Case Northside Developments

146 HIGH COURT [1989-1990.
NORTHSIDE DEVELOPMENTS
PROPRIETARY LIMITED ApPELLANT;
PLAINTIFF,
AND
REGISTRAR-GENERAL AND OTHERS. REsPONDENT.

DEFENDANTS,
ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES.
KC.OF A. Companies - Indoor management rule - Forged instrument - Mortgage of

1989·1990. company's property - Seal not affixed in accordance with articles -
'-y--'
Validity - Mortgage for benefit ofdirector - Whether mortgagee put on
1989, inquiry.
CANBERRA,
Nov. 7-8. Real Property (N.S. W) - Torrens system - Compensation for loss sustained
by registration ofanother person as proprietor - Mortgage of company's
1990, property - Seal not affIXed in accordance with articles - Registration -
BRISBANE,
June 28. Whether loss sustained by registration or execution of mortgage -
Registrar-General entitled to assume that common seJJ1 affIXed and attested
MasonC.J., with company's authority - Whether defence to cmim for compensation
Brennan, - Real Property Act 1900 (N.S. W),ss.I06, 127.
Dawson,
Toohey and Section 127(1) of the Real Property Act 1900 (N.S.W.) enabled a person
GaudronJJ.
who had suffered loss by the registration of another as proprietor of land to
sue the Registrar-General for damages. Section 106(2) provided: "Where -
(a) a seal purporting to be the seal of a corporation ... has been affixed to a
.. , dealing, caveat or other document; and (b) the affixing of the seal
purports to have been attested by a person or persons holding offICe in the
corporation or by a person or persons authorised to attest the affIXing of
the seal, the Registrar-General may assume - (c) that the seal and
attestation are genuine and were lawfully affIXed ...; and (d) that the
person or persons purporting to have attested the affIXing of the seal had
sufficient authority ..." .
The common seal of a company was affIXed to a mortgage of land under
the Real Property Act in contravention of its articles of association in that
the directors had not authorized its affIXation. The mortgage secured a loan
to entities owned and controlled by the director who had affIXed the seal.
The company had no interest in those entities. The mortgage was
registered. On default under the mortgage the mortgagee sold the land and
the purchaser was registered as proprietor.
Held, (1) that the company had suffered loss by registration of the
mortgage and not by reason of the execution of the mortgage, and was
accordingly entitled to damages under s. 127(1); by Mason CJ., Dawson
and Toohey n. on the ground that the mortgagee was put upon inquiry by
the fact that the mortgage was given to secure an advance to a third party
170 C.L.R.] OF AUSTRALIA. 147
without any indication that the mortgage or advance was for the purposes H.C.OFA.
of the company's business, and that accordingly the rule in Turquand's 1989·1990.
'-r-'
Case (1856), 6 EI. & BI. 327 [119 E.R. 886] did not prevent the company
NORTHSIDE
from relying upon the fact that the mortgage was executed without its DEVELOp·
authority; by Brennan and Gaudron JJ. on the ground that in the MENTS
circumstances the company was not estopped from showing that the PIT. LTD.
mortgage was executed without its authority; and by Dawson and Toohey v.
REGISTRAR·
JJ. on the further ground that the transaction was completed without the GENERAL.
actual or apparent authority of the company and therefore the affIxation
of the seal was a forgery, and that accordingly the rule in Turquand's Qzse
did not apply.
Per Mason C.l. It may be insuffIcient to treat the application of the rule
in Turquand's Case to instruments bearing the common seal of a company
as an instance of the application of the law of agency.
PerDawson and Toohey JJ. The rule in its application to the acts of a
company undertaken through its agents is an example of the law of
principal and agent and its operation is to be ascertained by reference to the
actual or ostensible authority of the agent who purports to act on behalf of
thp.comoanv.
Per Brennan and Gaudron JJ. The rule is founded upon estoppel.
Royal British Bank v. Turquand (1856),6 EI. & BI. 327 [119 E.R. 886];
In re County Life Assurance Co. (1870), L.R. 5 Ch. App. 288; Mahony v.
East Holyjord Mining Co. (1875), L.R. 7 H.L. 869; County oj Gloucester
Bank v. Rudry Merthyr Steam and House Ccal Colliery Co., (1895)1 Ch.
629; Houghton & Co. v. Northard. Lowe and Wills, (1927) 1 K.B. 246;
Kreditbank Cassel G.m.b.H. v. Schenkers, (1927) I K.B. 826; South
London Greyhound Racecourses Ltd. v. Wake, (1931)1 Ch. 496; E.B.M
Co. Ltd. v. Dominion Bank, (1937) 3 All E.R. 555; Morris v. Kanssen,
[1946] A.C. 459; Freeman & Lockyer v. Buckhurst Park Properties
(Mangal) Ltd., (1964) 2 Q.B. 480; Crabtree- Vickers Pry Ltd. v. Australian
Direct Mail Advertising & Addressing Co. Pry. Ltd. (1975), 133 C.L.R. 72;
and Rolled Steel Ltd. v. British Steel Corporation, [1986] Ch. 246,
considered.
(2) That s. 106(2) of the Real Property Act did not disentitle the
company to relief under s. 127.
Per curiam. The apparent object of ro. 106 is to facilitate the prompt
registration of dealings by avoiding the necessity for protracted inquiries by
the Registrar-General and not to exclude claims for compensation under
s. 127 in cases to which s. 106 applies.
Decision of the Supreme Court of New South Wales (Court of Appeal):
Registrar-General v. Northside Developments Pry. Ltd. (1988), 14
N.S.W.L.R. 571, reversed.
APPEAL from the Supreme Court of New South Wales.

Northside Developments Pty. Ltd. ("Northside") was the
registered proprietor of land at Frenchs Forest. On 24 December
1979 an instrument purporting to be a mortgage of the land was
executed under Northside's common seal in favour of Barelays
Credit Corporation Holdings Pty. Ltd. ("Barclays") to secure a loan
of approximately $1,400,000 made to one or more companies owned
and controlled by Robert Sturgess who was a director of Northside.
148 HIGH COURT [1989-1990.
H.C.OFA. The common seal had been affixed by Sturgess who attested the
1989-1990.
'-r-' affixing. The document also bore the signature of his son, Gerard,
NORTHSIDE who purported to sign as company secretary. Article 56 of
DEVELOp·
ME!'ITS
Northside's articles of association was not complied with in relation
PrY. LTD. to the execution of the document in as much as the directors had
v. not by resolution at a meeting authorized the affixing of the seal to
REGISTRAR·
GENERAL. the mortgage, and Gerard Sturgess was not in fact the company
secretary. Northside had no interest in the companies to which the
loan was made. The mortgage was registered on 20 May 1980.
Following default, Barclays sold the land and the purchaser became
registered as proprietor. Northside sued the Registrar-General in the
Supreme Court of New South Wales for damages under s. 127 of
the Real Property Act 1900 (N.S.W.) by way of compensation for
the loss of its estate in the land on the ground that it did not execute
the mortgage. Young J. awarded damages. The Court of Appeal
(Kirby P., Samuels and McHugh JJ.A.) allowed an appeal by the
Registrar-General (1). Northside appealed, by special leave, to the
High Court.
K. R. Handley Q.C. (with him N. C. Rein), for the appellant. The

rule in Turquand's Case (2) does not apply where there is a forgery:
Mahony v. East Holyford Mining Co. (3); Ruben v. Great Fingall
Consolidated (4). The indoor management rule is concerned with
the appearance of a transaction to an outsider acting in good faith.
Accordingly it does not apply to forgeries. The Court of Appeal was
wrong in holding that the forgery exemption did not apply here
because the mortgage bore the impression of the company's seal
attested by genuine signatures of one de jure director and an
invalidly appointed secretary who was purporting to act in the
office. That is contrary to Bank ofIreland v. Evans' Trustees (5) and
Ruben v. Great Fingall Consolidated. The forgery consists not
only in the signature of a person who did not hold office as
secretary. The seal was fraudulently affixed. The affixing was itself
an act of forgery. The indoor management rule and the forgery
exception have marched together since 1855. The Court of Appeal
was wrong in saying that to apply the forgery exception to the
present case would eat up much of the indoor management rule.
Most indoor management cases have involved bona fide
transactions with no forgery where the company has tried to rely
upon a technicality in order to escape its commercial engagements.
(1) (1988) 14 N.S.W.L.R. 571. (4) [1906] A.C. 439, at p. 443.

(2) (1856) 6 El. & Bl. 327 [119 E.R. (5) (1855) 5 HL.C. 389 [10 E.R.
886]. 950).
(3) (1875) L.R. 7 H.L, at p. 899.
170 C.L.R.) OF AUSTRALIA. 149
The appellant has been held liable on a forgery in the absence of H. C. OF A.

1989·1990.
actual and ostensible authority on the mere ground that an outsider '-r-'
could not tell there had been a forgery. If the matter is approached NORTIlSIDE
DEVELOP-
on agency principles, the result is the same as if there were forgery MEl'ITS
because there was no actual or ostensible authority. [He referred to PTY. LTD.
v.
D'Arcy v. Tamar Railway Co. (6); Company of Merchants v. Bank REGISTRAR-
ofEngland (7); County of Gloucester Bank v. Rudry Merthyr Steam GENERAL.
and House Coal Colliery Co. (8); Kreditbank & Cassell G.m.b.H. v.
Schenkers (9); and South London Greyhound Racecourses Ltd. v.
Wake (10).) The principles which determine whether a company is
bound by a forged instrument should be consistent with those which
determine whether it is liable in tort for the forgery of its servant or
agent. Liability in tort depends on whether the forger was acting
with the actual or ostensible authority of the employer: Uxbridge
Permanent Benefit Building Society v. Pickard (11); Kooragang Ltd.
v. Richardson & Wrench Ltd. (12). The director and "secretary"
were not acting within their actual or ostensible authority in forging
the mortgage. Not being liable in tort for their forgery, the appellant
should not be liable on the instrument either. Alternatively, the
indoor management rule does not apply because the bank was put
on inquiry. The case is indistinguishable from A.L. Underwood Ltd.
v. Bank of Liverpool (13) and E.B.M. Co. Ltd. v. Dominion
Bank (14). [He also referred to Consul Development Pty. Ltd. v.
D.P.C. £SUites Pty. Ltd. (15).)
K. Mason Q.c., Solicitor-General for the State of New South

Wales, (with him B. A. Coles), for the fIrst respondent. The rule in
Turquand's Case (16) is a separate rule of law that does not
necessarily involve all the elements of agency law. In particular
there is no need to show a representation by a person with actual
authority or reliance upon that representation: See v. Australian
Agricultural Co. (17). The rule embodies a principle that the outsider
is entitled to rely upon an appearance of authority to do certain
types of acts whether or not that appearance was as a result of a
reading, or a belief as to what was in, the articles of association, and
whether or not that appearance came as the result of a represen-
tation made by persons with actual authority within the company to
(6) (1861) L.R. 2 Ex. 158. (14) (1937)3 All E.R. 555.
(1) (1881) 21 Q.B.D. 160. (15) (1975) 132 C.L.R. 373, at
(8) (1895)1 Ch.629. pp. 412-413.
(9) (1927] 1 K.B. 826. (16) (1856) 6 E1 & ffi. 326 (119
(10) (1931)1 Ch. 496. E.R.886].
(11) (1939) 2 K.B. 248. (11) (1910) lOS.R. (N.8.W.) 690, at
(12) (1982) A.C. 462. pp. 7()().701.
(13) (1924)1 K.B.775.
150 HIGH COURT [1989·1990.
H.C.OFA. carry on the activity in question. The law should facilitate dealings
1989·1990.
'-y-' with companies which appear to be regular because of the
NORTIISIDE impracticality of being able to establish that there was actual
DEVELOP'
MENTS
authority for a particular transaction: Canadian lAboratories
PrY. LID. Supplies Ltd. v. Engelhard Industries of Canada Ltd. (18). The rule
V.
REGISTRAR-
applies to validate the appointment of an office-holder who acts in
GENERAL. the office: Morris v. Kanssen (19); Mahony v. East Holyford Mining
Co. (20); Duck v. Tower Galvanizing Co. (21); In re County Life
Assurance Co. (22); Albert Gardens (Manly) Ply. Ltd. v. Mercantile
Credits Ltd. (23). What Gerard Sturgess did was within the usual
authority of a company secretary: Gower, Principles of Modem
Company lAw, 4th ed. (1979), pp. 193-194; Freeman & Lockyer v.
Buckhurst Park Properties (Mangal) Ltd. (24). The accepted
understanding of the rule should not be overturned in favour of a
doctrine based strictly on agency principles. Many of the earlier
cases would have been decided differently if the law required the
outsider to show actual reliance upon a representation made by a
person within the company who had actual authority to do or
permit the transaction in question: Rolled Steel Ltd. v. British Steel
Corporation (25). The accepted interpretation was part of the ratio
in Albert Gardens (Manly) Ply. Ltd. v. Mercantile Credits Ltd.
Alternatively, that case is not consistent with the rule being an
application of agency principles. [He referred to Brownett v.
Newton (26).] Section 68A of the Companies Code 1981 shows that
the legislature proceeded on the basis that the rule was a separate
rule and not an application of agency law. At least the rule should
be maintained with respect to transactions under the common seal.
The positive corporate seal rule started before Turquand's Case. It
became subsumed in that rule but did not disappear: Lindgren, "The
Positive Corporation Seal Rule", Melbourne University lAw
Review, vol. 9 (1973), p. 192. The basis of the seal rule is that the
seal is the manifestation of the mind and hand of the company; that
its use is the very act of the company which authenticates and
authorizes the transaction. H agency rules are to be applied, they
were satisfied because Ellis and Lees permitted Robert Sturgess to
conduct the company's affairs. The case does not fall within any
forgery exception because Gerard Sturgess purported to act as agent
(18) (1979) 97 D.L.R. (3d) 1, at (24) (1964) 2 Q.B. 480, at pp. 495·
p.24. 497.
(19) (1946) A.C., at p. 474. (25) [1986] Ch. 246, at pp. 283,
(20) (1875) L.R. 7 H.L. 869. 292.
(21) [1901] 2 K.B. 314. (26) (1941) 64 C.L.R. 439, at
(22) (1870) L.R. 5 Ch. App. 288. pp. 451452,455.
(23) (1973) 131 CL.R. 60.
and signed his own name. The existence of such an exception has H. C. OF A.
1989-1990.
been doubted: Gower, op. cit., pp. 203-204; Powell, lAw ojAgency, '-y--'
2nd ed. (1961), pp. 117-118; Bowstead on Agency, 15th ed. (1985), NORTHSIDE
DEVELOP-
p. 295. Alternatively the forgery exception does not apply where the MENTS
person purports to act as agent: Campbell, "Contracts with PIT_ LTD.
v.
Companies", lAw Quarterly Review, vol. 76 (1960), pp. 130-136. REGISTRAR'
Here the Sturgesses signed as director and secretary, and accordingly GENERAL.
as agents. They lacked authority, and the rule in Turquand's Case

precludes the company from setting up that deficiency. No forgery
situation exists. If it exists, the forgery exception should be abolished
or at least displaced where there is a genuine signature as in the
present case. South London Greyhound Racecourses Ltd. v.
Wake (27) was wrongly decided: Pennington, Company lAw, 5th ed.
(1985), p. 136; Palmer's Company lAw, 24th ed. (1987), p. 254;
Bowstead, op. cit., p. 295. [He referred to Re Scottish Loan and
Finance Co. Ltd. (28) and In re Hapytoz Pty. Ltd. (In liq.) (29).] We
adopt the reasoning of the Court of Appeal as to whether the bank
was put on notice. It is a question of fact on which other cases are of
no assistance. Section 106(2) of the Real Property Act bars the
appeal. If the Registrar is authorized to make the assumptions listed
therein for the purpose of facilitating the registration of dealings, he
will be able to make them when he is sued for damages for the very
act of registering the dealing.
K. R. Handley Q.c., in reply. The agency basis of the rule in

Turquand's Case stated in Freeman & Lockyer v. Buckhurst Park
Properties (Mangal) Ltd. was accepted in Crabtree- Vickers Pty. Ltd.
v. Australian Direct Mail A vertising and Addressing Co. Pty.
Ltd. (30). The bank was put on inquiry because there was a pledging
of an asset by a company for no known or likely commercial reason,
and for the known purpose of benefiting someone else. The very
nature of a proposed transaction may put a person on inquiry as to
the authority of the directors to effect it: Rolled Steel Ltd. v. British
Steel Corporation (31).
Cur. adv. vult.
The following written judgments were delivered:- 1990, JUDe 28.

MAsoN C.J. The appellant is a company which was incorporated
in 1965 for the purpose of holding certain land at Frenchs Forest
(27) (1931]1 Ch.496. (30) (1975) 133 C.L.R. 72.

(28) (1944) 44 S.R. (N.S.W.) 461. (31) (1986) Ch., at p. 285.
(29) (1937] V.L.R. 40.
152 HIGH COURT [1989-1990.
H. C. OF A. near Sydney under the Real Property Act 1900 (N.S.W.). The
1989-1990.
.............-' appellant was at the relevant time the registered proprietor of that
NORTHSIDE land. The first respondent is the Registrar-General. The second
DEVELOP-
MENTS
respondents, Robert Sturgess and Gerard Sturgess, were not
PrY.Lm. represented at the hearing of the appeal.
v. The appeal concerns an instrument purporting to be a mortgage
REGISTRAR-
GENERAL. of the land executed on 24 December 1979 by the appellant, under
its common seal, in favour of Barclays Credit Corporation Holdings
Masone.J.
Pty. Ltd. ("Barclays"), to secure the payment of principal and
interest under a loan amounting to approximately $1,400,000 made
by Barclays to one or more companies owned and controlled by
Robert Sturgess, a director of the appellant. The appellant had no
interest of any kind in those companies. The mortgage was
registered on 20 May 1980. Following default, Barclays sold the
land by auction under the power of sale conferred by the instrument
to a third party who became the registered proprietor of the land.
The appellant sued the Registrar-General for damages under s. 127
of the Act by way of compensation for the loss of its estate or
interest in the land on the ground that it did not execute the
mortgage instrument. Section 127 pennits a person who has
sustained loss or damages by the registration of any other person as
the proprietor of land, and who is prevented by the Act from
bringing proceedings for possession or recovery of the land, to bring
an action against the Registrar-General as nominal defendant for
recovery of damages.
At all material times, the directors of the appellant were Robert
Sturgess, John Lees and Robert Ellis. The shareholders were John
Lees, Robert Ellis and Rogard Pty. Ltd. which was controlled by
Robert Sturgess. None of the money lent by Barclays in
consideration of the execution of the mortgage was received by the
appellant. The instrument of mortgage was executed under the
common seal of the appellant by Mr. Sturgess, who also attested the
affIXing of the seal. The document also bore the signature of his
son, Gerard Sturgess, who purported to sign as "company
secretary".
Article 56 of the articles of association of the appellant provided:
"Subject to the power to delegate conferred by Article 47 the
Directors shall provide for the safe custody of the Seal and the
Seal shall never be used except by the authority of the
Directors and in the presence of one Director at the least who
shall sign every instrument to which the Seal is affIXed and
every such instrument shall be countersigned by the Secretary
or by a second Director or some other person appointed by the
Directors for the purpose."
Article 47 allowed the directors to delegate any of their powers to H.C.OF A.
1989-1990.
committees of directors. '-,-'
In two important respects Art. 56 was not complied with when NORTIlSlDE
DEVELOP'
Robert and Gerard Sturgess signed the mortgage document and ME!'ITS
affixed the common seal. In the first place, the directors had not by PlY. LTD.
V.
resolution at a meeting authorized the affixing of the seal to the REGISTRAR-
instrument of mortgage or delegated power to Robert Sturgess; nor GENERAL.
had the directors other than Robert Sturgess approved or assented

Mason C.J.
to the execution of the mortgage. The company seal had been sent
by the fonner secretary to solicitors acting for Robert Sturgess and
companies under his control. The certificate of title to the relevant
land was obtained by Robert Sturgess from the company's fonner
solicitors. Secondly, Gerard Sturgess was not in fact the company
secretary. Upon the resignation of the previous secretary on 14
November 1979, Gerard Sturgess signed a letter consenting to act as
secretary, and a statutory return recording his purported appoint-
ment was signed by Robert Sturgess and fIled with the Corporate
Affairs Commission on 22 November 1979. However, neither of the
other directors knew of or approved the supposed appointment.
At fIrst instance, Young J. found that the practice of the
corporators and the appellant until 1980 had been to leave the
administration of its affairs to Robert Sturgess and his accountants.
The previous secretary had been a partner of the fmn of
accountants. Their only activity had been to pay the rates, to place
in a book minutes of meetings, which were not actually held, and to
fIle statutory returns. The resignation of the accountant as secretary
followed a decision by his fmn not to allow partners to act as
officers of client companies.
Young J. concluded that the mortgage could not be said to have
been executed by the appellant. His Honour then turned to consider
whether the mortgage nonetheless took effect, in which case the
appellant would fail. Mter examining the rule in Royal British Bank
v. Turquand (32), often called the "indoor management rule", his
Honour stated that the nature of the mortgage transaction was such
as to require the lender to make inquiries as to the authority of
Robert and Gerard Sturgess to enter into the mortgage on behalf of
the company and to affIx the common seal. No evidence was put
before his Honour as to what, if any, inquiries Barclays had made.
This was insuffIcient to allow Barclays to rely on the rule in
Turquand's Case so as to assert that all matters of internal
management had been duly complied with and therefore take the
(32) (1856) 6 EI. & BI. 327 (I 19 E.R. 886].

