Ansearch Ltd v Wavtech Pty Ltd [No 3]

[2009] WASC 149

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   ANSEARCH LTD -v- WAVTECH PTY LTD [No 3] [2009] WASC 149

CORAM:   MASTER SANDERSON

HEARD:   17 MARCH 2009

DELIVERED          :   4 JUNE 2009

FILE NO/S:   CIV 1123 of 2006

BETWEEN:   ANSEARCH LTD

Plaintiff

AND

WAVTECH PTY LTD
Defendant

Catchwords:

Practice and procedure - Application to amend defence - Turns on own facts

Legislation:

Nil

Result:

Amendment allowed

Category:    B

Representation:

Counsel:

Plaintiff:     Mr H R Robinson

Defendant:     Ms C H Thompson

Solicitors:

Plaintiff:     Haydn Robinson

Defendant:     Melvyn Levitan

Case(s) referred to in judgment(s):

City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1981‑1982) 149 CLR 337

Western Power Corporation v Normandy Power Pty Ltd [2001] WASC 202

1. MASTER SANDERSON:  This is the defendant's application for leave to amend its defence in terms of a minute of proposed substituted defence and counterclaim (the minute) filed 10 December 2008.  The minute responds to an amended statement of claim dated 19 February 2008.  In dealing with this application it is necessary first to set out the plaintiff's claim, then set out what is found in the minute, and then to deal with the plaintiff's objections to that minute.

2. In the amended statement of claim the plaintiff alleges that on 25 July 2005 the plaintiff agreed to sell 650 shares in a company known as Optum ES Pty Ltd (Optum) to the defendant and the defendant agreed to pay the plaintiff $800,000 for those shares (Agreement).  It is alleged that settlement was due on 25 August 2005.  The plaintiff then says that by written agreement 14 September 2005 the plaintiff and the defendant agreed to defer the settlement date to 21 September 2005.  This is referred to as the 'Variation Agreement'.  The plaintiff alleges that the defendant has failed to complete the agreement and claims specific performance of it. 

3. There is an alternative claim.  The plaintiff says that by written agreement dated 4 April 2003 between the plaintiff, the defendant and Optum, the plaintiff and the defendant agreed to subscribe the shares in Optum and Optum agreed to allot shares so after the allotment the plaintiff would be the registered proprietor of 800 Optum shares and the defendant would be registered proprietor of 200 Optum shares.  This agreement is referred to as the 'Shareholders Agreement'.  It is alleged by the plaintiff that pursuant to this agreement on or about 5 August 2004 Optum allotted shares to the plaintiff and the defendant so that each became the registered proprietors of 800 and 200 Optum shares respectively. 

4. It is further alleged that the Shareholders Agreement further provided that if the plaintiff provided between $1 million and $2 million to Optum within two years from the commencement date (presumably of the Shareholders Agreement) then the plaintiff would transfer to the defendant 400 Optum shares.  The plaintiff says that by 3 April 2005 it had provided Optum with funding of $1,272,000.  As a consequence the plaintiff was liable to transfer to the defendant 400 Optum shares.  On 7 July 2005 the defendant requested the plaintiff to prepare properly executed share transfer forms to transfer 400 Optum shares to the defendant.  In taking this action it is said that the defendant was relying on the Shareholders Agreement.

5. Paragraph 14 of the statement of claim is then in the following terms:

   The Agreement provides in effect for the plaintiff to sell 650 shares in Optum to the defendant and for the defendant to pay $800,000 to the plaintiff for the said 650 shares, whereby upon completion the plaintiff would have only 150 shares in Optum and the defendant would have 850 shares. 

6. This paragraph of the statement of claim is not all that easy to understand.  However, pars 15 and 16 make it plain that the plaintiff alleges that the Agreement replaced the Shareholders Agreement.  So by a rather securitous route the plaintiff returns to rely upon the plea in relation to the Agreement.  Whether this is good pleading practice is open to question.  But the statement of claim has not been challenged and stands in its present form.  So the defence must deal with this plea. 

7. Paragraph 17 of the statement of claim is in the following terms:

   Further and alternatively by the plaintiff and the defendant making the Agreement for the transfer of 650 shares in Optum the defendant knew it was impossible for the plaintiff to also transfer 400 shares in Optum pursuant to the Shareholders Agreement, whereby the defendant is estopped from contending it is entitled to enforce the Shareholders Agreement.

8. Paragraph 18 pleads that if the Agreement for one reason or another does not cover the relationship between the plaintiff and the defendant then the defendant is liable to the plaintiff under the Shareholders Agreement.  It is said that under that Agreement the defendant is liable to the plaintiff in an amount of $225,000 rather than the $800,000 claimed under the Variation Agreement. 

