Altendorf Australia Pty Ltd v Parkanson Pty Ltd

[1992] FCA 383

JUDGMENT No. ........ ........ .. 383 I ........ .., S2

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY)	NO G 493 of 1991
GENERAL DIVISION	1

BETWEEN ALTENDORF AUSTRALIA PTY

LIMITED

Applicant

AND PARKANSON PTY LIMITED
First respondent

AND PETER DOUGLAS ELSWORTH

Second respondent

AND BERNARD HANLEY
Third respondent

REASONS FOR JUDGMENT

EINFELD J SYDNEY 7 Mav 1992

There are before the Court three notices of motion. The first is an application by Altendorf Australia Pty Limited (the applicant) for summary judgment, under order 20 rule 1 of the Federal Court rules, on part of its statement of claim. The second is a motion by Parkanson Pty Limited (the first respondent) seeking security for costs and further and better particulars. The third, also a motion by the first respondent, seeks to set aside a notice to produce issued by the applicant.

Wilhelm Altendorf & CO GmbH, (the German company) which	The applicant is a wholly owned subsidiary in Australia of
manufactures and exports machinery and woodworking equipment used to produce furniture.
The first respondent, formerly known as Theo Park & Son (Australia) Pty Limited, was the Australian importer and distributor of the woodworking equipment manufactured in Austria and exported to Australia by the German company (the distributorship) until about December 1990.
In or about November 1990 the applicant, being in financial difficulty, commenced negotiations with the first respondent for the termination of the distributorship and for the re- purchase of equipment and assets used in it (the re-purchase). The negotiations were conducted orally by Messrs Hans Schwager and Wilhelm Altendorf for the applicant and Messrs Peter Elsworth (the second respondent) and Bernard Hanley (the third respondent) who were directors and shareholders of the first respondent. It is alleged that during the course of negotiations certain representations were made to induce the
re-purchase. In the statement of claim the applicant alleges applicant to enter into an agreement (the agreement) for the
that these representations were false and misleading in contravention of the Trade Practices Act 1974 sections 52(1), 53(b) and 75B.
The motion for summary judgment is limited to paragraphs 11, 13 and 14 of the statement of claim which relate to implied representations concerning duty drawback. The applicant claims that it was an implied term of the agreement that upon the re-purchase, the applicant would become entitled to any import duty refunds and drawbacks in relation to that stock. Duty drawback is a duty which an importer or owner of goods can have rebated by the Australian Customs Service when the goods are brought into the country, so as to attract duty, and then re-exported without being used. A duty refund is a refund of duty paid which for some reason should not have been paid. Although the applicant originally claimed summary entitlement to duties repaid or due to the first respondent under both headings, it resiled from seeking summary judgment in respect of the duty refund claim at the hearing of the motion.
Some of the stock involved in the re-purchase on which duty was paid by the first respondent has been exported back to the German company without sale and a duty drawback has been allowed by Australian Customs. The applicant says that despite demand the first respondent has failed and refused to
account for its receipt of the duty drawback.
The applicant claims an amount of $32,000 for duty drawback under order 20 rule 1 which states:

APPLICANT'S MOTION FOR SUMMARY JUDGMENT

Where, i n r e l a t i o n t o t h e whole o r any par t o f t h e

a p p l i c a n t ' s c la im f o r r e l i e f , there i s ev idence o f

t h e f a c t s on which the c la im o r par t i s based , and:

( a ) t h e r e i s ev idence given by the app l i can t or by

some r e s p o n s i b l e person t h a t , i n t h e belief o f

t h e person g i v i n g the ev idence , t h e respondent

has no defence to t h e c la im o r p a r t ; or

(b) the respondent's defence discloses no answer to the applicant's claim or part;

the applicant may move on notice for such judgment for the applicant on that claim or part and the Court may pronounce such judgment and make such orders as the nature of the case requires.

Because the equipment concerned had been imported into Australia by the first respondent and it had paid the customs duty, only it was apparently supposed to lodge all claims for duty drawback. In fact its applications for duty drawback in relation to this equipment were apparently made to Customs on 4 and 23 October 1990. This was confirmed to the applicant by the first respondent in a facsimile transmission on 31 October 1990, attaching the application(s), in response to a facsimile transmission from Hans Schwager to the second respondent on 30 October. It seems to be agreed between the parties that Customs subsequently repaid the duty to the first respondent.

On 28 May and 24 June 1991 the applicant wrote to the first and second respondents requesting payment of the duty

drawback. The letter of 28 May 1991 cannot be found. The letter of 24 June 1991 stated:

Dear Peter,

RE: OUR LETTER DATED 28/5/91 WITH REFERENCE TO DUTY

DRAW BACK

Would you please make payment for the above duty draw back as requested in the above letter.