154 HIGH COURT [1989-1990.
H.C.OFA. benefit of the mortgage. Since Barclays had been put upon inquiry
1989-1990.
'--y-' in this way, the improperly executed mortgage was of no effect and
NORTHSIDE Young J. awarded damages in favour of the appellant.
DEvELOP-
MENTS
The Court of Appeal allowed an appeal by the Registrar-General.
PrY. LTD. Kirby P. was of the view that the indoor management rule was a
v.
REGISTRAR-
special rule relating to companies rather than an instance of the
GENERAL. general law of agency. Applying the rule to the present case, his
Honour concluded that Barclays had not been put upon inquiry by
Mason C.l.
the circumstances of the transaction and was entitled to rely on the
rule in Turquand's Case. McHugh J.A. (with whom Samuels J.A.
agreed) held that the rule was a rule of company law relating to the
use of the company seal. His Honour considered that the cases in
which the rule had been explained as a principle of the law of
agency had blurred the distinction between contracts entered into
by the company itself under its common seal and those entered into
on its behalf by its agents. His Honour, after emphasizing the fact
that the appellant had failed to prevent Gerard Sturgess from
purporting to act as company secretary, concluded that Barclays
had not been put upon inquiry by the circumstances of the
transaction.
The Court of Appeal rejected an argument put on behalf of the
appellant that, even if it had not been put upon inquiry, Barclays
could not rely on the indoor management rule because the mortgage
document was a forgery to which the rule had no application. Their
Honours did not find it necessary to consider whether a "forgery
exception" to the rule exists, because they held that, to the extent
that it does exist, it does not apply to a case where a signature is
genuine but unauthorized.
In this Court the appellant submitted that Barclays had been put
upon inquiry and, secondly, that the forgery exception is part of the
law and that it is applicable in the present case. The respondent
Registrar-General argued that Barclays was entitled to assume that
the entering into of the mortgage and the affIXing of the seal were
authorized by the appellant, that there were no facts shown which
put Barclays on notice of any irregularity, and that any "forgery
exception" to the indoor management rule was inapplicable.
The provisions of s. 68A of the Companies Code, introduced in
1984, are directed to the issues which arise for decision in this
appeal. However, as the mortgage was executed in 1979, s. 68A has
no application and the case must be determined by reference to the
pre-existing law.
According to the rule in Turquand's Case, persons dealing with a
company in good faith may assume that acts within its constitution
and powers have been duly performed and are not bound to inquire
whether acts of internal management have been regular: Morris v. H. C.OF A.
1989-1990.
Kanssen (33). There Lord Simonds observed (34): '--r-'
"It is a rule designed for the protection of those who are NORTHSIDE
entitled to assume, just because they cannot know, that the DEVELOp·
MENTS
person with whom they deal has the authority which he claims. PrY. LTD.
This is clearly shown by the fact that the rule cannot be v.
invoked if the condition is no longer satisfied, that is, if he who REGISTRAR-
would invoke it is put upon his inquiry. He cannot presume in GENERAL.
his own favour that things are rightly done if inquiry that he
Mason C.l.
ought to make would tell him that they were wrongly done."
A person, even one who has no special relationship with the
company concerned, may be put upon inquiry by the very nature of
the transaction: see E.B.M. Co. Ltd. v. Dominion Bank (35); A.L.
Underwood Ltd. v. Bank of Liverpool (36); Rolled Steel Ltd. v.
British Steel Corporation (37). As will appear, the application of this
proposition to the facts of the present case is critical to its outcome.
As the content of the principle has become a matter of
controversy, it is instructive to recall what Turquand's Case
decided. The company was held to be liable on a bond, bearing the
company's seal, whereby the company borrowed money from the
bank, notwithstanding the absence of any resolution by the
company in general meeting as required by the company's registered
deed of settlement which empowered the directors to borrow on
bond such sums as should be authorized by resolution in general
meeting. The plea seems to have averred that no resolution in
general meeting authorized the giving of the bond and that it was
given without the consent and authority of the shareholders; see the
report of the proceedings in the Court of Queen's Bench: (38). There
Lord Campbell C.l., speaking for the Court, pointed out (39) that,
as it was conceded that the bond was executed under seal and was
the deed of the company, there being no defence of non est factum,
the onus rested with the defendants of showing that the bond was
"unlawful and void". His Lordship went on to say (40):
"[The plea] alleges that, as between the directors and the
shareholders, the directors exceeded their authority in
executing the bond, but without adding that this was known to
the plaintiffs, or that it was to the prejudice of the
shareholders. Looking to the business to be carried on by this
(33) [1946] A.C. 459, at pp. 474- (38) (1855) 5 El. & Bl. 248, at
475. pp. 251-252 [119 E.R. 474,
(34) [1946] A.C., at p. 475. at pp. 475476].
(35) [1937]3 All E.R. 555. (39) (1855) 5 El. & Bl., at pp. 259-
(36) [1924]1 K.B. 775. 260 [119 E.R., at pp. 478-
(37) [1986] Ch. 246, at pp. 284-285, 479].
295. (40) (1855) 5 El. & Bl., at pp. 260-
261 [119 E.R., at p. 479].
156 HIGH COURT [1989-1990.
H.c. OF A. Company, it might well be presumed that opening such an
1989-1990. account and carrying on such dealings with a banking house as
'-..--'
are described in the condition would be within the authority of
NORTIlSIDE
DEVELOP-
the directors, and would be for the benefit of the shareholders.
MENTS A mere excess of authority by the directors, we think, of itself
PrY. LTD. would not amount to a defence. The bond being under the seal
v. of the Company, the gist of the defence must be illegality."
REGISTRAR-
GENERAL.
(Emphasis added.)
Lord Campbell made the point that there was nothing to show that
MasoneJ.
the directors might not have had authority to execute the bond.
In dismissing the appeal Jervis c.J., in the Court of Exchequer
Chamber, after observing that parties dealing with companies are
bound to read the statute and the deed of settlement, said (41):
"But [persons dealing with companies) are not bound to do
more. And the party here, on reading the deed of settlement,
would fmd, not a prohibition from borrowing, but a permission
to do so on certain conditions. Finding that the authority
might be made complete by a resolution, he would have a right
to infer the fact of a resolution authorizing that which on the
face of the document appeared to be legitimately done."
The issue raised in Turquand's Case was that the common seal
had been affixed without authority. Accordingly, it would have
been possible to confine the authority of the decision to that issue
and some of the comments made by Lord Campbell might appear to
lend support to that view of the case. However, Lord Campbell's
judgment and certainly that of Jervis c.J. were capable of being
understood as relating to the exercise of delegated powers generally.
That is how the rule in Turquand's Case came to be applied in the
later cases and, as will appear later, in that area the rule came to be
seen as a particular exemplification of the principles of the law of
agency.
Whether the application of the rule to instruments bearing the
common seal of a company is also to be treated as an instance of
the application of the law of agency is an unresolved question to
which I shall return. But it should be noted that, when the rule was
first applied to the execution of instruments bearing the common
seal of the company, the sealing of a document was treated as an
act of the company itself, similar in effect to a signature by an
individual (Mayor of Ludlow v. Charlton (42)), rather than an act
done by agents on behalf of the company. It is therefore not
surprising that some judges have thought that the rule has no
operation in the case of a forgery. This proposition is based
(41) (1856) 6 El. & Bl., at p. 332 (42) (1840) 6 M. & W. 815, at
[119 E.R., at p. 888]. p. 823 (151 E.R. 642, at
pp. 645-646].
principally on the decision of the House of Lords in Ruben v. Great H. C. OF A.
1989-1990.
Fingall Consolidated (43) and the comment of Lord Lorebum '-y-'
L.C. (44) that the doctrine "applies only to irregularities that NORTHSIDE
DEVELOP-
otherwise might affect a genuine transaction. It cannot apply to a MENTS
forgery." But, when properly understood, the case does not establish Prv. LTD.
v.
the proposition. The secretary of the company issued a share REGISTRAR-
certificate to which he affIxed the company's seal and forged the GEN:;RAL.
signatures of the directors in whose presence it was apparently

Masone,}.
affIxed. It was held that the document was a forgery and could not
bind the company in the absence of a warranty or representation
given or made by an officer of the company having authority, or
held out as having authority, to give such a warranty or make such
a representation (45). As the secretary had no actual or apparent
authority to give such a warranty or make such a representation,
the decision may be explained on the footing that the acts on which
the plaintiff relied were outside the scope of authority of the
secretary.
To the extent to which Lord Lorebum's comment reflected the
view that an act could not be within the scope of the authority of a
seTVant or agent if it was done fraudulently and for his own benefIt
and not for that of the employer or principal, that view was
undennined by the later decision of the House of Lords in Lloyd v.
Grace. Smith & Co. (46). Despite this, subsequent cases contain
statements that forgery is an exception to the rule in Turquand's
Case: Kreditbank Cassel G.m.b.H. v. Schenkers (47); South London
Greyhound Racecourses Ltd. v. Wake (48). However, in Uxbridge
Permanent Benefit Building Society v. Pickard (49), the Court of
Appeal held that a solicitor was liable for the fraud of his managing
clerk even though the fraud of the managing clerk involved forgery.
It may be, as Gower's Principles ofModem Company Law, 4th ed.
(1979) suggests, at pp. 204-205, that forgery is not a true exception
to the rule in Turquand's Case and that the cases are ca!lllble of
explanation on the footing either that the forged document was not
put forward as genuine by an offIcer acting within the scope of his
actual or apparent authority or that the third party was put upon
inquiry: see Pickard's Case (50), per MacKinnon L.J. For the
purposes of the present case it is not necessary to resolve this
question because it is possible to decide the case on the basis that
forgery is not an exception to the rule. However, it will become
(43) [1906] A.C. 439. (47) [1927]1 K.B. 826, at pp. 835,
(44) [1906] A.C., at p. 443. 839·840, 844.
(45) [1906] A.C., at pp. 443-444. (48) [1931]1 Ch. 496, at p. 507.
(46) [1912] A.C. 716. (49) [1939]2 K.B. 248.
(50) [1939]2 K.B., at p. 258.
158 HIGH COURT [1989-1990.
H. C.OF A. apparent from what follows later in these reasons that, if there is a
1989·1990.
'-.-' forgery exception, it has a limited area of operation.
NORTHSIDE The application of the rule was relatively straightforward in cases
DEVELOP'
MENTS
in which an officer of a company exercised a power or authority
PTY. LTD. which was susceptible of delegation under the articles of association.
v.
REGISTRAR'
Notwithstanding that the officer was in fact exceeding his
GENERAL. authority, the company was bound by his act, unless the person
dealing with the company knew that the officer lacked the requisite
Masone.J.
authority or the circumstances were such as to put that person upon
inquiry: Houghton & Co. v. Nothard, Lowe and Wills (51). But
even in these cases the question arose whether the person dealing
with a company could rely on a provision in the articles if he was
unaware of the provision.
Another source of difficulty was the case where the person acting
on behalf of the company had not been appointed to the office
which he appeared to hold. In such a case the critical question was
whether the company had held out or represented that the person
occupied the office so as to have authority to bind the company.
Thus, in Albert Gardens (Manly) Pty. Ltd. v. Mercantile Credits
Ltd. (52), it was held that a third party dealing with the company
was entitled to assume that acts had been taken by the company to
have duly appointed the persons who signed securities as directors
on behalf of the company (53). So, in the present case, there was
material on which Barclays would have been justified in assuming
Gerard Sturgess was the secretary of the appellant. The company
appears to have held him out as such, and his signature on the
instrument in the capacity of secretary accompanies that of Robert
Sturgess who was a director.
The question whether a person dealing with a company could
rely on a provision in the articles authorizing delegation of a power
to the officer acting on behalf of the company, when the person
dealing with the company was unaware of the provision, was a
matter of controversy: see Houghton's Case (54), per Sargant LJ.,
with whom Atkin L.J. concurred; Kreditbank Cassel (55), per
Scrutton L.J.; (56), per Atkin L.J.; British Thomson-Houston Co. v.
Federated European Bank Ltd. (57). Subsequently, in Rama
Corporation Ltd. Vo Proved Tin and General Investments Ltd. (58),
Slade J. held that a person who has no knowledge of the company's
articles of association cannot rely on them as conferring ostensible
or apparent authority on the agent of the company with whom he
(51) (1927]1 K.B.246. (55) [1927] 1 K.B., at pp. 837-838.

(52) (1973) 131 CoL.R. 60. (56) [1927] 1 K.B., at p. 844.
(53) (1973) 131 C.L.R., at p. 65. (57) [1932] 2 KoB. 176.
(54) [1927]1 KoB., at pp. 266-267. (58) [1952]2 Q.B. 147.
dealt. Later, however, in Freeman & Lockyer v. Buckhurst Park H. C.OF A.
1989-1990.
Properties (Manga/) Ltd. (59), the Court of Appeal qualified this '-.,.-J
proposition, holding that it applies only in the case where the NORTHSIDE
DEVELOP-
contract sought to be enforced is not a contract of a kind which a MENTS
person occupying the position which the agent was permitted to PrY. LTD.
II.
occupy would normally be authorized to enter into on behalf of the REGISIXAR-
company. GENERAL.
So, in Freeman & Lockyer it was held that a director, Kapoor,

Mason C.J.
who had assumed the powers of managing director with the
company's concurrence, though he had not been appointed to that
office, bound the company by entering into a contract on its behalf
with the plaintiff architects. The company was a property company
and the act of engaging architects fell within the ordinary scope of
the authority of such a managing director so that the plaintiffs were
under no necessity of inquiring whether the person with whom they
were dealing was properly appointed or was authorized to enter into
the contract; it was enough that the directors had allowed him to
act as managing director, there being power under the articles to
appoint him to that position and power to delegate to a managing
director all the powers of the board of directors. By permitting
Kapoor to act as the managing director, the board had effectively
represented that he had authority to enter into contracts of a kind
which a managing director would in the normal course be
authorized to enter into on behalf of the company. The company
would not have been bound had the contract not been one of that
kind. In that event there would not have been a representation by
the company that Kapoor had authority to enter into the contract.
This Court has accepted that the judgments in Freeman &
Lockyer correctly state the relevant principles of law: Crabtree-
Vickers Pty. Ltd. v. Australian - Direct Mail Advertising &
Addressing Co. Pty. Ltd. (60). The judgments in Freeman &
Lockyer, especially that of Diplock L.J., indicate that the rule in
Turquand's Case (61) in its application to the acts of a company
undertaken through its agents is an exemplification of the law of
principal and agent and that the ambit of the operation of the rule is
to be ascertained by reference to the actual or ostensible authority
of the agent who purports to act on behalf of the company. Of
course, in applying the rule, account must be taken of the doctrine
of ultra vires and the constitution of the company and the contents
of its public documents as they may affect the actual or ostensible
authority of those who purport to act on behalf of the company.
(59) (19641 2 Q.B. 480. (61) (1856) 6 EI. & 81. 327; [119
(60) (1975) 133 C.L.R. 72, at p. 78. E.R. 8861.
160 HIGH COURT [1989-1990.
H. C.OF A. Thus, if, according to the constitution of the company, the agent
1989-1990.
'--,-' cannot exercise the relevant authority, his act cannot bind the
NOR'IHSIDE company.
DEVELOP-
MENTS
But Freeman & Lockyer says nothing about instruments
I>rY. L1U. executed under the common seal of a company and it does not
V.
REGISTRAR-
compel us to conclude that the rule in Turquand's Case, in its
GENERAL. application to instruments so executed, is a principle of the law of
agency rather than an organic principle of the law relating to
MasoneJ.
corporations. The affixing of the seal to an instrument makes the
instrument that of the company itself; the affixing of the seal is in
that sense a corporate act, having effect similar to a signature by an
individual, as I noted earlier. Thus, it may be said that a contract
executed under the common seal evidences the assent of the
corporation itself and such a contract is to be distinguished from
one made by a director or officer on behalf of the company, that
being a contract made by an agent on behalf of the company as
principal.
Consequently, it has been held that, if the person dealing with the
company receives a document to which the common seal has been
affixed in the presence of individuals designated in the articles of
association, he is entitled to rely on its formal validity: In re County
Life Assurance Co. (62) (where a policy issued by the company was
binding even though the persons in whose presence the seal was
affixed and who signed the policy were de facto directors who were
not duly appointed); County of Gloucester Bank v. Rudry Merthyr
Steam and House Coal Colliery Co. (63) (where a mortgage
executed under seal was binding on the company despite the
absence of a quorum at the meeting of directors authorizing
execution of the instrument); Duck v. Tower Galvanizing Co. (64)
(where debentures issued under seal were held to be binding though
signed by persons who had not been appointed directors; indeed, no
directors had been appointed). In some of the cases it is said that it
is enough that the third party relies on the affIXing of the seal and
the instrument appears to be regularly signed: see, e.g., Duck's
Case (65).
However, there is no reason why a third party should be entitled
to rely on the formal validity of the instrument and to assume that
the seal has been regularly affixed if the very nature of the
transaction is such as to put him upon inquiry. If the nature of the
transaction is such as to excite a reasonable apprehension that the
transaction is entered into for purposes apparently unrelated to the
(62) (1870) L.R. 5 Ch. App. 288. (64) (190112 K.B. 314.
(63) (1895] 1 Ch.629. (65) (1901] 2 K.B., at p. 318.
company's business, it will put the person dealing with the company H. C. OF A.
1989-1990.
upon inquiry. It is one thing to assume that the common seal has '--,.--'
been regularly affixed to an instrument apparently executed for the NORTIiSIDE
DEVELOP'
purposes of the company's business; it is quite another thing to MENTS
assume that the seal has been regularly affixed when the transaction PIT.Lm.
v.
is apparently entered into otherwise than for those purposes. REGISTRAR-
The decision in E.B.M Co. Ltd. v. Dominion Bank illustrates the GENERAL.
point. The seal of the company had been affixed to a charge of

Masone.J.
certain of its property to secure an advance by the bank to three
directors of the company. On the face of the charge the seal
appeared to have been affixed in accordance with the articles of
association as it bore the signatures of two of the borrowers as
president and secretary respectively. However, no resolution had
been passed authorizing the creation of the charge. The Judicial
Committee held that the transaction was unenforceable on the
ground that the bank had notice of an extraordinary dealing
whereby directors were using their powers to cause the company to
apply its property for their benefit, there being no indication that
the company stood to gain from the transaction.
In Wakes Case it was held that the defendant was not entitled to
rely on a share certificate issued under the seal of the plaintiff
company in the presence of and bearing the signature of a director
D and the secretary G, as required by the articles, the seal having
been affixed without the authority of the board of directors.
Clauson J. rejected the argument that the defendant could treat the
seal as having been affixed by the plaintiff company, holding that
the affIXing of the seal is something with which the board deals and
not a director (66). Whatever one may think of that reason, the
decision may be supported by reference to the fact that the share
certificate was issued to the defendant in payment of a debt owed to
him by another company of which D and G were also a director
and the secretary respectively. As the transaction was one in which
the plaintiff company did not stand to benefit in any way, the
defendant was put upon inquiry. Alternatively, the circumstances
were such that neither D nor G had actual or ostensible authority
to issue a share certificate to the defendant in payment of a debt
owing by another company.
The authorities referred to in the four preceding paragraphs are
consistent with the notion that the principle applicable to
instruments executed under the common seal of a company is an
organic principle of company law. Affixing the common seal to an
(66) (193111 Ch., at p. 509.

162 HIGH COURT [1989-1990.
H. C. OF A. instrument is the mode of execution appropriate to corporate assent
1989·1990.
............... stemming from a resolution of the board of directors, the
NORTIlSIDE determinative act then being that of the board which is the organ of
DEvELOP' the company which administers its affairs. And the traditional
MENt'S
J>rv. LTD. principle, as the authorities demonstrate, rests on the importance
v.
REGISTRAR-
which is attached to the presence of the seal on the document as
GENERAL. signifying corporate assent.
Although recent English decisions appear to treat the directors as
MasonCJ.
having ostensible authority to bind the company to any transaction
which falls within the powers conferred by its memorandum of
association (see, e.g., the Rolled Steel Case (67», it is not easy to
reconcile all the cases with agency principles, particularly those
cases in which the third party succeeded, notwithstanding that he
seems to have been unaware of the relevant article authorizing the
use of the seal. Nor does an article in the form of Art. 56 lend itself
to a simple application of those principles. The article provides that
the seal will not be used except with the authority of the directors
and in the presence of one director at least and it then makes
provision for signature and countersignature by that director and
the secretary (or by a second director or other person appointed)
respectively. In this way the article prescribes conditions according
to which the seal is to be used. Although the giving of authority by
the directors for the use of the seal is one such condition, directors
do not, and are not required to, authorize particular persons to use
the seal and to sign and countersign the iP..strument to which the
seal is affIXed. The article itself designates the persons who may
perform. the functions which are dealt with in the provision. As
McHugh l.A. pointed out in his judgment in the Court of Appeal,
it is the presence of the seal on the document that gives rise to the
presumption that the seal has been affIXed with the authority of the
directors.
On the other hand, in the Rolled Steel Case the English Court of
Appeal has accepted the view that because a company holds out its
directors as having ostensible authority to bind the company to any
transaction which falls within the powers conferred by the
memorandum of association, a person dealing in good faith with the
company carrying on an intra vires business is entitled to assume
that the directors· are properly exercising such powers for the
purposes of the company as set out in the memorandum. unless he
is put on notice to the contrary (68). Browne-Wilkinson LJ.
(61) [1986] Ch., esp. at p. 295. (68) [1986] Ch., at pp. 292-296,
304-307,309.
expressed his understanding of the relevant principles in the form of H.C. OF A.
1989-1990.
these propositions (69): ~
"If a company enters into a transaction which is intra vires (as NORTHSIDE
being within its capacity) but in excess or abuse of its powers, DEVELOP-
MENTS
such transaction will be set aside at the instance of the Prv. LTD.
shareholders. . .. A third party who has notice - actual or v.
constructive - that a transaction, although intra vires the REGISTRAR-
company, was entered into in excess or abuse of the powers of GENERAL.
the company cannot enforce such transaction against the

