw the line thus, that the knowledge which has been acquired by the officer of one company will not be imputed to the other company, unless the common officer had some duty imposed upon him to communicate that knowledge to the other company, and had some duty imposed on him by the company which is alleged to be affected by the notice to receive the notice . . . It seems to me that that is not at all the case here. The case is very much more like the one which both Mr. Bramwell Davis and Mr. Jenkins had to admit was an exception to the general rule that they sought to lay down, for they admitted that if Wills had been guilty of a fraud, the personal knowledge of Wills of the fraud that he had committed upon the company would not have been knowledge of the society of the facts constituting that fraud; because common sense at once leads one to the conclusion that it would be impossible to infer that the duty, either of giving or receiving notice, will be fulfilled where the common agent is himself guilty of fraud. It seems to me that if you assume here that Mr. Wills was guilty of irregularity—a breach of duty in respect of these transactions—the same inference is to be drawn as if he had been guilty of fraud. I do not know, I am sure, whether he was guilty of actual fraud; but whether his conduct amounted to fraud or to breach of duty, I decline to hold that his knowledge of his own fraud or of his own breach of duty is, under the circumstances, the knowledge of the company.” (pp. 748-750).
This judgment and particularly the passage last cited was approved and applied in J C. Houghton & Co. v. Nothard, Lowe & Wills Limited[dcviii]27.
If Fox is to be considered only as a common director or secretary, as the appellant was not bound to inquire into the internal management of the respondent and as, Fox being a party to the irregularities, no assumption can be made that he would disclose those irregularities, in my opinion, under the rule laid down in In re Hampshire Land Company[dcix]28. Fox’s knowledge should not be attributed to the appellant.
His Honour considered that case inapplicable on the ground that, in the negotiations between the parties, Fox was the appellant’s agent to whom it left the entire conduct of the transaction. I assume that his Honour had in mind the principle of such cases as Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd.[dcx]29 where the fault ofnager whor who represented “the directing mind and will of the corporation” was held to be the personal fault of the company. (See p. 713, per Viscount Haldane L.C.). See also H. L. Bolton (Engineering) Co. Ltd. v. T.J Graham & Sons Ltd.[dcxi]30; The Lady Gwendolen[dcxii]31 and John Henshall (ai>Quarries) Ltd. v. Harvey[dcxiii]32.
The conclusion I draw from the evidence was that up to the date of the execution of the dee1st May, 1962, Fox’s 17;s role was the appellant’s active director in Papua. Thus he presided at directors’ meetings and whilst most of these meetings were concerned with formal matters, there was at least one meeting when important business affecting the plantation was resolved. It is true that he carried out the negotiations between the appellant and the respondent and acted for both companies, but this was a circumstance also to be found in In re David Payne & Co. Limited[dcxiv]33. In that case, the Court of Appeal refused to attribute the knowledge of a common director who had conducted negotiations for a loan upon the security of a debenture to the lender company. I have accordingly come to the conclusion that up to the date of the deed, Fox is to be considered a common director and accordingly under the rule in In re Hampshire Land Company[dcxv]34, his knowledge of the non-compliance by the respondent with the relevant Articles is not to be attributed to the appellant.
But this is not the end of the matter so far as the rule in Turquand’s case[dcxvi]35 is concerned. Thrned trial rial judge found that a plan was devised to strip the respondent of its valuable hotel interests and pass them on to the appellant. I assume this to e basis of his finding that there was a want of good faith aith on the part of the appellant. For myself, I am unable to come to the conclusion that the existence of such a plan can be inferred from the effect of the contract, because from the appellant’s financial position as analyzed by the Acting Chief Justice, it seems to me that it could not be said that as at 1st May, 1963, the consideration provided for by the deed was inadequate. Because of the fall in value of the appellant’s shares—£5,001 was all that was realized on the sale by its bankers of 166,400 of Sangara shares—the transaction did turn out to be ruinous, but in my opinion this could not have been reasonably expected as at 1st May, 1962. In short, I do not consider that any want of good faith can be inferred from the terms of the deed alone. It is also appropriate for me to refer at this stage to the forged transfer of shares which appears endorsed on the back of certificate No. 26, purporting to be a transfer of 254,307 shares in Morobe Hotels Ltd. As it appears that this transfer was not filled in until after one S. L. M. Eskell became a director in June 1964 the lapse of time after the deed of 1st May, 1962, prevents the respondent from relying on the inference which can be drawn from the forged transfer not only of want of good faith but also that the appellant was aware that the directors who acted as such at the date of the deed were not authorized to act on behalf of the respondent. However, there are other matters which bear on the issue of whether the appellant was acting in good faith.
