Case Note: Bendigo and Adelaide Bank Limited (ACN 068 049 178) & Ors v Kenneth Ross Pickard & Anor

Bendigo and Adelaide Bank Limited (ACN 068 049 178) & Ors v Kenneth Ross Pickard & Anor [2019] SASC 123 concerned a claim for money that was said to be owed under a guarantee. The plaintiffs in this case sought to enforce a guarantee that they said was provided by the directors of a company Kenrop Pty Ltd (the Borrower). Kenrop was in liquidation at the time of the judgement.

Background

The loan amount was $505,250 and the purpose of the loan was for Kenrop to invest in plantation, wine grape, and cattle schemes.  Kenrop made payments in the order of $350,000 until it became apparent that the schemes in which it was investing had failed.

The key issue in the case was whether the directors of Kenrop had signed the loan application documentation in the name of Kenrop or also personally as guarantors. Great Southern Finance Pty Ltd (GSF), purported to execute the personal guarantees under power of attorney.

The plaintiffs claimed that GSF had executed the loan documents for Kenrop and the defendants as guarantors on or about 17 November 2008. The defendants contended that the power of attorney could only be conferred by deed and that the loan application that they executed was not a valid deed. Further, the defendant submitted that the loan deed, which purported to be a deed, was not a valid deed.

The plaintiffs claimed that Kenrop’s failure to make payments under the loan deed resulted in an acceleration event under clause 11. The lender then became entitled to demand immediate repayment of all monies payable including interest under a rate of 13.5%.

The power of attorney

The loan application, in Part 6, contained a power of attorney clause. The signature page was signed by the defendants, and each of their signatures were witnessed. Their signatures appeared below the words signature of ‘applicant/guarantor.’ The loan application referred to the need for independent legal advice to be sought both in the checklist for applicants and the signature clause box.

The power of attorney in Part 6 of the application provided that GSF, its directors and its secretary were appointed jointly and severally as the attorneys for the borrower and the guarantors. It further provided that GSF was authorised to enter into and execute a loan deed in the form attached to the application on behalf the borrower and the guarantors and that it was authorised inter alia to fill in the blank spaces in the schedule to the loan deed consistent with the provisions of the application.

On 17 November 2008 the loan deed was electronically signed by directors of GSF under the power of attorney for Kenrop pursuant to section 127 of the Corporations Act 2001 (Cth). The loan deed attached list of the repayment dates and listed an interest rate of 10.5% per annum. On 22 April 2009, the defendant signed an application for variation to loan deed. That document included a checklist that provided that the declaration at Part 7 of the application must be signed and dated by all applicants and guarantors. This was signed by the defendants.

Was the Loan Application a deed?

The Honourable Justice Stanley examined whether the loan application was a deed. ‘A deed is the most solemn act that a person can perform with respect to a particular property or right. At common law there are three requirements for a deed. First, it has to be written on paper, parchment or vellum. Second, it has to be sealed by the party or parties executing the document. Third, it has to be delivered and is not enforceable until delivery had occurred.’ His Honour considered the intention of the parties which he noted could be discerned from extrinsic evidence concerning the words or acts of the parties, or from an examination of the words contained in the document itself.

Statutory considerations

The Honourable Justice Stanley went on to examine modifications to the common law by the Property Law Act in Queensland and Western Australia.

The Honourable Justice Stanley found that the loan application was to be interpreted according to Queensland law as it was signed by the defendants in Queensland. Section 45 of the Queensland Act sets out the formalities of deeds executed by individuals. The effect of section 45 is to deem a document to be sealed if it is expressed to be a deed.

Section 45(2)(b) is subject to section 47. Section 47(1) provides that the execution of an instrument in the form of a deed shall not of itself import delivery, nor shall delivery be presumed from the facts of execution only, unless it appears that execution of the document was intended to constitute delivery of the document. In the case of Interchase Corporation Ltd (In Liq) v Commissioner of Stamp Duties (Qld) (1993) 27 ATR 154 it was found that section 47(1) displaces a common law presumption that the execution of an instrument in the form of a deed imports delivery but nonetheless the section contemplates that a document may evince an intention that delivery should be inferred from execution.

The Honourable Justice Stanley rejected the defendants’ submission that the loan application was solely intended to be an application for finance rather than a deed and found that it satisfied the requirements of section 44 and section 45 of the Property Law Act in Queensland.

