In Part 1 of this series (March 2016 issue), we looked at the Supreme Court decision in Stellard Pty Ltd & Anor (Stellard) v North Queensland Fuel Pty Ltd (NQF) (Stellard's Case). The Court ruled that the name of an agent typed in an email was a "signature" which bound the company.

We also looked at the implications for Credit Applications, Terms and Conditions of Trade (called T+C's) and guarantees which need to be "signed", whether foreign laws are relevant, and the need for proper processes and systems (both manual and online) for ensuring a signature is obtained.

In Part 2 of this series, we look at who has sufficient "authority" to enter into an agreement or sign on behalf of a customer or guarantor, and what happens if they do not have authority.

Authority to bind
All contracts and documents, whether they are T+C's or a guarantee, must be entered into by the person who is to be held liable (as customer or guarantor). If a person (including a company) is represented by a "duly authorised" agent it is critical that the agent has sufficient authority as an agent's authority often will be limited to entering into only certain dealings.

If an agent lacks sufficient authority, then no contract is formed and no rights can be enforced in contract eg a charging clause will not enforceable.

The best course is to have the right documents and systems in place to ensure that the necessary steps are taken to bind the correct parties.

Whilst authority might be proven, or other rights or remedies might be available eg against an agent acting without authority, these often involve complex disputes with uncertain results, as the cases below show.

Stellard's Case – sale of land and business by non- director
• The seller was a company (NQF).
• NQF's apparent principal asset was land and a service station business located on it.
• All relevant email communications were with only NQF's agents, some with the sales agent, and others with the director's son, Drew.

• Drew was not a director of NQF according to ASIC records. No Power of Attorney appeared to have been registered granting him authority to deal with NQF's interest in land. It was not alleged that any statement had ever been provided to Stellard by the directors of NQF to the effect that Drew had NQF's authority to enter into any contract, although sales and marketing materials identified Drew as a contact for NQF.

• Importantly, NQF expressly admitted in Court documents that Drew was duly authorised to enter into the relevant contract. This meant that it was not necessary for Stellard to prove that Drew was NQF's duly authorised agent.
Generally a non-director would not be taken to have authority to grant an interest in land. Here, Stellard ran a complex Court case to prove its claim.

Takeaway – on both sides of a deal get the paper work right and have all officers sign the documents so everyone has certainty.

Auto Moto Corporation Case - salesman had authority to buy and sell cars but had no authority to give a charge over the customer's assets

• A supplier sold expensive imported cars to a car dealership. All discussions were conducted with a head salesman, who was not a director or shareholder.
• Cars were sold to the dealership on the basis that the supplier retained title until paid, and normally the supplier would receive payment on a sale occurring.
• Subsequently, as the debt owed grew to over $1 million, the supplier provided a written general security agreement (GSA) to the salesman, providing for the dealership to grant a charge over all of its assets to the supplier.
• A registration was lodged under the Personal Property Securities Act 2009 (PPSA) by the supplier based on the GSA.
• The GSA was not signed by the dealership's directors, nor was there any evidence that the directors had ever adopted, discussed or seen the GSA.

  • The dealership went into liquidation. 
  • The Court held that:
  • - The salesman was the duly authorised agent of the dealership to buy and sell cars, and to grant retention of title security interests in the vehicles. 
  • - This did not mean however that the salesman was also duly authorised to enter into the GSA.  - It was beyond the actual or implied authority of a salesman to grant a charge over the company's assets at large. 
  • - The GSA was not enforceable and so the PPSA registration made by the supplier was deregistered and the supplier was an unsecured creditor for over $1 million. 

Takeaway – obtain relevant ASIC and other searches to identify the director/s who are authorised to enter into agreements to give a charge over a customer's real and personal property. 

Williams Group Australia (WGA) Case [1] - electronic signature not inserted by guarantor's duly "authorised agent" and so guarantee not enforceable

  • WGA was a building materials supplier.  Its customer was IDH Modular (IDH). 
  • Mr B, Mr W and Mr C were IDH's directors, and Ms H was its admin assistant.  
  • Mr A set up an electronic signing system for the directors to use called "Hellofax".  Hellofax permitted each user to upload a copy of their signature which could be applied to documents electronically.