Yours sincerely

Michael Burdette
Manauina Director

O n 22 J u l y 1991 the a p p l i c a n t a g a i n w r o t e t o the f i r s t

r e s p o n d e n t :

Dear S i r s

RE: DUTY REFUNDS

As we h a v e t o d a t e not r e c e i v e d much c o - o p e r a t i o n

from y o u r company i n r e l a t i o n t o r e c e i v i n g

d o c u m e n t a t i o n r e q u i r e d by c u s t o m s t o c l a i m t h i s d u t y

we w i s h t o a d v i s e you o f the d e t a i l s and the

i m p l i c a t i o n s o f non c o - o p e r a t i o n .

A u s t r a l i a n	Cus toms	h a v e	agreed	t o a	d u t y r e f u n d	for
a l l	( i n o u r	c a s e	F45)	t i l t i n g pane l	saws.	T h i s

r e f u n d	goes	b a c k	t o 29/2/88	b u t	the	concession	e n d s
on	20/8/91.	Any	s u b m i s s i o n s	a f t e r	t h i s	d a t e	w i l l

NOT be c o n s i d e r e d .

In the event t h a t we c a n n o t l o d g e the documents a s a

r e s u l t o f y o u r non c o - o p e r a t i o n we w i l l h a v e no

choice b u t t o s t a r t p r o c e e d i n g s a g a i n s t y o u r company

t o recover a l l the d u t i e s p a i d	for	a l l F45's	since
29/2/88	a s y o u r company d i d not p a y	the	d u t y i n the

f irst p l a c e .

A l l t h i s i s t o t a l l y u n n e c e s s a r y and a l l we a r e

r e q u e s t i n g i s the o r i g i n a l d o c u m e n t a t i o n i n o r d e r

t h a t we c a n l o d g e o u r c l a i m s and then r e t u r n a l l the

d o c u m e n t a t i o n .	W e	u r g e	you	t h a t	common	sense
p r e v a i l s	and	t h a t you	hand	John	B r a d l e y ALL	the

r e q u i r e d d o c u m e n t a t i o n a s you promised t o d o on

23/7/91 [ s i c ] .

Y o u r s	sincere1 y
A1 t e n d o r f A u s t r a l i a	P t y L t d
Michael	B u r d e t t e

Manaaina Director

[Three t h i n g s shou ld	be	s a i d	a b o u t	t h i s l e t t e r :
1.	C o n s i d e r i n g	i t s d a t e ,	23/7/91	i s o b v i o u s l y a n e r r o r .

2. T h e l e t t e r appears t o re f lec t a d e c i s i o n b y the

a p p l i c a n t , t a k e n i n the belief t h a t the f i r s t r e s p o n d e n t

was a b o u t t o l e t the t i m e for the c o n c e s s i o n e x p i r e

without applying for the drawbacks, to seek the
documentation to enable the applicant to apply itself.

3.    There is probably nothing significant in the use of the heading DUTY REFUNDS.]

The concession by Customs permitting the relevant drawbacks on "saws, mitre and woodworking" came into existence on 20 August 1990 but was effectively backdated. Applications could be submitted for one year up to 20 August 1991 but could be made in respect of goods imported since 29 February 1988. Hence, as at the date of this correspondence, time was running out for these parties' applications to be submitted if they had not yet been lodged. It seems to be agreed that the applicant has never received from the first respondent either the documents necessary to recover the duty drawbacks from Customs or the money itself.

The applicant says that it was the definite intention of the parties, and that they conducted themselves upon the basis,

applicant says that a number of written documents can bear no	that the applicant receive the drawbacks on the stock. The
other construction than that the respondents agreed to submit or obtain the relevant documents for the applicant to enable recoupment of duty drawbacks. Among these documents are the facsimile transmission from the second respondent to Hans Schwager of 31 October 1990, to which earlier reference was made, and a facsimile transmission from the first respondent's
Fiona Lawrence t o the a p p l i c a n t ' s P h i l Russell o f 2 1 June 1 9 9 1
a s f o l l o w s :

Dear P h i l

W e h a v e been c o n t a c t e d by Able Customs r e g a r d i n g

y o u r f a x o f 1 8 J u n e 1991.

