The New South Wales decision of ANZ Bank v Frenmast Pty
Ltd  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
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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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