Barry Murphy Investments Pty Ltd v Flow Smart Victoria Pty Ltd
[2018] VCC 465
•20 April 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-17-04323
| Barry Murphy Investments Pty Ltd | Plaintiff |
| v | |
| Flow Smart Victoria Pty Ltd & Anor | Defendants |
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JUDGE: | Judicial Registrar Tran | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 March 2018 | |
DATE OF DECISION: | 20 April 2018 | |
CASE MAY BE CITED AS: | Barry Murphy Investments Pty Ltd v Flow Smart Victoria Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 465 | |
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REASONS FOR DECISION
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Subject: CONTRACT LAW
Catchwords: PRACTICE & PROCEDURE - Application for summary judgment - whether no real prospect of success – suspension clause preventing deduction of any amount from money that obliged to pay
Legislation Cited: Civil Procedure Act 2010 (Vic) sections 61, 64.
Cases Cited:Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122; Harrenvale Pty Limited v Kelly [2017] NSWSC 1223; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158; O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71; Palaniappan v Westpac Banking Corporation [2016] WASCA 72.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | J. Kohn of Counsel | Sullivan Braham |
| For the Defendant | M. Wise QC, with N. Papaleo of Counsel | HWL Ebsworth |
JUDICIAL REGISTRAR:
By a contract dated 13 June 2014, the Plaintiff (“Barry Murphy P/L”) sold the First Defendant (“Flow Smart”) its irrigation and equipment business for the stated purchase price of $700,000.00. The Second Defendant (“Bryce”) guaranteed the performance of Flow Smart’s obligations under the contract of sale.[1] The contract of sale provided for the final instalment of the purchase price to be paid on 26 June 2017.[2] Flow Smart did not pay Barry Murphy P/L the final instalment on 26 June 2017.
[1]Clause 10.1 of the Special Conditions and attached Deed of Indemnity and Guarantee dated 13 June 2014.
[2]Clause 4.2 of the Special Conditions, read together with the definition of Completion Date in the Particulars of Sale.
In this proceeding, Barry Murphy P/L sues Flow Smart and Bryce for payment of $100,000.00 (which it says is the amount of the final instalment) plus interest and costs. Flow Smart and Bryce do not deny that $100,000.00 of the $700,000.00 stated purchase price has not been paid. However, they:
a) contend[3] that Barry Murphy P/L has defaulted under the contract of sale and that under Clause 11.3 of the General Conditions of the contract of sale, Flow Smart is entitled to demand its reasonable expenses incurred by reason of the default and
“the price is altered accordingly”; and
b) seek to counterclaim for, among other things, an order reducing the purchase price under Division 4 of Part 5-2 of the Australian Consumer Law, for conduct which was misleading or deceptive.
[3]In the proposed Amended Defence and Counterclaim. Additional defences (for example for set-off of damages for breach of other alleged contracts) are also sought to be raised at trial, however it is the two defences I describe in this paragraph which are relied upon in the Defendants’ submissions in opposition to the application for summary judgment. My reasons are therefore restricted to consideration of these defences.
In addition to the contract of sale, Flow Smart also executed a “General Security Charge” dated 4 July 2014. Clause 2.3 of the General Security Charge provided:
“The Grantor must pay in full all money that the Grantor is obliged to pay under this Charge when it is due to be paid. The Grantor must not deduct from any payment any amount, including any amounts the Grantor claims the Secured Party owes the Grantor or which the Grantor claims it is entitled to set-off against money that the Grantor is obliged to pay under this Charge.”
By Summons filed 8 December 2017, Barry Murphy P/L sought summary judgment on its claims against Flow Smart and Bryce. Barry Murphy P/L did not seek summary judgment on the Counterclaim, but rather contended that by reason of the provisions of the General Security Charge, Flow Smart and Bryce had “bargained away their right to raise anything by way of set off”.[4] Accordingly, it was submitted that judgment should be granted now on its claim for payment of $100,000.00 plus interest and costs, with the Counterclaim to be determined, at trial, at a later date.[5]
[4]Paragraph 18 of the Plaintiff’s Outline of Submissions dated 22 January 2018.