Mason C.J.
company and will be accountable as constructive trustee for
any money or property of the company received by the third
party.... The fact that a power is expressly or impliedly limited
so as to be exercisable only 'for the purposes of the company's
business' (or other words to that effect) does not put a third
party on inquiry as to whether the power is being so exercised,
i.e., such provision does not give him constructive notice of
excess or abuse of such power."
The Court of Appeal in that case drew a distinction between a
transaction which is beyond the capacity of the company ('"ultra
vires" in the primary sense) and a transaction which is not beyond
the capacity of the company but is beyond the authority of the
directors or a majority of the shareholders; see also Re Halt Garage
(1964) Ltd. (70), per Oliver J. The propositions taken from the
judgment of Browne-Wilkinson L.J. which 1 have quoted relate to
transactions of the second class. The consequence of applying the
propositions to a lender to a company which has power to borrow
for the purposes of the company is that the lender is not put upon
inquiry by the terms of the power as stated in the me-morandum of
association. The lender is protected unless he has knowledge that
the borrowing is not for an authorized purpose (see In re David
Payne & Co. Ltd. (71)) or if the very nature of the transaction is
such as to put the lender upon inquiry. Although it is not necessary
to resolve the question for the purposes of this case, the reason why
the lender should necessarily be relieved of the responsibility of
turning his mind to the powers of the company is not altogether
apparent to me.
The judgment of Harman L.J. in In re Introductions Ltd. (72),
where the validity of debentures granted by a company as security
for a loan was in issue, appears at fIrst sight to be even more
favourable to the lender. Harman L.J. observed (73):
"I would agree that, if the oo.nk did not know what the purpose
(69) [1986] Ch., at pp. 306-307. (71) (1904)2 Ch. 608, at pp. 613,
(70) (1982)3 All E.R. 1016, at 617-620.
pp. 1029-1030. (72) (1970) Ch. 199.
(73) (1970) Ch., at p. 210.
164 HIGH COURT [1989-1990.
H.C.OF A. of the borrowing was, it need not inquire, but it did know ..."
1989·1990. (Emphasis added.)
'-,-'
NORlHSlDE His Lordship went on to say (74):
DEVELOP'
MENTS
"This borrowing was not for a legitimate purpose of the
PIT. LTD. company: the bank knew it, and, therefore, cannot rely on its
v. debentures."
REGISTRAR'
GENERAL. However, his Lordship's comment should be read as relating to the
facts of the case rather than as a general proposition denying that a
Masone.J.
lender can be put upon inquiry in relation to an intra vires
transaction.
Regardless of the answer to the question what significance should
be accorded to the company's powers as expressed in its memor-
andum (where powers are so expressed), the result in England is
that, although the rule has been treated as a principle of agency,
even in its application to the exercise of powers by directors within
the capacity of the company, the traditional notion, expressed by
Lord Simonds in Morris v. Kanssen (75), that the third party may be
put upon inquiry by the nature of the transaction or the
circumstances still stands. Consequently, at least so far as the
present case is concerned, it makes little difference whether the rule
is treated as a special rule or as a principle of the law of agency.
Nonetheless, the role of the seal as the signature of the company
suggests that to speak simply in terms of agency in cases involving
its use may be insufficient in some situations. Further, use of
agency principles overlooks the significance of the company seal
and the reliance which may ordinarily be placed upon it.
What is important is that the principle and the criterion which
the rule in Turquand's Case presents for application give sufficient
protection to innocent lenders and other persons dealing with
companies, thereby promoting business convenience and leading to
just outcomes. The precise formulation and application of that rule
call for a fme balance between competing interests. On the one
hand, the rule has been developed to protect and promote business
convenience which would be at hazard if persons dealing with
companies were under the necessity of investigating their internal
proceedings in order to satisfy themselves about the actual authority
of officers and the validity of instruments. On the other hand, an
overextensive application of the rule may facilitate the commission
of fraud and unjustly favour those who deal with companies at the
expense of innocent creditors and shareholders who are the victims
of unscrupulous persons acting or purporting to act on behalf of
companies. Agency principles aside, to hold that a person dealing
(74) [1970] Ch., at p. 211. (75) [1946] A.C., at p. 475.

with a company is put upon inquiry when that company enters into H.C. OF A.
1989·1990.
a transaction which appears to be unrelated to the purposes of its ~
business and from which it appears to gain no benefit is, in my NORTHSIDE

DEVELOP'
opinion, to strike a fair balance between the competing interests. MENTS
Indeed, there is much to be said for the view that the adoption of PrY. LTD.
V.
such a principle will compel lending institutions to act prudently REGISTRAR'
and by so doing enhance the integrity of commercial transactions GENERAL.
and commercial morality.

MasonC.J.
It is not possible to give specific guidance as to the circumstances
in which the nature of a transaction will be such as to put a person
dealing with a company upon inquiry. So much depends upon the
circumstances of the particular case, notably the powers of the
company (if relevant), the nature of its business, the apparent
relationship of the transaction to that business and the actual or
apparent authority of those acting or purporting to act on behalf of
the company. Much will also depend upon representations about
the transaction made by such persons, for the party dealing with the
company may often find protection in the principles of agency or
the doctrine of estoppel. In this respect, I should indicate my general
agreement with the comments made by Brennan J. in his judgment,
which I have had the advantage of reading since preparing these
reasons, concerning the position of a creditor who takes a
company's guarantee for another's debt.
The course of events leading to the giving of the mortgage began
in September 1979 with a request by Robert Sturgess to Barclays for
fInancial accommodation for one or more of the Sturgess
companies. The appellant had no association of any kind with these
companies and there was no apparent connexion between them and
the appellant or between their respective businesses. The only links
between them were that Robert Sturgess was a director of each,
that Gerard Sturgess was secretary of each except the appellant and
was acting as secretary of the appellant, and that the companies had
their registered offIces at the same address. In response to Barclays'
demand for additional security over and above that initially offered,
Robert Sturgess offered Barclays a mortgage over the property at
Frenchs Forest.
The officers of Barclays presumed that all was in order. They
may have assumed incorrectly that the appellant and the other
companies were associated companies linked by shareholding by
reason of their having a common registered offIce, director and
secretary. They made no searches or inquiries and there was no
evidence as to searches or inquiries made on their behalf by their
solicitors. Had inquiries been made the records of the Corporate
Mfairs Commission would have disclosed that Robert Sturgess was
166 HIGH COURT [1989-1990.
H. C. OF A. a director, that Gerard Sturgess was shown as secretary of the
1989-1990.
'-r-' appellant and that such a transaction was authorized by the articles.
NORTHSIDE And, as I remarked earlier, there was nothing on the face of the
DEVELOP'
MENTS
mortgage to indicate that it was unauthorized, except that it was
PrY. LTD. given to secure an advance to a third party without any indication
v.
REGISTRAR'
that the giving of the mortgage or the procuring of the advance was
GENERAL. for the purposes of the appellant's business or related in any way to
that business. That, in my opinion, is the decisive consideration; it
Mason C.J.
requires the conclusion that Barclays was put upon inquiry.
If this case were to be disposed of in terms of agency principles,
the result would be the same. There was no representation by the
directors that the seal was affixed with their authority or that they
had approved the transaction which, on its face, appeared not to
serve any interest of the appellant. There was no evidence that
anyone having authority so to do from the appellant represented
that the mortgage was valid. At best there was a representation by
Robert or Gerard Sturgess, or both of them, but they were not
authorized to make such a representation and, in any event, they
were interested parties evidently deriving a benefit, even if only
indirectly from the transaction. Moreover, there was no evidence
which could justify a finding that Barclays relied on a represen-
tation that the seal was affixed with the authority of the directors or
that the transaction was approved by them.
The result would have been different if Barclays had had a
legitimate basis for thinking that the appellant had an interest in the
borrowing companies and that they were associated with the
appellant, one having an interest in the other: see In re Hapytoz
Pry. Ltd. an liq.) (76). The participation of the Sturgesses in the
affairs of the companies and the common registered office was not
an adequate foundation for that belief; nor did it amount to a
representation by the appellant that it had an interest in any of the
borrowing companies.
The frrst respondent submitted that third party lending is now
such a common occurrence in the world of commerce that Barclays
was justified in acting upon the footing that the instrument of
mortgage had been regularly executed. I do not consider that such a
wide-ranging proposition should be accepted or that the frequency
of third party lending, if it be a fact, should be permitted to
outweigh the particular factors which lead to the conclusion that
Barelays was put upon inquiry.
The ftrSt respondent also submitted that s. SlA(l) of the
(76) [1937) V.L.R. 40.

Conveyancing Act 1919 (N.S.W.) and s. 106 of the Real Property H.C.OFA.
1989-1990.
Act were an answer to the appellant's case. Section SlA(l) provides: '--.--'
"In favour of a purchaser in good faith - NORTIiSIDE
DEVELOP-
(a) a deed shall be deemed to have been duly executed by a
MENTS
corporation aggregate if its seal is affixed thereto in the PrY. LTD.
presence of and attested by its clerk, secretary, or other v.
permanent officer or his deputy, and a member of the board of REGISTRAR-
directors, council, or other governing body of the corporation; GENERAL.
and
Mason C.L
(b) where a seal purporting to be the seal of a corporation has
been affixed to a deed attested by persons purporting to be
persons holding such offices as aforesaid, the deed shall be
deemed to have been executed in accordance with the
requirements of this section, and to have taken effect
accordingly."
The ftrst respondent conceded that s. SlA(l) does not apply directly
to the present case because the instrument of mortgage was not a
deed prior to its registration under the Real Property Act. However,
he submits that the sub-section throws light on the rule in
Turquand's Case. The short answer is that the statutory provision
cannot be used to interpret the principle of general law.
Section 106 stands in a different position. Sub-section (1) enables
a corporation for the purpose of dealing with land under the Real
Property Act to affIX the common seal of the corporation. Sub-
section (2) provides that:
"Where-
(a) a seal purporting to be the seal of a corporation ... has been
affIXed to a ... dealing, caveat or other document; and
(b) the affIXing of the seal purports to have been attested by a
person or persons holding offtce in the corporation or by a
person or persons authorised to attest the affIXing ofthe seal,
the Registrar-General may assume -
(c) that the seal and attestation are genuine and were lawfully
affixed ...; and
(d) that the person or persons purporting to have attested the
affixing of the seal had sufftcient authority ..."
Here the requirements of (a) and (b) were satisfted. The signatures
of Robert and Gerard Sturgess each appear below a statement that
the seal was affIXed in the presence of the signatory. Accordingly,
they were persons who attested the affIXing of the seal within the
requirements of par. (b). The Registrar-General was therefore
entitled to make the assumptions set out in pars (c) and (d) and to
register the instrument.
The ftrst respondent contended that this conclusion necessarily
disentitles the appellant to relief by way of damages under s. 127 of
the Real Property Act. The argument is that, once the Registrar-
General became entitled to make the assumptions mentioned in pars
168 HIGH COURT [1989-1990.
H. C. OF A. (c) and (d) of s. 106(2), he was entitled to make those assumptions in
1989-1990.
'-y-' defending an action under s. 127(1). The point was not argued in
NORTHSIDE the courts below but it is and was common ground that, by reason
DEVELOP-
MENTS
of the registration of the instrument of mortgage and subsequent
PrY. LTD. transfer, the appellant sustained a loss within the meaning of the
v.
REGISTRAR-
sub-section. The registration of the instruments conferred an
GENERAL. indefeasible title on Barclays and the third party purchaser. In the
circumstances of this case that registration deprived the appellant of
Masone.J.
its estate or interest in the land, thereby causing it to sustain loss or
damages. In one sense the appellant lost its estate or interest in the
land because the borrower failed to repay the loan, but in this case
it is not disputed that, subject to the arguments already dealt with,
the registration of the instruments was the cause of the appellant's
loss for the purposes of s. 127. A second answer to the first
respondent's argument based on s. 106 is that this provision is
unrelated to ss. 126 and 127. The latter provisions concern the
Registrar-General in his capacity, not as statutory officer, but
merely as nominal defendant. The apparent object of s. 106 is to
facilitate the prompt registration of dealings by avoiding the
necessity for protracted inquiries by the Registrar-General. The
object of the section is not to exclude claims for compensation
under ss. 126 and 127 in cases to which s. 106 applies. Indeed, one
consequence of providing for prompt registration by means of
s. 106 is that there is a need to allow for claims for compensation
when loss is sustained by a registered proprietor by reason of the
registration of an invalid instrument.
For the foregoing reasons I would allow the appeal with costs, set
aside the orders made by the Court of Appeal and order that in lieu
of those orders the appeal to that Court be dismissed with <;ests.
BRENNAN J. The issue on which the parties have litigated the

claim by the appellant ("Northside") against the respondent, the
Registrar-General, under s. 127 of the Real Property Act 1900
(N.S.W.) is whether, as between Northside and Barclays Credit
Corporation Holdings Pty. Ltd. ("Barclays"), Northside was bound
by an instrument of mortgage in favour of Barclays bearing the
imprint of Northside's common seal attested by the signature of
Robert Sturgess, a director of Northside, and countersigned by his
son, Gerard Sturgess, who was described therein as "company
secretary". Gerard Sturgess had not been appointed to that office.
Barclays took and, after a time, registered the instrument of
mortgage as part of the security for a loan, or as security for a
purported guarantee of a loan, of approximately $1,400,000 made
by Barclays to companies which Robert Sturgess owned and
controlled and in which Northside had no interest. The business of H. C. OF A.

1989·1990.
Northside was simply the holding of the land pending its resale at a ~
suitable time. The circumstances in which Robert Sturgess was able NORTHSIDE
DEVELOP'
to obtain possession of the seal and of the relevant certificate of title MENTS
are set out by the Chief Justice and I need not repeat them. PrY. LTD.
V.
Northside acquired no benefit from the loan or from the giving of REGISTRAR'
the mortgage. Robert Sturgess brought the instrument into GENERAL.
existence and used it in fraud of Northside.

Brennan J.
Northside is a company limited by shares, incorporated under the
Companies Act 1961 (N.S.W.). Article 56 of its articles of
association reads as follows:
"Subject to the power to delegate conferred by Article 47 the
Directors shall provide for the safe custody of the Seal and the
shall sign every instrument to which the Seal is affixed and
every such instrument shall be countersigned by the Secretary
or by a second Director or some other person appointed by the
Directors for the purpose."
The directors passed no resolution authorizing the affIxing of the
seal on the instrument of mortgage. Nor was the signature of
Gerard Sturgess a countersignature "by the Secretary or by a second
Director or some other person appointed by the Directors for the
purpose." The purpose of requiring a countersignature is so that the
signature of the director may be authenticated: Equity Nominees
Ltd. v. Tucker (77).
In Equity Nominees, where a creditor sought to recover against a
subsidiary of a principal debtor under a purported deed of guarantee
given by the subsidiary, disconformity between the mode of
execution and the mode prescribed by the governing article of
association was held fatal to the validity of the purported deed.
There, while the article required the sealing to be attested by two
directors countersigned by the secretary or a person appointed for
the purpose, the purported deed bore only two signatures.
Windeyer J. said (78):
"The question then is: Was the document on· the face of it duly
executed so as to be the company's deed? In my opinion it was
not. Doubtless it is true that a company makes a deed when it
executes under its common seal an instrument described as a
deed. But when by the company's articles formalities and a
procedure are prescribed for the authorization of the use of the
seal and its authentication these must be complied with. Where
they are apparently complied with the company will be bound
(77) (1967) 116 C.L.R. 518, at (78) (1967) Il6 C.L.R., at pp. 525-
p.523. 526.
170 HIGH COURT (1989-1990.
H. C.OF A. as against a person dealing with the company in good faith.
1989-1990. That rule has however no application here, because, apart from
L-.---J
other considerations, the requirements of art. 31 were not
NORTHSIDE
DEVELOP-
complied with either apparently or in fact. As stated in Norton
MENTS on Deeds, 2nd ed., p. 24, 'Directors in whose presence the seal
PIT. LID. of a corporation is affixed, where the regulations of the
v. corporation require the seal to be affixed in their presence, are
REGISTRAR-
GENERAL.
not witnesses; they attest the sealing as part of the operation of
sealing and not as witnesses'."
Brennan J.
Compliance with the formalities prescribed by the articles of
association was not regarded as a mere technicality, as his Honour
observed (79):
"As the seal was never duly affixed, the deed was not the
company's deed: cf. In re Efron's Tie and Knitting Mills Pty.
Ltd. (80). I do not think we must look on this as the result of a
mere legal technicality. ... it is surely more than a mere
technicality to expect that a company's guarantee should be an
en~gement into which it enters by the decision of its own
directors, at a meeting duly convened, and that effect be given
to this decision in the manner required by law. All that can
concern a court in these matters is of course that the law be
observed."
A corporation's seal on an instrument has never been held to bind
the corporation (except by estoppel) if it has been affIxed without
authority: Anon, Case 728 (81); Mayor, &c., of Merchants of the
Staple of England v. Governor and Company of Bank of
England (82).
In this case, the instrument of mortgage bears the imprint of
Northside's seal, it bears the signature of a Northside director
attesting the sealing and the countersignature of a person who is
described as, but was not, Northside's secretary. Although no
disconformity appears on the face of the instrument between the
manner of its execution and the manner prescribed by Northside's
articles, its execution without the authority of the board of directors
and its countersignature by Gerard Sturgess, who was not the
secretary, establish that it was not Northside's instrument of
mortgage. If Northside was bound nevertheless by the instrument of
mortgage, it must have been bound by estoppel. In Bank ofIreland
v. Evans' Trustees (83) the fraudulent secretary of a corporation, by
the negligence of the trustees of the corporation, was able to affIx
the corporate seal on certain powers of attorney on which the bank
acted in registering transfers of stock. It was held that mere
(79) (1967) 116 C.L.R., at pp. 526- (82) (1887) 21 Q.B.D. 160.
527. (83) (1855) 5 H.L.C. 389 [10
(80) [1932] V.L.R. 8. E.R. 950).
(81) 12 Mod. 423 [88 E.R. 1425].
negligence in the keeping of the seal was not sufficient to absolve H. C. OF A.

1989-1990.
the bank. Lord Cranworth L.C. said (84) "that there must be either '--.,-'
something that amounts to an estoppel, or something that amounts NORTHSIDE
DEVELOP-
to a ratification, in order to make the negligence a good answer." It MENTIi
must be so, for there are no other doctrines of the law which can PTY. LTD.
v.
give to an instrument sealed without authority the effect which it REGISTRAR·
would have if the sealing were authorized. To found an estoppel, it GENERAL.
was said that the negligence had to be "immediately connected"

Brennan J.
with the transfer itself (85) and Merchants of the Staple of
England (86).
Northside's claim in this case is for the loss occasioned by
registration of the instrument of mortgage and the estoppel on
which the Registrar-General relies is an estoppel against denying
that that instrument was binding on Northside or, to put it another
way, an estoppel against denying that the instrument of mortgage
was not executed by Northside. As the action is founded on the
alleged binding effect of the instrument, it is the execution of the
instrument to which attention must be directed. The respondent
submits that Barclays was entitled to rely on the apparent regularity
of the execution of the instrument of mortgage in accordance with
the rule in Royal British Bank v. Turquand (87). That rule, known
as the "indoor management" rule, was said by Lord Simonds in
Morris v. Kanssen (88), to be correctly stated in Halsbury's Laws of
England as follows:
"But persons contracting with a company and dealing in good
faith may assume that acts within its constitution and powers
have been properly and duly performed and are not bound to
inquire whether acts of internal management have been
regular."
(See now 4th ed. (1988), vol. 7(1), par. 980.) Under the indoor
management rule, so the argument runs, Barclays was entitled to
assume that the directors of Northside had authorized the affixing
of the seal to the instrument and bad appointed Gerard Sturgess as
the secretary. The scope of the indoor management rule is
illuminated by a consideration of the nature of an incorporated
company and the manner in which, by its officers and agents, it
deals with others.
A company. being a corporation, is a legal fiction. Its existence,
capacities and activities are only such as the law attributes to it. The
(84) (1855) 5 H.L.C., at p. 413 (10 (86) (1887) 21 Q.B.D., at pp. 172,
E.R., at p. 960]. 174,176.
(85) (1855) 5 H.L.C., at p. 410 (10 (87) (1856) 6 El. & Bl. 327(119
E.R., at p. 959]. E.R.886].
(88) (1946] A.C. 459, at p. 474.
172 HIGH COURT [1989-1990.
H. C. OF A. acts and omissions attributed to a company are perforce the acts
1989-1990.
'-r-' and omissions of natural persons. A company is bound by an act
NORTIfSIDE done when the person who does it purports thereby to bind the
DEVELOP-
MENTS
company and that person is authorized to do so or the doing of the
PrY. LTD. act is subsequently ratified. (There is no question of ratification in
v.
REGISTRAR-
this case.) Authority for the purpose is derived either directly from
GENERAL. the constitution of the company or from some antecedent act
(typically, a resolution of the governing body) which is itself binding
Brennan J.
on the company. As between a company and a party who deals
with it, a company is bound by an act purporting to bind it not only
when the person who does the act has the company's authority to
bind it by that act but also when that person is held out by the
company as having that authority and the party dealing with the
company relies on that person's ostensible authority. Conversely,
the company is not bound when the person who does the act has
neither actual nor ostensible authority to bind the company by
doing the act which the other party asserts to be binding on the
company. The foundation of ostensible authority is estoppel, as
Diplock L.J. pointed out in Freeman & Lockyer v. Buckhurst Park
Properties (Mangal) Ltd. (89):
"An 'apparent' or 'ostensible' authority ... is a legal
relationship between the principal and the contractor created
by a representation, made by the principal to the contractor,
intended to be and in fact acted upon by the contractor, that
the agent has authority to enter on behalf of the principal into
a contract of a kind within the scope of the 'apparent'
authority, so as to render the principal liable to perform any
obligations imposed upon him by such contract. To the
relationship so created the agent is a stranger. He need not be
(although he generally is) aware of the existence of the
representation but he must not purport to make the agreement
as principal himself. The representation, when acted upon by
the contractor by entering into a contract with the agent,
operates as an estoppel, preventing the principal from asserting
that he is not bound by the contract. It is irrelevant whether
the agent had actual authority to enter into the contract."
Although Diplock L.J. confmed his observations to the ostensible
authority of an agent to bind his principal to a contract, the
principles he stated apply mutatis mutandis to authority to bind a
company by other acts done purportedly on behalf of a company:
see Armagas Ltd. v. Mundogas S.A. (90).
The principles governing ostensible authority fmd their usual
application in cases of principal and agent. It may be thought that
the ostensible authority of an agent is irrelevant to the execution of
(89) [1964] 2 Q.B. 480, at p. 503. (90) [1986] A.C. 717, at p. 732.
170 C.L.R.} OF AUSTRALIA. 173
an instrument under seal purporting to be a company's instrument, H. C.OF A.
1989-1990.
for the sealing of an instrument can be seen as the act of the '--y--'
company itself rather than as the act of the company's agent. It is NORTIISIDE
DEVELOP-
immaterial whether the acts of natural persons in executing an MEN1'S
instrument which binds the company are invested with the PrY. LTD.
V.
character of acts of the company itself or with the character of acts REGISrRAR-
done by an agent of the company. In determining whether an act GENERAL.
which purports to bind a company does bind the company, it is not

BrennanJ.
the character which would be attributed to an authorized act which
matters. The material inquiry calls for identification of the
particular act, the person who did it and the authority - actual or
ostensible - of that person to bind the company by the doing of
that act. When an action is brought on a contract contained in an
instrument or is founded on an instrument which purports to bind a
company but the company denies that the instrument is its
instrument, the issue is whether the instrument was duly executed,
whether in the affixing of the seal, the attesting of the sealing, the
countersignature or in some other manner of purported authenti-
cation. Although, as we shall see, the transaction in which the
instrument is used is material to the application of the indoor
management rule in relation to the execution of the instrument, it is
the acts done in executing the instrument which are the subject of
inquiry in such a claim.
The application of the principles of ostensible authority to a
company requires two further characteristics of a corporation to be
borne in mind, as Diplock L.J. said in Freeman & Lockyer (91):
"The frrst is that the capacity of a corporation is limited by its
constitution, that is, in the case of a company incorporated
under the Companies Act, by its memorandum and articles of
association; the second is that a corporation cannot do any act,
and that includes making a representation, except through its
agent.
Under the doctrine of ultra vires the limitation of the
capacity of a corporation by its constitution to do any acts is
absolute. This affects the rules as to the 'apparent' authority of
an agent of a corporation in two ways. First, no representation
can operate to estop the corporation from denying the
authority of the agent to do on behalf of the corporation an act
which the corporation is not permitted by its constitution to do
itself. Secondly, since the conferring of actual authority upon
an agent is itself an act of the corporation, the capacity to do
which is regulated by its constitution, the corporation cannot
be estopped from denying that it has conferred upon a
particular agent authority to do acts which by its constitution,
it is incapable of delegating to that particular agent.
(91) (1964) 2 Q.B., at pp. 504-505.

