FEDERAL COURT OF AUSTRALIA CONTRACT - whether oral agreement made between appellant and first respondent - whether agreement made on behalf of appellant by its executive chairman of board of directors - whether executive chairman had implied actual authority to enter into agreement on behalf of appellant. Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 - referred to Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 - followed Inland Revenue Commissioners v Ufitec Group Ltd (1977) 3 All ER 924 - referred to Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 - referred to Northside Development Pty Ltd v Registrar-General (1990) 170 CLR 146 referred to CAMBRIDGE GULF HOLDINGS NL v CLC CORPORATION, PENALE PTY LTD and BRIAN JAMES DENNIS CONWAY WAG 128 of 1997 FOSTER, LEE & R.D. NICHOLSON JJ 28 august 1998 perth IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 128 of 1997 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: cambridge gulf holdings nl Appellant AND: clc corporation First Respondent penale pty ltd Second Respondent brian james dennis conway Third Respondent JUDGES: FOSTER, LEE & R.D. NICHOLSON JJ DATE OF ORDER: 28 august 1998 WHERE MADE: perth THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the first respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 128 of 1997 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: cambridge gulf holdings nl Appellant AND: clc corporation First Respondent penale pty ltd Second Respondent brian james dennis conway Third Respondent JUDGES: FOSTER, LEE & R.D. NICHOLSON JJ DATE: 28 august 1998 PLACE: perth REASONS FOR JUDGMENT THE COURT: INTRODUCTION This is an appeal from a decision of Carr J given on 24 October 1997. After a lengthy hearing, involving a large number of issues, his Honour found that the appellant, Cambridge Gulf Holdings NL ("Holdings"), and the second respondent, Penale Pty Ltd ("Penale") were each in breach of a contract made with the first respondent, CLC Corporation ("CLC") on or about 15 or 16 May 1994. His Honour ordered both Holdings and Penale to pay damages to CLC in the sum of $5,600,000 with interest on that sum being $1,460,452.46. Only Holdings has appealed against his Honour's decision, the appeal being restricted to only two of the issues litigated in the case; namely, whether the third respondent, Mr Brian James Dennis Conway ("Conway") acted as agent for Holdings in the making of the contract and, if he so acted, whether he did so with the authority of Holdings. The second and third respondents have played no active part in these proceedings. It should be noted at the outset that the subject contract was made between Conway and Mr Robert Pittorino ("Pittorino"). It was made, on the dates referred to, in telephone conversations between the two men, Conway speaking from Perth, Western Australia, and Pittorino from France on the border of Monaco. His Honour accepted the evidence of Pittorino, whom he regarded as a reliable witness. He did not accept the evidence of Conway. Before we deal with the evidence relating to the formation of the contract, it is necessary, briefly, to set out some essential background facts. BACKGROUND Conway had for some years been interested in exploring for marine diamonds in the waters of the Joseph Bonaparte Gulf in Western Australia. There was no dispute that he was the founder of maritime diamond exploration in that area. In 1987 he incorporated "Cambridge Gulf Exploration NL" for the purpose of pursuing this enterprise. He was its executive chairman. In March 1993 the name of that company was changed to Holdings. In the same month Conway incorporated another company, Cambridge Gulf Exploration NL ("Exploration"). This company was listed on the Australian Stock Exchange ("ASX"). Holdings sold to Exploration its Bonaparte Gulf mining tenements and received, as consideration, approximately $32M "escrow shares" which, in accordance with ASX listing rules, were suspended from dealing until 8 July 1995. Penale was the trustee of Conway's family trust and was subject to Conway's control and direction. In May 1994 Penale held between 51 and 52 per cent of the issued shares in Holdings and had, also, an option to acquire a further 22 or 23 per cent. It was not contested that, through these shareholdings Conway was able to control Holdings. Holdings, itself, had a controlling interest in Exploration, having 74 per cent of the issued shares. Holdings' only business was its ownership of these shares. Consequently, Conway had a significant interest in the commercial well-being of Exploration. Pittorino was a retired managing director of County NatWest Securities Limited ("County NatWest") which, at all relevant times, was Exploration's stockbroker. Pittorino maintained contact with County NatWest. Because of that contact and his prior knowledge of Conway, Holdings and Exploration, he well knew, as at May 1994, that: (1) Penale controlled Holdings; (2) Holdings controlled Exploration; (3) Conway was executive chairman of both Holdings and Exploration; and (4) Holdings was the only entity which held a significantly large number of escrow shares in Exploration. Pittorino was also a substantial shareholder in Exploration. Mr Kim Oxenham ("Oxenham"), to whom reference will be made later, was also an ex-senior employee of County NatWest who, as at May 1994, was in business on his own account in Monaco as a financial consultant. Pittorino was in Monaco at his invitation to observe the Grand Prix. Also in that area at that time was Mr Thomas, the then managing director of County NatWest. In March 1994 Exploration had announced to the ASX a placement of ten million shares at $2 each, the market price at that time being $2.25. County NatWest was the sponsoring broker and underwriter for this placement. It placed 6.5 million of those shares. The balance of the shares, 3.5 million, were placed by Holdings with a corporation Glorious Edge Snd Bhd controlled by a Mr Yang. The placement was subject