At the meeting of directors of the appellant on 28th April and continued on 2nd May, 1962, when it was resolved to accept the respondent’s offer, consideration must have been given to the means by which the sum of £2,500 was to be raised on the execution of the deed and £47,500 by 31st May, 1962, because it was resolved, as appears from the minutes, “that an application be made to the bank or another financial institution for an overdraft of £50,000 required for the deposit to be found on the hotels pending receipt of subscriptions from shareholders”. At this stage, the company had two banking accounts, both in overdraft, one secured, and it thus had no funds to meet the deposit, as both Notson and Tytherleigh who attested the deed on behalf of the appellant must have known. Then followed the “round robin” of cheques, as Mr. Deane described it, the deed of loan between Territory Finance Ltd. and the appellant, attested by Fox and his employee Brook, and the entries made by Fox in the books of Territory Finance Ltd. indicating the payment of £45,000 as having been made against a non-existing debt owing by the respondent to that company. The result of these paper transactions so far as the appellant and respondent are concerned is that each was left with the same overdraft as it had before the passing of the cheques. That purported payment of £45,000 to the respondent, in my opinion, can only be taken to be part payment of the sum of £50,000 being the deposit under the deed of 1st May 1962, and indeed Mr. Henderson did not submit otherwise. These matters appear to me to be inconsistent with good faith on the part of the appellant. They indicate a conclusion that Notson and Tytherleigh, having no doubt in mind their return to Australia, had left to Fox the finding of the deposit and that Fox was aware that the company’s financial position was such that, even assuming the shares in Morobe Hotels Ltd. to be available as a security on the due date, that is, 31st May, 1962, the appellant in fact had no reasonable expectation of raising £50,000. At this point, the fact that none of the directors of the appellant was called as a witness, although Fox was at the Court on subpoena ad duces tecum, is significant; “when circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matters prefers the well of the court to the witness box the Court is entitled to be bold”. The Insurance Commissioner v. Joyce[dcxvii]36. The conclusion which I consider the actions of Fox on 15th May, 1962, indicate, is that at the date of the execution of the deed, pending the result of the new share issue which was then uncertain, the company left the raising of the deposit to Fox, that the board of directors of the appellant was aware that it had no ready funds to meet the deposit, that Fox was aware that the money for the deposit could not be found and the transaction could not be effectuated unless he took action contrary to his duty to the respondent. In the absence of any evidence called by the appellant upon this matter, I consider that this conclusion is justified. Of course, if I am wrong and the funds were available, a stronger inference could be drawn from Fox’s actions, and the case is a fortiori. It follows that in this respect Fox was dealing with the respondent less than honestly and this lack of good faith on the part of Fox must be attributed to the appellant, and thus render both deeds void.
