Can a Forged Document Bind a Company?

The New South Wales decision of ANZ Bank v Frenmast Pty Ltd [2013] NSWCA 459 concerned an attempt by ANZ to enforce a guarantee purportedly given to it by Frenmast regarding a related company. The guarantee appeared to have been signed by directors Robert and Valdo but Valdo’s signature was a forgery. The initial decision in favour of the company was reversed on appeal.

The decision turned on the interpretation of several sections of the Corporations Act concerning the execution of documents. Section 127(1) allows a company (with more than one director) to execute a document without using a common seal if the document is signed by two directors or a director and a secretary of the company.

Furthermore, a person is entitled to make certain assumptions in relation to his or her “dealings with a company” and the company cannot assert in any proceedings relating to those dealings that any of those assumptions are incorrect.

Those assumptions may be made even if the company officer acts fraudulently or forges a document with regard to those dealings. A person is entitled to assume that the directors of the company properly perform their duties and that a document has been duly executed by the company if it appears to have been signed in accordance with section 127(1). In effect, it can be taken at face value.

The Court of Appeal had to decide whether the communications, negotiations and other interactions between ANZ and Robert could be described as “dealing” on behalf of the company and if so, whether he had actual or ostensible authority to engage in those communications or negotiations on behalf of the company. Unlike the trial judge, the Court of Appeal found that there were several financial transactions between ANZ and Frenmast over the years, as well as correspondence and communication, which amounted to relevant dealings within the meaning of the section.

For nearly ten years ANZ had been communicating with Robert regarding the company’s banking facilities and whilst Valdo was not involved in the day to day activities of the company, he must have been aware that the bank would have had continuing ongoing communications with Robert in relation to its facilities. The company had therefore conferred Robert with actual or ostensible authority to deal with the bank on its behalf.

The Court of Appeal would have held that Robert was acting beyond his authority if it was clear that the giving of the guarantee was not in Frenmast’s commercial interests. However, the giving of a guarantee on behalf of a related company could well have been for a proper purpose. The court was not prepared to find that ANZ was on notice that Robert was acting beyond his authority.

The decision is of some comfort to those negotiating with a director of a company that the director has authority to negotiate for the company.

For information on this update or any other commercial matters please contact David Miller or the Commercial Team on (08) 9321 3755.

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