The commonly accepted methods of executing a document, including a deed at common law, involve the use of the common seal and signature by the directors and secretary, or by the method which is prescribed by the company’s constitution.

Execution of deeds

The prime law governing the execution of deeds by companies is section 127 of the Corporations Act 2001 (2001 Act) and section 10 of the Property Law Act 1969 (1969 Act). The rules are that a deed may be validly executed:

• by a company under seal with a signature of a director and a secretary (section 10 of the 1969 Act and section 127(2) of the 2001 Act); or
• by two directors of the company, or a director and a company secretary (section 127(1) of the 2001 Act); or
• in the case of a sole director company then that director or director/company secretary alone can sign the deed, and the document must be expressed to be a deed (section 127(1) of the 2001 Act).

Execution of other agreements

Section 127 of the 2001 Act also applies to the execution of documents other than deeds. Accordingly an agreement may be validly executed:

• by a company under seal with a signature of a director and a secretary (section 127(2) of the 2001 Act); or
• by two directors of the company, or a director and a company secretary (section 127(1) of the 2001 Act); or
• in the case of a sole director company then that director or director/company secretary alone can sign the agreement, and the document must be expressed to be a deed (section 127(1) of the 2001 Act).

What are the consequences of failing to execute a deed or agreement properly?

An outsider dealing with the company may assume that a deed or agreement has been duly executed by the company if it meets the requirements set out above, as applicable.

However, where a company fails to comply with these requirements, the legal effect is, technically speaking, that there is no contract. Statute law is silent on whether the defaulting party or parties may be allowed to escape from being bound by the contract. It would appear that this would be a decision for a court to determine, based on the facts.  Section 127(4) of the 2001 Act, however, makes it clear that section 127 does not limit the ways in which a company may execute a document.

Parties dealing with a company which has, for some reason, failed to properly execute a deed, may find themselves taking comfort from section 127(4). This is because case law suggests that the section may cover the situation where, by virtue of some act, the contract is binding on the company.  Hence, a contract not properly executed may nevertheless be treated as a valid and binding contract because the company had represented to an outsider that the contract had been validly executed.  In that event the rules of estoppel would operate so that the company would be prevented from denying that the document was binding: Prime Constructions v Westbridge Investments (2004) 22 ACLC 1.

For further information or advice on whether your company contracts are validly executed and on associated risks or enforceability, please contact Paul Kordic, Principal, by email at pkordic@talbotolivier.com.au or Louis van Aardt, Senior Associate, by email at Lvanaardt@talbotolivier.com.au

Facts

The mortgagee sold the property to an employee of the mortgagee’s solicitors for $360,000 in April 2006. The property had been valued in March 2006 at $350,000. The mortgagee advertised the property in newspapers and on the internet. But instead of sale by auction as recommended by the valuer and agents, the property was disposed of by private sale to the employee.

The mortgagor brought an action against the mortgagee and the purchaser seeking to set aside the sale and claiming damages from the mortgagee for breach of its duty to take reasonable care in selling the property at the best price which was reasonably to be obtained. The mortgagor provided evidence from two valuers, fixing the market value of the property at $415,000 and $420,000.

The question is, did the mortgagee act reasonably in relying on its valuation in March 2006 ($360,000) by selling the property to an associated party?

Decision

The trial judge held that, although evidence on the valuation carried out by the mortgagee was unsatisfactory, and the mortgagee did not provide the best opportunity to obtain the highest sale price, the mortgagor failed to discharge the onus of establishing a breach of the mortgagee’s obligation.