I have also come to the conclusion that even if there had been good faith on the part of the appellant, the appellant was put on inquiry by the mode of execution of the deed, and on two grounds. Mr. Henderson strongly submitted that the appellant was entitled by reason of the seal being affixed on the face of the deed to assume that it was regularly affixed and to accept it as the deed of the respondent company. The first ground is based on Equity Nominees Ltd. and Anor. v. Tucker and Anor.[dcxviii]37, on which Mr. Deane relied. It follows from the High Court’s decision that to comply with art. 107 of the respondent’s Articles of Association, two persons were required to be present when the seal was affixed, one a director to sign and a second person as secretary to countersign, per Barwick CJ, Taylor J at p. 523, per Windeyer J at p. 526. In this case, as Fox signed as director and also purported to countersign “E. A. James & Co.” as secretary, that was insufficient compliance and in my judgment Mr. Deane’s submission was right, that Brook’s counter-signature could not cure the defect, as Brook’s act could have no greater effect than the act of Fox, his employer. Whilst I do not consider that Mr. Deane’s submission is sound that this is the end of the case, for the contract was supported by consideration, unlike the deed before the High Court, the appellant must be treated as having knowledge that art. 107, of which also it is deemed to have knowledge, was not complied with, for its directors must have known that Fox was the resident partner of E. A. James & Co., which acted also as its secretary. The appellant was thus put on inquiry whether the purported deed was the deed of the respondent.
But secondly, apart from the requirements of art. 107, the deed on the face of it bore the signature only of Fox and the counter-signature of his firm. If the contract is considered as one entered into on behalf of the respondent, being the sale of a substantial portion of the company’s assets, it would be beyond the power of a single director (Rama Corporation Ltd. v. Proved Tin & General Investments Ltd.[dcxix]38 and one of thes of unusual sual contracts, and so outside the directors’ ostensible authority. Houghton & Co. v. Hothard, Lowe & Wills Ltd.[dcxx]39; Kreditbank Cassel v. Schenkers Ltd.[dcxxi]40. Thus, having regard to the fact that Fox had acted for the appellant in negotiating the contract, the fact that the deed bore no signature on its face other than Fox’s in my judgment was sufficient to place the defendant on inquiry whether the contract had been duly entered into with the authority of the respondent. It might be said that if inquiry had been made, and there was no evidence that it had, it would have revealed only the fact that Fox acted with the authority of the other directors and not the facts that the directors were irregularly appointed, or that the sale had not been ratified by the shareholders in general meeting. But if persons are put on inquiry and do not investigate, they are still debarred, “though probably if they had inquired they would have learned nothing”. Chapleo v. Brunswick Permanent Building Society[dcxxii]41. The same view was taken by Bankes L.J in A. L. Underwood Ltd. v. Bank of Liverpool[dcxxiii]42. In that case, it was held that the act of an agent in paying his principal’s cheques into his own account was so unusual as to put the bankers on inquiry. Bankes L.J said:
“I feel satisfied that the obvious inquiry whether the company had not got its own banking account would have put a stop to the fraudulent system adopted by Underwood, and I do not think that it lies in the mouth of the appellants to say that an inquiry would have been useless. In In re Alms Corn Charity[1901] UKLawRpCh 145; , [1901] 2 Ch. 750, 762, Stirling L.J quotes a decision of Lord Romilly with approval, in which he said: ‘With respect to the argument, that it was unnecessary to make any inquiry because it would have led to no result, I think it impossible to admit the validity of this excuse. I concur in the doctrine of Jones v. Smith[1841] EngR 1169; , (1841) 1 Hare, 43, 55, that a false answer, or a reasonable answer given to an inquiry made, may dispense with the necessity of further inquiry, but I think it impossible, beforehand, to come to the conclusion, that a false answer would have been given, which would have precluded the necessity of further inquiry. A more dangerous doctrine could not be laid down, nor one involving a more unsatisfactory inquiry, namely, a hypothetical inquiry as to what A. would have said if B. had said something other than what he did say.” (at p. 789).
The reason for the rule would seem to be the undesirability of placing any qualification on the extent of the duty once inquiry is called for.
I do not consider that the words used by Lord Simonds in Morris v. Kanssen[dcxxiv]43 in referring to such an iy uiry that a person ought to make which would tell him that things were wrongly done are to be taken to affect the views of Brett L.J and Bankes L.J (supra), particularly as the above passage had been cited by Lord Greene M.R. in the Court of Appeal and not referred to in the speeches in the House of Lords, sub-nom. Kanssen v. Rialto (West End) Ltd.[dcxxv]44. Thus, as the defendant made no inquiry, for this reason also the defence based on Royal British Bank Ltd. v. Turquand[dcxxvi]45 fails.
