Australia: Agent For Disclosed Principal – Full Court Finds Stockbroker Entitled To Sue On Behalf Of Investors

Last Updated: 17 January 2008
Article by Michael Mitchell

In Brief
  • The Full Court of the Federal Court of Australia has applied Brandon J's dictum in "the Swan"1 to a case where a stockbroker arranged a loan from the stockbroker's clients to another client.
  • The circumstances (including a contract made on behalf of disclosed, but unascertained, principals) led to the conclusion that the agent contracted as a principal and was entitled to sue for recovery of the loan funds in its own right.
The Loan

The Respondent to the appeal ("Findlay") was a stockbroker, who also conducted a corporate advisory and underwriting business. In October 2003, the Third Appellant ("Mr S") approached Findlay to arrange for the listing of his company on the Australian Stock Exchange and for assistance in putting together an Initial Public Offering.

Mr S informed Findlay that he or his companies had interests in gold mining tenements in North Queensland and an option over the "Summit Lake Mine" in Canada (these claims later turned out to be false). Mr S sought "mezzanine funds" for the preparatory work for the IPO, and further funding to exercise the mine option in Canada.

In December 2003, Findlay agreed on an oral basis to advance funds to Mr S and his companies, such funds to be obtained from Findlay's clients. By February 2004, Findlay had advanced about A$450,0002, which was held in a law firm's trust account in Canada.

A written Loan Agreement was finalised (but not signed) in February 2004 which provided in its recitals:

"H. Findlay is acting as agent for various clients of Findlay and in its own right agrees to lend funds to TPM [Mr S's company] on the terms contained herein".

The operative terms of the Agreement included:

"1 Loan Amount and Term:

1,1 Findlay agrees to lend TPM the sum of A$450,000 ("Loan") to TPM for the purpose of purchasing the Summit Lake mine. As of about January 20, 2004 the date of this Agreement the funds have been placed into the trust account of Fraser Milner Casgrain in Vancouver BC Canada."

Before this Agreement was signed, Findlay learned that Mr S and his companies had no option for the Summit Lake mine and that its owner in Canada had no intention of selling it.

Findlay contacted Mr S and indicated that he "should pay back the money to the investors".

Findlay successfully sued Mr S and his companies for return of the monies and for damages, before a single Judge of the Federal Court of Australia.

The Appeal

Mr S and his companies (the Appellants) appealed to the Full Court of the Federal Court of Australia on the basis that Findlay had acted solely as an agent in advancing monies to the Appellant, and that therefore Findlay was not a party to the loan agreement and had no standing to bring proceedings to enforce it, or to claim damages.

The Full Court applied the dictum of Brandon J3 in the "Swan"4. The question of whether an agent for a disclosed principal is liable on the Contract depends on the intention of the parties. Such intention is to be gathered from the nature of the Contract, its terms and the surrounding circumstances. Intention must be judged objectively, "based on what two reasonable businessman making a Contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended".

The Full Court considered a number of factors, in particular:

  • At the time the initial oral agreement was made, the expected principals of Findlay who would advance the money came from a known class (i.e. Findlay's clients), but the actual persons were not then identified, and indeed were not even ascertained. This pointed strongly in favour of a conclusion that Findlay entered into the oral agreement as the principal, albeit that performance of the oral agreement may have been subject to a condition precedent, i.e. that sufficient clients of Findlay would agree to lend the money.
  • Although the parties' contractual relationship evolved from the making of the oral Contract in December 2003 through to the settling of the terms of the written Agreement in February 2004, the Full Court found that this was not a situation where an initial oral agreement was made subject to written terms (in the Masters v Cameron sense). Rather, the evolving contractual relationship stayed true to the essentials of the original oral agreement.
  • There was an "inherent improbability" that the parties had contemplated that each individual investor would assume joint and several responsibility for the entire advance.
  • It was similarly improbable that the parties had contemplated that each investor would enter into a separate Contract with the debtor, in circumstances where security was to be granted for the loan – a plethora of complex documentation would have been required.

The Full Court therefore concluded that Findlay had contracted and advanced the monies in its own right, and was entitled to sue under the Contract. The appeal failed.


  • This practical application of Lord Brandon's dictum in the Swan will have relevance to many types of "mezzanine funding".
  • Whilst the actual decision turns on its own facts, it indicates that where an agent finds debt capitalists who are disclosed but not ascertained at the time the agent enters into the loan agreement with the debtor, it is likely that the agent will contract as a principal, and therefore be entitled to sue and be sued on the loan agreement in its own right.


1. [1968] 1 Lloyd's rep 5

2. Later further sums were advanced in a similar manner

3. As he then was

4. [1968] 1 Lloyds Rep 5

5. Ibid. at 12

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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