9. By par 2 of the minute, the defendant denies the agreement pleaded in pars 3 ‑ 8 of the statement of claim.  No issue is taken with that defence. 

10. Paragraph 4 of the minute is essentially a plea of frustration.  It runs to 18 subparagraphs and it is somewhat complicated.  Essentially what is said is that when the parties entered into the Shareholders Agreement they formed a joint venture for the purpose of commercialisation in Australia of certain water purification technology.  This technology is referred to in the minute as 'MEPi Systems'.  This technology was owned by an entity incorporated in the United States called Marine Environmental Partners Incorporated (MEPI).  The technology was licensed by MEPI to the defendant under two agreements which are referred to in the Shareholders Agreement as the 'MEPi agreements'.  It is further alleged that the purpose of the joint venture was to be achieved through the incorporation of Optum.  Optum would have assigned to it all of the defendant's rights in respect of the MEPi Systems under the MEPi agreements. 

11. In August 2005, so it is alleged, MEPI went bankrupt.  (It would appear that in the United States a company can enter bankruptcy rather than insolvency.)  MEPI's assets were sold.  It is alleged that included in this sale was MEPI's interest in the MEPi agreements.  The purchaser of the agreements elected not to proceed with them.  Consequently, so the minute pleads, 'any agreement [which was] formed between the plaintiff and the defendant for the sale of shares in Optum … was frustrated'. 

12. The plaintiff says that as a matter of law a plea of frustration is not available to the defendant in this case.  Reference was made to the decision of City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140 and the statement of principle set out by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1981‑1982) 149 CLR 337. Essentially, the plaintiff says that the defendant was obliged to pay $800,000 in exchange for 800 shares in Optum. The bankruptcy of MEPI did not affect the obligations of the plaintiff and the defendant under the Agreement or the Variation Agreement. The plaintiff alleges that the defendant is simply arguing that performance of the agreements would result in hardship. That in itself does not establish frustration: see Western Power Corporation v Normandy Power Pty Ltd [2001] WASC 202.

13. On behalf of the defendant, that to succeed at trial on the question of frustration the defendant needed to prove that the situation after the alleged frustrating event is significantly different to that pertaining before it:  see Codelfa Construction (supra) at 360, 378, and 407. The question of whether there is a significant loss of benefit in the contract is central to that issue. The plaintiff says this is a question of fact and is to be determined at trial.

14. In this case, the defendant says that it lost any commercial or other benefit in any agreement to purchase the plaintiff's shares because those shares had no value by reason of the bankruptcy of MEPI.  It says that the question of whether this can be made out is not a pleading question but an evidentiary one which should be left to the trial judge. 

15. I accept the plaintiff's submissions on this point.  The facts in this case are reasonably complex and to attempt on a pleading summons to resolve a question of frustration against the defendant would be inappropriate.  It is a matter which must go forward and be dealt with at trial.

16. The plaintiff's second complaint is one which might be described as temporal.  It is said that the alleged frustrating event is the bankruptcy of MEPI on or about 31 August 2005.  The plaintiff says that if the defendant had paid the $800,000 by 25 August 2005 the frustrating event, occurring as did some six days later, was irrelevant. 

17. The difficulty with this argument is that the defendant pleads that a creditor's petition was lodged against MEPI in the United States on 17 August 2005.  It is further pleaded that on 25 August 2005 MEPI consented to the entry of an order for relief in the bankruptcy proceedings.  What all of that means and what effect it may have in the context of a plea of frustration is dependent on an understanding on US bankruptcy law.  Again, it would be inappropriate to shut out the defendant without the matter being further investigated. 

18. As I have indicated above, the defendant denies that the plaintiff and the defendant entered into the Agreement.  In both pars 4.10 and 4.11 of the Agreement the plaintiff alleges that if the agreement was made it was an implied term that the Shareholders Agreement would continue in operation and effect.  It is said that this implied term was necessary to give business efficacy 'to the offers'.  The plaintiff says that no such term can be implied based upon the pleaded facts.

19. What can be said about the events leading to this claim is that there is some uncertainty how the Agreement and the Shareholders Agreement interrelate and what terms of which agreement might be said to govern the parties' arrangements.  After all, by pleading in the alternative the plaintiff acknowledges some uncertainty as to the precise relationship between the parties.  In determining what the contractual position is the evidence of negotiations is, of course, crucial.  Once that evidence is in the trial judge can assess whether or not there is any need to imply a term into the contract.  But it is after that evidence is in that such a decision should be made.  For the present I am satisfied that the plea of an implied term can stand. 

20. By par 5 of the minute the defendant claims that the Variation Agreement is voidable because it was procured by duress.  The circumstances of the alleged duress are particularised in eight subparagraphs. 