to shareholder approval which was given on 29 April 1994. The success of the placement was very important to Exploration and, of course, to its holding company, Holdings, and hence to Penale and to Conway. The shares placed by County NatWest were duly paid for, with the result that Exploration received $13M. A significant lowering in the market price of the shares occurred in May. It fell to a low point of $0.82 on 5 May and recovered as his Honour found to about $1.45 towards 13 May. On the afternoon of that day Mr Yang advised Exploration that Glorious Edge would not be taking up its placement. This default placed the entire share placement in jeopardy, insofar as it was conditional upon its being fully subscribed. It is clear that Exploration, Holdings, Penale and Conway were placed in a most difficult situation requiring urgent action. Obviously, having regard to the then share price, subscribers could not be found to take up the shortfall at a price of $2.00 per share. Various efforts were made by Conway and others to deal with the situation, to which we shall make reference later. Some shares were placed as a result of these efforts. However, as at 15 May 2 million shares remained without a buyer. Conway had sought assistance from County NatWest. He made contact with Mr Thomas who was then in Portofino in Italy and explained the problem to him. He suggested that Pittorino might be able to help. It appears that there was some dispute as to the content of this conversation. However, his Honour accepted Mr Thomas as a truthful and reliable witness. Mr Thomas telephoned Pittorino on 13 May 1994 and explained the problems that Exploration was encountering because of the default of Glorious Edge. He said that Conway had asked whether Pittorino would be able to help. Pittorino indicated that he would try. He telephoned a Mr Mark McNamara ("McNamara"), an in-house solicitor with Exploration in Perth, and obtained information as to the share placement. At about midday on 13 May 1994 (Monaco time) he telephoned Conway and offered to help. Conway asked him to find subscribers for the unplaced shares, acknowledging that it would be hard to find a subscriber without an appropriate inducement. He said that such a subscriber would (as Pittorino put it in his evidence) "receive an additional 5 million shares from his vendor parcel when they became free of escrow and he was able to deliver them across…". He also said that he would like an option to repurchase the 5 million shares at a price of $1.00 per share exercisable on 8 July 1995, the date when the shares came out of escrow. Pittorino said that he would try, but that it would be extremely hard at such brief notice. Conway asked him to do so as a matter of urgency. Pittorino then rang Oxenham and the two men met and discussed the situation. Pittorino put Conway's proposition to Oxenham asking whether Oxenham could provide a client. He also explained Mr Conway's "position via Penale, the respective shareholding percentages and Mr Conway's roles on the boards of both Exploration and Holdings." He also explained that the shares would not come out of escrow until 8 July 1995. Oxenham said he would look for an appropriate subscriber from among his clients. After the conversation between Conway and Pittorino, Conway sent a fax to Thomas at his hotel in Italy on 14 May ("the Conway fax"). In it he expressed appreciation of Pittorino's telephone call and said that he would like to try the following solution:- "We offer the Yang consortium, (if one exists) 2.5 million of our escrowed shares which effectively gives them their shares for $1.00. I will have Mark propose this to him during the day and appraise you of the outcome when your day commences. The next option is to offer a separate party that Peter, Bobby or yourself come up with, the 2.5 million shares that the Yang's have not taken up. CGH will provide as a sweetener a further 5 million shares by promissory note once our shares come out of escrow in July 1995. We would of course like the option to buy back the shares at market value. This would mean the investor gets 7.5 million shares at 67 cents. I am sure as a majority shareholder CGH will approve either of the above. In relation to Michael Yang, this type of proposal has been put forward by his so called syndicate on many occasions, i.e. the request to guarantee the options and it is evidenced that both he and his consortium, I believe, are bare of morals and would understand the position they have us in. Michael responds to you as he is obviously aware you have far greater powers than we would have in the future for recrimination. Mr Igor. Prosin has flown to Melbourne as he believes he can secure $4m. Mark will explain the details of this to you. This only involves CGH adding 1 million shares as a sweetener." We have set this fax out in full as its contents are referred to in the submissions in this appeal. "Bobby" is Pittorino. "CGH" is Holdings. Igor Prosin ("Prosin") was a director of Holdings. We shall refer to him later in these reasons. It is clear that Thomas gave Pittorino a copy of the fax. It may be noted that the reference to a "sweetener" of a further 5 million shares corresponds with the inducement referred to in the conversation with Pittorino on 13 May. On Sunday 15 May, Oxenham made contact with Pittorino and advised him that if Conway provided a firm offer of 10 million escrowed shares without any buy back option associated with the transaction he would "put that to a client who may react to it". Pittorino said he would obtain Conway's reaction to that proposition. He rang him at a time which was either late on the Sunday or early on the Monday morning (15/16 May 1994). He told him of the proposition, indicating that a firm offer would be required from Conway. Conway's initial reaction was adverse, but either in the same conversation, or in a second conversation shortly afterwards, Conway told him that he would be prepared to offer 