174 HIGH COURT (1989-1990.
H. C. OF A.
1989-1990. The second characteristic of a corporation, namely, that
'---,-'
unlike a natural person it can only make a representation
NORTIISIDE
DEVELOP-
through an agent, has the consequence that in order to create
MENTS an estoppel between the corporation and the contractor, the
PrY. LTD. representation as to the authority of the agent which creates
V. his 'apparent' authority must be made by some person or
REGISTRAR·
GENERAL.
persons who have 'actual' authority from the corporation to
make the representation. Such 'actual' authority may be
Brennan J. conferred by the constitution of the corporation itself, as, for
example, in the case of a company, upon the board of directors,
or it may be conferred by those who under its constitution
have the powers of management upon some other person to
whom the constitution permits them to delegate authority to
make representations of this kind. It follows that where the
agent upon whose 'apparent' authority the contractor relies has
no 'actual' authority from the corporation to enter into a
particular kind of contract with the contractor on behalf of the
corporation, the contractor cannot rely upon the agent's own
representation as to his actual authority. He can rely only upon
a representation by a person or persons who have actual
authority to manage or conduct that part of the business of the
corporation to which the contract relates."
His Lordship's statements of principle were approved by this Court
in Crabtree- Vickers Pty. Ltd. v. Australian Direct Mail Advertising
& Addressing Co. Pty. Ltd. (92). I have cited these passages at
length because his Lordship's characteristically lucid exposition of
the general principles of estoppel provides the framework within
which the specifically "indoor management" cases are to be placed.
There being no other framework of legal principle in which they can
be placed, the indoor management cases must be analysed within
that framework.
At the outset, it is necessary to state the relationship of the
indoor management rule with a company's constitution. As a
company's constitution defmes the authority which the company
can confer on its officers and agents, the constitution limits the
authority which can be conferred on persons to execute binding
instruments (or to engage in transactions) on the company's behalf.
If the constitution of the company shows that the person or persons
executing an instrument could not have been given authority to
bind the company by their respective acts of execution, the
company is not bound; if it shows that that person or those persons
might have been given such authority, the question is whether that
person or those persons had such authority or were held out by the
company to have had it. The question whether the particular
(92) (1975) 133 C.L.R. 72, at p. 78.

170 c.L.R.] OF AUSTRALIA. 175
authority could have been given under the constitution is a question H. C. OF A.

1989-1990.
of law; the question whether the authority was given is a question '--.-'
of fact, the answer to which is affected by a presumption of NORTHSIDE
DEVELOP-
regularity. MENTS
As the constitution of a company determines the authority which PrY. LTD.
v.
can be conferred on an officer or agent, the "indoor management" REGISTRAR·
rule can operate only within the limits prescribed by the company's GENERAL.
constitution. In Mahony v. East Holyford Mining Co. (93), Lord

Brennan J.
Hatherley held it to be settled
"that those who deal with joint stock companies are bound to
take notice of that which I may call the external position of the
company. Every joint stock company has its memorandum and
articles of association ... Those articles of association ... are
open to all who are minded 'to have any dealings whatsoever
with the company, and those who so deal with them must be
affected with notice of all that is contained in those two
documents.
After that, the company entering upon its business and
dealing with persons external to it, is supposed on its part to
have all those powers and authorities which, by its articles of
association and by its deed, it appears to possess; and all that
the directors do with reference to what I may call the indoor
management of their own concern, is a thing known to them
and known to them only; subject to this observation, that no
person dealing with them has a right to suppose that anything
has been or can be done that is not permitted by the articles of
association or by the deed."
Again, Lord Halsbury explained in County of Gloucester Bank v.
Rudry Merthyr Steam and House Coal Colliery Co. (94):
"Persons dealing with joint stock companies are bound to look
at what one may call the outside position of the company -
that is to say, they must see that the acts which the company is
purporting to do are acts within the general authority of the
company, and if those public documents, which everyone has a
right to refer to, disclose an iniumity in their action, they take
the consequences of dealing with a joint stock company which
has apparently exceeded its authority. But the case here is
exactly the other way. All the public documents with which an
outside person would be acquainted in dealing with the
company would only shew this, that by some regulations of
their own, what Lord HatherJey described as their indoor
management, they were capable if they had thought right of
making any quorum they pleased; and an outside person
knowing that, and not knowing the internal regulation, when
he found a document sealed with the common seal of the
company and attested and signed by two of the directors and
(93) (1875) L.R. 7 H.L. 869, at (94) [1895]1 Ch. 629, at p. 633.
pp. 893-894.
176 HIGH COURT [1989-1990.
H. C. Of A. the secretary, was entitled to assume that that was the mode in
1989-1990. which the company was authorized to execute an instrument
~
of that description."
NORTIiSIDE
DEVEWP' And, in Uxbridge Permanent Benefit Building Society v.
MENfS
PrY. LTD. Pickard (95), Sir Wilfrid Greene M.R. said:
v. "In the case of limited companies special rules came into
REGISTRAR'
GENERAL.
operation. In the case of a limited company the actual
authority of an agent is of necessity limited by the constituent
BrennanJ. documents under which the company has its existence and
from which it derives its power, which a person dealing with
the company is assumed to know; but the internal management
and everyday internal administration of the company is a thing
which an outsider cannot be expected to know by the light of
nature or by inspecting some file as he can with public
documents like memoranda and articles of association. In order
to ascertain things of that kind he would have to make detailed
inquiries inside the company's office. It is quite obvious that
the business of limited companies could never be carried on if
everybody dealing with a company was at his peril bound to
ascertain whether the internal administration of the company
had been regularly conducted."
There are practical reasons why a party who relies on an
instrument purporting to be the instrument of a company should be
entitled to assume in the ordinary course of commerce that its
execution has been authorized by ijIe company, as Estey J. pointed
out in Canadian Laboratory Supplies Ltd. v. Engelhard Industries of
Canada Ltd. (96):
"Modem commerce at practically all levels and sectors
operates through the corporate vehicle. That vehicle itself, by
conglomerate grouping and divisionalization, has become
increasingly complex. Persons, including corporate persons,
dealing with a corporation must for practical reasons be able to
deal in the ordinary course of trade with the personnel of that
corporation secure in the knowledge that the law will match
these practicalities with binding consequences. The law has
long so provided."
The indoor management rule is really a presumption of
regularity. To use the Latin maxim, omnia praesumuntur rite esse
acta: Morris v. Kanssen (97). The presumption is no more than a
presumption of fact. Whence does it arise? It arises from the
likelihood that a company has given to its officers and agents the
authority needed to carry on its business and to act for its benefit
within the limits of the authority which officers and agents in their
respective positions would ordinarily possess. The presumption
(95) (1939)2 K.B. 248, at p. 257. (97) (1946) A.C., at p. 475.

(96) (1979) 97 D.L.R. (3d) 1, at
p.24.
might reasonably be made when the officers or agents of a company H. C. OF A.

1989-1990.
engage in a transaction for the purpose of a company's business or '-y-J
otherwise for the benefit of the company and the transaction is one NORTHSIDE
DEVELOP-
that officers or agents in their respective positions would ordinarily MENTS
be expected to have the company's authority to undertake. In that PrY. LTD.
V.
situation, a party dealing with the company in good faith is entitled REGISTRAR-
to presume that the officers and agents had that authority: cf. GENERAL.
Uxbridge Permanent Benefit Building Society v. Pickard (98). Being
Brennan 1.
a presumption of fact, the indoor management rule is displaced
when the circumstances put on inquiry the party seeking to rely on
the rule.
If the rule can found an estoppel against a company, in what does
the necessary representation made by the company consist? Clearly
enough, the representation required to support an estoppel depends
upon the subject matter of the estoppel. An estoppel with respect to
the appointment of de facto directors may be raised by subscribers
to the memorandum and articles standing by while the de facto
directors assume the control of the company's affairs; an estoppel as
to the conferring of authority on an officer of the company may be
raised by the directors permitting the officer to undertake a class of
transactions on the company's behalf. Thus, in Smith v. Hull Glass
Co. (99) where a company was held liable for the price of goods
supplied for the purpose of its business on the order of a manager to
whom there was no express delegation of authority by the board,
Maule J. said (1):
'<the act of parliament and the deed of settlement enable the
company to carry on their business through the agency of
persons to be appointed by them. Whether or not the persons
so appointed were regularly appointed, the plaintiffs, or any
other persons dealing with them, could have no means of
knowing: they have no power to inspect the minute-book. Here
are persons found transacting business and receiving goods
upon the company's premises, and using them for the purposes
of the company; and all this with the knowledge of the
company.... This is the simple case of an individual, or a body
corporate, carrying on business in the ordinary way, by the
agency of persons apparently authorized by him or them, and
acting with his or their knowledge. The case differs in no
respect from the ordinary one of dealings at a shop or counting-
house: the customer is not called upon to prove the character
or the authority of the shopman or clerk with whom he deals;
if he is acting without or contrary to the authority conferred
upon him by his employers, it is their own fault. It seems to
(98) [1939J 2 K.B., at p. 258. (I) (1852) 11 C.B., at p. 928 [138

(99) (I 852) 11 C.B. 897 [138 E.R., at pp. 741·742J.
E.R.729J.
178 HIGH COURT (1989-1990.
H. C. OF A. me, therefore, that these defendants are bound by the acts of
1989-1990. the persons who have taken upon themselves, with their
L..,.---'
knowledge, to act for them in ordering the goods in question,
NORTIiSIDE
DEVELOP-
and receiving them, and using them in their business."
MENTS
PrY. LTD.
To found an estoppel as to the authority of an officer or agent who
v. is engaged in a transaction for the purposes of the company's
REGISTRAR-
GENERAL.
business or otherwise for the company's benefit and who is
purporting to exercise an authority which an officer or agent in that
Brennan J. position would ordinarily be expected to have, the mere carrying on
of the company's business with officers and agents performing
particular functions on its behalf and in its interest is a sufficient
representation by the company. Although such representations by
the company seem a slender foundation on which to build an
estoppel, the indoor management rule treats them as sufficient
unless the party relying on the rule is put on notice to inquire into
the authority of the officers or agents to do what they did in the
transaction. The slenderness of the foundation enhances the
importance of the qualification. In transactions other than those
engaged in for the purposes of a company's business or otherwise
for the benefit of the company, and in transactions where the
officer or agent has purported to exercise an authority over and
beyond the authority which an officer or agent in that position
would ordinarily be expected to possess, a party seeking to bind the
company by estoppel must rely on particular representations of
authority made by the company - that is, by officers or agents of
the company having actual or ostensible authority to make those
representations.
When the indoor management rule applies, it covers each of the
links between the constitution of the company and the particular
act (or omission) done (or omitted) by a purported officer or agent of
the company in the transaction. It covers the due making of
appointments of the original directors, of subsequent directors, of
other officers and of agents; it covers the conferring of authority on
officers and agents; and it covers the satisfaction of conditions
governing their exercise of authority in the instant case. As the
presumption of regularity covers each of these links, so may the
circumstances of a particular case put a party dealing with the
company on inquiry as to anyone of them. The cases in which the
indoor management rule has been applied can be placed within one
or other of the three broad categories - appointments, conferring
of authority and satisfaction of conditions - though the categories
are not, of course, mutually exclusive.
The appointment category includes Mahony v. East Holyford
Mining Co. (2); In re County Life Assurance Co. (3); Duck v. H. C. OF A.
1989-1990.
Tower Galvanizing Co. (4); and Albert Gardens (Manly) Pty. Ltd. v. '--y--J
Mercantile Credits Ltd. (5). In In re County Life Assurance Co. (6), NORTHSIDE
DEVELOP-
Giffard L.J. said: MENlO
"The company is bound by what takes place in the usual PTy. LTD.
v.
course of business with a third party where· that third party REGlSfRAR-
deals bona fide with persons who may be termed de facto GENERAL.
directors, and who might, so far as he could tell, have been
directors de jure." BrennanJ.
An example of the rule's application to the conferring of

authority on an officer can be found in British Thomson-Houston
Co. v. Federated European Bank Ltd. (7) where a company, whose
business extended to the giving of guarantees, was sued on a
guarantee signed by only one director. The articles conferred power
on the board to delegate its powers to one director and the indoor
management rule was held to cover the assumed authority of the
one director to sign the guarantee. Scrutton L.J. said (8):
"... Royal British Bank v. Turquand and Mahony v. East

Holyford Mining Co. decide that if the articles of association
give a power, persons dealing with the company, though they
are deemed to have notice of the extent of the power, are not
bound to inquire into what is called the 'indoor management'
of the company to see whether the power has been properly
and regularly exercised with all the prescribed formalities, and
if they fmd an officer of the company openly exercising an
authority which the directors have power to confer upon him,
they are relieved from the duty of further inquiry and are
entitled to assume that the power has been regularly and duly
conferred."
The rule is most frequently invoked .in connexion with the

execution of instruments which give a security when the point in
issue is the satisfaction of a condition governing the authority to
execute the instrument in the instant case. Where the rule applies, it
covers the passing of any necessary resolution by the board
authorizing the company's officers to affix the seal and attest the
sealing. Thus in Royal British Bank v. Turquand, the plaintiff sued
on a deed which was alleged and admitted to be sealed with the
company's common seal. The question was whether the seal had
been affixed without authority, the want of authority consisting in a
(2) (1875) L.R. 7 H.L., at pp. 888, (6) (1870) L.R. 5 Ch. App., at
892,897-898,901. p.293.
(3) (1870) L.R. 5 Ch. App. 288. (7) [1932)2 K.B. 176.
(4) (1901)2 K.B. 314. (8) (1932) 2 K.B., at p. 180.
(5) (1973) 131 C.L.R. 60, at p. 65.
180 HIGH COURT [1989-1990.
H.C. OF A. supposed absence of a resolution by the company in general meeting
1989-1990.
'---r-' authorizing the execution of the deed. The deed was executed as
NORTHSIDE security for the company's bankers who extended credit to the
DEVELOP'
MENTS
company in the carrying on of its business. The constitution of the
?ry. LTD. company authorized the execution of such a deed for the purpose of
V.
REGISTRAR-
borrowing. Jervis C.J., in the Exchequer Chamber, held that even if
GENERAL. no resolution of the company in general meeting had been passed,
the bank "would have a right to infer the fact of a resolution
Brennan J.
authorizing that which on the face of the document appeared to be
legitimately done" (9). Other cases in this category include County
of Gloucester Bank v. Rudry Merthyr Steam and House Coal
Colliery Co. and Re Scottish Loan and Finance Co. Ltd. (10). In
South London Greyhound Racecourses Ltd. v. Wake (11),
Clauson J. held that the rule did not apply to a guarantee sealed
without authority of the company's board, saying (12) "that the
affixing of the seal is a matter for which the authority of the board
of directors and not of a single director is required". Although his
Lordship correctly stated the condition governing the actual
authority of directors to affix the seal, a person dealing with the
company in good faith might have assumed that the board had
given its authority to the ilXing of the seal. However, there was a
distinction between that case and Turquand's Case. In Turquand's
Case, a security was given for the company's debt; in Wake's Case,
a share certificate was issued and delivered to a creditor as security
for the debt of a third party. In Turquand's Case, the security was
given for the purposes of the company's business; in Wake's Case,
the share certificate was not issued for the purposes of the
company's business but for the benefit of an unrelated debtor
company. Having regard to this ground of distinction, the decision
in Wake's Case is supportable but, for reasons presently to be
mentioned, I am respectfully unable to agree with his Lordship that,
because a board resolution was lacking, the share certificate in
Wake's Case was a forgery falling within the principles of Ruben v.
Great Fingall Consolidated (13).
A party dealing with a company cannot assume that its officers
or agents have a particular authority if the circumstances are such
as to put that party on inquiry as to whether the authority exists
and no inquiry is made or the company fails to satisfy the inquiry.
Lord Simonds said in Morris v. Kanssen (14):
(9) (1856) 6 EJ. & BL, at p. 332 (12) [1931] 1 Ch., at p. 509.
[119 E.R., at p. 888]. (13) [1906] A.C. 439.
(10) (1944) 44 S.R. (N.S.W.) 461. (14) [1946] A.C., at p. 475.
(11) (1931) 1 Ch. 496.
"But the maxim has its proper limits.... It is a rule designed H. C. OF A.
for the protection of those who are entitled to assume, just 1989-1990.
'-v-'
because they cannot know, that the person with whom they
NORTHSIDE
deal has the authority which he claims. This is clearly shown DEVELOP-
by the fact that the rule cannot be invoked if the condition is MENTS
no longer satisfied, that is, if he who would invoke it is put PrY. LTD.
upon his inquiry. He cannot presume in his own favour that V.
REGISTRAR-
things are rightly done if inquiry that he ought to make would GENERAL.
tell him that they were wrongly done."
This passage was quoted by Slade L.J. in Rolled Steel Ltd. v. British Brennan J.
Steel Corporation (15), where his Lordship said that the rule in
Turquand's Case is not "an absolute and unqualified rule of law,
applicable in all circumstances:' He added:
"... even if persons contracting with a company do not have
actual knowledge that an irregularity has occurred, they will be
precluded from relying on the rule if the circumstances were
such as to put them on inquiry which they failed duly to
make:'
In Houghton & Co. v. Nothard. Lowe and Wills (16), Bankes L.J.
said that the authorities showed that
"... in order to establish a case which falls within the rule it is
essential that the person who claims the benefit of it must (a)
prove that he relied upon the ostensible authority which he sets
up, and (b) must not have been put upon inquiry as to whether
the transaction was in order:'
This passage was cited by Cussen A.C.J. in Efron's Tie and Knitting
Mills Pty. Ltd. (In liq.) (17) where the rule was held inapplicable to a
guarantee proffered by a director to a bank to secure his personal
liability. Cussen A.C.J. said (18):
"From the guarantee the company directly gained nothing,
but might make itself liable to the bank for the advances past
and future to Efron in respect of his private account or
accounts. It would seem from the evidence that the giving of
the guarantee was not in fact in the interests of the company,
but in the interests of the bank."
A similar case is E.B.M Co. Ltd. v. Dominion Bank (19) where,
although the security appeared regular in form, the circumstances
were such as to put the bank on inquiry and to disentitle the bank
from relying on a security purportedly given by the company and
proffered by three directors in respect of their personal liabilities.
Lord Russell of Killowen, delivering the judgment of the Privy
Council, said (20):
"For this, they have only to thank themselves, for taking as
(15) [1986] Ch. 246, at p. 284. (18) (1932) V.L.R., at p. 29.