The conclusiolusion I have thus reached is as the learned trial judge held, that the rule in Turquand’s case[dcxxvii]46 does not prevent the respondent relying on the lack lack of authority of the persons who purported to bind it to the deed of 1st May, 1962, and the absence of ratification of the deed by the shareholders in general meetin that the deed is accordingrdingly void.
Mr. Henderson then submitted that, if the Court did reach that decision, the appellant was still entitled to succeed so far as the 80,000 shares are concerned, the subject of the share certificates which had been delivered by the respondent to Flora Stewart, and on this matter I have the misfortune to be unable to agree with the Acting Chief Justice. The deed dated 1st May, 1962, refers to an equitable mortgage dated 22nd August, 1957, made between the plaintiff and Flora May Stewart (par. 2 (d) (1)), but no instrument of equitable mortgage appears to have been tendered in evidence. There is thus no evidence of the terms of the equitable mortgage. Neither counsel addressed any argument concerning the rights of the parties pursuant to a deposit of shares, together with a blank transfer. In the absence of any evidence as to the terms of the deposit, presumably the general law is applicable. The cases are referred to in Halsbury, 3rd ed., Vol. 27, p. 262. Where shares together with a blank transfer are deposited to secure a debt, the transaction is an equitable mortgage only. If no express power of sale is given, or no time is fixed for payment, the law implies a right in the mortgagee to sell, after giving reasonable notice. London & Midland Bank v. Mitchell[dcxxviii]47; Stubbs v. Slater[dcxxix]48; France v. Clark[dcxxx]49. The guarantor may complete his security by filling up the transfer and obtaining registration of the shares either in his own name or in some other name, (ibid. per Lord Selborne at p. 263). Stubbs v. Slater[dcxxxi]50. Although in the absence of reasonable notice the sale is wrongful and could be restrained, if in fact the sale is completed in good faith, the only remedy of the depositor of the shares is to sue for damages for wrongful conversion. Stubbs v. Slater[dcxxxii]51. Thus Mrs. Stewart had the right to sell the shares in Morobe Hotels Ltd. and to have the blank transfer filled in to show either herself or the person to whom she sold as a transferee. Mr. Henderson based his argument on a letter dated 11th May, 1965 by Mrs. Stewart, in which she acknowledges receipt of £17,269.10.0 in full settlement for payment of shares “which stood in my name in Morobe Hotels Ltd., which I have sold to Sangara Holdings.” Mr. Henderson thus submitted that so far as these shares are concerned, the appellant obtained title to them by a transaction quite independent of the deed, so that a declaration of the nullity of the deed would not affect the appellant’s title to these shares. However, the instrument of transfer endorsed on the back of the share certificate was filled in to show the transfer as “as per agreement 1st May, 1962”. There was a reason for this, as under the deed dated 1st May, 1962, it was provided that the respondent should accept liability for and pay the balance of principal monies etc. due under the equitable mortgage and not exceeding £7,500. I consider that the construction to be placed upon the reference in the instrument of transfer to the agreement of 1st May, 1962, is that the appellant was adopting, for the purposes of that transaction with Mrs. Stewart, the deed of 1st May, 1962, so that it could obtain credit under the deed for the sum not only of £7,500, but also the increased sum which was actually paid, viz. £17,269.10.0. Accordingly, I consider that as the transfer of the shares from Mrs. Stewart was treated by the appellant as being made under the transaction, this Court should so hold, and accordingly the order made in the Court below that all the shares in Morobe Hotels Ltd. are held in trust by the appellant for the respondent should be affirmed.
In my judgment, the appeal should be dismissed.