10 million shares from the escrowed shares to a subscriber who was willing to take the outstanding 2 million shares in Exploration at $2.00 each. Pittorino relayed this offer to Oxenham who, later on the same day, informed him that he had a client who would "do the transaction", but wanted the arrangement in relation to the escrowed shares to be documented. Accordingly, Pittorino telephoned Conway and told him that a subscriber had been found on those terms but that the arrangement would have to be put in writing. According to Pittorino, Conway was appreciative and said that he would talk to McNamara about the writing. Pittorino told Conway that he was leaving for Australia the next day (Tuesday) and that the documentation would need to be in place by the Thursday otherwise Oxenham's client would not subscribe for the shares. Based upon his knowledge of Conway and the various shareholdings in the related companies, Pittorino said in evidence, which was accepted by his Honour, that he believed that he:- "... was dealing with Mr Conway as a representative Executive Chairman and major shareholder of Cambridge Gulf Holdings … and the only person capable of delivering that number of shares. There was no other party that had anything like that number of shares. Cambridge Gulf Holdings had 32 million fully paids. The nearest other shareholder or - there was no other substantial shareholder to start with and the nearest other shareholder might have had one to two million shares or three million shares. There was no one else capable or (sic) had that number of shares to deliver." His Honour found that Pittorino then made contact with McNamara and arranged that the necessary documentation be put in place. However, on 19 May 1994, after his return to Sydney, he found that McNamara had not supplied any document. His Honour made the following findings as to the events which then followed:- "He tried, unsuccessfully, to telephone Mr Conway and then spoke to Mr McNamara. He told Mr McNamara that he needed to have - 'a bit of paper that I can forward to Mr Oxenham in Monaco so that once he sees that documentation and he's comfortable with it, he will then tell his client that he has the paperwork and the client will forward the subscription moneys. Until that documentation comes through, there'll be no subscription.' Mr McNamara responded by saying "Mr Conway's very wary of putting anything down on paper". Mr Pittorino said that, in response, he told Mr McNamara that there would not be any transaction without the bit of paper. Later in the day Mr McNamara contacted Mr Pittorino and told him that Mr Conway had just given Mr David Shaw of Messrs Bennett & Co, solicitors, an instruction to send the required fax. It is common ground that by a facsimile letter dated 19 May 1994 ('the Bennett & Co Facsimile') Messrs Bennett & Co wrote to Mr Pittorino in Sydney in the following terms: 'Dear Sir, PENALE PTY LTD We act for Penale Pty Ltd. We are instructed to confirm that our client undertakes to deliver to you ten million shares in Cambridge Gulf Exploration NL once those shares are free of escrow.' Mr Pittorino said that he sent a copy of the Bennett & Co Facsimile by fax to Mr Oxenham in Monaco and then telephoned him. In the course of that telephone conversation he told Mr Oxenham that he would have preferred "a more detailed deed" but that it was unlikely that they were going to get it. He said that Mr Conway was on a plane going to Singapore, he trusted Mr Conway and believed that he would deliver the shares." His Honour also found, on the basis of accepting Pittorino's evidence, that Pittorino met Conway in London in July 1994 when he raised the subject of getting "some more paperwork on the transaction". Conway had said that it would be difficult but stated "I gave a commitment to you over these shares, you've given a commitment to your people, I will live up to my commitment to you." On 16 March 1995 the two men had a further conversation in Perth. Pittorino raised the subject of the delivery of the shares and of its being due in July. Conway said that he was not prepared to discuss the matter. Oxenham's client, which was CLC, subscribed for the shares in May, paying the required $4m. The "sweetener" of 10 million escrowed shares was never provided to it. Whether the ASX was advised of the transaction in May 1994 is unknown. His Honour held that the contract was tripartite, being made between CLC, Holdings and Penale. The damages that he awarded represented the value of the shares as at the time they should have been transferred to CLC. As we have already indicated, a number of issues were raised by way of defence in the proceedings before his Honour. For example, the making of the agreement was denied. This was based upon Conway's evidence which was rejected. Illegality of the agreement was also raised and rejected. It was also asserted that Conway had not made any agreement on behalf of Holdings and that, additionally, he was not authorised by Holdings to make any such agreement. These defences were also rejected by his Honour. As already indicated, they are the only defences relied upon in this appeal. The submissions made to his Honour and rejected have been relied upon in the appeal. It is convenient, therefore, to consider the issues in sequence. DID CONWAY CONTRACT ON BEHALF OF HOLDINGS? It, perhaps, should be noted that at the trial before his Honour Conway appeared in person and presented a case that ran counter to the findings to which we have made reference. His Honour accepted Pittorino's version of the conversations, finding Pittorino a credible witness whereas Conway was not, and also finding corroboration of Pittorino's version in the evidence of Oxenham, whom he also accepted as a witness of truth. Holdings, however, was separately represented. Prosin gave evidence on its behalf. We shall make some reference to this evidence later. However, Prosin was not a participant in the conversation of 15/16 May