AGC (Pacific) Ltd v Woo International Pty Ltd [1992] PNGLR 100

• Jurisdiction: Papua New Guinea
• Citation: [1992] PNGLR 100
• Date: 03 April 1992
• Court: National Court
• Year: 1992

Full Title: AGC (Pacific) Ltd v Woo International Pty Ltd [1992] PNGLR 100

National Court: Sakora AJ

Judgment Delivered: 3 April 1992

1 Agency—ostensible authority—agreement entered into by managing director of company

2 Company law—guarantee of lease agreement—executed by a managing director and another company official—default of principle debtor—repossession—liability of guarantor

3 Company law—rule of indoor management—rule in Turquand's case (Royal British Bank v Turquand (1856) 6 E & B 327; 119 ER 886) discussed—constructive notice discussed

4 Company law—agency—ostensible authority—director's duties—s18, s36, s37, s38, s131, s138, and s139 Companies Act (Ch146)

5 Sangara (Holdings) Ltd v Hamac Holdings Ltd (In Liquidation) [1973] PNGLR 504, Royal British Bank v Turquand (1856) 6 E & B 327; 119 ER 886, Cotman v Brougham [1918] AC 514, Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 65, Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWLR 782, Rainbow Holdings Pty Ltd v Central Province Forest Industries Pty Ltd [1983] PNGLR 34, Freeman and Lockyer (a Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 1 All ER 630, Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705, HMS Truculent [1952] P 1, The Lady Gwendolen [1965] P 294, Re British Games Ltd [1938] Ch 240, Foss v Harbottle (1843) 2 Hare 461; Ch 12 LJ 319, HL Bolton (Engineering) Co Ltd v TJ Graham and Sons Ltd [1956] 3 All ER 624 and Morris v Kanssen [1946] 1 All ER 586; [1946] AC 459 referred to

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Sakora AJ: This is an appeal against the decision of the District Court held at Port Moresby given on 28 January 1991 whereby the respondent company was held not liable for debt and thus the case dismissed with costs. This was a claim which arose out of a Lease Agreement for the purchase of a motor vehicle with the respondent acting as guarantor under the Agreement.

The brief facts for the purpose of this appeal are as follows: On 27 August 1990 a Lease Agreement in the usual form for financing the purchase of goods was negotiated and executed between the appellant and another company, Southwind Marine (PNG) Pty Ltd, of which a Mr Leo Woo was the director. The appellant company is a financial institution engaged in the business of financing lease agreements for profit. And in the customary arrangements of this nature the respondent company, of which Mr Woo was the managing director, executed a guarantor agreement duly evidenced by the affixing of the Common Seal of the company and the signing of the agreement by Mr Woo and another officer of the company.

The lessee and the principal debtor under the agreement, Southwind Marine (PNG) Pty Limited, defaulted in its lease obligations and the appellant exercised its rights of demand, determination and repossession. In the subsequent resale of the subject motor vehicle the appellant incurred a loss. The total rent payable under the agreement was K15,699.12. The lessee having already paid K11,120.21 was in arrears to the amount of K4,578.91. In the end the appellant suffered a loss in the amount of K2,854.91, as a direct result of the lessee/principal debtor's default. On 7 August 1990 the appellant sent a letter of demand to the respondent company pursuant to the guarantee under the agreement for immediate payment of the outstanding sum to make good the loss. And the respondent having failed to comply with the demand notice, the appellant proceeded in the District Court by Default Summons against the respondent.

The action was defended, the respondent having procured the services of legal representation, and both parties adducing evidence. The respondent called Mr Johnson Tan and Mr Kila Kalo, the new managing director (who had taken over from Mr Woo) and the company secretary respectively. Their evidence related to the issue of proper authority. The appellant's evidence in affidavit form was from Mr Bernard John, the credit officer of the company, who deposed to the facts and circumstances surrounding the subject lease agreement and the subsequent legal action.

In its defence, whilst not disputing the facts of the agreement and the subsequent default by the lessee/principal debtor, the respondent contended that although the guarantee was executed by Mr Woo as the managing director and another officer of the company, they did so without the authority of the company's Board of Directors. It was further contended that Mr Woo had acted in breach of the Companies Act (Ch146). Both contentions have been advanced and urged here in this appeal also.

The appellant by a Notice of Appeal dated 8 October 1991 appealed against the whole of the learned Magistrate's decision, stating the grounds:

"3. The grounds relied on in support of the appeal are:

(a) that the learned Magistrate erred in law when he decided there was no authority consented by the directors of the Respondent for financial lease for equipment;

(b) that the learned Magistrate erred in law when he found that there was not sufficient evidence to prove the complaint by the Complainant/Respondent (sic);

(c) the learned Magistrate erred by failing to hold that the officers purporting to execute the guarantee on behalf of the defendant's (sic) Company had actual or alternatively ostensible authority of the Defendant;

(d) the learned Magistrate erred in failing to hold that compliance with internal requirements of the defendant company (where the plaintiff had no notice of knowledge of any failures) was irrelevant and subject to the 'indoor management rule';

(e) that the learned Magistrate erred in considering that s139 of the Companies Act had any application to the dispute within (sic) the parties;

(f) the decision was wrong in law and should be set aside."

To assist me in considering the appeal, I have had the benefit of written submissions from both counsel, Mr Yasbi appearing for the first time for the appellant in this appeal and Mr David having represented the respondent in the lower court inviting me to accept his submissions there as his submissions here. I note here in passing that the appellant did not have the benefit of qualified legal representation in the court below although I hasten to add that it appears from the depositions that the authorised officer of the company who conducted the case did, with respect, produce the necessary pertinent factual background to the claim, in his affidavit evidence and written submissions, to enable the court to fully appreciate the respective rights and obligations of the parties. The fact that the learned Magistrate adopted almost verbatim the submissions on law and the survey of the authorities selected by the respondent's counsel when giving the reasons for his decision may, in any case, be due in the main to the appellant not having the benefit of submissions on law made on its behalf.

The appeal can be best and more conveniently dealt with, as far as the pertinent issues that arise are concerned, by confining my consideration to two principal heads of argument: (1) the doctrines expounded by the twin principles of 'ostensible authority' and 'indoor management'; and (2) the s139 argument. The two main contentions of the respondent mentioned earlier deny, or at least do not acknowledge, the existence and pertinence of any such principles to the situation under review here. What is said there is that since no authority originated and emanated from the Board of Directors, Mr Woo, a managing director, and another officer of the respondent company could not bind the company to any contractual obligations. In any case, it is argued, the respondent did not benefit from the agreement, Mr Woo having a personal interest in the whole transaction. Thus liability under the agreement as guarantor is denied. It is further argued that the actions of Mr Woo constituted a breach of s139(2) of the Companies Act which renders the guarantee unenforceable. Both arguments, by...