The enforceability of loan documents where a director’s signature is alleged to have been forged

A decision of the NSW Supreme Court is a reminder that an assumption is available entitling a lender to rely on a document containing the forged signature of a company director, where it has no knowledge of suspicion of any forgery.

Background facts

Andrew Hodgson (Hodgson) and Kim Woollard (Woollard) were the directors of Adventure Quest Paintball-Skirmish Pty Ltd (Adventure Quest).

In April 1996, the ANZ Bank made an overdraft available to Adventure Quest, for which Hodgson and Woollard gave guarantees to pay “… at any time all money which … [Adventure Quest] owes ANZ at that time for any reason.

ANZ entered into loan agreements with Adventure Quest in 2004 and 2009.

The 2009 loan subsumed the debt under the 2004 loan and made additional funds available to Adventure Quest.

A letter of offer prepared by ANZ was accepted by Adventure Quest in 2009, which appeared to contain the signatures of both Hodgson and Woollard, and which contained a “guarantor acknowledgement” that referred to each of Woollard and Hodgson’s guarantees previously given as also providing security for the 2009 loan.

In March 2014, following a default to make good its liability, ANZ commenced proceedings against Adventure Quest, and also against Hodgson and Woollard pursuant to their securities.

The dispute regarding the 2009 Loan

Hodgson did not defend ANZ’s claim and it obtained default judgment against him.

Woollard, on the other hand, disputed ANZ’s claim.

Woollard did not dispute that he had signed an existing guarantee or the documents giving rise to the 2004 loan, but that his signature which purported to appear on the 2009 letter of offer was a forgery, and that the 2009 loan was thereby unenforceable.

In response, ANZ submitted that it was entitled to rely on the “statutory presumption of regularity”, such that the alleged forgery of Woollard’s signature on the 2009 letter of offer was irrelevant and the 2009 loan was thereby enforceable against Adventure Quest (and therefore Woollard, pursuant to his security).

The assumption in the Corporations Act

Sections 127, 128 & 129 of the Corporations Act 2001 (Cth) (Corporations Act) generally provide that a person can assume, in relation to their dealings with a company, that a document has been duly executed by the company if the document appears to have been signed in accordance with the Act.

The assumption is available even if a director of the company acts fraudulently, but is not available if, at the time of a dealing, the person seeking to rely upon the document knew or suspected that the assumption was incorrect.

Issues for determination and the decision of the Court

The Court found that, regardless of whether or not Woollard’s signature on the “guarantor acknowledgement” that formed part of the 2009 letter of offer was a forgery, Woollard was still bound by his guarantee earlier given because the scope of the guarantee was for the payment of “… at any time all money which … [Adventure Quest] owes ANZ at that time for any reason(underlining and emphasis added).

Therefore, the only question for determination was whether the 2009 loan was enforceable against Adventure Quest, regardless of any forgery, such that Woollard was liable under his guarantee.

The Court decided that, for the purposes of the assumption in the Corporations Act:

  1. ANZ had dealings with Adventure Quest, and it was irrelevant whether or not there was some arrangement between Woollard and Hodgson that both of them had to agree to dealings with ANZ – it was sufficient that ANZ could prove dealings with Adventure Quest, at least through its communications with Hodgson.
  2. On its face, Adventure Quest had executed the 2009 letter of offer using the signature of two of its directions which objectively appeared to comply with the execution requirements of the Corporations Act.
  3. In the above circumstances, it was available for ANZ to assume – taking advantage of the statutory presumption in the Corporations Act – that Adventure Quest had accepted the 2009 loan by duly executing the 2009 letter of offer.

Further, the Court found that Woollard was not able to point to any evidence that would give rise to an inference that ANZ or any of its officers knew or suspected that Woollard’s signature might have been forged, such that ANZ was entitled to rely on the statutory assumption.

Orders made by the Court

The result was that ANZ was successful.

In a separate decision, Woollard was also ordered to pay ANZ’s costs on the indemnity basis, either because he gave ANZ a contractual indemnity to do so, as part of his guarantee and, or, because he had refused to accept an offer (made by ANZ 3 months before proceedings were commenced) to pay ANZ an amount representing a discount of $50,000 on the amount that he then owed.

Both decisions are available as follows:

  1. Australia v New Zealand Banking Group Limited v Adventure Quest Paintball-Skirmish Pty Limited; Woollard v Hodgson; Hodgson v Woollard [2016] NSWSC 188.
  2. Australia v New Zealand Banking Group Limited v Adventure Quest Paintball-Skirmish Pty Limited; Woollard v Hodgson; Hodgson v Woollard (No 2) [2006] NSWSC 621.