Dual effect signatures

The Honourable Justice Stanley considered whether the application could be signed by the directors both in their capacity as directors of the company and as individuals. He referenced the South Australian Supreme Court case of Burrell & Family Pty Ltd v Harris [2010] SASC 184 where Justice White noted that the court must consider the contract as a whole and not just the manner of execution.

The Honourable Justice White held that it is possible for a person to intend his signature to have a dual effect so as to bind a principal and to accept personal responsibility. In that case the relevant provision provided that the “director of the borrowing entities also acknowledges personal liability for all debt remaining after the loan repayment date inclusive of all interest and recovery costs.”

Was GSF’s actions within the scope of the power of attorney?

The terms of the appointment of a power of attorney will determine the extent and scope of the power. Powers can be conferred by express terms or by necessary implication.

The defendants submitted that the loan application did not specify any interest rate that applies to the loan. In addition, the defendant submitted that they selected to inconsistent options in the loan application and in electing for one of the options, GSF made an election that was beyond the scope of its power. The Honourable Justice Stanley noted that the power of attorney in Part 6 of the loan application permitted GSF to make and initial any necessary alterations to the loan deed provided that such alterations were not prejudicial to the interests of Appointor.

Electronic signature of the loan deed

The defendants submitted that the loan deed was not enforceable against them as a guarantee as the loan deed was signed by GSF as the defendants’ attorney by electronic signature. The defendant submitted that the loan deed, by virtue of being signed electronically, did not meet the common law requirements that a deed be written on paper, parchment, or vellum. The plaintiff submitted that section 127 of the Corporations Act 2001 overrides all other requirements for a deed, including the paper requirement. The plaintiff submitted that section 127(3) expressly gives effect to the document as a deed when it is signed in accordance with section 127(1).

The Honourable Justice Stanley then went on to consider whether the loan deed had been executed in accordance with section 127. His Honour noted that the Corporations Act 2001 excludes the operation of section 10 of the Electronic Transactions Act 1999.

In considering this question, the Honourable Justice Stanley examined the findings of Justice Croft in Bendigo and Adelaide Bank Limited v DY Logistics Pty Ltd [2018] VSC 558. In that case there was no evidence as to the identity of the person who affixed or personally authenticated the affixing of the officer’s facsimile signatures on the relevant loan deed. Justice Croft held that section 127 requires a deed to be physically signed by the relevant company officer or for the person to authenticate the mark appearing on the document as his or her signature. He concluded that the loan deeds in that case had not been validly executed and noted that there was no evidence that either the director or secretary who signatures were purportedly affixed to the deeds authenticated the signatures in any way nor was there evidence in the form of board minutes authorising or authenticating each signature.

The Honourable Justice Stanley noted that GFS’s director did not review the loan deeds to which his electronic signature had been applied and that a standard form signature page was likely used. The plaintiff submitted that this did not mean that the electronic signatures were applied without authorisation. They also submitted that a board resolution existed which had the effect of authorising the relevant act of authentication. Justice Stanley noted that the relevant board resolution was limited to the approval of loans other than bank originated loans, i.e. did not applied to the loan in question.

The Honourable Justice Stanley noted that ‘given section 127 (1) contemplates a document being executed by two officers signing it, there is good reason to consider there must be a single, static document rather than a situation where to electronic signatures are subsequently applied to an electronic document.’

His Honour then went on to find that the plaintiffs cannot rely on provisions of section 127 to prove that the loan was validly executed and therefore the guarantee is contained in the loan deed were invalid. The plaintiffs then sought to rely on the application being a contract. Justice Stanley found that the purported deed would fail as a binding contract for want of consideration.

Ratification

in considering the subsequent ratification of the documents by the defendants, Justice Stanley found that ‘ratification does not transform something that has not been done into something else. The loan document was void at its inception because it was not validly executed by the party against whom it is now sought to be enforced. The doctrine of ratification cannot be applied to this case to validate the ineffective execution of the loan deed.’

Key Lessons

The key lessons from this case are:

a. Power of attorney clauses should be carefully reviewed to ensure that they provide sufficient power to the attorney appointed;

b. To avoid disputes about dual execution clauses, separate execution clauses should be included where directors are signing a document both on behalf of a company and in a personal capacity;

c. Where a company seeks to rely on electronic signatures, it should carefully examine this case and consider whether it needs to amend its processes and authorising board approvals.

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