(16) [1927]1 K.B. 246, at p. 260. (19) (1937) 3 All E.R. 555.
(17) [1932] V.L.R. 8. (20) [1937]3 All E.R., at p. 569.
182 HIGH COURT [1989-1990.
H. C. OF A. security for the personal indebtedness of three directors of a
1989·1990. limited company a charge on property of that company,
'-y-J
without any inquiry, and without satisfying themselves that the
NORTIISlDE
DEVElOP-
seal of the company had been affixed to the security in such
MENTS circumstances as to make the security a charge binding on the
PrY. LTD. company. This was not a case, as was suggested in argument,
V. in which the bank had no notice of anything extraordinary
REGISTRAR-
GENERAL.
being done. It was a plain case of directors using their powers
as directors to cause a limited company to apply its property
Brennan J. for the benefit of those directors as debtors to the bank. The
language used by Atkin L.J., in Underwood (AL) Ltd. v. Bank
ofLiverpool (21), may well be cited in this connexion: 'The fust
question is: Had Underwood actual authority to deal with the
cheques as he did? ... He was using the proceeds of the
cheques in question to pay his own private debts. Under
ordinary circumstances actual authority appears to be clearly
negatived. Nevertheless it was contended that the fact that
Underwood was the sole director, and practically the sole
shareholder, gave him, in pursuance of the articles, actual
authority. He was entrusted with all the powers of the
company, the company can only act through its directors, and
the directors, or director if only one, could do what they willed
with the company's assets. If this means anything it means that
a board of directors acting as such have actual authority to
defraud the company by using the company's assets to pay
debts due to butchers or moneylenders by the individual
directors. Such an act is quite outside the class of acts -
management of the company's business - authorised to be
done by the board. The directors, whether collectively or
singly, have not actual authority to steal the company's
goods.'"
See also Re Scottish Loan and Finance Co. Ltd. (22), per Nicholas
e.J. in Eq. In these cases, it was the nature of the transaction which
put the party purportedly dealing with the company on inquiry.
Although the nature of the transaction is not the only factor which
might put a party on inquiry, it is often, and importantly, the factor
on which the application of the indoor management rule depends.
In Rolled Steel Ltd. (23) Slade L.J. said:
"the very nature of a proposed transaction may put a person
upon inquiry as to the authority of the directors of a company
to effect it, even if he has no special relationship with the
company. Whether in any given case the person dealing with
the company is put on inquiry must depend on all the
particular circumstances."
A creditor will ordinarily be put on inquiry when his debtor offers
as security a guarantee given by a third party company whose
(21) (l924J 1 K.B. 775, at pp. 795, (22) (1944) 44 S.R. (N.s.W.), at
796. p.465.
(23) (1986) Ch., at p. 285.
business is not ordinarily the giving of guarantees, for the execution H. C. OF A.
1989·1990.
of guarantees and supporting securities for another's liabilities, not '-y-'
being for the purposes of a company's business nor otherwise for its NORTHSIDE
DEVEWP'
benefit, is not ordinarily within the authority of the officers or MENTS
agents of the company. Of course, the circumstances may show that ?IT.Lm.
v.
the giving of such a guarantee and supporting security (hereafter REGISTRAR'
indifferently described as "guarantee") is for the company's benefit. GENERAL.
For example, it may be for the benefit of solvent companies within

Brennan J.
a group to guarantee the liabilities of a holding company in order to
benefit the guarantor companies as well as other members of the
group. In such a case, provided the creditor has been satisfied that it
is such a case, the apparently regular execution of a guarantee and
supporting security may be relied on pursuant to the indoor
management rule. Of course, the only important consequence of a
creditor being put on inquiry is that, in the event that an apparently
regular guarantee turns out not to have been authorized by the
guarantor company, the guarantor company may show that it is not
bound.
When a creditor is put on inquiry, he cannot rely on the apparent
regularity of execution of the instrument of guarantee and the
indoor management rule but must be satisfied that the relevant
officers and agents of the company had the company's authority to
execute an instrument pledging the credit or assets of the company
to guarantee another's debts. If the debtor be a director of the
company, the fact that the debtor vouches for the due execution of
the guarantee does not necessarily exhaust the inquiries which the
creditor is bound to make, for the debtor-director may not be
authorized to state the scope of his own or others' authority to the
guarantee. However, where the giving of a guarantee by a company
to secure another's debt is for the purposes of the company's
business (as in British Thomson-Houston Co. v. Federated
European Bank Ltd.) or where the circumstances are such that the
company represents that the guarantee is given for the purposes of
its business or for its benefit, and there are no other circumstances
to put a party on inquiry, the indoor management rule applies. In re
Hapytoz Pty. Ltd. (In /iq.) (24) was seen to be such a case. Hapytoz'
managing director executed a guarantee (which was held to have
been executed in formal conformity with the articles) to secure a
debt owing by another company which had a common board and
common shareholders (four in number) and carried on a similar
business. The creditor insisted on the guarantee as a condition of
continuing to supply goods to the debtor company. Martin J.
(24) (1937) V.L.R. 40.

184 HIGH COURT [1989-1990.
H. C. OF A. held (25) that "the creditor was entitled to assume that [the
1989-1990_
'-y--' managing director] had the power to give the guarantee requested."
NORTHSIDE His Honour accepted the argument that "the act done was one
DEVELOP-
MENTS
which usually would be delegated to a managing director." It is not
PrY_ LTD. necessary to examine the facts of this case except to say that, had it
V.
REGISTRAR-
been found that the creditor was put on inquiry, that result would
GENERAL. not have been surprising.
It has been said that a forgery does not bind a company and that
Brennan J.
the indoor management rule does not avail a party who assumes the
validity of a forgery: Ruben v. Great Fingall Consolidated (26).
That observation has given rise to some confusion in the application
of the rule, the term ''forgery'' being used in two senses. In Ruben v.
Great Fingall Consolidated, Lord Loreburn L.c. was speaking of a
forgery in the strict sense, that is, of an instrument bearing a false
seal or signature. As the rule is founded on estoppel, it does not
cover a forgery in that sense. A company cannot give authority to
fix a false seal and it is difficult to envisage a case in which there
would be ostensible authority to write a false signature. It is possible
that a company would be estopped from denying that a forgery in
the strict sense is binding upon it, but such cases would be
exceptional and would depend upon a representation that the
company was bound by the forgery. On the other hand, when the
seal and the signatures are genuine the question is simply whether
the company has given actual or ostensible authority to the persons
who affIxed the seal, attested the sealing or countersigned the
instrument to do so. Sometimes an instrument bearing a genuine
seal and genuine signatures but executed without the authority of a
company has been described as a forgery: see, for example,
Kreditbank Cassel G.m.b.H. v. Schenkers (27) and Wakes
Case (28). H such an instrument is a forgery, it is a forgery in a
looser sense. A forgery in the strict sense is binding on a company
only if the company be estopped from denying both the falsity of
the seal or signature and the authority of the persons affixing the
false seal or writing the false signature to do so. But an instrument
bearing a genuine seal and genuine signatures, though it be
described as a forgery, is binding on the company if the company be
estopped from denying the authority of the persons affIxing the
genuine seal and writing the genuine signatures to do so. Such an
instrument, being regular in form, is binding on the company if it be
executed for the purposes of the company's business or otherwise
for the company's benefit and the party relying on it is not put on
(25) [1937] V.L.R., at p. 46. (27) [1927]1 K.B. 826.

(26) [1906] A.C., at p_ 443. (28) [1931]1 Ch. 496.
inquiry as to the authority of the persons who executed it to do so. H. C.OF A.

1989·1990.
If it transpires that the instrument was executed without the '--v-'
authority of the company, though it was apparently regular in form, NORTHSIDE
DEVELOP'
executed by officers or agents acting within the scope of their MENTS
ordinary authority to execute such instruments, and used for the PTY. LTD.
v.
purposes of the company's business or otherwise for its benefit, the REGISTRAR'
loss will fall on the company unless the party dealing with the GENERAL.
company was put on inquiry. But if the party dealing with the
Brennan J.
company was put on inquiry and failed to make inquiry or, on
inquiry, was not reasonably satisfied that the instrument was
executed with the company's authority, the company will not be
estopped from denying that it is bound by the instrument.
In Kreditbank Cassel, a strong Court of Appeal described as
forgeries bills of exchange purportedly drawn and indorsed by
Schenkers Ltd. and signed by the company's Manchester manager:
"S. Clarke, Manchester Manager." The bills, accepted by a company
in which Clarke was interested, were used to pay a creditor of that
company in attempted fraud of Schenkers Ltd. Schenkers Ltd.
repudiated the bills. By treating the bills as forgeries, the operation
of Ruben v. Great Fingall Consolidated was attracted to take the
case out of the indoor management rule but, in my respectful
opinion, the case was never within that rule. Clarke, as the
Manchester manager of Schenkers Ltd., had no ostensible authority
to draw and indorse bills on behalf of that company. Atkin L.J.
said (29):
"Much depends, of course, upon the evidence as to the nature
of the business and the actual position occupied by the
particular person. But in the absence of evidence I am not
prepared to hold that the manager of a provincial branch, even
if he is in such an important position as manager of the
Manchester branch of a forwarding agency, has authority to
draw bills to bind his company."
If Clarke had no ostensible authority to draw bills to bind the
company, a fortiori he had no such authority when the bills were to
be used to pay the debts of another company in which he was
personally interested. The nature of the transaction was enough to
put the creditor to whom the bills were indorsed on inquiry as to
Clarke's authority, and none was made of the company. Had Clarke
drawn and indorsed the. bills and used them to pay for a trading
debt incurred by Schenkers Ltd. in carrying on its business in
Manchester, the bills would not have attracted the description of
(29) [192711 K.B., at p. 843.

186 HIGH COURT [1989-1990.
H. C. OF A. forgery, though Clarke would have been equally without authority
1989·1990.
'-,--J to draw and indorse bills.
NORTHSIDE There are two other aspects of the judgments in Kreditbank
DEVELOP-
MENTS
Cassel which should be mentioned. First, Scrutton L.J. expressed
PrY. LTD. some caution about a general proposition which had been advanced
v.
REGISTRAR-
by Sargant L.J. in Houghton & Co. v. Nothard, Lowe and Wills
GENERAL. (with the concurrence of Atkin L.J.) that a party dealing with a
company could not invoke the indoor management rule to rely on ~
Brennan J.
purported delegation of authority to an officer unless the party had
knowledge of the article permitting delegation. Atkin LJ. adhered
to what had been said in Houghton & Co. v. Nothard, Lowe and
Wills. But the proposition, if applied generally, is too wide. It must
be understood as applying only to cases of the kind to which
Diplock L.J. referred in Freeman & Lockyer, that is, to cases where
the authority purportedly exercised by an officer or agent exceeds
that which would normally be conferred on an officer or agent in
that position. In such a case, as Diplock L.J. pointed out (30), the
party relying on the authority of the officer or agent must prove
"that the representation on which he in fact relied as inducing
him to enter into the contract comprised the articles of
association of the company as well as the conduct of the board
[and) it would be necessary for him to establish first that he
knew the contents of the articles ... and secondly that the
conduct of the board in the light of that knowledge would be
understood by a reasonable man as a representation that the
agent had authority to enter into the contract sought to be
enforced ..."
Next, in Kreditbank Cassel the test of vicarious liability for a
servant's fraud seems to have been equated with the criterion for
determining whether a company is bound by an act done by a
servant purportedly on behalf of, but in fraud of, the company: see
per Scrutton L.J. (31). His Lordship referred to the decision of the
House of Lords in Lloyd v. Grace, Smith & Co. (32) for the
proposition "that a principal is liable for the fraud of his agent
acting within the scope of his authority, whether the fraud is
committed for the benefit of the principal or for the benefit of the
agent (33)." Lord Macnaghten had said (34):
"The only difference in my opinion between the case where
the principal receives the benefit of the fraud, and the case
where he does not, is that in the latter case the principal is
liable for the wrong done to the person defrauded by his agent
acting within the scope of his agency; in the former case he is
(30) [1964]2 Q.B., at p. 508. (33) [1927] K.B., at p. 839.

(31) [1927] 1 K.B., at pp. 839·840. (34) [1912] A.C., at p. 738.
(32) [1912] A.C. 716.
liable on that ground and also on the ground that by taking the H. C. OF A.
benefit he has adopted the act of his agent; he cannot 1989-1990.
'-,.-'
approbate and reprobate."
NORTHSIDE
But vicarious liability for an agent's tort is different from personal DEVEWP-
MENTS
liability imposed by an agent's doing of an act binding on the PrY. LTD.
principal. Where the fraud of an agent consists, so far as the party v.
REGISTRAR-
with whom he is dealing is concerned, in the misrepresentation of GENERAL_
his own authority, the company whose authority he purports to
exercise mayor may not be affected by the misrepresentation. Brennan J.
Either the company has held the agent out as having authority to
represent his own authority or it has not. If the company has so
held the agent out, the other party may be able to hold the
company to the agent's representation of his authority by estoppel,
so that the agent's claim of authority is fulfilled: see Crabtree-
Vickers (35). If the company has not so held the agent out, the
agent has no authority from the company to misrepresent his own
authority; he cannot bind the company by his own statement of his
authority and any loss suffered by the other party cannot be sheeted
home to the company. The point of Lloyd v. Grace, Smith & Co. is
that a master is answerable for the wrong of a servant or agent
committed in the course of the service or agency. But a servant's or
agent's representation of authority is never, by itself, sufficient to
establish the course of the service or agency and, if the act done is
neither within the actual nor within the ostensible authority of the
servant or agent, the principal is not liable. Lloyd v. Grace, Smith &
Co. is concerned not with fraud by misrepresentation of the
servant's or agent's authority but with other fraud committed
within the course of the service or agency.
It is convenient now to state in summary the position of a
creditor who takes a company's guarantee for another's debt. If the
guarantee is not executed in apparent conformity with the
formalities prescribed by the company's constitution, the guarantee
is void. If the guarantee is executed in apparent conformity with
those formalities, the validity of the guarantee can be assumed if (i)
it is executed by officers or agents who would ordinarily be expected
to have authority to do so, (ii) the guarantee is given for the
purposes of the company's business or otherwise for the company's
benefit, and (iii) there are no circumstances which put the creditor
on inquiry as to the authority of those who executed the guarantee
to do so. If these conditions are not met, the creditor must satisfy
himself as to the authority of the persons who executed the
guarantee to do so. The inquiry must be made of the appropriate
(35) (1975) 133 C.L.R., at p. 78.

188 HIGH COURT [1989-1990.
H. C. OF A. officers of the company. The persons who executed the guarantee
1989-1990.
'--r-' might, but will not usually, have authority to satisfy the creditor's
NORTHSIDE inquiry. If the creditor, being put on inquiry, makes no inquiry or is
DEVELOP-
MENTS
not reasonably satisfied as to the authority of the persons who
PrY_ LTD. executed the guarantee to do so, the company is not estopped from
v_
REGISTRAR-
repudiating the guarantee for want of authority on the part of those
GENERAL. who executed it. If the creditor is not put on inquiry, he may
assume that the guarantee was executed with the company's
Brennan J.
authority and, once he acts on that assumption to his detriment, the
company is estopped from denying the validity of the execution of
the guarantee. The same consequence follows if the creditor, having
inquired, is reasonably satisfied by the company's response that
those who executed the guarantee had the company's authority to
do so. Where authority to execute the guarantee depends upon an
antecedent resolution of the board, a creditor who is put on inquiry
must be reasonably satisfied that the resolution was du1y passed.
A creditor who, putting a guarantee in issue, seeks to rely on the
indoor management rule is concerned to establish the due execution
of the guarantee. In this context, the indoor management rule
relates to authority to execute a guarantee, not to the discharge of
the fiduciary duty of a board of directors who might authorize its
execution. In Rolled Steel Ltd. (36), Slade L.J. considered whether a
party who is on notice that the directors are in breach of their
fiduciary duty in a transaction can rely on the directors' ostensible
authority and hold the company to the transaction. It is
unnecessary to consider that question in this case. I should wish to
reserve my opinion as to whether, in a case similar to Rolled Steel
Ltd., the creditor might be precluded from enforcing the guarantee
by reason of the unavailability of an estoppel as to its due execution
(as I understand Slade L.J. to hold) or by reason of his taking a
guarantee which, though its due execution may be assumed or
established, is taken with notice that it is given in breach of the
directors' fiduciary duty.
In this case, the problem is not whether Barclays, with notice of a
breach of fiduciary duty on the part of the directors of Northside,
cou1d enforce an otherwise binding instrument of guarantee; the
problem is simply whether the company is estopped from showing
that the instrument of guarantee was sealed, attested· and
countersigned without authority. The instrument of mortgage was
given to Barclays not for the purposes of Northside's business nor
for Northside's benefit. It was given to secure the debts of Robert
(36) [1986] Ch., at pp. 291-296.

Sturgess' companies. That was enough to put Barclays on inquiry. H. C. OF A.

1989·1990.
In the Supreme Court, Young J. said: '-.---'
"This case ... is one where a company is mortgaging its sole NORTHSIDE
DEvELOP'
asset for the benefit of one director and the document in MENTS
question is part of a transaction involving a large sum of PrY. LTD.
money, and the document proffered to Barclays was signed v.
only by persons who were connected with the borrowers. In REGISTRAR'
GENERAL.
those circumstances it seems to me that as a matter of fact the
transaction itself called upon the lender to make inquiries, so Brennan J.
that the rule in Turquand's Case is inapplicable."
I respectfully agree. In the Court of Appeal, Kirby P. held that the
rule in Turquand's Case requires "that courts should not too readily
demand astuteness on the part of those dealing with companies to
discern suspected impropriety or lack of capacity on the part of
company's officers" and found that Barclays was not put on
inquiry. McHugh J.A., with whom Samuels J.A. agreed, noted that
it is "common enough for an asset of one company to be given as
security for an advance to an associated company" and he observed
that "[t)he beneficial effect of the indoor management rule would be
greatly reduced if an outsider had to approach each corporate
transaction with a mind alveolated with suspicion. To do so would
increase the cost of doing business with a corporation. It would
cause considerable inconvenience to corporations if they were
required to answer every inquiry concerning the authority of their
officers." His Honour expressed the opinion that "it is not enough
[to put an outsider on inquiry) that a director who attested the
mortgage is the managing director of an apparently associated
company which will obtain a benefit, direct or indirect, from the
execution of the relevant document." With great respect, I disagree.
To state the indoor management rule more widely than I have
stated it would be to furnish a charter for dealings between
fraudulent officers of companies and supine fmanciers; to state it
more narrowly would be to put a clog on the free flow of legitimate
commerce. If it be said that the rule, so stated, is too restrictive in
putting a lender on notice when a company's guarantee is proffered
otherwise than for the purposes of the guarantor's business or for
the guarantor's benefit, the short reply is that an inquiry as to the
passing of an authorizing resolution in a genuine case is likely to
ensure the board's conscious assumption of collective responsibility
for the giving of the guarantee. The company, its shareholders and
creditors are not likely to be disadvantaged by that course. The rule
has its familiar scope of operation in transactions entered into for
the purposes of a company's business or otherwise for its benefit.
One further point should be mentioned. Gerard Sturgess was not
190 HIGH COURT (1989-1990.
H.C.oFA. appointed as secretary of the company, though a return was lodged
1989-1990.
'--r-' with the Corporate Affairs Commission purporting to state that he
NORTHSIDE had been so appointed. It is not necessary to examine whether, if
DEVELOP-
MENTS
the only irregularity in the exercise of the instrument of mortgage
PrY. LTD. had been the signature of Gerard Sturgess instead of the person
V.
REGISTRAR-
earlier appointed as secretary of the company, the lodging of the
GENERAL. return or the company's failure to correct it may have been
sufficient to estop the company from denying that Gerard Sturgess
Brennan 1.
possessed the authority of the secretary to countersign. The indoor
management rule was displaced by more substantial considerations.
The transaction was such that Barclays ought to have made an
inquiry of the board of Northside to ascertain whether the board
had authorized the execution of the instrument or mortgage. Had
that inquiry been made a negative answer would have been
inevitable. At the trial before Young J. no evidence was led of the
making of any inquiry. Northside was therefore not estopped from
showing that the instrument of mortgage was executed without its
authority and was not its instrument.
The first respondent sought to escape liability under s. 127 of the
Real Property Act by submitting that Northside was bound by the
instrument of mortgage by operation of s. 51 A(l) of the
Conveyancing Act 1919 (N.S.W.) or of s. 106 of the Real Property
Act. I agree with the reasons of the Chief Justice for rejecting this
submission.
As Northside was not estopped from showing that the instrument
of mortgage was not its instrument, the appeal must be allowed and
the judgment of Young J. restored. I agree with the order proposed
by the Chief Justice.
DAWSON J. The appellant company, Northside Developments