[5]Paragraph 20 of the Plaintiff’s Outline of Submissions dated 22 January 2018.
The question which I must decide is whether Flow Smart and Bryce have a defence with a real prospect of success to the claim made by Barry Murphy P/L.[6] I also have a residual discretion to allow a matter to proceed to trial if, despite there being no real prospect of success, it is not in the interests of justice to dispose of the proceeding summarily.[7]
[6]Section 61 of the Civil Procedure Act2010 (Vic), as to which see Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 at [35].
[7]Section 64 of the Civil Procedure Act2010 (Vic).
The meaning and effect of Clause 2.3 of the General Security Charge
Counsel for Barry Murphy P/L referred to a number of cases which support the proposition that clauses of a kind similar to Clause 2.3 are effective to prevent the raising of a defence of set-off, including equitable set-off.[8] Of course, each contract must be interpreted according to its particular terms and in light of the admissible objective circumstances known to the parties at the time. Nevertheless, in light of the authorities referred to by Barry Murphy P/L, I am prepared to assume for the purposes of this application that Clause 2.3 of the General Security Charge was effective to prevent Flow Smart from relying upon a defence of set-off to a claim made under the General Security Charge.
[8]Harrenvale Pty Limited v Kelly [2017] NSWSC 1223; Palaniappan v Westpac Banking Corporation [2016] WASCA 72; Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122.
Having said that, Bryce was not a party to the General Security Charge. He is sued as guarantor of Flow Smart’s obligations under the contract of sale, not the General Security Charge. Although it may be arguable that the General Security Charge was part of the suite of contractual documents which defined Bryce’s obligations, I am not prepared to find that Bryce has no real prospect of succeeding in any defence of set-off in those circumstances.
Are the defences and counterclaims relied upon within the scope of the prohibition in Clause 2.3?
By its terms, Clause 2.3 of the General Security Charge prevents Flow Smart from deducting “any amount” from the “money…[it] is obliged to pay under this Charge”. The payment obligations in the General Security Charge are contained in Clause 3.1 (a)(1) and 5.2.
Clause 3.1(a)(1) provides that:
“3.1 Promises
(a) The Grantor states and promises that:
(1) the Grantor will pay the Secured Money on time;
…”
Clause 5.2(a) provides under the heading “Secured Money” that “The Grantor must pay the Secured Party the Secured Money in accordance with this Charge.”
The scope of the obligation to pay under the General Security Charge is thus dependent upon the definition of “Secured Money”. “Secured Money” is defined in Clause 18.1 as follows:
“ “Secured Money” means all debts and liabilities of the Grantor to the Secured Party irrespective of whether the debts or liabilities are present, future, actual, prospective or contingent or otherwise and whether the amount of the debts or liabilities is at any time ascertained or unascertained and includes all:
(a) money already advanced or paid or now or in the future advanced or paid by the Secured Party to, for or for the accommodation of or on behalf of the Grantor or otherwise owing or payable now or in the future by the Grantor to the Secured party on any account whatsoever;
(b) money which the Secured Party is liable to pay or now or in the future pays or becomes liable to pay to, for or for the accommodation of or on behalf of the Grantor either by advances or by reason of the Secured Party having already or in the future accepted, endorsed, paid or discounted any order, draft, cheque, promissory note, bill of exchange or other engagement (whether or not it has matured or fallen due) or entered into any bond, indemnity or guarantee or otherwise incurred liabilities for or for the accommodation of or on behalf of or at the request (whether express or implied) of the Grantor;
(c) money already lent or advanced or which the Secured Party now or in the future lends or advances or is or becomes in any way liable to lend or advance to, for or for the accommodation of or on behalf of any other person on the order or request (whether express or implied) or under the authority of the Grantor or Debtor;
(d) money which the Grantor, whether directly, indirectly, contingently or otherwise, presently is or in the future may become liable to pay to the Secured Party:
(1) under any document or negotiable or other instrument including this Charge or the Primary Document;