PRENTICE J: I have had the benefit of reading the statement of facts and reasons for judgment herein of Minogue ACJ and with respect I agree with his Honour’s reasons for regarding the deed of 1st May, 1962, between the parties to this suit as a nullity. However I would found my conclusions on a rather wider basis and would hold the said deed, and consequentially that of 31st May, 1962, to be void and of no effect for reasons approximating those outlined by Ollerenshaw J at the hearing of the suit.
To my mind the evidence establishes that the deed was void for that (i) it was entered into pursuant to the actions of persons who were not directors of the company and did not have the qualifying shares to entitle them to become directors, and there were no directors of the company; (ii) the deed was not authorized by a resolution of “the Board of Directors”, even assuming it were a properly constituted board; (iii) the deed was not sealed and countersigned in accordance with the requirements of the Articles of Association of the company (Equity Nominees v. Tucker)[dcxxxiii]52; (iv) the purported sale of shares was a sale of the main undertaking of the company such as could not have been effected by even real directors without ratification by a general meeting of the company shareholders, and there was no such ratification. Looking not only at the purported allotment of “qualifying shares” to the “directors” on 16th October, 1961, but at all the circumstances; I am satisfied that Fox as the effective representative and owner in New Guinea of the firm of E. A. James & Co. which was the secretary of Hamac Holdings Limited, must have had full knowledge of the disabilities of himself and his associates in dealing with the company’s assets in the way they purported to do.
The question falls to be determined as to whether the appellant Sangara (Holdings) Limited had or should have had attributed to it, the knowledge of Fox as to the invalidity of the deed and also the subsidiary question whether the appellant is able to rely on the rule in Turquand’s case to enable it to resist this suit for the recovery of the shares dealt with under the deeds of 1st May, and 31st May, 1962.
The evidence reveals that of the eighteen meetings of the board of Sangara during the period 24-3-1961 to 12-6-1962, at only one—that of 28th April, 1962—were any directors present other than Fox and his employees (at that particular meeting Messrs. Notson and Tytherleigh were present). At fifteen of them the only persons present were Fox and either Brook or Davis (both being his employees). Fox gave instructions both on behalf of Hamac and Sangara for the preparation of the deed of 1st May, 1962. He made the relevant entries in the appellant’s books. He signed, and he alone, the deed of 31st May, 1962, on behalf of Sangara without any authority of any meeting of directors. He signed the deed of 14th May, 1962, between the appellant and Territory Finance on behalf of the appellant. He signed the appellant’s cheque of 15th May, 1962, in favour of Hamac. He was thanked by the other members of the board “for his sterling effort to bring about diversification and further consolidation of the affairs of the company” (Director’s report 25th June, 1962). He continued to be associated for some years afterwards with the appellant and with Morobe Hotels Ltd. and later appointed Mr. S. L. M. Eskell to the Board of Directors of Morobe Hotels Ltd., following which there occurred an incident which has been described by the defendant’s counsel, and I consider correctly described, as the forgery of certain share transfers.