P e t e r E l s w o r t h i s away a l l t h i s week b u t I h a v e

c o n t a c t e d h i m [ e ] and he h a s i n s t r u c t e d me t o a s k you

wh ich	p a r t i c u l a r	m a c h i n e / s e r i a l	number	you	a r e
w i s h i n g	t o c l a i m	d u t y draw-back	on?	W e w i l l	o b t a i n

these documents and send	them t o you .
P l e a s e	a d v i s e .
Regards
Fiona	Lawrence

Copy: Hans Schwager

O n the b o t t o m o f t h i s f a c s i m i l e was a h a n d w r i t t e n note f rom

the second r e s p o n d e n t t o Michael B u r d e t t e , the a p p l i c a n t ' s

managing d i r e c t o r , s t a t i n g :

M i k e - Re c o p y o f f a x I i n s t r u c t e d t o be sent. T h i s

was i n r e s p o n s e t o phone c a l l from Schwager, whereby

he a d v i s e d you were g o i n g t o s h i p m a c h i n e s b a c k t o

Germany and r e q u e s t e d p a s t history document . Also

he r e q u e s t e d we g i v e a p p r o v a l t o g e t documents from

Able Cus toms . Peter.

T h e a p p l i c a n t s u b m i t s t h a t these t w o documen t s , and s e v e r a l

a d m i s s i o n s	d u r i n g	the	h e a r i n g	t h a t	the	a p p l i c a n t	had
e f f e c t i v e l y i n c l u d e d	i n the	purchase	p r i c e	the	d u t y	pa id	b y

the f i r s t r e s p o n d e n t , make c l e a r the i n t e n t i o n t h a t the

a p p l i c a n t was t o g e t the drawbacks o n the stock.

This is denied by the second respondents who allege that the agreement for the re-purchase of the stock was a transaction at arm's length as between the applicant, the first respondent and the German company in which the stock was sold for a total sum. The agreement was reached prior to the customs concession coming into force and the respondents say that there was no discussion at all about what would happen in the event that some future tax concession might come into force. Their argument is that the drawback was a windfall profit which the first respondent is entitled to keep.

The applicant denies that it was an arm's length transaction for a number of reasons. First, there had been a long history of dealings between the German company and the first respondent. Secondly, the essential reason for the transaction, for which the applicant had wholly or mainly come into existence, was to bail the first respondent out of its financial difficulties and to "prop it up". Thirdly, the applicant effectively refunded to the first respondent an

amount equivalent to the duty paid on the stock because that	sum was included in the purchase price.
In his evidence in chief the second respondent claimed that the first respondent was entitled to the duty drawbacks because it paid the duty and was named as the owner of the goods in the relevant customs documents. However, in cross examination he conceded that the purchase price of the stock paid by the applicant included, in reality, the duty paid by the first respondent. The second respondent also suggested in cross examination that the documents were part of a "deception" by the applicant to get the first respondent's documents, but provided no explanation in re-examination or elsewhere in his evidence of what this alleged deception was. Prima facie this suggestion appears groundless.
The success of the applicant's claim for summary judgment depends upon the necessary implication into the agreement between the parties of a term that the applicant would become entitled to any duty drawback. Whether a term should be implied is a question of mixed law and fact. In Codelfa Construction Ptv Limited v State Rail Authoritv of New South Wales [l9821 149 CLR 337, the High Court re-affirmed the conditions necessary to ground the implication of a contractual term which were summarised by the majority in
Refinerv (Western Portl Ptv Limited v Hastinas Shire Council [l9771 ALJR 20 at 26 as follows:

( 1 ) i t m u s t be r e a s o n a b l e and e q u i t a b l e ; ( 2 ) i t m u s t

be n e c e s s a r y t o g i v e b u s i n e s s e f f i c a c y t o the

c o n t r a c t , so t h a t no t e r m w i l l be i m p l i e d i f the

c o n t r a c t i s e f fect ive w i t h o u t i t; ( 3 ) i t m u s t be so

o b v i o u s	t h a t	' i t	goes	w i t h o u t	s a y i n g ' ;	( 4 )	i t	m u s t
be	c a p a b l e	o f	c l e a r	e x p r e s s i o n ;	( 5 )	i t	m u s t	not

c o n t r a d i c t a n y e x p r e s s t e r m o f the c o n t r a c t .

The respondents submitted that a dispute over an implied term is ultimately a question of fact for the Court to decide.

- l0 -

I have formed the clear conclusion that the evidence in this

case is not yet sufficient to meet, with the overwhelming cogency required for a summary judgment, the strict tests laid down by the High Court in Hastinas Shire Council and Codelfa Construction regarding implied terms. There was no evidence that any pending tax concessions were discussed at the time the agreement was entered into. Both facsimiles post-date the agreement and could therefore only be relevant if they constituted an admission by the first respondent of the particular implied term.

