Sangara (Holdings) Limited v Hamac Holdings Limited (In Liquidation) [1973] PNGLR 504

• Jurisdiction: Papua New Guinea
• Court: Supreme Court
• Citation: [1973] PNGLR 504
• Date: 01 June 1970
• Year: 1973

Full Title: Sangara (Holdings) Limited v Hamac Holdings Limited (In Liquidation) [1973] PNGLR 504

Full Court: Minogue ACJ, Frost J, Prentice J

Judgment Delivered: 1 June 1970

1 Companies

2 No531 upheld; deed of sale of stocks in Morobe Hotels Ltd void; common officer of the selling and buying companies acted in bad faith, violated articles of association; rule in Turquand's case applied; others had a right to assume internal regulations complied with; onus of proof discussed

3 COMPANIES—Validity of deed—Rule in Turquand's case (Royal British Bank v Turquand (1856) 2 El & Bl 327; 119 ER 886)—Onus of establishing—Common officers—Duties and obligations of common officer—Lack of good faith—Inquiry—Failure to comply with Articles of Association

4 The Lady Gwendolen [1965] P 294,

The following Articles of Association of Hamac Holdings Limited are relevant to the judgment.

"74. The qualification of a Director shall be the holding of not less than two thousand (2,000) shares in the Company. Directors shall hold their requisite share qualification at time of appointment or election."

"102(a) The business of the Company shall be managed by the Directors who may pay all expenses of or incident to the formation and registration and the issue of its capital. The Directors may exercise all the powers of the Company which are not by these presents or by the Companies Act 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) Without prejudice to the general powers conferred by the last preceding sub–clause the Directors may determine who shall be entitled to sign on the Company's behalf bills notes receipts acceptances endorsements cheques releases contracts and documents."

"107. 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."

On 1 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 31 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 EA 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 authorised 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 "EA 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 28 April—2 May 1962.

Held:

(1) (Per Frost J and Prentice J) A party relying upon the rule in Royal British Bank v Turquand (1856) 2 El & Bl 327; 119 ER 886 bears the onus of establishing itself within the principles of the case.

Freeman and Lockyer (a Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 505–506; [1964] 2 All ER 630 at 639 referred to.

(2) (Per Minogue ACJ and Frost J) Up to the date of the deed of 1 May 1962, Fox was a common director of Hamac and Sangara and under the rule in In re Hampshire Land Company [1896] 2 Ch 743 by which 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 . . . 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] 2 Ch 743 at 748–50 adopted and applied.

(3) Following the meeting of Sangara on 28 April—2 May 1962, the conduct of Fox was such that he knew that the transaction pursuant to the deed of 1 May 1962, could not be effected unless he took action contrary to his duty 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 (Royal British Bank v Turquand (1856) 2 El & Bl 327; 119 ER 886) render both deeds void.

Rule in Royal British Bank v Turquand (1856) 2 El & Bl 327; 119 ER 886 applied.

(4) (Per 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 the deed of 1 May 1962, on two grounds, firstly non–compliance with art 107 of the Articles of 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 1 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 (Royal British Bank v Turquand (1856) 2 El & Bl 327; 119 ER 886) could not apply.

Equity Nominees Ltd and Anor v Tucker and Anor (1967) 116 CLR 518 referred to by Frost J.

(5) The rule in Turquand's case (Royal British Bank v Turquand (1856) 2 El & Bl 327; 119 ER 886) accordingly did not prevent Hamac relying on the lack of authority of the persons who purported to bind it to the deed of 1 May 1962, and the absence of notification of shareholders in general meeting and the deed should be declared void.

(6) (Per Frost J and Prentice 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 1 May 1962", could only be treated as being made under the void deed and accordingly void also.

(7) The appeal should be dismissed with costs.

Appeal.

This was an appeal against a judgment and orders of Ollerenshaw J delivered and made on 17 July 1969 (Hamac Holdings Ltd v Sangara (Holdings) Ltd (1969) No531), whereby he declared void and of no effect a deed of sale of 1 May 1962, between the plaintiff and the defendant...