which gave rise to his Honour's finding of the relevantcontract. In relation to those conversations, Holdings asserts that his Honour should not have held that Conway was contracting on behalf of Holdings, and that he should not have found that Holdings, in consideration of CLC making the subscription, contracted to transfer the 10 million escrowed shares. Rather, he should have found that Conway and/or Penale, for the same consideration, contracted to cause Holdings to make the transfer. It was thus submitted to his Honour and to us that the facts did not establish that Conway made the first such contract on behalf of Holdings but made the second such contract on behalf of himself, Penale or both. It may be remarked, at the outset, that there is no necessary incompatibility, in our view, between these two positions. In telephone conversations conducted in an atmosphere of urgency it is not to be expected that even significant matters will be established with precision. It must be remembered that Pittorino, who knew Conway, was well acquainted with the company structures, shareholdings, and directorships involved, and the nature of the present problems. Also, Conway knew that Pittorino was aware of all these matters. Accordingly, in our view, it would not be a matter of surprise that reference to these understood background facts would not be made by either of them in the conversations. It would be reasonable that two agreements be reached, one that Holdings would transfer the shares in consideration of the subscription in the Exploration float and that Conway and Penale, because of the controlling shareholdings, would ensure that Holdings would honour this agreement. We say this in the knowledge that the pleadings in the case may produce some difficulty in this regard. We shall refer to this later. Counsel for Holdings placed considerable reliance before us and before Carr J on the form of words that was used in the conversation. It is clear that no mention was made of Holdings or, for that matter, of Penale, by Conway or by Pittorino. Pittorino readily conceded in cross-examination that Conway had never said he was acting in any way as agent for Holdings and that he regularly referred to the shares as being "shares from his vendor parcel" which "he" would deliver when they became free of escrow. Also, the required document, the Bennett & Co Facsimile, did not mention Holdings. It gave an undertaking on behalf of Penale. Also, in the later conversations already referred to, Conway referred to "my commitment" and Pittorino referred to "the 10 million escrowed shares that you owe". His Honour, however, held that the language used in the conversations between the two men, did not require a finding that the only contract arising from the telephone conversations was the one to which we have referred as the second contract, namely that Conway and/or Penale would cause the shares to be transferred by Holdings. His Honour was satisfied that the two men reached agreement on the basis that Conway was acting for Holdings in relation to the undertaking to transfer the shares. He was intending to bind Holdings and not solely himself and/or Penale. His Honour rejected the arguments for Holdings based upon the wording referred to. We are satisfied, with respect, that he was correct in so doing. Both men knew, as was the fact, that neither Conway nor Penale owned 10 million Exploration shares, then held in escrow until July 1995. They also knew that only Holdings held such a large number of escrowed shares. Clearly, when Conway spoke of "my" and "our" shares he must have been referring, as his Honour found, to shares in Exploration held by some other entity. That entity could only have been Holdings. There was never any doubt that the shares referred to were "escrow" shares. As such, they were necessarily vendor shares held by Holdings as a result of the "floating" of Exploration and the sale to it by Holdings of its mining tenements. The Bennett & Co facsimile made this quite clear although, there was not, in any event, in our view, any room for doubt. In this connection his Honour dealt with and rejected an argument, which he described as having been belatedly introduced into the case, by the tendering by Holdings of a copy deed dated 1 July 1993, which was described as the "shareholders' agreement". This document had not been discovered and was admitted into evidence over the objection of CLC. By it, the shareholders in Holdings entered into a covenant that at the end of the escrow period they would do everything required on their part to achieve a member's voluntary winding up of Holdings and the distribution of Holdings' assets in specie to the shareholders, in proportion to the size of their shareholdings. It was submitted, on the basis of this document, that Conway and/or Penale could have satisfied the obligation to transfer shares to Pittorino's principal, not by causing the transfer to be made by Holdings but by themselves delivering the shares after they had obtained ownership of them as contemplated by the shareholders' agreement. Similar arguments were, but faintly, addressed to us in this appeal. We are satisfied that his Honour's reasons for rejecting the arguments should be accepted. The solicitor who had prepared the agreement in draft form in April 1993 gave evidence to the effect that he did not know that it had been executed. He had not seen, himself, an executed copy of it until 25 June 1997 when the trial had already commenced. There was no evidence of any steps having been taken to implement the agreement when the shares came out of escrow. Indeed, it was clear that the terms of the agreement had never been carried out. Furthermore, the obligation to transfer the escrowed shares to Pittorino's principal was to come into effect on the date when the escrow terminated, 8 July 1995. Having regard to the requirements of the shareholders' agreement as to voluntary winding up and distribution in specie, it