  • Mr B, Mr W and Mr C all uploaded copies of their signatures, and were provided with unique user names and passwords to be able to access Hellofax.  Only persons with the suitable user name and password could access the system and use the related signature.

  • As further protection, whenever a document was to be signed using a director's Hellofax, the relevant director would be emailed.  After their signature had been applied, the relevant director was sent another email as to their signature having being applied to the document.  
  • Lastly, the Hellofax system also logged from where and when a user of the signature had accessed the system.

  • - Mr C never changed his user name or password.
  • - IDH went into liquidation owing WGA $1M.
  • - The evidence showed that Mr C's signature had been placed on the guarantee by a person who had logged in at IDH's Murwillumbah office, at a time when Mr R was not in Murwillumbah.  It could not be proven who the person was who used his (unchanged) user name and password, or that Mr C had read the emails as to the use of his electronic signature.

  • The Court held:
  • - There was no evidence that any person had been actually authorised to place Mr C's signature to any document, or that Mr C had led WGA to believe that Mr C had granted such authority to others.  Mr C's failure to change his password was not sufficient;
  • - That since Mr C had not read the emails as to his signature being used, he could not be said to have ratified any unlawful use of his signature.

- The Court held that the guarantee was not enforceable against Mr C and he was not liable for the debt owed. 

Takeaway – communicate directly in person with guarantors to make sure that they have signed the guarantee.  Even though an electronic signature may be sufficient (such as in Stellard's case) safeguards against fraud should be in place and perhaps more so when electronic dealings are relied on. 

Menzies case[2] - accountant handled all communications with banks and forged signature of client on loans, real property mortgages and guarantees – contracts not binding on client

  • - A client placed her trust in her accountant to assist in making a loan application.
  • - The accountant used her ID documents to forge her signature on numerous loans, personal guarantees and to grant mortgages over the client's properties.
  • - All communication, bank statements and correspondence were sent via the accountant's office.
  • - The client was not liable for the fraud of her accountant as he had no sufficient authority to bind her.

Takeaway – good old fashioned fraud doesn't have to be electronic or digital.  Minimise risk by dealing with the person directly.

Tai Hing Cotton Mill Ltd Case[3] - HK$5M in cheques signed by customer's employee who was not an authorised signatory on bank account – bank liable for entire loss

  • - The customer's employee made off with the ill-gotten funds.
  • - The company did not complain to the bank for some time after receiving bank statements. 
  • - Because of the terms of the contract between the bank and its customer, the bank was still liable for the employee's fraud and was required to refund the HK$5M in full, despite the passage of time.

Takeaways – credit providers are also providers of finance.  Whilst cheques are used less today, fraudulent ordering by employees of goods and obtaining of fraudulent refunds by them on customer accounts are possible exposures for suppliers under T+C's.  In credit documents it may be possible to provide that the customer and guarantors will be liable on the account and that any fraud or forgery by the customer's employees will be at the risk of the customer, not the credit provider.

Peter Mills.jpg      Robert Gallagher.JPG


T+C's and guarantees should be obtained with care, using reliable systems, processes and documents. 

Contracts, guarantees and other documents generally do not grant any contractual rights to a creditor if they are signed or entered into by an agent for the party to be held liable unless the agent acts with sufficient authority. 

Electronic "signature" systems and processes might seem fine and efficient, however they should be reviewed to ensure that they verify the lawful and authorised placement of signatures. 

Direct contact with directors and guarantors is especially important. 

If you fail to have contracts and  T+ C's signed by the party or a duly authorised officer or agent, or guarantees properly signed by the liable parties, you will not likely be able to enforce rights against the customer, guarantors or third parties, or lodge PPSA security interests or caveats.

Review your contracts, T+C's and guarantees to identify where the risk falls if a customer's employees effect a fraud on the account. 


Stay tuned for the final Part 3 of this series.  In the final part, we will look at when parties are legally bound during negotiations, even if and when they say the dealings are “subject to contract”. 

Written by:
Peter Mills
Special Counsel
T +61 7 3338 7921

Robert Gallagher
T +61 7 3338 7920

[1] Williams Group Australia Pty Ltd v. Crocker [2015] NSWSC 1907
[2] Perpetual Trustees Victoria Ltd v Menzies [2012] NSWSC 1066
[3] Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 3 WLR 317

July 2016

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