Lovett & Anor v Carson Country Homes Ltd & Ors

The court held that the administrators were validly appointed under a debenture dated 10 June 2008 despite a finding that the signature purporting to be that of Mr Edward Carter was not genuine. The judge found that Mr Andrew Jewson had, on previous occasions, signed documents in Mr Carter’s name and that the bank had dealt throughout with Mr Jewson as CCH’s authorised representative. Applying the principles of ostensible authority and section 44(5) of the Companies Act 2006, and concluding that the bank was a purchaser for valuable consideration acting in good faith, the debenture was treated as duly executed in favour of the bank.

The court rejected the applicants’ (Mr Carter’s) case that the document was a nullity by reason of forgery, concluding instead that ostensible authority and the statutory deeming provision in section 44 made the debenture valid as against the bank. An estoppel/acquiescence argument advanced on behalf of the bank was also rejected on the facts.

This was a first-instance Chancery application for a declaration as to the validity of the appointment of administrators to Carson Country Homes Limited (CCH) made by Barclays Bank pursuant to a debenture dated 10 June 2008. The administrators sought a declaration that their appointment was valid and, if not, consequential relief including an indemnity from the bank. The factual backdrop was a breakdown in relations between the two director-shareholders, Mr Andrew Jewson and Mr Edward Carter, and complex inter-company indebtedness involving SGJ Limited. The bank required additional security (a guarantee and debenture) to protect its position in relation to inter-company loans.

• Nature of the claim: declaration of validity of administrators’ appointment under the debenture and consequential relief if appointment was invalid.
• Issues framed: (i) whether Mr Jewson forged Mr Carter’s signature; (ii) whether, if execution was defective, section 44 of the Companies Act 2006 validated the document in favour of the bank; (iii) whether Mr Carter had actual authority to authorise the execution; (iv) whether Mr Jewson had been held out as having authority to represent that formalities had been complied with; and (v) whether Mr Carter was estopped or had acquiesced from challenging the debenture or the administrators’ appointment.

The court made primary findings of fact: a handwriting expert concluded the questioned signatures were not Mr Carter’s; evidence established a practice of Mr Jewson signing documents in Mr Carter’s name for bank dealings; and Mr Carter did not know of or agree to the guarantee and debenture being given. The judge concluded there was no actual authority for the specific transaction but that, by long practice and by conduct, CCH had clothed Mr Jewson with ostensible authority to deal with the bank and to warrant that formalities had been complied with. The bank was found to be a purchaser for valuable consideration acting in good faith. On that basis, the court held that section 44(5) and the principles of ostensible authority rendered the debenture valid as against the bank, so the administrators’ appointment stood. The court also rejected the estoppel/acquiescence argument advanced by the bank on the facts before it. The judge declined to decide finally the broader point whether section 44(5) alone (absent ostensible authority) should be read as validating forgeries, noting that such observations would be obiter.

This first-instance court held that the appointment of the administrators under the debenture was valid. Although the court found that the signature purporting to be Mr Carter’s was not genuine and that Mr Jewson did not have actual authority for that specific transaction, the court concluded that Mr Jewson had ostensible authority to deal with the bank and that the bank was a bona fide purchaser for valuable consideration. Consequently, applying section 44(5) Companies Act 2006 as reflecting common law principles of apparent authority, the debenture was treated as duly executed in favour of the bank and the administrators’ appointment was upheld.