The recent Western Australian Supreme Court decision of Morrison v Woodthorpe [No 3] [2022] WASC 454 (Morrison [No 3]):

1. provides extensive guidance on what constitutes ‘implied actual authority’ to act as a company’s managing director, including considering how this authority might arise, be terminated, and the limitations of a person exercising such a position;
2. demonstrated the Court’s willingness to effectively determine issues of foreign, common law, even where those issues are subject to ongoing foreign litigation, if such a determination is in the interests of swiftly resolving a dispute involving an Australian entity; and
3. confirmed the Court’s broad power to order ASIC to make corrections to its registers under section 1322 of the Corporations Act 2001 (Cth) (Act).

Blackwall Legal acted for the successful plaintiffs in the case.

Background

The proceedings arose in the context of a broader dispute between Mr Paul List and Ms Angela List, an estranged couple who, through various companies scattered across several countries, ultimately operate mines in West Africa. While the broader dispute involves ongoing litigation in various jurisdictions, Morrison [No 3] concerned control of an Australian holding company, Adamus Resources Pty Ltd (Adamus).

In late 2021, the first plaintiff, Mr Allan Morrison, was purportedly removed from his position as sole director and secretary of Adamus and replaced by the first and second defendants, after a purported resolution of its offshore-incorporated (Nevisian) parent company, BCM Investments Ltd (now called ‘Nguvu Holdings Ltd’) (BCM) attempted to remove him. These changes were lodged with ASIC.

Mr Morrison’s removal was in effect made unilaterally by Ms List, who had been a co-owner and director of BCM with Mr List, but upon the breakdown of their marriage in early 2021 had taken steps to consolidate her own control of BCM and supplant Mr List without his knowledge. While control of BCM is subject to an ongoing dispute in the Eastern Caribbean Supreme Court, the defendants argued that Ms List’s removal of Mr Morrison was nonetheless legitimate owing to her implied actual authority to act as managing director of BCM, a position which the defendants claimed Mr List consented, or alternatively acquiesced, to Ms List’s holding.

The plaintiffs denied this characterisation, applied for orders to rectify the ASIC register to restore Mr Morrison to his position, and for Adamus’ corporate key to be cancelled and reissued to him. Prior to the commencement of the Australian proceedings, Mr and Mrs List were already involved in litigation in Nevis relating to control of BCM.

Despite several attempts by the defendants to stay and then delay the Australian proceedings, the trial proceeded.

Outcome

The plaintiffs were successful. The Court rejected the defendants’ argument that Ms List made the purported management changes within the scope of her implied actual authority as managing director of BCM for the following reasons:

• Ms List did not act as, or have implied actual authority to act as, managing director of BCM;
• even if Ms List did have implied actual authority, removing the first plaintiff would not have fallen within the ambit of the powers of a managing director of BCM; and
• any implied actual authority (if it were to exist) would have nonetheless come to an end when Mr List commenced the Nevis proceedings and sought to restrain Ms List from any involvement in the management of the company.[1]

The Australian Court made orders restraining the defendants from lodging documents with ASIC, and ASIC was directed to reissue the corporate key, and correct its registers to remove any reference to the purported management changes.

Commentary

1           Implied actual authority

There are broadly three types of ‘authority’ that can be exercised by a company’s management or agent:

• Actual authority: in which a person has been formally appointed to a position, and has the powers conferred to them by that position.
• Implied authority (also called ‘ostensible’ or ‘apparent’ authority): in which it reasonably appears to others that a person has been properly appointed to perform certain functions, owing to the conduct of those with actual authority.[2] For example, a person may be exercising actual implied authority to execute a contract on a company’s behalf if that company’s board has resolved to generally allow that person to execute contracts of that kind. While the powers of an individual exercising implied authority will vary by context, it ordinarily does not extend to making unilateral decisions on a company’s behalf.
• Implied actual authority: in which the conduct of a company’s management is such that a person, though not formally appointed, clearly has the power to make decisions on behalf of that company as though they have been conferred actual authority. For example, a person may have implied actual authority to act as ‘managing director’ of an entity if the board of that entity consistently acquiesces to that person calling themselves a ‘managing director’ and if that person is the sole decision-maker of the entity who executes all of its agreements.[3] However, in the absence of a formal appointment, the exact powers of a de-facto position may be unclear or undefined, in which case a Court may not only have to determine whether a person holds implied actual authority, but what powers that actual authority extends to.

Morrison [No 3] concerned implied actual authority. There are four key takeaways from the Court’s rejection of the defendants’ argument.