On appeal by the mortgagor, it was held that

• the mortgagee breached its statutory duty;
• the mortgagee was required to “fully test the market”, which it failed to do by abandoning the auction and accepting an offer from an “insider” at the lower end of the range of estimated sale prices; his Honour noted that the mortgagee’s reaction to the employee’s offer “was not to ascertain what further steps might be taken to increase the price, but rather to discover whether the offer could be accepted without incurring liability to the mortgagor”;
• the trial judge was required to determine the value of the property at the time it was sold and, in light of the trial judge’s criticisms of aspects of the valuations, should have preferred the evidence of the valuer that fixed the market value at $420,000 (i.e. damages were $60,000);
• the identity of the purchaser was relevant to both the onus of proof and the sufficiency of the steps taken to protect the mortgagor’s interests and obtain the best price;
• the fact that the sale price was within the range of possible sale prices was not sufficient to discharge the burden that a mortgagee must assume when the sale is to an “insider”. The mortgagee in such circumstances is under a duty to obtain the best price available.

Practical Implications

This case highlighted the strictness of a mortgagees’ duty of good faith, especially when there is a potential conflict, such as in a private sale to an associated party, between a mortgagee’s duty to obtain the best price available in the market and its desire to obtain the best bargain for the purchaser.

In summary, the duty of mortgagees when exercising a power of sale is a duty to exercise reasonable care to ensure the property is sold at market value. It is noted that a statutory duty is imposed on mortgagees, under the Property Law Amendment Bill[2] which is currently before the WA Parliament, to take reasonable care to ensure that land is sold for not less than its market value.

To meet this legal requirement, mortgagees should take care to:

• take the property to market through use of appropriate advertising and to seek the advice of agents to attract the largest number of potential buyers;
• sell the property at an auction when possible; and
• obtain a written valuation before sale especially where there is movement in the property market.

[2] Property Law (Mortgagees’ Power of Sale) Amendment Bill 2009 (WA)

What is a caveat 

A caveat is a tool you can use to protect your interests against a person who owns real property; that is, who owns land.  Under the Transfer of Land Act 1893 (WA) you can lodge a caveat with the Registrar of Titles. This means your interest will be noted on the title. If the owner of that land tries to transfer it to someone else such as by selling it, you will be notified of the event and it will not be possible for the transfer to be registered until your interest has been dealt with.

For example, if you and a land owner enter into a contract for renovations of a house on that land and your contract acknowledges your right to do so, you might lodge a caveat for unpaid money.  If the owner tries to sell the house, the title can’t be transferred until your disputed payment is settled and the caveat is withdrawn. Otherwise, it might remain against the title 

When else might I use a caveat?

A caveat might also be used if you have a contract with someone for the provision of goods and your contract includes a Romalpa or retention of title clause.  This clause allows you to enter someone’s property and retrieve the unpaid goods.  However, if these goods are affixed to the land (such as when you supply and fit plumbing fixtures) this isn’t practicable so a caveat may be  lodged to record your interest in the land until the payment dispute is settled.

Is lodging a caveat that simple?

No. A land owner’s title is protected from people lodging caveats that can’t be justified.

So what should I do?

You need to make sure that the land owner and the person who owes you money are the same person. If this is not the case then you may encounter problems with your lodgement.

In a recent case[1], a landscaper was owed money on a contract he had made with a contractor who had since gone into liquidation before paying for most of the work.  The landscaper’s terms and conditions gave him the right to enter the premises and retrieve the goods supplied. However, as some of the goods supplied had become a part of the land, the landscaper lodged a caveat over the land on which he had done the work.  Unfortunately, the owner was a third party and not the contractor. Neither the owner, nor the owner’s agent, knew of the Romalpa clause in the contract – this was one of the factors two of the judges commented on when they decided the caveat should not be extended. 

If you want to lodge a caveat, or if you’re not sure about your contract or the identity of the owner, it is always best to obtain legal advice. A correctly lodged caveat by a legal professional will ensure the caveat achieves its purpose. 

How do I do it properly 

You need to complete a caveat lodgement form which is available from Landgate. You may also need to make a statutory declaration setting out the nature of the interest you are claiming – if you don’t lodge a statutory declaration when required, the caveat will have no effect.  After the caveat is registered with the Registrar of Titles, the Registrar will contact the landowner to give notice of the caveat 

The landowner can then summons you, the caveator, to appear before a judge of the Supreme Court where you will have to explain why the caveat should not be removed.  This is where getting legal advice will start to pay off.  The process can move quickly and if you are prepared ahead of time, this will help to make the process less stressful.  