(2) arising out of any claim which the Secured Party may have on the Grantor whether at law or in equity and whether out of contract or by way of damages, statutory, penalty or equitable relief on the grounds of breach of trust or other fiduciary obligation or otherwise;
(3) in connection with any transaction or event; or
(4) by reason of any other matter or thing whatsoever;
(e) money which the Secured Party is or will be entitled to debit and charge to any account of the Grantor whether under this Charge or under any other document or arrangement now or in the future held by the Secured Party from or relating to the Grantor or under the conditions or provisions contained in this Charge or otherwise;
(f) money which is now or in the future owed by the Grantor to the Secured Party under any past, present or future custom or usage in relation to this Charge or the nature of the financial accommodation provided by the Secured Party (whether a banking custom or usage or otherwise);
(g) money now or in the future owed by the Grantor to the Secured Party because of the assignment to or acquisition by the Secured Party of any secured or unsecured, present or future, actual, contingent, prospective or other debt or liability of the Grantor to any person; and
(h) interest, including interest on capitalised interest, now or in the future owed by the Grantor to the Secured Party under this Charge or any past, present or future court order, Collateral Security, agreement, understanding or other thing.
This definition applies:
(1) irrespective of the capacity of the Grantor or the Secured Party;
(2) whether the Grantor is:
(A) liable as principal debtor or surety or otherwise; or
(B) liable alone or jointly or jointly and severally with another person; and
(3) whether the Secured Party is the original obligee or an assignee (whether or not the Grantor consented to the assignment or the obligation assigned was secured).
Special Condition 23.1 of the contract of sale may also be relevant to the definition of “Secured Money”. That clause required Flow Smart to grant a first priority General Security Charge[9] to Barry Murphy P/L:
“For the purpose of further securing payment by the Purchaser to the Vendor of all moneys owing by the Purchaser to the Vendor under the terms and conditions of this Contract…”
[9]In the form of the copyright version published by the Law Institute of Victoria.
Summary judgment should only be granted if Flow Smart has no real prospect of succeeding to establish that the “Secured Money” payable under the General Security Charge is the amount owing under the contract of sale, taking into account any alteration in the price:
a) pursuant to Clause 11.3 of the General Conditions of the contract of sale; and
b) by the Court pursuant to its powers under the Australian Consumer Law.
Ultimately, the interpretation of the General Security Charge, and its interaction with the contract of sale and guarantee, will be a matter for trial. However, for the reasons which follow, I have concluded that summary judgment should not be granted.
The Court of Appeal anticipated in Hausman v Abigroup Contractors (2009) 29 VR 213[10] that:
“it can reasonably be contended that, notwithstanding the seemingly clear language of [a clause prohibiting the raising of a defence, set-off or counter-claim] the applicants could still seek to be relieved from their obligations under the guarantee, if they were able to establish either a potential breach of s.52 of the TPA, or misrepresentation of a kind that might ground relief in equity. These would be “vitiating” factors that, at least arguably, might ground relief under s 87(2)(a) of the TPA, or in equity, through rescission for misrepresentation”
[10]At paragraph [30]. See also O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71.
Similarly, in O’Brien v Bank of Western Australia Ltd, the Court considered the effect of what was described as a “suspension clause” which stated that “As long as any of the guaranteed money remains unpaid, you may not, without our consent: (a) Reduce your liability under this guarantee and indemnity by claiming that you or the debtor or any other person has a right of set-off or counterclaim against us…”
Ward JA stated:[11]
“as I read them the suspension clauses…in their terms to not operate if, as the Guarantors contend, no debt was due and payable at the relevant time…they do not operate contractually to preclude the Guarantor raising a defence based on the debt not being payable at the relevant time…”
[11]At paragraph [91]. Macfarlan JA expressed a similar view at para [14]. Beazley P agreed with both Ward JA and Macfarlan JA.