was clear that, even if the agreement were implemented, neither Conway nor Penale would have been in the position to deliver the shares at that date. Moreover, it is clear that this agreement and any part that it might play in the delivery of the shares as a "sweetener" for Pittorino's principal was never raised by Conway in the discussions leading to the formation of the telephone contract. In our view, his Honour was correct in finding that the shareholders' agreement did not assist in establishing the proposition that Conway was not contracting on behalf of Holdings. Carr J was also of the opinion that the Conway facsimile of 14 May 1994 was a clear indication that Conway, in the urgent attempts that he and others were then making to secure the placement of the Exploration shares, had in mind that Holdings would provide a necessary "sweetener" from its own escrowed shareholding to anyone who took up the outstanding shares. The terms of this facsimile are set out above. It contemplated the provision of 5 million such shares to a separate party that "Bobby" (Pittorino) might come up with, Conway expressing the view that "I am sure as a majority shareholder CGH [Holdings] will approve either of the above". It is clear that Conway, through Penale, was the "majority shareholder" referred to. This facsimile also refers to the fact that Prosin had flown to Melbourne, obviously to deal with a potential subscriber, it being stated by Conway that this prospect "only involves CGH adding one million shares as a sweetener". It is submitted on behalf of Holdings that the reference in this facsimile to approval by CGH and to Conway's being sure that this would occur indicates that Conway was doing no more than advising Mr Thomas that he would be able to ensure that Holdings would provide the "sweetener". It was not, accordingly, any indication that Conway was purporting to act on behalf of Holdings. We agree with Carr J in rejecting this view of the facsimile. It must be remembered that it was sent in a situation of considerable urgency and after the initial conversation between Conway and Pittorino in which the 5 million share offer had been made. There had been no qualifications expressed in that offer to the effect that Conway would cause Holdings, through his voting power, to deliver the necessary shares. Pittorino knew at the time of the conversation that Conway was in effective control of Holdings and of Exploration and would be in a position to ensure that Holdings honoured its obligations. This was not incompatible with Conway's making the share transfer offer on behalf of Holdings, which Pittorino, obviously, thought he was doing. In that conversation Conway did not say to Pittorino words to the effect that he did not have Holdings' authority to make the offer of the "sweetener" but that he would be able to obtain it. In the absence of some such express qualification Pittorino was entitled to assume that the offer was being made on behalf of Holdings with the accompanying assurance that Conway was in a position to see that the agreement would be complied with. In our view the Conway facsimile should be seen in the same way. It proposes, as a first option that "We offer the Yang consortium … 2.5 million of our escrowed shares …". The next option is to offer to a separate party the shares that "the Yang's have not taken up". In addition "CGH will provide as a sweetener a further 5 million shares" when they came out of escrow in July 1995. Clearly Holdings' escrowed shares are the same as "our escrowed shares" and the two offers are contemplated as being made on behalf of Holdings. The later reference to "majority shareholder" and to "approval by Holdings" can, in our view, reasonably be read as an indication that Conway could ensure that the offer if accepted would be honoured. It does not, in the context of the whole document, mean that the offer that CGH would provide the sweetener was not being made on behalf of Holdings or, indeed, that it was being made conditionally upon its subsequent approval by Holdings. We are satisfied, as was his Honour, that Conway, in the circumstances obtaining, and from his position of control, was, both in the prior conversation with Pittorino, and in the facsimile to Thomas, making the "sweetener" offer on behalf of Holdings, the owner of the escrowed shares. Moreover, the reference to Prosin's endeavours in Melbourne clearly carries the implication that Prosin, a director of Holdings, would similarly be offering on its behalf a "sweetener" of one million shares. We are also in agreement with his Honour's view of the effect of the Bennett & Co facsimile. It is not to the point that Pittorino conceded in cross-examination that, with the benefit of hindsight, he should have obtained a document which confirmed an undertaking in respect of the escrow shares by Holdings rather than by Penale. He clearly was not satisfied with the document and had hoped for something more comprehensive and formal. He accepted, however, that, in the circumstances, he would not get anything better, Conway having left for Singapore. He simply passed it on to his principal. It may be noted that Conway's version as to how the document came into existence and the purpose it was to serve was not accepted by his Honour. The argument that the document indicated that the only contract that had been made between Pittorino and Conway was one requiring Penale to cause the transfer of the relevant shares was mounted by Holdings, not Conway. His Honour was not prepared to accept this argument. In his view, the document had to be considered in the light of all the surrounding circumstances. There had been, clearly enough, considerable reluctance on the part of Conway to provide anything in writing at all, in relation to the "sweetener" shares. His Honour found that this was due to a wariness on the part of Conway in relation to putting anything in writing. Also, earlier that day, Mr Thomas had advised, by