In the case mentioned above, the landscaper was able to convince the Master of the Court, who heard the first application, that the caveat should be extended.  The Master gave a series of orders to ensure that the issue in dispute was brought to trial but the landscaper didn’t follow these steps.  The landowner then asked the Court of Appeal to reconsider the extension.  Two of the three judges agreed that the caveats should not be extended.  This meant, the caveats would cease to have any effect. 

The lesson to learn from this is: don’t assume the caveat alone will solve the issue; you still need to take the necessary steps you need to settle the original dispute. 

What if someone lodges a caveat on my land?

The Registrar will advise you about the caveat when it is received.  It is advisable to obtain legal advice to make sure you are able to take the right steps to have the caveat removed.  Alternatively, that legal advice may help you solve the dispute that lead to the caveat being lodged in the first place.

A caveat can be a useful tool in protecting your interest; however, it is not a resolution to your dispute with the landowner about payment for work done or goods received.  This dispute still needs to be resolved.  What a caveat will do is to give you some peace of mind that your interest in the land will be protected if the landowner tries to sell the land before the dispute is resolved.

A final word

Although it may appear to be relatively simple to lodge a caveat in the first instance, a party who subsequently has a caveat removed may find itself liable to the landowner for any loss suffered as a result of a wrongly lodged caveat.  Make sure you take advice as to whether your claimed interest is truly caveatable. If it isn’t, you may be paying damages to the owner for any loss caused by the caveat.

If you are in the business of selling goods to another party before receiving payment, you probably already have a clause in your standard terms and conditions stating when ownership of the goods transfer from yourself to the other party.  It is therefore useful to know what your rights are and how you can enforce these rights under this sort of clause which is known as a Romalpa or “retention of title” clause.

A little history

The Romalpa clause is named after the defendant in an English case from 1976, Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd[1].  The scenario in that case is one that’s probably familiar to many business people.  The vendor, a Dutch company, had supplied aluminium foil to the purchaser, an English company.  In their contract there was a clause saying that ownership of the foil didn’t transfer to the purchaser until the purchaser had paid all payments owing to the vendor and, that until the date of payment, the purchasers had to store the foil in such a way that it was clearly still the property of the vendor.  If the foil was mixed with other materials to create new objects then the vendor would have ownership of those new objects until full payment had been received.  The purchaser had a duty to look after the goods in such a way as to protect the interests of the vendor. If the purchaser sold the objects to a third party but still owed the vendor money then the vendor would get the benefit of any sub-claim against the third party.

When the purchaser got into financial trouble and a receiver was appointed, the vendor asserted its rights under this clause in the contract and claimed that, because of the clause, it had priority over secured and unsecured creditors. The Queen’s Bench and Court of Appeal agreed with the vendor and so the Romalpa clause became a way to protect a vendor’s ownership of goods which had been delivered to the purchaser and used but had not yet been paid for.

A recent example[2]

A landscaping business supplied a quotation to a contractor who was overseeing construction of a tavern in Perth’s southern suburbs.  The contractor accepted the quotation which included the following term:

“The ownership of the goods supplied by the contractor to the customer shall remain with the contractor until payment in full has been received by the contractor.  If such payment is overdue in whole or in part the contractor shall have every right (without prejudice to any other rights) and is hereby authorised by the client to enter into and upon the premises (between 8am and 5pm) where the goods may be stored or in use (with or without others) to retake possession and remove the same.  The customer hereby indemnifies the contractor against any claim, action or damages arising out of any such action against the cost of the same.”

Unfortunately for the landscaper, the contractor went into liquidation leaving a large portion of the goods and services unpaid for. In addition, many of the goods supplied were attached to the land which belonged to a third party, the owner of the site. Because of this, the landscaper could not assert his right to retake possession of the goods he had supplied and instead placed caveats  on the owner’s land.