Pty. Ltd., was incorporated in 1965 for the purpose of holding some
six acres of land north of Sydney. The shareholders of the company
were John Lees, Robert Ellis and Rogard Pty. Ltd. The last was a
company controlled by Robert Sturgess. The directors of Northside
Developments Pty. Ltd. were Robert Sturgess, Lees and Ellis. The
land held by that company was zoned for use as open space and the
shareholders no doubt hoped that it would some day be zoned for
residential use thereby enabling the company to make a substantial
profit upon sale. The only function of the company was to hold the
land. The administration of the company was minimal and was left
in the hands of Robert Sturgess who, in turn, left it to a finn of
accountants. For some years until 1979 a member of the firm of
accountants, Robert Horder, acted as secretary of the company,
although it does not appear that he was ever formally appointed to
that position. All that the firm of accountants did in relation to
Northside Developments Pty. Ltd. was to pay the rates, write the
minutes of fictitious meetings and file statutory returns.
During September 1979, Robert Sturgess successfully sought a
loan from Barclays Credit Corporation Holdings Pty. Ltd.
("Barclays'') on behalf of certain companies controlled by him,
mainly in connexion with a car yard which he operated in Sydney.
Neither the car yard nor the companies had any connexion with
Northside Developments Pty. Ltd. A loan agreement was executed
on 24 December 1979. At the same time a document dated 24
December 1979 was executed whereby Northside Developments
Pty. Ltd. purported to mortgage its land as security for the
repayment of the loan. The document bore the common seal of the
company which was said to be "hereunto affixed by authority of the
board of directors in the presence of the Secretary". The seal was
accompanied by the signature of Robert Sturgess as a director and
was countersigned by Gerard Sturgess as secretary. Gerard Sturgess
is the son of Robert Sturgess.
It is necessary to go back a little. During 1979, as the result of a
policy decision, the firm of accountants which had been managing
the affairs of Northside Developments Pty. Ltd. no longer wished to
do so. On 14 November 1979, Horder signed a document recording
his resignation as secretary of the company. On about the same
date, Gerard Sturgess signed a consent to act as secretary and, on
22 November 1979, a statutory return of the change of secretary
was lodged with the Corporate Affairs Commission. On 3 August
1979, the certificate of title to the land held by Northside
Developments Pty. Ltd. was obtained by Robert Sturgess from the
solicitors previously acting for that company. Until 1979 the
common seal of Northside Developments Pty. Ltd. had been kept
with the firm of accountants which administered its affairs. At some
time before 24 December 1979, the accountants sent the seal to the
solicitor acting for Robert Sturgess in his negotiations with Barclays.
The mortgage was probably executed in the solicitor's office, Robert
Sturgess and Gerard Sturgess both being present.
The mortgage was subsequently registered and, default having
been made under the loan agreement with Barclays, that company
as mortgagee sold the land on 31 December 1980 to Stanley
Raymond Harvey, who became the registered proprietor. Northside
Developments Pty. Ltd. did not receive any of the money - some
$1,400,000 -lent by Barclays.
It was found by the learned trial judge that at the time that
Robert Sturgess purported to have Northside Developments Pty.
Ltd. execute the mortgage to Barclays, both he and Gerard Sturgess
were aware that they needed to obtain the consent of their co-directors,
Lees and Ellis, and that such consent had not been obtained.
The articles of Northside Developments Pty. Ltd. .provided that:
192 HIGH COURT [1989-1990.
H. C. OF A. "Subject to the power to delegate conferred by Article 47 the
1989·1990. Directors shall provide for the safe custody of the Seal and the
'-.-'
NORTHSIDE
DEVELOP-
MENTS shall sign every instrument to which the Seal is affixed and
PIT. LTD. every such instrument shall be countersigned by the Secretary
V. or by a second Director or some other person appointed by the
REGISTRAR-
GENERAL.
Directors for the PUrpose."
It does not appear that there was any delegation pursuant to
Dawson 1.
Art. 47, which allowed the directors to delegate any of their powers
to committees of directors. There was no resolution of the directors
authorizing the use of the seal to execute the mortgage.
Northside Developments Pty. Ltd. brought these proceedings
claiming damages against the Registrar-General pursuant to s. 127
of the Real Property Act 1900 (N.S.W.). That section provides for
an action to be brought against the Registrar-General as a nominal
defendant for the recovery of damages by a person suffering loss
through the registration of another person as the proprietor of land,
subject to certain exceptions which are not material. Damages were
awarded at first instance but upon appeal to the Court of Appeal it
was held that the rule in Royal British Bank v. Turquand (37)
applied with the result that the mortgage was effective to bind
Northside Developments Pty. Ltd. and to encumber the land held
by it. The company appeals to this Court.
The rule in Royal British Bank v. Turquand established that
persons dealing with a company have constructive notice of the
requirements of its memorandum and articles of association and, as
Lord Hatherley put it in Mahony v. East Holyford Mining Co. (38),
"when there are persons conducting the affairs of the company in a
manner which appears to be perfectly consonant with the articles of
association, then those so dealing with them, externally, are not to
be affected by any irregularities which may. take place in the
internal management of the company". Earlier, Lord Hatherley had
referred (38) to the "indoor management" of a company and thus
the rule is known also as the indoor management rule.
The rule in Royal British Bank v. Turquand has been applied in a
number of cases, not all of which are entirely reconcilable, but for
present purposes it is necessary only to have regard to the relevant
limits to which the rule is said to be subject. It does not apply where
there are suspicious circumstances sufficient to place a person
dealing with the company upon inquiry and it is said that it does
(37) (1856) 6 El. & BL 327 (119 (38) (1875) L.R. 7 HL. 869, at
E.R. 886]. p.894.
not apply where a document sealed or signed on behalf of the H.C. OF A.
1989-1990.
company is a forgery. '-y--'
It is convenient to examine first why the rule is said not to apply NORTHSIDE
DEVELOP-
in cases of forgery. In Ruben v. Great Fingall Consolidated (39) the MENTS
secretary of the respondent company fraudulently issued to the PrY. LTD.
V.
plaintiffs a certificate for shares in the company as security for a REGISTRAR'
loan to him. He affixed the seal of the company to the share GENERAL.
certiftcate and forged the signatures of two directors. He

Dawson J.
countersigned the document with his own signature. The plaintiffs
unsuccessfully claimed to be entitled to be registered as the owners
of the shares. Lord Lorebum L.C. (40) observed that the transaction
was not for the benefit of the respondent company but solely for the
private purposes of the secretary and he said: (41)
"I cannot see upon what principle your Lordships can hold
that the defendants are liable in this action. The forged
certificate is a pure nullity. It is quite true that persons dealing
with limited liability companies are not bound to inquire into
their indoor management, and will not be affected by
irregularities of which they had no notice. But this doctrine,
which is well established, applies only to irregularities that
otherwise might affect a genuine transaction. It cannot apply
to a forgery."
Lord Davey (42) referred to the proposition laid down by Willes J.
in Barwick v. English Joint Stock Bank (43), that the "general rule
is, that the master is answerable for every such wrong of the servant
or agent as is committed in the course of the service and for the
master's benefit".
Of course, Ruben v. Great Fingall Consolidated was decided
before Lloyd v. Grace, Smith & Co. (44) in which the validity of the
dictum of Willes J. was, as a general proposition, denied. It was held
that a principal is liable for the fraud of his agent acting within the
scope of his authority, whether the fraud is committed for the
benefit of the principal or for the benefit of the agent. But as Lord
Macnaghten observed in Lloyd v. Grace, Smith & Co. (45), the fact
that the fraud in Ruben v. Great Fingall Consolidated was not for
the benefit of the company was something which was not necessary
for the decision. In saying that the indoor management rule applied
only to irregularities which might otherwise affect a genuine
transaction, Lord Lorebum must in Ruben v. Great Fingall
Consolidated be taken to have been referring to transactions carried
(39) [1906] A.C. 439. (43) (861) L.R. 2 Ex. 259, at

(40) (1906) A.C., at p. 442. p.265.
(41) (1906) A.C., at p. 443. (44) (1912) AC. 716.
(42) [1906] A.C., at p. 446. (45) (1912) A.C., at p. 738.
194 HIGH COURT [1989-1990.
H. C. OF A. out with the authority of the company, either actual or ostensible,
1989·1990.
'-v--' apart from any irregularity under the articles.
NORTIiSIDE Forgery is not confined to a seal or signature which is counterfeit.
DEVELOP-
MENTS
As Kreditbank Cassel G.m.b.H. v. Schenkers (46) shows, a docu-
PTY.LTD. ment which is false and is sealed or signed in fraud of a company
v.
REGISTRAR'
will be a forgery notwithstanding that the seal is the actual seal of
GENERAL. the company or the signature is the actual signature of the person
signing. In that case the branch manager of the defendant company
Dawson J.
fraudulently and, as it was found, without any actual or apparent
authority, drew bills of exchange to the order of the company,
signing them on behalf of the company with his own- signature and
subsequently indorsing them on behalf of the company. It was held
that the plaintiffs could not invoke the indoor management rule
because the bills were forgeries. Ruben v. Great Fingall
Consolidated was applied. Bankes L.J. said (47):
"In my opinion there was no evidence in this case upon which
an estoppel could be founded. It seems to me to have been
proved that the bills are forgeries, and there being no evidence
of estoppel, the plaintiffs cannot rely upon the rule laid down
in Mahony v. East Holyford Mining Co. They are then driven
to rely, if they can, upon the ordinary rule applicable in the
case of principal and agent. If they could have shown that the
drawing and indorsing of bills of exchange was within the
ostensible authority of a person occupying the position which
this branch manager occupied, they might have been in a
position to establish a claim founded upon that ground. No
such evidence was given, and I certainly am not prepared to
accept the proposition that it was within the ostensible
authority of this branch manager, having regard to his position,
to sign bills to this amount and in this form."
And Scrutton L.J. (48), referring to Ruben v. Great Fingall
Consolidated, said:
"In the present case the bills are clearly forgeries within the
Forgery Act, 1913, as they contain a false statement -
namely, that Clarke was acting for the company, and they
purport to bind the company in fraud of the company. That
being so, I feel bound by the decision of the House of Lords to
hold that it is not open to the present plaintiffs to say: 'The
question whether authority has been delegated to Clarke, the
Manchester manager, is a matter of internal management
about which we need not inquire under the rule in Turquand's
Case.'''
In South London Greyhound Racecourses Ltd v. Wake (49) the
managing director and the secretary of the plaintiff company
(46) [1927] 1 K.B. 826. (48) [1927] 1 K.B., at p. 840.

(47) [1927] 1 K.B., at pp. 835-836. (49) [1931] 1 Ch. 496.
fraudulently and for their own purposes procured the issue to the H.C. OF A.
1989·1990.
defendant of a certificate that he was the holder of shares in the '-.--'
company. The share certificate was sealed with the seal of the NORTHSIDE
DEVELOP'
company and attested by the signatures of the managing director MEIoITS
and secretary. The articles of the company provided that the seal of PrY. LTD.
V.
the company should not be affIxed except by the authority of a REGISTRAR'
resolution of the board of directors and in the presence of at least GENERAL.
one director and the secretary. The company successfully contended

DawsonJ.
that the defendant was not entitled to the shares. Clauson J.
said (50):
"I conceive that if the certificate is binding on the company
in the sense of being a document which has, in truth, been
sealed by the company, whether by a duly authorized agent or
by a person whom the company cannot be heard to allege to be
other than a duly authorized agent, it may well be that the
certificate estops the company from setting up the true facts
and from alleging that Wake never became transferee of the
shares and accordingly has no title to them; and if that were
the case, 1 conceive 1 should be bound to refuse the company
the relief it asks."
But, as Clauson J. went on to point out, the share certificate was a
forgery and, the seal having been affIxed by the director and
secretary without authority, actual or ostensible, there was no
transaction to which the indoor management rule might be applied
in order to cure any irregularity. As he observed, the "certificate
being a mere nullity, there is nothing in the existence of the
certificate to prevent the company from setting up the true
facts" (51). The decision has been criticized upon the basis that it
must be within the apparent authority of a director and secretary to
authenticate share certificates (see Pennington, Company lAw, 5th
ed. (1985), p. 137) but it is clear (52) that Clauson J. proceeded
upon a contrary basis.
At one time it seems to have been thought to be an open question
whether the existence of an article conferring the power to delegate
authority to a person to act on behalf of a company nlight of itself
enable that authority to be presumed under the indoor management
rule. See Campbell, "Contracts with Companies", lAw Quarterly
Review, vol. 76 (1960) lIS, at p. 123. There is support to be found
in various dicta for the proposition that an outsider who deals with
a person to whom authority might be delegated is, at least if he has
knowledge of the relevant article, entitled to presume that the
delegation has taken place: Biggerstaff v. Rowatt's Wharf Ltd. (53);
(50) (1931)1 Ch., at p. 506. (52) (1931)1 Ch., at pp. 508-509.

(51) [1931)1 Ch., at p. 510. (53) (1896) 2 Ch. 93, at p. 102.
196 HIGH COURT [1989-1990.
H. C. OF A. Kreditbank Cassel G.m.b.H. v. Schenkers (54); Rama Corporation
1989-1990.
'---v-' Ltd. v. Proved Tin and General Investments Ltd. (55). Equally there
NORTHSIDE are dicta the other way saying that a person must be held out by a
DEVELOP-
MENTS
company to have authority before the.exercise of power under the
PrY. LTD. articles to delegate the authority might be presumed: see, e.g.,
v.
REGISTRAR-
Kreditbank Cassel G.m.b.H. v. Schenkers (56); British Thomson-
GENERAL. Houston Cu. v. Federated European Bank Ltd. (57). A similar
conflict was at one time apparent in this country: Goulburn Valley
Dawson J.
Butter Factory Co. Pty. Ltd. v. Bank of New South Wales (58); In
re Hapytoz Pty. Ltd. (In liq.) (59); cf. Re Scottish Loan & Finance
Co. Ltd. (60).
But the notion that potential authority under an article might,
without more, be treated as actual authority by an outsider to the
company who knows of the article was something which obviously
went beyond the reasonable requirements of business convenience
and was difficult to sustain upon principle.
This was made clear by Sargant 1.J. (in whose judgment
Atkin 1.J. concurred) in Houghton & Co. v. Nothard, Lowe and
Wills (61). In that case, a single director of two companies, both
engaged in fruit trade, entered into an agreement with a frrm of
fruit brokers (the plaintiffs) that in exchange for a loan to one
company the brokers would have the right to sell on commission all
the fruit imported by both companies, and that 70 per cent of the
net proceeds of the sale of both companies could be retained as
security for the advance. The director had no actual authority from
that company which was not the recipient of the loan (the
defendant company). The brokers sought confrrmation of the
agreement from the defendant company itself but the only
conf'rrmation received was from the defendant company's secretary,
who had no actual authority to confrrm the agreement.
The articles of association contained a wide power, vested in the
board of directors, to delegate their power to enter into the type of
transaction in question to any person, including a single director or
the secretary. The plaintiffs did not know of this power of
delegation and the power had not in fact been exercised. At fIrst
instance, Wright J. took the view that the plaintiffs were entitled to
treat the question of whether the power to delegate had been
exercised as a matter of internal management only and to assume
that the director and secretary in fact possessed the power they
(54) [1927] 1 K.B., at pp. 832-833. (58) (1900) 25 V.L.R.702, at

(55) [1952] 2 Q.B. 147, at p. 168. pp. 715-716.
(56) [1927] 1 K.B., at p. 843. (59) [1937) V.L.R. 40, at p. 46.
(57) [1932] 2 K.B. 176, at p. 182. (60) (1944) 44 S.R. (NS.W.) 461.
(61) [1927)1 K.B. 246.
purported to exercise by entering into the transaction, so that their H. C.OF A.
1989-1990.
actions could bind the company. '-y-I
The Court of Appeal reversed the decision of Wright J. NORTIlSlDE
DEVELOP-
Sargant L.J. rejected the notion that the indoor management rule MENfS
could be so applied, even had the plaintiffs had actual and not PrY. LTD.
v.
merely constructive knowledge of the power of delegation in the REGISTRAR-
articles of association. To extend the scope of the operation of the GENERAL.
rule in this way would be

DawoooJ.
"to carry the doctrine of presumed power far beyond anything
that has hitherto been decided, and to place limited companies,
without any sufficient reason for so doing, at the mercy of any
servant or agent who should purport to contract on their
behalf. On this view, not only a director of a limited company
with articles founded on Table A, but a secretary or any
subordinate officer might be treated by a third party acting in
good faith as capable of binding the company by any sort of
contract, however exceptional, on the ground that a power of
making such a contract might conceivably have been entrusted
to him." (62)
Atkin L.J. confirmed this view in Kreditbank Cassel G.m.b.H v.
Schenkers (63):
"... it is said: 'You, the defendants, are a limited company, and
as such you are in a much more awkward position than if you
were a firm, because you have an article in your articles of
association empowering the directors to determine who may
sign bills of exchange on behalf of the company, and, therefore,
anyone who purports to sign a bill of exchange in the name of
the company is deemed to have authority to do so.' Carried to
its logical conclusion, that would be a most alarming doctrine
for companies, for anyone who has the pen of a ready writer
need only sit down and write a bill of exchange in the name of
a company having an article in this form, and the company
would, presumably, be bound when the bill got into the hands
of a holder for value without notice, even although the bill was
an absolute forgery. The article cannot have that extended
bearing, and if some limitation were not placed upon it, not
merely the office boy but anyone might purport to sign on
behalf of the company. Such a view is not correct."
An office boy purporting to sign a cheque on behalf of a company
would ordinarily place an outsider upon inquiry, but the point is
nevertheless clearly made. It is true that Atkin L.J. goes on to give
the indoor management rule an application which is somewhat
inconsistent with the judgment of Sargant L.J. in Houghton. But
the judgments in Kreditbank were, unlike those in Houghton,
unreserved and the view of Sargant L.J., with whom Atkin L.J.
(62) (1927)1 K.B., at pp. 266-267. (63) (1927)1 K.B., at pp. 842-843.
198 HIGH COURT [1989-1990.
H.C.OFA. agreed unequivocally in Houghton, is clearly to be preferred. The
1989·1990.
'-y--' correct view is that the indoor management rule cannot be used to
NORTHSIDE create authority where none otherwise exists; it merely entitles an
DEVELOP'
MENTS
outsider, in the absence of anything putting him upon inquiry, to
PrY. LID. presume regularity in the internal affairs of a company when
v. confronted by a person apparently acting with the authority of the
REGISTRAR·
GENERAL. company. The existence of an article under which authority might
be conferred, if it is known to the outsider, is a circumstance to be
DawsonJ.
taken into account in determining whether that person is being held
out as possessing that authority. It may be consistent with that
person having the authority which he purports to have. There must,
however, be something more than the mere existence of a power
within the articles, for instance the power to delegate (which mayor
may not have been exercised), upon which to base an apparent
exercise of authority which will bind the company. And, of course,
knowledge of such an article is not essential for the application of
the indoor management rule where apparent authority can be
established without reliance upon it.
In other words, the indoor management rule only has scope for
operation if it can be established independently that the person
purporting to represent the company had actual or ostensible
authority to enter into the transaction. The rule is thus dependent
upon the operation of normal agency principles; it operates only
where on ordinary principles the person purporting to act on behalf
of the company is acting within the scope of his actual or ostensible
authority.
Whatever the controversy which may previously have existed,
the decision in Freeman & Lockyer v. Buckhurst Park Properties
(Mongol) Ltd. (64) has ensured that it is the latter view which has
prevailed. Indeed, in Freeman & Lockyer Diplock L.J. preferred to
speak entirely in terms of actual or ostensible authority to bind a
company and to avoid any express reference to the rule in Royal
British Bank v. Turquand. But it is clear from his judgment (and
that of Willmer L.J. (65)) that, where an outsider dealing with a
company relies upon the ostensible authority of some person
purporting to act as its agent, an article permitting that authority to
be delegated to the agent will be significant for two reasons. First,
whether the article is known to the outsider or not, it will establish
that the delegation and exercise of the authority is intra vires.
Secondly, where the existence of the article is known to the
outsider, it will be relevant as part of the holding out by the
company of the person as its agent. Of course, as Diplock LJ.
(64) (1964) 2 Q.B. 480. (65) (1964) 2 Q.B., at p. 496.

points out, the company will hold the person out as having the H.C. OF A.
1989-1990.
authority to act as agent if it either expressly represents that he is so '--r-'
authorized or permits him to act as if he were so authorized, NORTHSIDE
DEVELOP-
particularly where it permits him to act in a position which MENTIl
ordinarily carries such authority with it. In those circumstances the PrY. LID.
v.
company will be estopped from denying the agent's authority REGISTRAR-
whether or not - and this is the indoor management rule to which GENERAL.
Diplock L.J. found it unnecessary to refer - the procedures have

DawsonJ.
been observed which are required to be followed internally in order
to confer actual authority upon the agent. Although not expressly
referring to the indoor management rule, Diplock L.J. (66) took as
confirmation of his view the dictum of Atkin L.J. in Kreditbank
Cassel G.m.b.H. v. Schenkers (67):
"If you are dealing with a director in a matter in which
normally a director would have power to act for the company
you are not obliged to inquire whether or not the formalities
required by the articles have been complied with before he
exercises that power."
Freeman & Lockyer v. Buckhurst Park Properties (Mongol) Ltd. has
been applied by this Court in Crabtree- Vickers Pty. Ltd v.
Australian Direct Mail Advertising & Addressing Co. Pty. Ltd. (68)
and there is no reason to doubt the principles which it lays down.
In applying these principles in the case of forgery, it is necessary
to distinguish between forgery which involves a counterfeit
signature or seal and that which does not. A counterfeit signature or
seal purports to be that which it is not, not because of any lack of
authority, but simply because it is false. There is no representation
that the forger is authorized to act as an agent and there is no room
for the application of the indoor management rule. The forgery is
truly a nullity. In Ruben v. Great Finga// Consolidated there were
counterfeit signatures and it was in that context that Lord Lorebum
said that the indoor management rule did not apply because it
"applies only to irregularities that otherwise might affect a genuine
transaction". Of course, if a company represents that a Cdunterfeit
signature or seal is genuine, it may be estopped from denying its
authenticity.
But, as I have said, there may be a forgery where no counterfeit
signature or seal is involved - where, for example, a person
without actual or ostensible authority purports to sign a document
on behalf of a company or afftxes its seal to it with intent to
defraud. There is then a false document made with the intention
(66) [1964)2 Q.B., at p. 508. (68) (1975) 133 C.L.R. 72.

