Discuss about the Case of Northside Developments Pty Ltd v Registrar-General.
In the case of Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 159; (1990) 2 ACSR 161 168, the company Northside Developments Pty Ltd was created just so that the land could be held. A mortgage was made on the land by the company, in the common seal of the company, to Barclays for securing the payment for both principle and interest based on the loan which was made to Barclays to the companies which were controlled and owned by thee Robert Sturgess, who was a director in Northside Developments (Bottomley et al. 2017). This mortgage had been registered and after the default, Barclays arranged for an action to sell the land to a third party, as a result of which this third party became the registered proprietor (Redmond, 2012).
This led to the Northside Developments commenced the legal suit for getting damages from the Registrar-General of New South Wales under section 127 of the Real Property Act 1900 (N.S.W.). This was done for getting compensated for loss of estate and the interest in land based on the fact that the mortgage documents were not executed. The Northside Developments’ articles of association stated that the seal had to be kept in a safe manner and had to be used when the directors were present, for their approval. In addition to this, it had to be counter signed by the director and the secretary. The secretary in this case was Gerard Sturgess, who was the son of Robert Sturgess (Tomasic, Bottomley and McQueen, 2002).
The key issue of this case revolved around the entitlement of Barclays to rely on the indoor management rule. The other issue of this case was related to whether Barclays should have made further inquiries regarding the authority of the agents of Northside.
Section 127 of the Real Property Act 1900 (N.S.W.): This section allows the individuals, who have sustained damages or losses through registration of another individuals as the land proprietor, who had been stopped by the legislation from the bringing forth of proceedings for the recovery/ possession for bringing act against the registrar general for recovery of damages as nominal defendant (Jade, 2018).
The case of The Royal British Bank v. Turquand (1856) 6 El. and Bl. 327 (119 ER 886) required that an individual making their dealings with the company in good faith could assume that the acts had been undertaken under the constitution and the powers had been performed in a proper manner; further, the individual was not bound to make inquires in the actions of the internal management when they were regular (Jade, 2018).
In this matter, the plaintiff stated that the mortgage had not been executed by them and that this mortgage could not be binding on them in case the land had not been based on the Torrens system. The plaintiff asserted that they had been deprived of land through the application of the indefeasible provisions of the quoted legislation. They further stated that since the deprivation did not take place owing to the fraud of individuals who had gotten the registration, i.e., Harvey and Barclays, no recourse could be taken based on the remedies which were covered under section 126 of the quoted legislation. This was based on the case of Registrar of Titles (W.A.) v. Franzon & Ors (1975) 132 C.L.R. 611, as a result of which there was remedy against the registrar general based on section 127 of the quoted act (Jade, 2018).
These proceedings were defended by the registrar general on all the possible grounds and they even went ahead to file a cross claim against the plaintiff. There were three key elements under this cross claim. The first one was the claim made against Robert Sturgess and his son for the contravention of the fiduciary duties which they owed to the plaintiff. The next element was related to the claim made against the accountants of the firm, where the office of such accountants was used as the registered office of the plaintiff during all of the material times, for the contravention of the contractual duties owed to the plaintiff regarding the exercising of the reasonable level of skill and care. With the development of the issue, the cross claimants started relying on the receipt of the notice of lodgement regarding the caveat related to mortgage transaction undertaken by the accountants, along with their failure in notifying the directors about this receipt. The third aspect was the claim made against such companies which were under the control of Robert Sturgess, as these had gained benefit from the undertaken mortgage transaction (Jade, 2018).
The matter was initially raised under the NSW Court of Appeal where it was concluded by Justice Young that the mortgage could not be executed by appealing party. The focus was thus shifted to considering if the mortgage still took effect, which would lead to the claims of appellant failing. The indoor management rule given under Turquand was then applied by the Young J where he stated that the mortgage transaction’s nature was such that the lender was required to make the inquiries regarding the authority of the father and the son for entering in the mortgage on the company’s behalf and for affixing of the common seal. There was no evidence which was presented before Justice Young regarding the inquiries made by Barclays, if there were any. This made it insufficient for reliance to be placed on the Turquand case by Barclays for asserting that the matters of internal management had been complied in a duly manner, and as a result of it, to take the benefit of mortgage. As this led to Barclays being put on inquiry, there was no effect of the mortgage, which was executed improperly. This led to the damages being awarded in favour of the appealing party by Young J (Jade, 2018).