It seems clear to me that Fox was not only the nose of the appellant company for searching out possible commercial quarry, but was the eyes, ears and good right hand of the appellant at all material times. In addition it seems to me to be inconceivable that the scheme of kite flying of cheques whereby cheques were passed between Sangara - Hamac - Territory Finance - Sangara involving imaginary considerations at two stages and false entries to books but without any money actually passing away from Sangara should not have been known to Notson and Tytherleigh. They must have been aware of the appellant’s inability to produce in actuality the £50,000 consideration required under the deed of 1st May, 1962, which they themselves signed; and they must have been aware of their company’s liability under the deed of 31st May, 1962, the negotiation for, signing of (and as appears from the answers to interrogatories) approval and ratification of which were carried out by Fox and his employees. I consider the knowledge of Fox as to the vice inherent in the two deeds must be attributed to the appellant Sangara—such was the dominant position in its affairs of Fox as secretary, alternate director and negotiating agent with obviously full powers. It might be said that the position in April/May 1962, of the appellant’s Board was that of the speaker in:
“The Counsel’s good, the fox replies Could we perform what you advise.”[dcxxxiv]53
Whereas by the time the bogus deed between Hamac and Territory Finance was prepared on 1st May, 1962 to give some documentary colour to the approaching coup de grâce—and that between Territory Finance and the appellant dated 14th May, 1962, which latter document was signed in seven places by—Mr. Fox and his employees and by no one else other than a Mr. Kilduff who seems to have made a Melchisedechian entry and exit from nowhere to nowhere—the position could be aptly recorded as:
“The hungry foxes around them stared and for the promised feast prepared . . .”[dcxxxv]54
Being satisfied that the knowledge of Fox must be necessarily attributed to the appellant company, it follows in my opinion that the company must be held to have acted without good faith. From the special position occupied by Mr. Fox in the affairs of Sangara it follows that the decisions relating to “common officers” in a consideration of whether Turquand’s case applies, are beside the point as his Honour found at the hearing of the suit. In any case, in seeking to have the rule in Turquand’s case apply, a party relying on the rule carries the onus of establishing itself within the principles of the case (Freeman & Lockyer v. Buckhurst Park Properties)[dcxxxvi]55. I do not consider the appellant has done so.
If it were to be assumed that Fox had knowledge of the disabilities to the deeds and that the inferences that the appellant in fact had knowledge of the matters of disability were not irrefragable—yet I would consider those inferences highly probable though such as could be rebutted by evidence which if available must have been within the appellant’s power to produce. The circumstances that the hearing of this suit involved the making of allegations of improprieties against the appellant company’s directors together with the actual presence of Mr. Fox at the trial, can be taken in my opinion as serving to indicate as the most natural inference that the appellant feared to adduce the evidence concerned—and this fear is some evidence that the witnesses if called would have exposed facts unfavourable to the party. (Wigmore on Evidence (1940) 3rd. ed., vol. 2, par. 285, p. 162—as cited by Windeyer J in Jones v. Dunkel [1959] HCA 8; 101 C.L.R. 298 at p. 320). As the failure to give evidence was not explained it may lead rationally to the inference that the evidence of Mr. Fox or the other directors of Sangara would not have helped its case.
I am unable to conclude that his Honour who tried the issues has made any mistake in his findings.
With due respect to the opinion of my brother Minogue, I consider no alteration should be made to the order made at the hearing of the suit. The undated transfer of 80,000 shares which was apparently arranged in 1964 under the ministrations of Mr. S. L. M. Eskell (as appears from the minutes of the directors’ meeting of Morobe Hotels Ltd. held 12th November, 1964,) is vitiated on the ground that it purports on its face to be made pursuant to the agreement of 1st May, 1962. That agreement being void and of no effect I consider the “transfer” of 1964 to be affected by the vice of its parent and to be nugatory.
It has been urged upon this Court that the transfer of the 80,000 shares should be treated in a separate category as being a transfer made by a mortgagee, Mrs. Flora Stewart, exercising power of sale, and in respect of which consideration had passed from the appellant to Mrs. Stewart. Mr. Henderson relied upon the statement in a letter from Mrs. Stewart to the appellant acknowledging a remittance “in full settlement for payment of shares which stood to my name in Morobe Hotels Limited and which I have sold to Sangara (Holdings) Limited.” The reference to shares standing in her name would appear from the share certificate and the (originally) blank form of transfer of shares, as well as from the 1st May, 1962, deed’s reference to “equitable mortgage”, to be incorrect. No evidence has been given of any demand made by Mrs. Stewart such as would justify the exercise of such implied power of sale as Mrs. Stewart might have had. (Deverges v. Sandemand Clark & Co.)[dcxxxvii]56. It would seem difficult to find established from Mrs. Stewart’s letter alone (assuming it to be admissible against the respondent), in the face of the assertion actually on the transfer of shares—that the said transfer was not in pursuance of the deed of 1st May, 1962, but was made on a sale by the mortgagee.