(67) (1927)1 K.B., at p. 844.
200 HIGH COURT [1989-1990.
H.C. OF A. that it should be acted upon as genuine and that constitutes a
1989·1990.
'---r-' forgery. What if, notwithstanding the fraudulent intent, there is
NORTHSIDE ostensible authority, although no actual authority, to sign or seal
DEVELOP·
MENTS
the document on behalf of a company? Would the document then
PrY. LTD. constitute a forgery? There have been mixed answers given to the
v. last question: cf. Campbell, op. cit., at pp. 135-136; Thompson,
REGISTRAR-
GENERAL. "Company Law Doctrines and Authority to Contract", University
of Toronto Law Journal, vol. 1I (1956) 248, at pp. 274-275. The
Dawson J.
answer is, however, of no real consequence for the purposes of the
application of the indoor management rule. Clearly, if the person
who signs the document or affixes the seal is held out by the
company as having authority to act for it, an outsider dealing with
that person is entitled to presume that the company correctly
observed the procedures available to it to place the person in that
position and the company would be estopped from denying his
authority. If, whatever may be the position in the criminal law, the
document is not in those circumstances to be regarded as a forgery,
then the statement of Lord Lorebum that the indoor management
rule cannot apply to a forgery is correct in a quite general sense.
In Slingsby v. District Bank Ltd. (69), at ftrst instance, Wright J.
said:
"Though a man may be estopped by conduct from denying
that a forgery is his signature, yet as forgery is a crime he
cannot authorize it in advance (if indeed it is not a
contradiction in terms to authorize a forgery) without being an
accessory before the fact. Nor can he agree to be bound by it
subsequently, so as to shield a criminal or compound a felony.
Hence an act of forgery is a nullity and outside any actual or
ostensible authority, and outside the principle of Lloyd v.
Grace. Smith & Co."
But the basis of the doctrine of ostensible authority is estoppel and
there is no reason why a person should not, by reason of having
held someone out as possessing authority, be precluded from
asserting a forgery on the part of the latter. This was pointed out by
Sir Wilfrid Greene M.R. in Uxbridge Permanent Benefit Building
Society v. Pickard (70), when he said:
"The cases of Ruben v. Great Fingall Consolidated;
Kreditbank Cassel v. Schenkers; and Slingsby v. District Bank
(one of them in the House of Lords and the other two in this
Court) appear to me to make it quite clear that in the view of
the leamediudges who dealt with the matter the question of
the effect o(aJorged instrument as affecting the principal falls
within the question of ostensible authority. I can imd no
justification in any of the observations in those cases for the
(69) [1931) 2 K.B. 588, at p. 605. (70) [1939) 2 K.B. 248, at p. 256.
suggestion that a forgery, if in other respects it comes within RC.OF A.
the scope of ostensible authority, in any way prevents that 1989-1990.
'-r-'
doctrine from applying."
NORTHSIDE
Uxbridge Permanent Benefit Building Society v. Pickard was, of DEVELOP-
MENTS
course, a case which was concerned with the uttering of forged PrY. LTD.
documents by an employee in the course of his employment rather v.
REGISTRAR-
than the actual forging of a document by the employee. GENERAL.
Nor is there any warrant for treating the affixation of the seal of
a company as attracting some special application of the indoor DawsonJ.
management rule. Whilst a company's seal may be authentic

evidence of what a company has done or agreed to do (see Mayor of
Ludlow v. Charlton (71), if it is affixed without authority, actual or
ostensible, it is a forgery and the company is not bound by it: Bank
of Ireland v. Evans' Trustees (72); Mayor, &C., of Merchants of the
Staple of England v. Governor and Company of Bank of
England (73).
It adds nothing to speak of "the peculiar significance of the
common seal as the external physical symbol of an act of the body
corporate itself - a corporate act": Lindgren, "The Positive
Corporate Seal Rule and Exceptions Thereto and the Rule in
Turquand's Case", Melbourne University Law Review, vol. 9 (1973)
192, at p. 194. That view must depend on treating the act of
affIxing the seal as an act, not simply of an agent, but of an organ
of the company itself. The organic theory, which was originated by
Lord Haldane L.c. in Lennard's Carrying Co. Ltd. v. Asiatic
Petroleum Co. Ltd. (74) (see also H.L. Bolton (Engineering) Co. Ltd.
v. T.!. Graham & Sons Ltd. (75), and The Lady Gwendolen (76)),
has been used to impose liability upon companies beyond that
which could be imposed by the application of the principles of
agency alone. It is an approach which has been particularly useful
in criminal cases where the liability of a company has depended
upon a mental element: Director ofPublic Prosecutions v. Kent and
Sussex Contractors Ltd. (77); R. v. lC.R. Haulage Ltd. (78); John
Henshall (Quarries) Ltd. v. Harvey (79); Reg. v. McDonnell (80).
But the organic theory merely extends the scope of an agent's
capacity to bind a company and there must first be authority, actual
or apparent. It is only then that a person may be regarded not only
(71) (1840) 6 M. & W. 815, at (75) [1957] 1 Q.B. 159, at pp. 172-
p. 823 (151 E.R. 642, at 173.
p.645]. (76) [1965] P. 294, at pp. 342-345,
(72) (1855) 5 H.L.C. 389, at p. 408 355-356.
[10 E.R. 950, at p. 958). (77) [1944] K.B. 146.
(73) (1887) 21 Q.B.D. 160. (78) [1944] K.B. 551.
(74) (1915] A.C. 705, at pp. 713- (79) (1965)2 Q.B. 233.
714. (80) [1966] 1 Q.B. 233.
202 HIGH COURT [1989-1990.
H. C.OF A. as the agent of a company, but also as the company itself - an
1989-1990.
'-r-' organic part of it - so that "[t]he state of mind of [the agent] is the
NORTHSIDE state of mind of the company": HL. Bolton (Engineering) Co. Ltd.
DEVELOP-
MENTS
v. T.J. Graham & Sons Ltd. (81), per Denning L.J. Thus the
PrY. LID. application of the theory depends in the first instance upon there
v.
REGISTRAR-
being authority, that is to say, agency. This point is made in the
GENERAL_ third edition of Gower's Principles of Modem Company Law,
(1969), pp. 150-151:
Dawson J.
"Even if the officials are treated as organs, this does not
obviate the need to comply with the basic principle of agency
law that their acts bind the company only if they are within the
actual, usual, or apparent scope of the officials' authority. The
'organic' theory is used to avoid the difficulty that in some
cases an agent, even when acting within the scope of his
authority, cannot bind the principal; it in no way affects the
other rule that a principal is never liable if the agent is acting
outside that authority. Just as a natural person may not be
responsible for the acts of his organs if he has no control over
them, so a company cannot be liable for its organs unless they
are acting as such."
See also Smorgon v. Australia and New Zealand Banking Group
Ltd. (82).
A body corporate can only act through agents, even in the
affixation of a seal, and, if a person who is not authorized, or held
a
out as being authorized, to enter into transaction on behalf of a
company purports to do so by affIxing the company's seal to a
document, the company will not be bound. The document will be a
forgery, even if the person concerned would, were the transaction
one which he had authority to conclude on behalf of the company,
be a person authorized to carry out the physical affIxation of the
seal. Obviously, if a person has been given general authority to affIX
the seal of a company that authority does not extend to any
transaction whatsoever; it must be limited to those transactions into
which the company has decided to enter. In other words, authority
to affIX the seal is not the same thing as authority to detennine
those documents to which the seal should be affIXed. Of course, as I
have said, if a person has apparent authority to enter into a
transaction and pursuant to that authority affIxes the company's
seal to a document, the indoor management rule may allow an
outsider dealing with that person to presume that the seal is affIXed
in accordance with the requirements of the articles, that being a
matter of internal regulation.
Thus, where a company has been held to be bound by the
(81) [1957)1 Q.B., at p. 172. (82) (1976) 134 C.L.R. 475, at

pp. 482-483.
affixation of its seal by a person without actual authority, it has H. C. OF A.
1989-1990.
been because that person has been held out by the company as '-y--'
acting on its behalf in the transaction in which the seal is used. In re NORTIlSlDE
DEVELOP-
County Life Assurance Co. (83) was a case in which the articles of MENTS
association of a life assurance company named a managing director PIT.Lm.
v.
and a board of directors. The directors named refused to act and REGISTRAR'
passed a resolution that the company should not carry on business. GENERAL_
Notwithstanding this, the person named as managing director and

Dawson J.
one of the shareholders persisted in carrying on business at the
registered office of the company. They chose directors in place of
those who refused to act, appointed a secretary and allocated shares.
The company issued policies which were sealed with the seal of the
company and signed by the managing director, two of the persons
purporting to act as directors and the person purporting to act as
secretary. By the articles the directors were appointed to hold office
until the first ordinary meeting of the company and in the
meantime they were to have power to appoint other qualified
persons as directors in addition to, or in substitution for, any of
their number. The subscribers to the memorandum were aware that
business was being carried on in the company's name. The company
was held to be bound by one of the policies which it issued. The
persons purporting to act as directors of the company were in the
position of de facto directors, that is, were held out by the company
as being directors and, therefore, authorized to carry on the business
of the company. As Giffard L.J. said (84):
"The company is bound by what takes place in the usual
course of business with a third party where that third party
deals bona fide with persons who may be termed de facto
directors, and who might, so far as he could tell, have been
directors de jure. In this case the ordinary correspondence takes
place, then the applicant goes to the office and gets from the
office a document which appears, on the face of it, to be
executed according to the terms of the articles, and which has
to it a seal which purports to be the seal of the company, that
seal being put by three persons who represent themselves to be
directors, and who are de facto directors, and countersigned by
the person who was de facto secretary."
In County of Gloucester Bank v. Rudry Merthyr Steam and
House Coal Colliery Co. (85) the company's seal was affIXed to a
mortgage by the secretary of the company. The secretary was
authorized to affIX the seal to the mortgage at a meeting of the
board of directors' at which only two directors were present. The
(83) (1870) L.R. 5 Ch. App. 288. (85) [1895)1 Ch.629.

(84) (1870) L.R. 5 Ch. App., at
pp. 293-294.
204 HIGH COURT [1989-1990.
H. C.OF A. directors had made a regulation that a quorum of three directors
1989·1990.
'-r-' should be necessary for the validity of their acts. The company was
NORTIfSIDE held to be bound by the mortgage. Clearly the secretary was held
DEVELOP-
MENTS
out as having the authority to affix the seal to the mortgage, the
PrY. LTD. quorum at a directors' meeting being a matter of internal
v.
REGISTRAR-
management only. As Lord Halsbury said (86):
GENERAL. "... I am of opinion that nothing has been urged before us
which would induce us to hold that the authority of the
Dawson J. company was not given to the making of this mortgage; at least
in this sense, that an outside person, who had no other means
of knowledge, was entitled to regard the company as having
performed its functions in the making of this mortgage by
whatever means it could lawfuUy do so."
In Duck v. Tower GalvaniZing Co. (87) one RestaU formed his
business into a limited company. He then carried on the business
without reference to the other subscribers to the memorandum.
There were no meetings, no resolutions and no minute books. The
articles gave power to issue debentures. A debenture was executed
under the seal of the company and signed by Restall and his wife
purporting to act as directors. The company was held to be boUnd
by the debenture. The judgment of the court is short and does not
attempt any elaborate analysis, but it is apparent from the argument
that the issue was whether Restall was held out by the company as
having the powers of a managing director and thus the authority to
direct the affIxation of the seal. The issue of authority was
determined against the company, the objections raised being held to
be mere formalities which were covered by the indoor management
rule.
In the present case, neither Robert Sturgess nor his son, Gerard
Sturgess, was authorized to mortgage the land held by Northside
Developments Pty. Ltd. They had no actual authority and the
company had not held either of them out as· possessing any
authority to enter into a transaction of that type on its behalf. It
would seem that the company did not even hold Gerard Sturgess
out as being its secretary, but it is unnecessary to determine that
question because, even if it did, the offIce of secretary would not
carry with it any apparent authority to encumber the company's
land. The secretary of a company is its administrative offIcer and,
even though his authority ordinarily extends to countersigning the
affIxation of the company's seal pursuant to a resolution of the
board of directors, he has no apparent authority to enter into
commercial transactions upon his own decision, save for
(86) [18951 1 Ch., at p. 632. (87) 1190112 K.B. 314.

transactions of an administrative kind required for the day to day H. C. OF A.
1989-1990.
running of the company's affairs: Panorama Developments v. '-y-J
Fidelis Fabrics (88). Plainly the transaction in this case was not of NORTHSIDE
DEVELOP-
that kind. MENTS
Nor does an ordinary, individual director of a company have any PrY. LTD.
V.
ostensible authority to bind the company. A managing director may REGISTRAR-
have wide powers, actual or ostensible. In Freeman & Lockyer v. GENERAL.
Buckhurst Park Properties (Mangal) Ltd. it was held that a person
Dawson J.
who had assumed the powers of a managing director of a property
company with the company's approval had apparent authority to
engage architects on the company's behalf, this being within the
ordinary ambit of the authority of a managing director of a
company of that kind. And even ordinary directors may have quite
significant functions entrusted to them by the company, although
usually these are of a more or less fonnal nature, such as affixing
the company seal to documents which the company requires to be
executed: see Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co.
Ltd. (89). But the position of director does not carry with it any
ostensible authority to act on behalf of the company. Directors can
act only collectively as a board and the function of an individual
director is to participate in decisions of the board. In the absence of
some representation made by the company, a director has no
ostensible authority to bind it.
In this case, there is no fmding that Northside Developments Pty.
Ltd. held Robert Sturgess out as having authority to encumber its
land on its behalf nor on the evidence could there be. The company
in fact conducted no business which could be said to have been
delegated to an individual director and, in any event, it would have
been apparent that this transaction was not in the course of any
business which it might have conducted. The transaction was
completed without the actual or apparent authority of Northside
Developments Pty. Ltd. and the affIxation of the seal of the
company was a forgery. This precluded the application of the rule in
Royal British Bank v. Turquand. It is unnecessary to consider
whether, had there been ostensible authority to bind the company,
the application of that rule would have resulted in a binding
document.
Having reached that conclusion, it is also strictly unnecessary for
me to consider whether Barclays was, in any event, put upon
inquiry. Nevertheless, I may indicate briefly that in my view such
was the case. The very nature of a transaction may put even an
(88) [197112 Q.B. 711, at pp. 716- (89) (19151 A.c., at p. 715.
717.
206 HIGH COURT [1989-1990.
H.C. OF A. outsider dealing with a company upon inquiry as to the authority of
1989-1990.
'-r--' persons purporting to act for it: Rolled Steel Ltd. v. British Steel
NORTIiSIDE Corporation (90). Here the moneys involved were substantial and
DEVELOP-
MENTS
were lent by Barclays for purposes which had no apparent
PTY. LTD. connexion with any business carried on by Northside Developments
V.
REGISTRAR-
Pty. Ltd. Nor did the loan appear to serve any interest which
GENERAL. Northside Developments Pty. Ltd. might have. Any relation
between Northside Developments Pty. Ltd. and the companies to
Dawoon J.
which the loan was made did not go beyond the fact that the
companies shared the same registered office as Northside
Developments Pty. Ltd. and also had as officers Robert Sturgess
and Gerard Sturgess. But this did not provide any explanation for
the transaction. Indeed, the latter circumstance rather suggested
that the two Sturgesses may have stood to gain in some way by the
transaction. The plain fact of the matter was that Barclays took a
mortgage over the land of Northside Developments Pty. Ltd. as
security for the indebtedness of companies with which the
Sturgesses, father and son, were connected and with which
Northside Developments Pty. Ltd. was not relevantly connected. It
was the case of a director attempting to have a company apply its
property for the benefit of other companies in which he had an
interest: cf. E.B.M Co. Ltd. v. Dominion Bank (91). In my view,
these circumstances were sufficient to put Barclays upon inquiry to
ascertain whether the seal of Northside Developments Pty. Ltd. was
properly affixed to the mortgage. There was no evidence that
Barclays made any inquiry and the consequence is that no reliance
could be placed upon the rule in Royal British Bank v. Turquand,
even if it were otherwise applicable.
The Registrar-General also made submissions based upon
s. SIA(l) of the Conveyancing Act 1919 (N.S.W.) and s. 106 of the
Real Property Act. I agree with the Chief Justice, for the reasons
given by him, that those submissions must fail.
I would allow the appeal.
TOOHEY J. I would allow this appeal, for the reasons developed

by Dawson J. in his judgment. What follows is not intended in any
way to detract from my agreement with those reasons; it aims to do
little more than place the rule in Royal British Bank v.
Turquand (92) in context.
The scope of the rule is identified by its other title, the "indoor
(90) (1986] Ch. 246, at pp. 284-285. (92) (1856) 6 El. & B1. 327 (119
(91) (1937] 3 All E.R. 555, at E.R.886].
p.569.
management" rule, a description used by Lord Hatherley in H. C. OF A.
1989-1990.
Mahony v. East Holyford Mining Co. (93). In its early history, the '---r-'
rule may be seen as relieving those who dealt with companies of the NORTHSIDE
DEVELOP-
obligation to ensure that there had been no irregularities in the MENTS
internal management of the company in relation to such matters as PIT. LTD.
V.
the holding of meetings and the passing of resolutions. This might REGISTRAR-
include elections and appointments to office, the presence of a GENERAL.
quorum at meetings and the execution of documents. In such cases,

Toobey J.
"if nothing has occurred which is evidently contrary to the
provisions of the registered documents, the outsider may assume the
regularity of all matters internal to the company and its
organisation": Sealy, Cases and Materials in Company Law, 2nd ed.
(1978), p. 209.
That, I think, is still the proper scope of the rule and it was so
seen by Lord Simonds in Morris v. Kanssen (94) when he said:
"The so-called rule in Turquand's case is, I think, correctly
stated in Halsbury's Laws of England, 2nd ed., vol. V, at
p. 423: 'But persons contracting with a company and dealing in
good faith may assume that acts within its constitution and
powers have been properly and duly performed and are not
bound to inquire whether acts of internal management have
been regular.'"
This formulation of the rule, with some slight variation in language,
appears in Halsbury's Laws of England, 4th ed. (1988), vol. 7(1),
par. 980.
But where the question is whether an officer of the company has
authority to bind the company by his actions, the context moves
from one of indoor management to one of agency and the ordinary
rules of agency then come into play. The indoor management rule is
in effect a concession to the outsider in dealing with a company; it
does not confer authority on an officer of the company to enter into
a contract where that authority does not otherwise exist. Authority
must actually exist to enter into the transaction in question or it
must be found in principles of agency, as in the concept of
ostensible authority. This place for the operation of agency
principles in the affairs of companies was made clear by Freeman &
Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (95), a decision
which was applied by this Court in Crabtree- Vickers Pty. Ltd v.
Australian Direct Mail Advertising & Addressing Co. Pty. Ltd. (96).
I agree with the distinction drawn by Dawson J. between forgery
which involves a counterfeit signature or seal and that which does
(93) (1875) L.R. 7 H.L. 869, at (95) (1964]2 Q.B. 480.

p.894. (96) (1975) 133 C.L.R. 72.
(94) [1946] A.C. 459, at p. 474.
208 HIGH COURT [1989-1990.
H. C. OF A. not, and the consequences flowing from that distinction. The former
1989-1990.
'---,-J is in truth a nullity, to which the indoor management rule does not
NORTHSIDE speak. The latter, to which the term "forgery" is only loosely applied
DEVEWP-
MENTS
although it is used in some of the cases (KreditbankCassel
PrY. Lm. G.m.b.H. v. &henkers (97) and South London Greyhound
v. Racecourses Ltd. v. Wake (98) for example), turns upon the
REGISTRAR-
GENERAL. authority of those who purport to act on behalf of the company, an
authority which may be inferred if the company holds out the
Toohey J.
person as authorized to act on its behalf or allows him to act as if he
were so authorized. Where a person affixes the seal of a company to
a document, without actual authority to do so, the consequences for
the company will depend on its own conduct in relation to that
person - what it has held that person as having authority to do or
what it has allowed him to do without demur. In a particular case,
the consequences might well be the same if the indoor management
rule were applied, but it is the principles of agency which operate in
this area. The application of those principles to the present case
leads to the conelusion that there was nothing in the conduct of the
appellant which would hold it to the actions of Robert Sturgess in
mortgaging its land.
While, on the approach taken by Dawson J., it is unnecessary to
determine whether Barclays Credit Corporation Holdings Pty. Ltd.
("Barelays") was put upon inquiry,.} agree that Barclays was, in the
circumstances of this transaction, put upon inquiry. But the
evidence did not disclose that it made any. Indeed, it should be
noted that at the trial Mr. Clare, a former manager of one of the
Barclays' companies, gave evidence that no inquiries had been made
by Barclays into the nature and extent of Mr. Sturgess' interest in
the land at Frenchs Forest, beyond what he was told by Sturgess.
Likewise, Mr. Duncan, the former assistant general manager of
Barclays Australia (Finance) Ltd., admitted that he probably had
made no inquiries of Mr. Sturgess or anyone else to ascertain what
was Sturgess' relationship with the appellant.
In the circumstances the appellant was not bound by the
mortgage to Barclays.
GAUDRON J. The appellant, Northside Developments Pty. Ltd.

("Northside''), seeks to establish liability on the part of the Registrar-
General pursuant to s. 127 of the Real Property Act 1900 (N.S.W.)
("the Act") in respect of the registration of a mortgage in favour of
Barelays Credit Corporation Holdings Pty. Ltd. ("Barclays") over
land of which Northside was then the registered proprietor. The
(97) (1927)1 K.B. 826. (98) (1931)1 Ch. 496.

land was subsequently sold by Barclays as mortgagee in possession. H.C.OFA.
1989·1990.
The facts are set out in the judgment of Mason C.l. and, save to the '--y-'
extent that they are later specifically adverted to, they need not be NORTHSIDE
DEVELOp·
repeated. MENTS
Section 127(1) of the Act relevantly provides: PIT.Lm.
v.
"Any person sustaining loss or daInages ... by the REGISTRAR·
registration otherwise than under section 45E of any other GENERAL.
person as proprietor of land ..., and who by the provisions of
this Act is barred from bringing proceedings ... for possession Gaudron J.
of that land, or other proceedings or action for the recovery of
such land, estate, or interest or to whose claim every such
proceedings or action would be inapplicable may, in any case in
which the remedy by action for recovery of damages as
hereinbefore provided is inapplicable, bring an action against
the Registrar-General as nominal defendant for recovery of
damages."
The issue in the present case is whether the loss or damage
suffered by Northside was sustained by registration or by execution
of the mortgage. It is common ground that, if the loss or damage
was sustained by registration, the further requirements of s. 127 of
the Act are satisfied.
As appears from the judgment of Mason C.J. the mortgage was
not authorized by Northside. Its execution was effected by the
affixation of Northside's seal and by signing by Mr. Robert
Sturgess, a director, and by Mr. Gerard Sturgess who, although not
appointed as secretary, was shown in the records of the Corporate
Mfairs Commission as appointed to that office. To an outsider
possessed only of the information contained in the memorandum
and articles of association and the returns fIled with the Corporate
Mfairs Commission the affIxation of the seal would appear to
conform with the requirements of the articles relating to its use.
And there is no suggestion but that the transaction was of a type
that Northside was empowered to undertake.
The mortgage was part of a transaction by which Mr. Robert
Sturgess fmanced a business enterprise conducted by Farola Pty.
Ltd. ("Farolaj. Neither Northside nor any of its directors or
shareholders, other than Mr. Robert Sturgess, had any interest in or
was otherwise associated with Farola. Nor were they aware of the
transaction. The moneys secured by the transaction were advanced
to Farola or at its direction. The execution of the mortgage was,
quite simply, a fraud on Northside.
The question whether the loss suffered by Northside was
sustained by registration or by execution of the mortgage depends
upon whether the mortgage was, on execution in the manner
described, binding on it. If not, the loss was sustained by registration
210 HIGH COURT [1989-1990.
H. C. OF A. which vested an indefeasible title in Barclays, Barclays not having
1989-1990.
'-,.-J been party to the fraud.
NORTIfSIDE It was argued that Northside became bound by the mortgage by
DEVELOP-
MENTS
operation of the rule in Royal British Bank v. Turquand (99). The
Pry. LTD. rule derives from a statement by Jervis c.J. (1) in these terms:
v.
REGISTRAR-
"We may now take for granted that the dealings with these
GENERAL. companies are not like dealings with other partnerships, and
that the parties dealing with them are bound to read the statute
GaudronJ. and the deed of settlement. But they are not bound to do more.
And the party here, on reading the deed of settlement, would
find, not a prohibition from borrowing, but a permission to do
so on certain conditions. Finding that the authority might be
mLlde complete by a resolution, he would have a right to infer
the fact of a resolution authorizing that which on the face of
the document appeared to be legitimately done." (Emphasis
added.)
The fmal sentence of this passage suggests that the rule was
grounded in notions akin to those which underlie estoppel, but no
passage in the relatively brief judgment expressly so states. Nor is
the legal foundation of the rule made explicit in subsequent cases,
such as Mahony v. East Holyford Mining Co. (2), County of
Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery
Co. (3) and Duck v. Tower Galvanizing Co. (4), in which the rule
was considered and applied.
Recently, particularly since the decision in Freeman & Lockyer v.
Buckhurst Park Properties (Mangal) Ltd. (5), there has been debate
as to whether the rule in Turquand's Case is a special rule of
company law based upon considerations relating to the use of the
company seal or is an illustration of what are said to be agency
principles underlying the notion of "apparent" or "ostensible"
authority. See, for example, Lindgren, "History of the Rule in
Royal British Bank v. Turquand", Monash University Law Review,
vol. 2 (1975) 13 and "The Positive Corporate Seal Rule and
Exceptions Thereto and the Rule in Turquand's Case", Melbourne
University Law Review, vol. 9 (1973) 192, where it is argued that
the rule is a manifestation of· what is referred to as "the positive
corporate seal rule". See, too, Bowstead on Agency, 15th ed. (1985),
pp. 293-297, where the rule is dealt with as an aspect of "apparent"
or "ostensible" authority and Gower's Principles of Modem
Company Law, 4th ed. (1979), pp. 203-204, where the rule is said to
have "always been expressed as an agency principle". It has also
(99) (1856) 6 EL & B1. 327(119 (2) (1875) L.R. 7 H.L. 869.
E.R.886]. (3) (1895]101.629.
(1) (1856) 6 El. & B1., at p. 332 (4) (1901]2 K.B. 314.
(119 E.R., at p. 8881. (5) (1964]2 Q.B. 480.
been suggested that the rule is an application of the maxim omnia H. C. OF A.