telephone, the board of Exploration in a meeting at which Conway was present that, in effect, no written record of the sweetener shares from Holdings should be made as the ASX was showing some interest in the share placement. In these circumstances, as his Honour found, the Bennett & Co facsimile was the best documentation that Conway was prepared to provide. It did not document the actual agreement, but provided, in effect, confirmation that it would be complied with. The finding was, to an extent, founded upon his Honour's view of the credit of Conway. We see no reason to depart from it. We are satisfied that his Honour correctly found that Pittorino accepted that Conway was dealing with him on behalf of Holdings in relation to the agreement to transfer the escrowed shares and that Conway, in reaching agreement with him, was contracting on behalf of Holdings. This brings us to the question whether Conway, in so contracting, had the necessary authority from Holdings to contract on its behalf. DID CONWAY HAVE THE AUTHORITY OF HOLDINGS TO CONTRACT WITH PITTORINO? Carr J was satisfied that the necessary authority existed. His Honour found that, in all the circumstances, Conway had implied actual authority to contract on behalf of Holdings in relation to the provision of the 10 million shares in Exploration. We have already mentioned that Holdings' only commercial activity was its investment in that company and that the success of the placement of shares was, consequently, very important to it and to Conway. Over the weekend of 14-15 May, as his Honour found, both Conway and Prosin, as directors of Holdings, were actively seeking the subscription for shares in Exploration and were prepared to offer a "sweetener" from Holdings' escrowed shares. There were only two other directors of Holdings, one of whom was Conway's 24 year old son. His Honour was satisfied contrary to Prosin's evidence, which he did not accept, that Prosin was aware of the contents of the Conway facsimile and had not remonstrated with him about it. His Honour said in relation to these matters:- "I consider that I am justified in finding, and I so find, that the strategy of Holdings giving away millions of shares (ranging from one million to five million) out of its holding of Exploration shares in order to fill the Placement was discussed between Mr Conway, Mr Prosin, Mr McNamara and Mr Freeman. Mr Freeman was the Company Secretary of Holdings and (at T598) he confirmed that Mr Conway had told him, at the time when it was known that the Placement would be completed, that Holdings was to provide to a subscriber an inducement of 10 million escrow shares in Exploration." His Honour used these findings, in addition to those to which we have already made reference, in support of his conclusion that Conway purported to act on behalf of Holdings in his dealings with Pittorino. In our view, they also cast light upon the question whether Conway was in fact authorised by Holdings to enter into the agreement. They illustrate the way in which the Holdings board conducted the company's business. His Honour, in considering the question of Conway's authority, had regard to the history of his involvement in the concept of dredging marine diamonds from the Joseph Bonaparte Gulf and of his incorporation of the companies to which reference has already been made. He referred to the fact that Conway was described as the executive chairman of Holdings in Exploration's prospectus in 1993 and in its annual report of that year. Conway was also described as chairman of Holdings in the minutes of a board meeting held on 19 May 1994, to which we shall make reference later. In other documents of an official kind he is also referred to as being the chairman of Exploration. As already indicated, his company shareholdings put him in effective control of Holdings at all relevant times. The board of Holdings consisted of Conway, Prosin, Adam Conway (a son) and a G. Roughan (with G. Cotterell as alternate director). His Honour made the following findings which have not been disputed:- "The evidence was that Mr Roughan did not come into Holdings' office very often. Mr Prosin thought it would have been once a week and when Mr Roughan did so he dealt with the affairs of another company called Fugros Pty Ltd. Mr Prosin said that Mr Roughan's involvement with Holdings was only to attend board meetings. Mr Cotterell, so Mr Prosin swore, came into the office "very seldom". He agreed that Mr Adam Conway " ... had a pretty junior place in the office ...". Earlier in his evidence Mr Prosin had explained that Mr Adam Conway's job was to assist the Company Secretary of Exploration with accounting functions. The evidence … suggests that there were few meetings of Holdings' board of directors either before or after the float of Exploration. They were certainly not held monthly and, on occasion, periods of three, four or seven months appeared to have expired between such board meetings. I accept the applicant's submission that Holdings was not a company which was run by its Board." Carr J noted that Prosin was the principal witness for Holdings on the issue whether Conway had the company's authority to make the contract. Carr J was unfavourably impressed by Prosin and his evidence. He concluded that he could not accept it unless it was confirmed by other reliable evidence. In particular, it would seem that he did not accept Prosin's evidence that he had a telephone conversation with Conway in Singapore on 19 May 1994 in which he expressed concern that Conway had promised a "sweetener" of 10 million Exploration shares. Prosin said that Conway had answered these concerns by telling him not to worry and that nothing had happened, this, apparently, being consistent with Conway's denial of any agreement having been reached. This conversation allegedly took place after a board meeting of Holdings on 19 May 1994, at the conclusion of which Conway had gone to Singapore. Conway had, by then, given