In conventional building arrangements, any contract the contractor enters into with a sub-contractor, binds the contractor but not the owner unless the wording of the contract is such that the owner is also bound. 

In this case, the owner was bound so the landscaper had permission to enter the owner’s property and remove the goods that had been supplied as part of the subcontract and for which payment had not been received in full.  Because some of the goods had been attached to the land, they had changed in status from personal property to real property which meant that the landscaper could no longer use the Romalpa clause to retake possession in order to retain his title in the goods. 

The landscaper lodged two caveats with the Registrar of Titles claiming an interest in the owner’s land.  He said that the Romalpa clause meant that he had an interest in the land, and that he had a right to protect his interest which amounted to the price of the unpaid invoices. The landscaper was not able to persuade two of the three judges that the owner of the land was aware of the contact, let alone the Romalpa clause.  This meant that the owner was not a party to the contract and could not be bound by the clause. 

Lessons to learn

A Romalpa clause is a useful tool for vendors to use to protect their interests when supplying goods to purchasers who will be paying for the goods some time after delivery.  It is especially useful when the goods supplied are likely to be used to make different objects or are going to become fixed to the land and are no longer retrievable by the vendor if the purchaser does not pay.

Following this recent case, it is evident that a vendor could still use a caveat to enforce an interest in the land to which goods have been affixed. However, this will only be effective if the original contract under which the payment fell due was made with the owner or the owner’s agent.  Because the landscaper’s contract was with the contractor, he couldn’t assert his right under the Romalpa clause by lodging a caveat on the owner’s land.

If you use a Romalpa clause in your standard terms and conditions, you should:

• Make sure you know who you want to be bound by the clause; and
• Check with a lawyer skilled in contract law that your clause is as effective as possible.

If you have a Romalpa clause you want to enforce, it is worthwhile getting expert legal advice just to make sure you comply with your own terms and conditions.  If the purchaser challenges your right to enforce the clause it will be useful if you can demonstrate that you have complied exactly with what the contract says.

There may be times when you supply goods that become attached to the land and are therefore not removable if the purchaser doesn’t pay.  One way to protect your interests is to lodge a caveat over the purchaser’s land to which you have attached your goods.  But a word of caution – this is not the end of the process.  If you are going to take this step, it is recommended that you seek legal advice to ensure that you can really achieve what it is that you want to achieve.

A Romalpa clause is a useful tool in contract with purchasers but, as with any tool, it will only be effective if it is used  properly.

[2] Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171

Director’s meetings are often held by telephone.  However, Talbot Olivier has recently advised a client that it could hold a general meeting by telephone.  A telephone or even a virtual face to face meeting could have considerable cost and time saving implications for both companies and shareholders.  This article explores some of the issues.

Is the technology available? 

We can see on the television news and entertainments channels that there is the ability to have online real time face-to-face exchanges, where each party can see the other party’s gestures and expressions. The technology exists for multi party Skype telephone and messaging and for fully integrated video images and sound.  Technology providers are currently offering products to enable participants to simultaneously see each other in real time video windows enabling communication that is much more true-to-life.  

Is a virtual meeting a “meeting”?

Case law regarding directors’ meetings illustrates an acceptance by some courts that any forum constituting a meeting of the minds will count as a meeting, even if it takes place using technology (such as a telephone or video conference).  On the other hand, shareholder meetings are traditionally physical gatherings allowing for face to face confrontation, debate, and deliberation. Clearly a telephone meeting is not face to face in the same room.   See below under “Is the technology available?” for details of virtual face to face meetings.  However, there has been very little judicial consideration of what amounts to a valid meeting of shareholders.  Furthermore, since 2000, Delaware (USA) legislation no longer requires companies to hold their shareholder meetings at a physical location so that a meeting may be held online at the sole discretion of the directors.  Shareholders participating on-line are considered to be “physically present”.  There are similar provisions in Denmark. So far as we are aware only Delaware and Denmark currently permit virtual meetings.