The first respondent also argues that the authors of the documents have not been shown to have the appropriate authority to make such an admission. More evidence will be needed in respect of Fiona Lawrence's letter before this submission can be rejected or accepted, but it is clear that the facsimiles do not provide beyond doubt an admission by the first respondent of the suggested implied term. Prima facie the documents simply show that there was communication between

could have been by way of confirmation that duty drawback was	the parties regarding the provision of documentation. It
being sought. There are other possible inferences. The applicant's entitlement to drawbacks is certainly one inference that may be drawn but the evidence at present does not definitively establish an agreement seven months earlier that any duty repaid by Customs was to be passed on to the applicant.
The first respondent submitted that there was no evidence before the Court as to which goods were re-exported and what duty drawback has been allowed by Australian Customs in respect of such goods. Even if I accept, as is fairly clear, that there was identity between some goods imported and exported and between some duty paid and drawn back, this does not conclusively establish that the agreement necessarily contained the required implied term. The identity of goods may have been partial and not total. So may the duty paid and repaid. Even if there was an implied term in the agreement of the kind suggested, I am not at this stage persuaded that the applicant has established a summary entitlement to the money sought.
There is an additional matter to be referred to. I have said that on the morning of the hearing, the applicant resiled from its claim for the passing on of duty refunded. The applicant submitted that if the Court found in its favour on the duty drawback issue, the question of duty refunds would also be
effectively decided because the facts are identical.
It seems to me that this is not necessarily the position. In any event, withdrawing the claim for summary judgment on the refunds means that that claim will go to trial. Where part of a claim must in any event proceed to trial, especially when proving the necessary liability in respect of each requires the same or similar evidence, the applicant for summary judgment on the remaining part of the claim must show an exceedingly strong case as to why the whole matter should not go to trial: Peter Kent Development Ptv Ltd v The Australia and New Zealand Bankina Group Ltd (Supreme Court of New South Wales, Hunt J, 6 May 1980 unreported) approved by Yeldham J in Tectran Corp Ptv Ltd v Ravbos Australia Ptv Ltd (Supreme Court of New South Wales, 12 August 1982 No 16938 of 1980, unreported).
The applicant submits that there is no defence to the $32,000 claimed. It may be that this submission will ultimately turn out to be correct but for the applicant to succeed in this case for summary judgment, it must prove that the defence is so utterly hopeless that there is no triable issue. To the extent to which the defence is based upon inferences drawn from the facts, the applicant must be able to show that it is quite impossible on the admitted facts for the respondents to establish that the inferences they advocate could be drawn. I am not satisfied that this onus has been discharged. The motion for summary judgment must therefore fail.
FIRST RESPONDENT'S NOTICE OF MOTION FOR PARTICULARS AND
SECURITY FOR COSTS
The second motion, brought by the first respondent, seeks orders that the applicant provide further and better particulars of its claim and provide security for the first respondent's costs.
The first respondent submitted that an order for security should be made because the continuing viability of the applicant is dependent upon its receiving financial support from the German company. According to the annual return of the applicant for the financial year to 30 June 1989 it only had an issued share capital of $1,000. According to the balance sheet and profit and loss account for the period ended 31 December 1990, the applicant had a net excess of liabilities over assets of $308,997.
In note 1.2 to the accounts of the applicant for the period ended 31 December 1990, the auditors stated:

A t 31 December 1990 t h e r e i s a d e f i c i e n c y o f c a p i t a l

and reserves o f $308,997. The company a l s o

exper ienced an o p e r a t i n g l o s s o f $309,997 d u r i n g t h e

per iod ended on t h a t d a t e . The c o n t i n u i n g v i a b i l i t y

o f t h e company and i t s a b i l i t y t o m e e t i t s d e b t s a s

and	when	t h e y f a l l	due a r e dependent	upon	the
company	c o n t i n u i n g	t o receive	f i n a n c i a l	suppor t	from

i t s h o l d i n g company, Wi lhelm A1 t e n d o r f GmbH and CO

KG. To reflect t h i s suppor t , $461,000 o f t h e l o a n

from Wilhelm A l t e n d o r f GmbH and CO KG a t 31 December

1990 h a s been subordinated i n favour o f other

e x t e r n a l c r e d i t o r s .