instructions to his solicitors for the production of the Bennett & Co facsimile. It is appropriate that we now make reference to the meeting of 19 May 1994 as Holdings placed some reliance upon it in argument. That reliance related to whether Conway had acted on behalf of Holdings but, more particularly, as to whether he had authority so to do. Only Conway and Prosin gave evidence in relation to it. The other director present, Mr Cotterell, was not called. Having regard to the view that Carr J had formed of the credit of Conway and Prosin, the question became what could be derived from the minutes of the meeting which had been kept by the secretary, Mr Freeman, whom Carr J regarded as an independent witness. At the time of the meeting he had been employed as secretary for a relatively short space of time. He had left the employ of the company a considerable time before he gave evidence and had some difficulty in recollection. The meeting was held in the context of the problems which had arisen in relation to the placement and the efforts which had been made to obtain subscribers for the shares not taken up by Glorious Edge. In this regard reference was made to the successful placement of 500 shares with a Mr Mulroney, who, it appears, had later claimed that Conway had offered him a "sweetener" of escrowed shares. It further appears that his claim in this regard was later settled by his receiving a transfer of one million such shares free of charge. However, the passage in the minutes that attracted most discussion was the following: "The Chairman then requested the meeting to confirm the support he had agreed to provide in his capacity as Chairman of Cambridge Gulf Holdings NL". Prosin was unable to explain this minute to his Honour's satisfaction. It carried the signature of all three directors present. His Honour observed that Prosin appeared to be very uneasy about the minute, which, indeed, had not been discovered until the eve of the trial. In relation to this minute his Honour made the following findings which are not disputed:- "I think it is more likely than not (and I so find) that Mr Conway told those present at that meeting what he had promised to Mr Pittorino (ten million of Holdings' shares in Exploration) and sought the support of the Board. He did not cause the matter to be set out in detail because, so I infer, either he was concerned about the possible illegality of the transaction or, as Mr McNamara said, he was wary of putting things in writing. On the respondents' case, Mr Thomas had on the previous day asked that all documents be destroyed, or had used words to that effect. Admittedly that was a request to the Board of Exploration but the Boards of Holdings and Exploration were substantially (though not completely) identical in their composition. It appears from Exhibit CLC18 that all of those present at the meeting of 19 May 1994 had been present at the earlier Exploration Board meeting which received the telephone conversation from Mr Thomas. However, someone took the precaution of having all of the three directors present at the Holdings Board meeting on 19 May 1994 (not just Mr Conway as chairman) sign the minutes under the heading 'Read and Confirmed'." His Honour used these findings mainly in support of the previously referred to conclusion that when Conway contracted with Pittorino he purported to do so on behalf of Holdings. They clearly support that conclusion. However, on behalf of Holdings it has been submitted that the fact that Conway, apparently, sought "the support" of the board was indicative of the fact that he had no prior authority to enter into such a transaction. It is clear, however, that his Honour was not prepared to accord such significance to this minute. He considered it in the context of the inference, which he drew from all of the surrounding evidence, that "it was Holdings itself which, following the default by Glorious Edge on 13 May 1994, was minded to salvage the (Exploration) Placement by making available its shares in Exploration as 'sweeteners' to subscribers coming forward in the next few days". He had regard to the evidence of Mr Freeman, which he accepted, that, after the problem had arisen, "we were all out there trying to get funds in for the company". His Honour was not prepared to hold that Conway had express actual authority from Holdings to make the agreement with Pittorino. In his opinion the evidence fell just short of establishing that position. He held, however, that Conway had implied actual authority. In so holding he had regard to authorities which, as he said, included: "Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at pp 488-489 (per Willmer LJ), 502-509 (per Diplock LJ); Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at pp 583-584 (per Lord Denning MR) and pp 586-587 (per Wilberforce L.J.) the latter decision specifically confirming and approving the former; Inland Revenue Commissioners v Ufitec Group Ltd (1977) 3 All ER 924 at p 937 [a decision of May J again specifically following Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd]; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at pp 309-310 (per Ormiston J) [there is an obvious mis-quotation at p 310 from Diplock LJ's reasons in Freeman & Lockyer - 'permitting' has been reproduced as 'committing']; and Northside Development Pty Ltd v Registrar-General (1990) 170 CLR 146 and in particular per Dawson J at pp 195-199". We do not find it necessary to extend these reasons by making particular reference to any of these cases. In our view, Carr J was clearly correct in finding that Conway had implied actual authority to enter into the agreement with Pittorino. We have already referred to his Honour's finding, with which we respectfully agree, that Holdings was not a company which was in fact run by its board. His Honour referred, in addition, to the historical evidence of Conway's relationship with the company, to which reference has already been made. He found