1989-1990.
praesumuntur rite esse acta. See Morris v. Kanssen (6). ~
The debate as to the legal foundation of the rule in Turquand's NORTHSIDE

DEVEWP'
Case bears on the present case in so far as the parties sought to MENTS
argue by reference to its supposed foundation the question of its PTy. LTD.
V.
application or non-application to a transaction involving the REGISTRAR'
fraudulent affixation of a company seal. In this respect it was GENERAL.
argued on behalf of the Registrar-General that the rule, being a

Gaudron J.
special rule of company law, renders binding an instrument to
which a company's seal has been affixed and which has been signed
by persons apparently authorized to so sign (the seal and signatures
being genuine), notwithstanding that the transaction is a fraud on
the company. Cases supporting the proposition that the rule in
Turquand's Case has no application to fraudulent transactions said
to be or to be the same as forgeries, such as Ruben v. Great Fingall
Consolidated (7), Kreditbank Cassel G.m.b.H. v. Schenkers (8) and
South London Greyhound Racecourses Ltd. v. Wake (9), were said
to be based on the misconception that the rule is grounded in
agency principles. On the other hand, it was argued on behalf of
Northside that the fraudulent affixation of a seal amounts to a
forgery to which the rule has no application, a forgery being binding
only by operation of an estoppel. It was further argued that, in the
circumstances of the present case, such an estoppel could only arise
if Robert and Gerard Sturgess had "apparent" or "ostensible"
authority to bind Northside in the transaction with Barelays.
Additionally, it was argued on behalf of Northside that the rule did
not apply in the present case because: (a) Mr. Gerard Sturgess was
not, in fact, a person in whose presence the seal might properly be
affIxed, and (b) the circumstances attending the transaction were
such as ought to have put Barclays to further inquiry.
Merely identifying the rule in Turquand's Case as a special rule of
company law or as an illustration of agency principles provides no
sure guide to its application in any particular case. Moreover, in so
far as the arguments of the parties made reference to the doctrine of
"apparent" or "ostensible" authority, it is pertinent to note that the
latter is no more than a familiar example of an estoppel which
operates within the framework of agency principles. So much may
be seen from the judgment of Diplock L.J. in Freeman &
Lockyer (l0) where "apparent" or "ostensible" authority was
identified as a legal relationship between the principal and the
(6) [1946] A.C. 459, at p. 475. (9) [1931J 1 Ch. 496.

(7) [1906] A.C. 439, at p. 444. (10) [1964J 2 Q.B., at p. 503.
(8) [1927J 1 K.B. 826.
212 maR COURT [1989-1990.
H. C.OF A. contractor created by a representation which, "when acted upon by
1989·1990.
'-.-' the contractor ..., operates as an estoppel, preventing the principal
NORTHSIDE from asserting that he is not bound by the contract".
DEVELOP-
MENTS
One aspect of the rule - and one upon which Northside relies -
PrY. LTD. is not in issue, namely, that it does not apply to validate a
V.
REGISTRAR'
transaction if a person dealing with a company has notice of facts
GENERAL. which ought put him or her to further inquiry. See A.L. Underwood
Ltd. v. Bank of Liverpool (11); Morris v. Kanssen (12); Rolled Steel
Gaudron J.
Ltd. v. British Steel Corporation (13). That aspect suggests that, like
the doctrine of "apparent" or "ostensible" authority, the rule in
Turquand's Case may have its genesis in estoppel or in notions very
similar to those that underlie that doctrine. The gist of an estoppel is
"an assumption adopted by [a person] as the basis of some act or
omission which, unless the assumption be adhered to, would operate
to [that person's] detriment": Thompson v. Palmer (14), per
Dixon J. See also Grundt v. Great Boulder Pry. Gold Mines
Ltd. (15), per Dixon J.; Waltons Stores (Interstate) Ltd. v.
Maher (16); Foran v. Wight (17). Whether or not a person will be
allowed to depart from such an assumption depends upon the part
part played in the adoption of it by the other. See Grundt (15). If
the latter has knowledge of facts or ought to have knowledge of
facts putting him or her to further inquiry, that is a matter which
tells against the former having played such a part in the adoption of
the assumption that he or she should be held to it.
It appears to have been recognized from very early times that an
estoppel may operate by reference to the fraudulent affixation of a
seal (whether that of an individual or a corporation), although the
question of liability on a fraudulently sealed instrument may not
always have been expressed precisely in terms relevant to estoppel.
Certainly it was so expressed in Bank of Ireland v. Evans'
Trustees (18), where Parke B. expressed the test whether trustees
who had been incorporated by statute were bound by instruments
to which the corporate seal had been fraudulently affixed as being
whether the "supposed negligent custody" of the seal was "of that
species of negligence which alone would warrant a jury in rmding
that the Plaintiffs were disentitled to insist on the transfer being
(11) [1924]1 K.B. 775. (16) (1988) 164 C.L.R. 387, at

(12) [1946] A.C., at p. 475. pp. 404,413-414,458.
(13) [1986] Ch. 246, at pp. 284-285. (17) (1989) 168 C.L.R. 385, at
(14) (1933) 49 C.L.R. 507, at pp. 411-413.
p.547. (18) (1855) 5 H.L.C. 389, at
(l5) (l937) 59 C.L.R. 641, at pp. 409-410 [10 E.R. 950, at
p.675. p.959].
void". See also Mayor, Etc., of Merchants of the Staple of England H. C. OF A.
1989-1990.
v. Governor and Company ofBank ofEngland (19). '--y--'
The concluding words from the passage above cited from NORTHSIDE
DEVELOP-
Turquand's Case, the non-application of the rule if circumstances MENTS
exist warranting further inquiry, and the significance of estoppel in !'IT. LTD.
v.
relation to the use of a seal (expressly recognized in Bank of Ireland REGISTRAR-
the year before Turquand's Case was decided in the Exchequer GENERAL.
Chamber) combine to suggest that the rule in Turquand's Case

Gaudron J.
ought now to be seen as grounded in notions akin to those which
underpin the law of estoppel. When the rule is approached from
that perspective, the affixation of the seal is readily seen as being
taken to have given rise to an assumption which was acted upon by
acceptance of the instrument to which the seal was affixed and
which, clearly enough, would result in detriment if adherence to the
assumption were not compelled. On this basis, there are two critical
considerations in determining whether the rule operates so as to
render a company bound by a transaction involving the fraudulent
affixation of its seal. The first is the identification of the underlying
assumption taken to have been made by reason of the affIxation of
the seal. The second is the identification of those circumstances
which would indicate that the part, if any, played by the company
was not such as would require it to be held to the assumption or,
more precisely, will be taken as suffIcient reason for not holding the
company to the assumption taken to have been made.
The conclusion in Turquand's Case rested on the entitlement of
the plaintiffs to infer "a resolution authorizing that which on the
face of the document appeared to be legitimately done". Turquand's
Case was decided on demurrer and it is therefore necessary to have
regard to the pleadings upon which it was decided. The plaintiffs
had declared that "the Company, ... by their writing obligatory,
sealed with their common seal, acknowledged themselves to be held
and fIrmly bound to the plaintiffs". In answer to that declaration it
was pleaded by way of averment, inter alia, that "no resolution of
any general meeting of the ... Company was at any time passed
authorizing the making of the ... writing obligatory; and that the
same was given and made without the authority or consent of the
shareholders of the ... Company". See Royal British Bank v.
Turquand (20). To that plea the plaintiffs demurred. The decision
on demurrer was strictly no more than that lack of authority by
reason of non-compliance with procedural preconditions was no
answer to the plaintiffs' contention that the company had bound
(19) (1887) 21 Q.B.D. 160, at (20) (1855) 5 El. & Bl. 248 [119
pp. 172,174-175,176. E.R.474].
214 HIGH COURT (1989-1990.
H.C.OFA. itself by the instrument to which its seal was affIxed. However, it
1989-1990.
~
being no answer, it necessarily follows that the affixation of a
NORTHSIDE company's seal to an instrument is taken to give rise to an
DEVELOP-
MENTS
assumption that the company has bound itself to the transaction
PrY. LTD. therein embodied.
v.
REGISYRAR-
The matters providing sufficient answer to an assertion that a
GENERAL. company has bound itself by virtue of the affIxation of its seal to an
instrument which embodies a transaction are, to some extent, made
Gaudron J.
explicit in Turquand's Case. The judgment of Jervis C.J. allows that
an absolute prohibition on the transaction, which prohibition might
be ascertained from the public documents of the company, is
sufficient answer. And at first instance lord Campbell C.J. (21)
suggested that an assertion that the company was bound might be
answered by a plea of non est factum or by showing that the
transaction was unlawful and void, his lordship adding that
illegality would be shown "[i]f the directors had exceeded their
authority to the prejudice of the shareholders ... and this had been
known to the obligees".
It needs to be borne in mind that ordinarily the delivery of an
instrument bearing a company's seal is the culmination of a
transaction which will have been preceded by negotiations and
dealings conducted by the company's directors or agents. Clearly
enough, if those directors or agents, in their negotiations and
dealings on behalf of the company, fail to advert to an outstanding
requirement that a condition precedent be satisfied before the
transaction is brought to completion, they thereby encourage an
assumption that, when the company's seal is affIxed to the
instrument in question, the company is thereby bound. And,
because they are acting on behalf of the company, the company has
also encouraged that assumption. But the position is not the same
when a director or agent is transacting business in fraud upon the
company. In such a case the director or agent is not acting on
behalf of the company and, ex hypothesi, the company has not itself
done anything to foster any assumption, unless some additional
factor can be identifIed as bearing on the transaction or the
affixation of the seal. Some additional factor, such as the adoption
of the transaction or some act or omission founding an assumption
that the director or agent was acting on behalf of the company,
might well emerge. But in that event the issue becomes one of
estoppel proper rather than the application of the rule in
Turquand's Case. Accordingly, in my view, a company may answer
(21) (1855) 5 El & Bl, at pp. 260-261 (119 E.R., at p. 479).

an assertion that it has bound itself to a transaction embodied in an H.C.OF A.

1989-1990.
instrument to which its seal is affixed by establishing that the seal '-r-'
was fraudulently affIxed, or, in other words, that the transaction NORTHSIDE
DEVELOP-
was not entered on behalf of the company but with intent to MENTS
defraud. Of course, it follows from what has been said earlier that PrY. LTD.
v.
that answer will not avail if the company is otherwise estopped from REGISfRAR-
denying that the transaction was entered on its behalf. GENERAL.
In the present case both parties approached the question whether

GaudronJ.
Northside was otherwise estopped in relation to the transaction with
Barelays on the basis of "apparent" or "ostensible" authority. On
behalf of the Registrar-General, it was argued that such authority
could be found in the manner in which Northside had allowed its
affairs to be controlled by Mr. Robert Sturgess and his fIrm of
accountants; on behalf of Northside, it was argued that it was
necessary to fmd "apparent" or "ostensible" authority to enter into
the impugned transaction. Although there will often be a coinci-
dence of "apparent" or "ostensible" authority and an estoppel
binding a company to a transaction involving the fraudulent
affIxation of its seal, the question of estoppel in relation to the
transaction is, in essence, separate from that of "apparent" or
"ostensible" authority. In a case involving forgery or the fraudulent
affIxation of a company's seal it may be taken that an assumption
has been made by the person accepting the forged or fraudulent
instrument that the transaction in question is the transaction of the
company and that detriment will be sustained if adherence to that
assumption is not compelled. The critical question is whether the
company has played such a part in the adoption of that assumption
that it should be held to it. See Grundt (22); Wa/tons Stores (23), per
Mason C.J. and Wilson J. The company may have played such a
part in the adoption of that assumption by refraining from
correcting a mistake that the other was known to be labouring
under; by acting imprudently, when care was required, which
imprudence was a proximate cause of the other party's adopting and
acting on the faith of the assumption; or by making a representation
which founded the assumption. See Thompson (24). See also
Grundt (25); Wa/tons Stores (26).
The arguments made by reference to "ostensible" or "apparent"
authority were not expressly limited to the situation in which such
authority derives from a representation, whether made expressly or
by conduct. And, the argument on behalf of the Registrar-General,
(22) (1937) 59 C.L.R., at p. 675. (25) (1937) 59 C.L.R., at p. 676.

(23) (1988) 164 C.L.R., at p. 404. (26) (1988) 164 C.L.R., at pp. 444,
(24) (1933) 49 C.L.R., at p. 547. 461.
216 HIGH COURT [1989-1990.
H.C.OFA. made by reference to the manner in which the company was
1989-1990.
'--y-J allowed to be controlled, exhibits certain features of estoppel by
NORTHSIDE imprudence. The fundamental difference between the arguments
DEVELOP-
MENTS
was as to the required degree of proximity between the conduct said
PrY. LID. to give rise to the "ostensible" or "apparent" authority and the
v.
REGISTRAR'
transaction itself.
GENERAL. In Bank of Ireland and in Mayor, Etc., of Merchants of the
Staple (27) it was held that imprudence (or negligence) would give
Gaudron J.
rise to an estoppel in relation to a transaction embodied in an
instrument to which a corporation's seal had been fraudulently
affixed only if there was negligence in relation to the impugned
transaction itself. Although imprudence must be "a proximate
cause" of the adoption of an assumption as the basis of action or
inaction, it is questionable whether the requirement of proximity is
satisfied only by imprudence or negligence in the transaction itself,
particularly in cases involving the fraudulent affixation of a seal. If,
in terms used by Wills J. at first instance in Mayor, Etc., of
Merchants of the Staple (28), "the mode of keeping the seal was ...
calculated to facilitate, if not to invite, the commission of forgery",
it is difficult to see that that is not a proximate cause of the
adoption of an assumption that, the seal having been affixed to an
instrument, the transaction therein embodied is that of the
company. After all, again in terms used by Wills J., in that situation
aU that remains "for a dishonest man to do [is] the physical act of
affixing the seal, which is a much easier operation than that of
imitating handwriting". And the same observations appear to have
equal force if the company is controlled in a manner calculated to
invite the commission of fraud. However, this matter was not fully
explored in argument and is not a matter that needs to be
determined in the present case.
As earlier pointed out, the existence of facts which ought to put a
person to further inquiry will tell against another having so
contributed to the adoption of an assumption that adherence to the
assumption should be compelled. In the present case the transaction
with Barclays was, on its face, a transaction for the benefit, not of
Northside, but of Farola. Were the rule in Turquand's Case
otherwise applicable, the fact that the transaction was for the
benefit of Farola and not for the benefit of Northside ought to have
put Barclays upon further inquiry for the reasons given by Mason
C.J. In the circumstances of this case, there being no representation
(actual or otherwise) by Northside as to the authority of Robert or
Gerard Sturgess and no basis for any assumption that Farola was
(27) (1887) 21 Q.B.O. 160. (28) (1887) 21 Q.B.O., at p. 169.

associated with Northside, that fact is also sufficient answer to any H. C. OF A.
1989-1990.
argument that Northside was otherwise bound, by the operation of '-y-'
an estoppel, by the transaction embodied in the mortgage NORTHSIDE

DEVELOP-
instrument to which its seal was fraudently affixed. Accordingly, MENTS
Northside sustained loss by registration of the mortgage and not by PTy. LTD.
V.
its execution. For the reasons given by Mason C.l. the liability of REGISTRAR-
the Registrar-General under s. 127 of the Act is not in any way GENERAL.
affected by s. 5IA(l) of the Conveyancing Act 1919 (N.S.W.) or by

Gaudron J.
s. 106 of the Act.
It is unnecessary to deal with the argument made on behalf of
Northside that because Gerard Sturgess had not in fact been
appointed secretary it was not bound by the mortgage, whether by
operation of the rule in Turquand's Case or otherwise. However, I
would wish to observe that, in my view, a return filed with the
Corporate Affairs Commission will ground an assumption as to the
truth of the matters therein stated, and, if a company allows its
affairs to be so conducted that inaccurate returns are moo, it
thereby so contributes to that assumption that it is estopped from
asserting otherwise.
The appeal should be allowed. The orders of the Court of Appeal
of the Supreme Court of New South Wales should be set aside and
in lieu thereof it should be ordered that the appeal to that court be
dismissed with costs.
Appeal allowed.
Set aside the orders ofthe Court ofAppeal in so far
as they apply to the appellant and in lieu
thereof order that the appeal to that Court
against the orders of Young J. in favour of the
appellant be dismissed with costs.
The first respondent to pay the appellant's costs of
the appeaL
Solicitors for the appellant, Minter Ellison.

Solicitor for the rust respondent, H. K. Roberts, Crown Solicitor
for the State of New South Wales.
R.A.S.

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146 HIGH COURT [1989-1990.

REGISTRAR-GENERAL AND OTHERS. REsPONDENT.

ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES.

KC.OF A. Companies - Indoor management rule - Forged instrument - Mortgage of

APPEAL from the Supreme Court of New South Wales.

K. R. Handley Q.C. (with him N. C. Rein), for the appellant. The

(1) (1988) 14 N.S.W.L.R. 571. (4) [1906] A.C. 439, at p. 443.

The appellant has been held liable on a forgery in the absence of H. C. OF A.

K. Mason Q.c., Solicitor-General for the State of New South

as agents. They lacked authority, and the rule in Turquand's Case

K. R. Handley Q.c., in reply. The agency basis of the rule in

Cur. adv. vult.

The following written judgments were delivered:- 1990, JUDe 28.

(27) (1931]1 Ch.496. (30) (1975) 133 C.L.R. 72.

had the directors other than Robert Sturgess approved or assented

(32) (1856) 6 EI. & BI. 327 (I 19 E.R. 886].

signatures of the directors in whose presence it was apparently

(51) (1927]1 K.B.246. (55) [1927] 1 K.B., at pp. 837-838.

So, in Freeman & Lockyer it was held that a director, Kapoor,

point. The seal of the company had been affixed to a charge of

(66) (193111 Ch., at p. 509.

the company cannot enforce such transaction against the

(74) [1970] Ch., at p. 211. (75) [1946] A.C., at p. 475.

business and from which it appears to gain no benefit is, in my NORTHSIDE

and commercial morality.

(76) [1937) V.L.R. 40.

directors, council, or other governing body of the corporation; GENERAL.

BRENNAN J. The issue on which the parties have litigated the

controlled and in which Northside had no interest. The business of H. C. OF A.

existence and used it in fraud of Northside.

negligence in the keeping of the seal was not sufficient to absolve H. C. OF A.

was said that the negligence had to be "immediately connected"

which purports to bind a company does bind the company, it is not

(91) (1964) 2 Q.B., at pp. 504-505.

(92) (1975) 133 C.L.R. 72, at p. 78.

authority could have been given under the constitution is a question H. C. OF A.

constitution. In Mahony v. East Holyford Mining Co. (93), Lord

(95) (1939)2 K.B. 248, at p. 257. (97) (1946) A.C., at p. 475.

might reasonably be made when the officers or agents of a company H. C. OF A.

(98) [1939J 2 K.B., at p. 258. (I) (1852) 11 C.B., at p. 928 [138

An example of the rule's application to the conferring of

"... Royal British Bank v. Turquand and Mahony v. East

The rule is most frequently invoked .in connexion with the

(15) [1986] Ch. 246, at p. 284. (18) (1932) V.L.R., at p. 29.

For example, it may be for the benefit of solvent companies within

(24) (1937) V.L.R. 40.

(25) [1937] V.L.R., at p. 46. (27) [1927]1 K.B. 826.

inquiry as to the authority of the persons who executed it to do so. H. C.OF A.

(29) [192711 K.B., at p. 843.

(30) [1964]2 Q.B., at p. 508. (33) [1927] K.B., at p. 839.

(35) (1975) 133 C.L.R., at p. 78.

(36) [1986] Ch., at pp. 291-296.

Sturgess' companies. That was enough to put Barclays on inquiry. H. C. OF A.

DAWSON J. The appellant company, Northside Developments

certiftcate and forged the signatures of two directors. He

(39) [1906] A.C. 439. (43) (861) L.R. 2 Ex. 259, at

(46) [1927] 1 K.B. 826. (48) [1927] 1 K.B., at p. 840.

one director and the secretary. The company successfully contended

(50) (1931)1 Ch., at p. 506. (52) (1931)1 Ch., at pp. 508-509.