BBAL401 Company Law: Northside Developments Pty Ltd v Registrar

This case study delves into the Northside Developments Pty Ltd v Registrar-General (1990) case, where Northside Developments, created to hold land, mortgaged the land to Barclays to secure a loan for companies controlled by its director, Robert Sturgess. The mortgage was registered, and upon default, Barclays sought to sell the land. Northside Developments sued the Registrar-General, claiming the mortgage was improperly executed as it violated the company's articles of association regarding seal usage. The key issue was whether Barclays could rely on the indoor management rule (Turquand's case) and whether they should have inquired further into the agents' authority. The NSW Court of Appeal initially ruled in favor of Northside, but the Registrar-General's appeal was allowed, with the court debating the application of the indoor management rule and whether Barclays was put on inquiry. The High Court ultimately addressed whether the lower court's ruling on the indoor management rule was correct, acknowledging the controversial nature of Turquand's case and clarifying the scope and limitations of the indoor management rule in creating authority where none existed. Desklib offers a wealth of similar case studies and solved assignments for students.

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Company Law
Northside Developments Pty Ltd v Registrar-General (1990)
16-Feb-18
(Student Details: )

Company Law
Factual background
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).
Issue
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.
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Company Law
Relevant law
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).
Arguments raised by parties
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).
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Company Law
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).
Judgment of case
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
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Company Law
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).
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
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Company Law
(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).
Role/ purpose/ scope of court
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).
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Company Law
References
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:
http://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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