on the basis of that evidence and upon other evidence to which we shall now make brief reference, that Conway, as at 15/16 May 1994 was "very much at the helm of Holdings (and indeed Exploration) at that time". His Honour was very impressed with the evidence of Mr Freeman, a chartered accountant who had been company secretary of Holdings from March 1994 but who, at time of trial, no longer had any association with that company or its related companies. He had formed a strong impression as to how the affairs of the company were conducted. In particular, he described Conway as the managing director of the company which, as his Honour held, was an accurate assessment. It must be remembered that Mr Freeman was privy to the efforts being made, when the emergency occurred to obtain the extra subscribers. These efforts were being made by Holdings as much as by Exploration, because of the close relationship between the companies both in terms of finance and control. His Honour accepted, as he was entitled to do, the evidence of Mr Freeman that Conway "was in charge of the negotiation of the incentive to be offered to investors who took up the short fall in the Placement". Based on his personal observations of what was occurring at the time, he expected that Conway would "do the deal". It is clear that his Honour accepted that the board, having regard to Conway's role in all the companies and his historical connection with them, was prepared to give him a free hand in the matter of negotiating an agreement or agreements to save the placement. Moreover, it is clear from other evidence accepted by his Honour that there was nothing significantly unusual in the board's allowing or acquiescing in Conway's adoption of this role. His Honour had regard to evidence which established that Conway had in fact on previous occasions entered into important agreements on behalf of Holdings without having any prior authorisation from the board. These agreements were elaborate written documents involving considerable sums of money. The board minutes indicate that Conway, having made these agreements simply reported the fact to the board. It was submitted on behalf of Holdings that the present agreement was of a more significant kind. It may be accepted that those formal agreements, made in the course of the business Holdings carried on as an explorer for diamonds under the name "Cambridge Gulf Exploration NL", were necessarily part of Holdings' business and of a different character from the oral agreement made between Conway and Pittorino. The circumstances in which the earlier formal contracts were made required implication of actual authority vested in Conway. His Honour's reference to Conway's participation in the negotiation and execution of those contracts was made in passing whilst dealing with the evidence of Mr Freeman, who became secretary of Holdings after it had ceased exploration activities. His Honour was impressed by Freeman's direct evidence of Conway's control and management of Holdings and of Exploration as at May 1994 and it was that evidence his Honour relied upon to support a finding of Conway's implied actual authority and not inferences drawn from agreements made by Conway in the conduct of Holdings' business in 1992. In many respects the present case is similar to Hely-Hutchison v Brayhead Ltd & Anor [1968] 1 QB 549, an authority referred to by his Honour, where the defendant company had as chairman a person who, like Conway, acted as its de facto managing director. He often entered into contracts without the knowledge of the board and reported the matter afterwards. This was a pattern of conduct of which the board had knowledge and in which it acquiesced. It was held that in these circumstances implied actual authority had been established to enter into the relevant contracts. We should add that we are satisfied that his Honour placed a correct interpretation upon the minutes of the directors' meeting of 19 May 1994. So far from indicating an absence of authority on the part of Conway to enter into the subject contract, the situation was rather one of his reporting a fait accompli to the board and there being an absence of any contest being raised by other members as to his authority to contract. His Honour was satisfied that this provided an additional basis for his conclusion that Conway already had the implied authority of the board to enter into the agreement with Pittorino. We respectfully agree. Indeed, his Honour went further and held that when Conway made the agreement with Pittorino he was "entering into the commitment on behalf of every entity whose participation might prove necessary to transfer the Shares to Mr Pittorino's principal when they came out of escrow". He expressed the view that "[t]here was nothing inconsistent in a transaction which bound Holdings to deliver the Shares and Penale to do what was in its power to cause Holdings to honour that commitment". He was thus satisfied that the contract to which we have made reference earlier was established on the evidence. Whether on CLC's pleading, or on the case it presented at trial, a finding could be made that in dealing with Pittorino on 15/16 May 1994 Conway acted on behalf of, and bound, both Holdings and Penale is unnecessary to consider. The only issue in the appeal is whether CLC made a contract with Holdings. As we have indicated, we respectfully agree with his Honour that Conway did contract on behalf of Holdings and had its implied actual authority so to do. In these circumstances, we would propose that the appeal be dismissed with costs. I certify that this and the preceding nineteen (19) page are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 28 August 1998 Counsel for the Appellant: Mr M.J. McCusker QC with Mr M.J. Hayter Solicitor for the Appellant: M.J. Hayter & Co Counsel for the Respondents: Mr D.M. Stone Solicitor for the Respondents: Williams & Hughes Date of Hearing: 15 July 1998 Date of Judgment: 28 August 1998