I n a d d i t i o n , Wi lhelm A l t e n d o r f GmbH and CO KG h a s ,

since ba lance d a t e , provided or w i l l p rov ide

c o n t i n u i n g f i n a n c i a l suppor t t o t h e company and i t

i s a n t i c i p a t e d t h a t par t o f the t o t a l l o a n funds o f

$632,320 ( n o t e 9 ) w i l l be c a p i t a l i s e d d u r i n g t h e

n e x t f i n a n c i a l y ear . Wi lhelm A l t e n d o r f GmbH and CO

KG h a s agreed t o subord ina t e t h e s e a d d i t i o n a l funds

i n favour	o f	a l l	o t h e r	c r e d i t o r s	and	t o p rov ide
a d d i t i o n a l	subordinated	l o a n	funds	shou ld	this	be

neces sary . The d i r e c t o r s believe t h a t the company

w i l l be s u c c e s s f u l i n t h e above m a t t e r s and

a c c o r d i n g l y have prepared t h e accounts on a going

concern b a s i s .

This note was again specifically referred to in the auditors' report to members dated 25 July 1991. The facts, which were not challenged before me, established or are strong evidence that the ability of the applicant to meet any order for costs is dependent upon financial support from its holding company. The respondents submitted that there is no evidence of any binding obligation on the holding company to continue its support and no evidence that an order for security would stultify the proceedings. I agree that if the proceedings are being brought for the ultimate benefit of the holding company, they should be stayed unless the holding company is prepared to assist in the provision of security.

The applicant pointed out in its written submissions that it had paid $210,000 to the first respondent in December 1990 when the agreement became effective, although elsewhere in the evidence the principal consideration for the re-purchase was described as the release of a debt of approximately this size. Further, the applicant was brought into existence as part of a

difficulties. The applicant submitted that whatever view the	scheme to relieve the first respondent of its financial
Court may form on the question of summary judgment, a material factor to be taken into account is that it has a strong case.
There are three bases upon which the Court may order security for costs - section 56 of the Federal Court of Australia Act 1976, order 28 of the Federal Court Rules, and section 1335 of the Corporations Law. Section 1335 of the Corporations Law
states :

Where a corporation i s p la in t i f f i n any action or

other legal proceeding, the court having jurisdiction i n the matter may, i f it appears by credible testimony that there i s reason to believe that the corporation w i l l be unable t o pay the costs o f the defendant i f successful i n h i s , her or i t s defence, require su f f i c ien t security to be given for those costs and stay a l l proceedings until the security i s given.

The jurisdiction under this section and section 56 is discretionary and should be exercised in consideration of all the circumstances. Jurisdiction does not arise under order 28 because the requirements of order 28 rule 3(1) are not met.

In Brvan E. Fencott & Associates Ptv Limited v Eretta Pty Limited [l9871 16 FCR 497 Justice French considered the principles governing security for costs. At 505 his Honour stated:

I t i s a venerable principle that poverty or even

insolvency on the part o f a p la in t i f f w i l l not o f i t s e l f attract a requirement for security for costs conditioning the right to i n s t i t u t e and/or conduct legal proceedings.

He went on to say:

I t i s an important exception t o that principle that an impecunious p la in t i f f who i s only a nominal

p l a i n t i f f , that i s t o say, who sues for the benef i t

o f another, may be required to give security.

There is no specific evidence in this case that the applicant is suing for other than its own benefit. However, because the applicant is the wholly owned subsidiary of the German company and was apparently brought into being by the German company for the specific purpose of this transaction, it seems that the proceedings must be for the ultimate benefit of the German company. It is therefore appropriate, and I order, that the applicant provide security for costs. The amount will be determined at a later date if the parties are unable to agree.

The question of particulars as sought by this motion is still outstanding.

MOTION TO SET ASIDE NOTICE TO PRODUCE

The third motion, brought by the first respondent, seeks to set aside a notice to produce from the applicant dated 22 November 1991 requiring the production of a large number of documents in relation to the application for summary judgment.

a series of letters relating to the motion were tendered	The notice to produce was not called upon at the hearing, but
(exhibit A2). This motion and the question of particulars in the motion for security will be listed at a date to be determined. All costs will be dealt with at that time.

---.--W . . . , - . - , I - -.-W---

"- .. --. v,* -- -,

; I cc4tliy ihs! i h .j ab7.l t h? xi% (1 6) ;

Pr?c~dlr; P - " - S	~21e	a	COPY of fhe
: Re-ss~s for	~ ~ o g m c n t	h e ~ e ~ , ~	of h13 ;jonour

J~s t ice Elnfslcl

Counsel and solicitor	Mr R Harper
for the applicant:	instructed by Levingstons Solicitors
Counsel and solicitor	Mr J Simpkins
for the respondents:	instructed by Swaab & Associates Solicitors.
Date of Hearing:	26 November 1991
Written submissions
completed:	16 December 1991
Date of Judgment:	7 May 1992