First, the threshold for establishing that one director has implied actual authority to act as managing director is high. A director need not be intimately involved in all decisions or have a perfect understanding of all affairs in order to retain their authority, it is sufficient if they keep themselves reasonably informed, consult with co-directors, and broadly approve of actions taken. In analysing a series of transactions for which the defence argued Ms List entered into as de facto managing director, his Honour Justice Tottle noted:

“negotiation and settlement of [an agreement] involved a number of complex commercial and regulatory issues… Mr List’s limited knowledge of these matters is not a basis for concluding that he was not aware of the structure of the transaction and its principal commercial terms”;[4]

“Mr List was not involved in the negotiation of these agreements but he was aware of what Ms List was doing”;[5] and

“it is not necessary to resolve the conflict of evidence as to whether Mr List was involved in the negotiation of the agreements… [i]t is sufficient to find that Mr List knew that Ms List was negotiating the agreements and approved of them”.[6]

Second, when analysing whether a director has implied actual authority over one company, it is important to consider the role that directors may play in the context of a broader group of companies. His honour distinguished Morrison [No 3] from other cases where implied actual authority was found to exist,[7] by noting that Ms List did not negotiate or enter agreements solely as the supposed managing director of BCM, but also as an executive of various other group companies.[8] Moreover, numerous agreements for which Ms List claimed she was responsible for negotiating as the supposed managing director of BCM were partially financed by group companies of which both Mr and Ms List were executives.[9]

Third, even in circumstances where a party has been granted implied actual authority by another’s consent or acquiescence, that authority can be terminated by conduct. Here, after becoming aware of steps taken by Ms List in respect of BCM, Mr List commenced proceedings in the Eastern Caribbean Supreme Court and obtained an ex parte injunction effectively restraining Ms List from dealing with the management of BCM. His Honour noted that:

“Objectively, the fact of the commencement of the Nevis proceedings and the terms of the ex parte injunction were sufficient to bring any implied authority to an end… [they] conveyed that any role played by Ms List on a de facto basis with Mr List’s agreement or acquiescence had come to an end because he objected to her playing any role in the management of the company”.[10]

Fourth, implied actual authority to act as a managing director does not of itself necessarily confer unilateral management power to do all things, only those which would be exercised in the ordinary course of day-to-day business of a managing director. The Court noted that the removal of directors of subsidiaries is “not an inconsequential matter”, particularly where that subsidiary has the capacity to control lucrative downstream operations (in this case, the mines), and that as such, “the appointment and removal of a person as a director to such an important position [falls] outside the ambit of the managing director’s authority”.[11]

2          Determinations on foreign law

Morrison [No 3] is also interesting insofar as it effectively involved an Australian Court making determinations on the law of Nevis as they pertain to the principles of implied actual authority of a director of a Nevisian company. Prior to the hearing, the parties exchanged expert evidence and agreed that the principles are the same as those established by the common law of England.[12] On that basis, the Court made its determinations, notwithstanding that there are proceedings presently on foot in Nevis which are likely to analyse similar issues.

The protracted nature of those Nevisian proceedings, and the reasonably focussed issue of the management of an Australian entity was the impetus for the Court’s foray into foreign law, echoing the comments of Master Sanderson in Morrison v Woodthorpe [2022] WASC 179 (an interlocutory proceeding regarding an application for the stay of this same matter, which was dismissed):

“What is to be determined in this court is particularly within the province of Australian courts. It is the validity of the appointment of directors to an Australian company. I accept there is significant overlap between the [foreign] proceedings and this action. But it is important control of the Australian company be determined by an Australian court…”[13]

This may give hope to litigants embroiled in slow foreign proceedings. If the matter in dispute ultimately involves an Australian entity, the Courts may be willing to resolve it domestically, particularly if the foreign law in question is similar or familiar to Australia’s.

3          Court powers to order ASIC to rectify its registers

Under section 1322(4)(b) of the Act, the Court may, on application by any interested person, make an order directing the rectification of any register kept by ASIC, so long as the Court is satisfied there will be no injustice from making the order.[14] Morrison [No 3] reaffirmed that the power under section 1322(4)(b) is sufficiently wide to allow rectification of the register where the process by which the event had been included in the register was invalid, and that there is a public interest element in maintaining a proper process for changes in directors.[15]

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Notes

[1] Morrison [No 3] at [106].

[2] See generally Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (‘Freeman‘); Corporations Act 2001 (Cth) ss 128 – 129.

[3] Hely Hutchinson v Brayhead Ltd [1968] 1 QB 549 (583 – 585); Morrison [No 3] at [96] – [105].

[4] Morrison [No 3] at [39] – [40].

[5] Morrison [No 3] at [64].

[6] Morrison [No 3] at [71].

[7] See Freeman; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.

[8] Morrison [No 3] at [111], [115] and [117].

[9] Morrison [No 3] at [31], [38], [56], [59] and [108].

[10] Morrison [No 3] at [119].

[11] Morrison [No 3] at [12].

[12] Morrison [No 3] at [96] – [97].

[13] Morrison v Woodthorpe [2022] WASC 179 at [17].

[14] Corporations Act 2001 (Cth) s 1322(4)(b), (6).

[15] Morrison [No 3] at [122] – [124]; Re Seabay Kitchen Pty Ltd [2019] NSWSC 790 at [13]; Re Centura Global Holdings Ltd (2016) 111 ACSR 185 at [56].