There is an alternative way of looking at the transfer of shares. One may view it as a document made false by the addition of material alterations within the meaning of s. 486 of the Criminal Code (Papua). By the addition of the words “as per agreement 1st May, 1962 ... Sangara (Holdings) Limited . . . Sangara via Popondetta Papua ...”, and the creation of a form of acceptance of transfer by Sangara (Holdings) Limited, the document has been converted from a transfer as security, to a transfer outright. In my opinion the alteration may be regarded as a forgery going to the whole or essence of the instrument so as to destroy it (Chao v. British Traders Ltd.)[dcxxxviii]57. On either view of the effect of the transfer of these 80,000 shares, I consider that, in respect of the monies paid to Mrs. Flora Stewart to secure the release of these 80,000 shares in Morobe Hotels Limited mortgaged by Hamac Holdings, the appellant, which brought no counter claim in this suit, should be left to its remedy, if any, elsewhere.
I would dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitor for the respondent/defendant: Francis & Francis.
Solicitor for the appellant/plaintiff: P. J Clay, Acting Crown Solicitor.
EDITORIAL NOTE
An appeal in the above case was taken to the High Court of Australia. On 8th December, 1973, the Full Court of the High Court dismissed the appeal for want of prosecution.
[dlxxxii]The following Articles of Association of Hamac Holdings Limited are relevant to the judgment.
“74. Tae qucaifin oioa Di ectorector shall be the holding of not less than two thousand (2000) shares in the Company. Directors
shall hold their requisite share qualification at time of appointment ectio221;
“1020;102.. < & >
(a)a) &##160;; < T60; The business of thpanompany shall be managed by the Directors who may pay all expenses of or incident to the formation and registration and the issue of its capitae Dirs maycise all thel the powers of the Company which are not not by thby these presents or by the Companies Ordinance required to be exercised by the Company in general meeting subject nevertheless to the provisions of any Acts of Parliament or of these Articles and to such regulations (Being not inconsistent with any such provisions or these presents) as may be prescribed by the Company in general meeting but no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made. Provided that any sale or disposal by the Directors of the Company’s main undertaking shall be subject to ratification by shareholders in general meeting.
(b) & Withoutuprej toce to the gthe general powers conferred by the last preceding sub-clause the Directors may determineshallntitl signhe Co̵ehalf bills notes receipts acceptances enes endorsedorsementsments cheq cheques rues releaseleases contracts and documents.”
“107. ټ The Directorsctors shall provide for the safe custody of the Seal and the Seal shall never be used except by the authority of the Directors previously given and in the presence of one Director who shall sign every instr to which the Seal is affixaffixed and the same shall be countersigned in each case by the Secretary or some other person appointed by the Directors.”
[dlxxxiii][1856] EngR 470; (1856) 6 El. & Bl. 327; 119 ER. 886.
[dlxxxiv][1856] EngR 470; (1856) 6 El. & Bl. 327: 119 ER. 886
[dlxxxv][1967] HCA 22; (1966-67) 116 CLR. 518.
[dlxxxvi][1856] EngR 470; (1856) 6 El. & Bl. 327; 119 ER. 886.
[dlxxxvii] [1915] A.C. 705, at p. 713.
[dlxxxviii][1896] UKLawRpCh 122; [1896] 2 Ch. 743, at pp. 748-749.
[dlxxxix] [1904] 2 Ch. 618.
[dxc][1856] EngR 470; [1856] 6 El. & Bl. 327; 119 ER. 886.
[dxci][1914] UKLawRpCh 89; [1914] 2 Ch. 506, per Swinfen-Eady L.J, at p. 512.
[dxcii] (1882) 8 A.C. 65, per Lord Selborne, at p. 71.
[dxciii][1935] NSWStRp 29; (1935) 35 SR. (N.S.W.) 253, at pp. 268-9.
[dxciv][1856] EngR 470; (1856) 6 El. & Bl. 327; 119 ER. 886.