So what is the current Australian position? 

In Australia, there is no express provision allowing a virtual meeting that is to be held at no physical place, although the legislation does expressly provide for a meeting to be held in more than one place. Section 249S of the Corporations Act (“Act”) states that “a company may hold a meeting of its members at 2 or more venues using any technology that gives the members as a whole a reasonable opportunity to participate.”  This requirement could be interpreted to extend to an entirely virtual meeting. In this regard, one leading commentator has stated that “the meeting probably need not take a traditional form if the corporation has a small number of shareholders, or the shareholders are confined to a small number of venues designated by the corporation. The limited case law on this topic suggests that such an approach would not expose the meetings to a legal challenge” (Virtual Shareholder Meetings 2004 Duke L. & Tech Rev. 008).  To permit telephone meetings for companies with a limited number of shareholders would present less of a practical issue than those with a large shareholder base. 

Recent developments in the UK 

The Companies (Shareholders’ Rights) Regulations 2009 (SI 2009/1632) (“2009 Regulations”) came into effect in the UK in August 2009.  The 2009 Regulations aim to improve shareholder information and participation rights in company meetings. All companies are allowed to conduct meetings in a way that facilitates electronic participation by persons who are not present in the meeting room. 

In this regard, section 360A of the UK Companies Act 2006 (inserted by the 2009 Regulations) provides that: 

“(1) Nothing in this Part shall be taken to preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it.(2) In the case of a traded company the use of electronic means for the purpose of enabling members to participate in a general meeting may be made subject only to such requirements and restrictions as are—

(a) necessary to ensure the identification of those taking part and the security of the electronic communication, and(b) proportionate to the achievement of those objectives.” 

It remains to be seen how many UK companies will take up this option beyond the usual facility for satellite meetings via overflow meetings in the event of difficulties with room size. 

How do you vote and participate at a virtual meeting?

Section 1322(3A) of the Act provides that a court may deem a meeting to be invalid unless a member has a reasonable opportunity to participate at a meeting held at 2 or more venues. 

It would be for the company to put in place procedures to ensure that its members have a reasonable opportunity to participate and vote at virtual general meetings. The relevant Delaware legislation provides that a meeting may be held online provided that: 

“(i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder

(ii) the corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and

(iii) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.” 

In Australia, such procedures could be relatively easily managed for shareholders in certain small proprietary companies rather than large proprietary companies or listed entities.  Voting between a relatively small number of shareholders by telephone could be by name in turn.  A more anonymous approach would be for a vote (or a question/answer) to be sent to the chairman or receiving agent through instant messaging.  

Nevertheless, the practical problems associated with participation are probably the biggest hurdle for proponents of virtual meetings, particularly for larger listed companies.  This and the possible preference for “traditional” meetings could help explain why only a limited number of listed Delaware companies have held virtual meetings since 2000. 

Quorum issues 

Even with a quorate telephone or online meeting all sorts of problems could arise if one or more shareholders became disconnected during the meeting making the meeting inquorate. It may be preferable in this regard to hold a physical meeting in one location with a conference connection by telephone or webcasting of the physical gathering to other shareholders elsewhere. The meeting would be quorate at all times given the physical location. 

Summary 

We consider that it may be possible for a proprietary company, particularly one with a small shareholder base, to hold a valid shareholder meeting by telephone or online provided that:

• all shareholders can hear each other and have a reasonable opportunity to participate in discussions on a real time basis;
• a quorum is in place at all times during the meeting; and
• any voting is achieved fairly and accurately. 

Whether it may be appropriate or even technologically possible for companies with a large shareholder base to conduct virtual shareholder meetings will be a question of fact depending on the particular circumstances of each company.  

For further information or advice on whether a virtual meeting may be appropriate for your company, please contact Paul Kordic, Principal, by email at pkordic@talbotolivier.com.au or Louis van Aardt, Senior Lawyer, by email at Lvanaardt@talbotolivier.com.au