21. The plaintiff says that to make out a defence of duress the evidence must establish that: 

    (a)a party has used a form of physical, economic or psychological pressure that is illegitimate in order to compel the other party to assent to the transaction;

    (b)the pressure caused or was the cause of the other party assenting; and

    (c)the other party had no reasonable alternative but to assent. 

22. By par 5(a) of the particulars of duress the defendant pleads that at all times between April 2004 and September 2005 Mr Fridlender (a director of the defendant) had as his sole source of income his earnings as a director of the defendant in pursuing the joint venture.  The plaintiff alleges that as there is no plea that Mr Jermyn (a director of the plaintiff and the person allegedly responsible for the duress) knew of the facts in par 5(a) the plea must fail. 

23. With respect, this is too narrow a basis upon which to strike out the plea.  Even if Mr Jermyn was not aware of the importance to Mr Fridlender of his income as a director of the defendant the remaining facts could, in my view, support a plea of duress.  The matter ought go to trial.

24. There are three further complaints made about the duress plea.  It is said that there is a merging of the personal circumstances of Mr Fridlender with the making of the Variation Agreement on behalf of the defendant.  Mr Fridlender was a director of the defendant and it was he who was pressured.  In my view it is arguable that in these circumstances it was the defendant that suffered the duress.

25. Second, it is said that even if the particulars to par 5 were established they do not establish duress.  In my view, the point is arguable.  What is necessary is that a party has used a form of pressure that is illegitimate.  While it may be that abuse in the form alleged in this case is not illegitimate the point is arguable. 

26. Thirdly, it is said that the particulars lack details as to time, date, place, who was present, and what was said.  If that is a failing in the plea then further and better particulars can be requested.  The lack of fine detail would not warrant the plea being struck out. 

27. There is one final argument put with respect to the duress plea.  That is to the effect that if the plea was made out the Variation Agreement would be voidable but that would have the effect of reinstating the settlement date of 25 August 2005.  While that may be the consequence of successful frustration plea it is not possible, in my view, in the context of a pleading summons to determine what would be the outcome of the plea being successfully made.  In any event, there is no warrant for refusing to allow a plea simply because the consequences of its being successful pursued do not absolve a defendant from some liability. 

28. By par 6 of the minute the defendant says that any agreement between the plaintiff and the defendant (presumably as alleged by either party) was for the acquisition by the defendant of shares in Optum. It is alleged that shares of financial products, the acquisition of which is governed by Division 2 of the Australian Securities and Investments Commission Act2001 (Cth) (the Act). The plaintiff then says that under certain provisions of the Act the Variation Agreement is 'void or voidable'.

29. The plaintiff says that for the Act to apply the shares have to be a 'financial product' as that term is defined in s 12BAA of the Act.  The plaintiff says shares are not within that definition.  In my view, it is at least arguable that shares fit within the definition found in s 12BAA(1)(a) as amplified by s 12BAA(4).  Either way, the plaintiff's submission was not supported by any authority.  Without going through other objections taken to the reference to the Act I am satisfied that the plea should stand.  It also creates no real mischief in the sense that it requires any particular evidence to be led at trial to allow it to be dealt with by the trial judge.  In my view, it would be inappropriate to strike out par 6. 

30. Objection is taken to par 7 of the minute.  Paragraphs 7, 8 and 9 plead an estoppel.  As I understand the plaintiff's complaint, it is said that what is pleaded is evidence which is at odds with the terms of the Variation Agreement.  That being so, no estoppel can arise and these paragraphs do not provide a defence to any claim.  In answer, the defendant says that parole evidence is admissible when an agreement is only a partial or provisional record of the alleged agreement.  The defendant says the Variation Agreement as pleaded by the plaintiff is a partial record of the alleged agreement the plaintiff contends was reached with the defendant.  Consequently, extrinsic evidence of the circumstances will be admissible and the objection is without foundation.

31. I accept that submission.  As I have said elsewhere in these reasons, the fact situation in this case is confused.  By pleading in the alternative, the plaintiff appears to accept that is the case.  In my view, no real purpose can be served by attempting, as it were, in a vacuum, to strike out particular pleas which the defendant wishes to raise.  The better course is to allow what is a relatively straight forward pleading to stand with matters at issue to be determined at the trial.  In those circumstances it can hardly be said that the plaintiff will be caught by surprise. 

32. There were other complaints made by the plaintiff which I do not propose to deal with at all.  In my view, the minute is in a form which is both intelligible and allows the plaintiff to understand the case that it has to meet.  The best course is to regard the pleadings as settled and move this case on as quickly as possible.  For these reasons I will allow the amendment in terms of the minute.

33. I will hear the parties as to the precise form of orders and as to costs.