[dxcv] [1964] 2 Q.B. 480, at pp. 502-506.
[dxcvi][1875] UKLawRpHL 22; (1875) L.R. 7 H.L. 869, at p. 893.
[dxcvii] (1882) 8 A.C. 65, per Lord Selborne, at p. 71.
[dxcviii][1856] EngR 470; (1856) 6 El. & Bl. 327; 119 ER. 886.
[dxcix] [1946] A.C. 459, per Lord Simonds, at pp. 474-475.
[dc][1875] UKLawRpHL 22; (1875) L.R. 7 HL. 869.
[dci] [1964] 2 Q.B. 480; [1964] 1 All ER. 630.
[dcii][1875] UKLawRpHL 22; (1875) L.R. 7 HL. 869.
[dciii] [1964] 2 Q.B. 480, at p. 507, per Diplock L.J
[dciv][1875] UKLawRpHL 22; (1875) L.R. 7 HL. 869, at pp. 894-5.
[dcv] [1946] AC. 459, at p. 475.
[dcvi][1896] UKLawRpCh 122; [1896] 2 Ch. 743, at p. 745.
[dcvii][1896] UKLawRpCh 122; [1896] 2 Ch. 743.
[dcviii] [1928] AC. 1, per Viscount Dunedin, at p. 14, and Viscount Sumner, at p. 19.
[dcix][1896] UKLawRpCh 122; [1896] 2 Ch. 743.
[dcx] [1915] AC. 705.
[dcxi] [1957] 1 QB. 159, per Denning M.R., at pp. 172-3.
[dcxii] [1965] P. 294, at p. 344, per Willmer L.J
[dcxiii] [1965] 2 QB. 233, per Lord Parker, at p. 241.
[dcxiv][1904] UKLawRpCh 90; [1904] 2 Ch. 608.
[dcxv][1896] UKLawRpCh 122; [1896] 2 Ch. 743.
[dcxvi][1856] EngR 470; (1856) El. & Bl. 327; 119 E.R. 886.
[dcxvii][1948] HCA 17; (1948) 77 CLR. 39, per Rich J, at p. 49.
[dcxviii][1967] HCA 22; (1967) 116 CLR. 518.
[dcxix] [1952] 2 QB. 147.
[dcxx] [1927] 1 KB. 246.
[dcxxi] [1927] 1 KB. 826.
[dcxxii][1880] UKLawRpCP 23; (1881) 6 QBD. 696, per Brett L.J, at p. 715.
[dcxxiii] [1924] 1 KB. 775.
[dcxxiv] [1946] AC. 459.
[dcxxv] [1944] 1 Ch. 346, at p. 359.
[dcxxvi][1856] EngR 470; (1856) El. & Bl. 327; 119 ER. 886.
[dcxxvii][1856] EngR 470; (1856) El. & Bl. 327; 119 ER. 886.
[dcxxviii][1899] UKLawRpCh 91; (1899) 2 Ch. 161.
[dcxxix][1910] UKLawRpCh 34; [1910] 1 Ch. 632, per Lord Cozens-Hardy M.R., at p. 639.
[dcxxx][1884] UKLawRpCh 57; (1884) 26 Ch.D. 257, per Lord Selborne, at p. 262.
[dcxxxi][1910] UKLawRpCh 34; [1910] 1 Ch. 632.
[dcxxxii][1910] UKLawRpCh 34; [1910] 1 Ch. 632.
[dcxxxiii][1967] HCA 22; (1967) 116 CLR. 518.
[dcxxxiv]J Gay, “The Fox at the Point of Death”.
[dcxxxv] [1964] 2 QB. 480, at pp. 505-6; [1964] 1 All E.R. 630, at p. 639.
[dcxxxvi]J Gay, “The Fox at the Point of Death”.
[dcxxxvii][1902] UKLawRpCh 53; [1902] 1 Ch. 579.
[dcxxxviii] [1954] 1 All ER. 779, at p. 789.
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