Section 127 of the Real Property Act 1900 (N.S.W.)
The appeal by registrar general was allowed by the Court of Appeal. The view of Kirby P was that the indoor management rule had to be treated as a special rule, which was related to the companies, instead of being one related to the instance of law of agency. This rule was then applied at the present instance which led to the court concluding that Barclays had not been put on inquiry based on the situation in which the transaction took place, and this allowed them to rely upon the rule given under the case of Turquand. It was held by McHugh JA, which was agreed upon by Samuels JA, that the rule of company law was related to the using of company seal. It was considered by his Honour that the cases where this rule had to be explained as law of agency principle had resulted in blurring of the variations in between the contracts undertaken by company under common seal, and the ones entered on agents’ behalf. After focusing on the fact that there was a failure on part of the appellant for stopping the son from purporting to act as the company secretary, His Honour concluded that Barclays had not been put on inquiry in the situations surrounding the undertaken transaction (Jade, 2018).
Though, the arguments put forth on behalf of appellant were rejected by the Court of Appeal, which was related to Barclay’s reliance on indoor management rule since the mortgage document was forgery, which had no application of this rule. The matter of forgery exception rule was not considered necessary to be established as it was held by the judges that the same was not applicable to the case where the signature, though were genuine, but were not authorized (Jade, 2018). The case of Turquand led the court to conclude that Barclays were on inquiry due to the lack evidence that anyone who had the authority to make the representation, made any representation that the mortgage had been valid. This case led to court concluding that based on the given circumstances, the undertaken transaction was a matter of fact one, which required the lender to make inquiries, and this led to the case of Turquand being inapplicable. This led to the first respondent being ordered to pay the cost of appeal of the appellant (Wolters Kluwer, 2018).
The role of the court in this case was based on the hierarchy of the court. The initial case was made under the NSW Court of Appeal; and from there, the matter was presented to the High Court of Australia, as it holds supremacy in hierarchy level over the NSW Court of Appeal. The court here played the role of deciding on whether the lower court had ruled rightly and whether the rule of indoor management could be applied here. After analysing the case in details, and even the precedent, the conclusion of this case was attained. An important point in this regard is that the court accepted that the precedent on which this case was based, i.e., Turquand was a controversial one. This led to the court giving the correct view on indoor management rule for this case, which could not be used for the purpose of creating authority in the same, was not present (Jonge, 2018).
Bottomley, S., Hall, K., Spender, P., and Nosworthy, B. (2017) Contemporary Australian Corporate Law. Victoria: Cambridge University Press.
Jade. (2018) Northside Developments Pty. Ltd. V. Registrar-General. [Online] Jade. Available from: https://jade.io/article/67573 [Accessed on: 16/02/18]
Jonge, A.D. (2018) Northside Developments Pty. Ltd. v. Registrar-General of N.S.W. and Ors. [Online] Austlii. Available from: https://www5.austlii.edu.au/au/journals/MelbULawRw/1990/25.pdf [Accessed on: 16/02/18]
Redmond, P. (2013) Corporations and Financial Markets Law. 6th ed. Rozelle, NSW: Thomson Reuters (Professional) Australia.
Tomasic, R., Bottomley, S., and McQueen, R. (2002) Corporations Law in Australia. 2nd ed. NSW: The Federation Press.
Wolters Kluwer. (2018) Northside Developments Pty. Ltd. v. Registrar-General., Supreme Court of New South Wales, 26 February 1987. [Online] Wolters Kluwer. Available from: https://www.iknow.cch.com.au/document/atagUio386410sl10538762/northside-developments-pty-ltd-v-registrar-general-supreme-court-of-new-south-wales-26-february-1987 [Accessed on: 16/02/18]
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