The authorities thus clearly anticipate that a defence which seeks to contend that the underlying debt is not payable for some reason may be permitted notwithstanding the existence of a clause of the kind under consideration.
In the present case, a number of specific factors support Flow Smart’s contention that the “Secured Money” was the amount owing under the contract as adjusted under Clause 11.3 and in accordance with any relief under the Australian Consumer Law:
a) “Secured Money” is defined as “all debts and liabilities” owed by Flow Smart to Barry Murphy P/L. If Flow Smart is successful in establishing that by reason of Clause 11.3 or the Australian Consumer Law there was no debt due and payable, then there would be no “Secured Money”;
b) the definition of “Secured Money” does not specifically refer to the $700,000.00 purchase price. The specific references to, for example, “moneys already advanced” at least arguably do not encompass the $700,000.00 purchase price;
b) the use of the words “price is altered accordingly” in Clause 11.3 of the General Conditions of the contract of sale, is suggestive of a reduction in the principal debt rather than a set-off;
b) the stated purpose of the General Security Charge in Special Condition 23.1 is to secure payment of the moneys owing “under the terms and conditions of this Contract”; and
c) the reference to “under any document” in sub-paragraph (d)(1) of the definition of “Secured Money”, suggests that what is secured is the money payable under the contract of sale taken as a whole.
I also note that, unlike the case Capital Finance Australia Ltd v Airstar Aviation Pty Ltd,[12] there is no express prohibition on counterclaims contained in Clause 2.3 of the General Security Charge. Clause 2.3 is thus arguably narrower in scope that the clause considered in that case.
Is there factual material before the Court sufficient to establish that the defences relied upon have a real prospect of success?
[12][2004] 1 Qd R 122.
The current iteration of the proposed Amended Defence and Counterclaim pleads numerous “representations and warranties” and then pleads that those representations and warranties were breached by various conduct, without any attempt to identify the specific representations and warranties which were breached by the specific conduct alleged. This lack of precision in the pleadings is reflected in a lack of precision in the evidence presented in opposition to the application for summary judgment.
For example:
a) Clause 5.1(a) of the Special Conditions required the Vendor “as from the date of the Contract [13 June 2014] until the Completion Date [26 June 2014] to carry on the Business in the same manner so as to maintain the Business as a going concern and preserve the Goodwill thereof”. If a breach of this clause is alleged, the dates of the alleged breach are of critical importance given it concerns a two week period only. No attention seems to be provided to this requirement in the particulars or affidavit evidence;
b) Clause 5.1(k) of the Special Conditions contains a warranty that the “Vendor has not received any warranty claims in the 3 years prior to the date of this contract in relation to the products supplied by it which have not been fully satisfied”. For it to be established that this warranty is breached it is necessary to show that the Vendor has received one or more “warranty claims” in the 3 years prior to the date of this contract. Again, no attention to the requirement that a claim be made in the 3 years prior to the date of the contract seem to be given in the particulars or affidavit evidence;
c) Clause 5.1(r) contains a warranty that Barry Murphy P/L has disclosed “All information which is known to the Vendor relating to the Business or otherwise the subject matter of this Deed which is material to be known by a purchaser thereof for value”. Knowledge of Barry Murphy at the date of the contract of sale is therefore a necessary element of any claim of breach of this Clause.
Nevertheless, having considered the totality of the evidence filed on behalf of Flow Smart and Bryce, and bearing in mind the caution which must be exercised before granting summary judgment, I am of the view that there is sufficient evidence to satisfy me that the proposed defences have a real prospect of success. There is, in the affidavit material filed on behalf of Flow Smart and Bryce, evidence that:
a) claims which may be described as warranty claims were made prior to the date of the contract which were not disclosed;[13]
b) all business records were not delivered in accordance with the requirement of Special Condition 12.1(c) and Flow Smart has suffered loss as a result;[14] and
c) there was a breach of Special Condition 24.1 to provide the Vendor’s Guarantor to assist the Purchaser to gain knowledge about the Business and its customers and provide introductions to its customers.[15]
[13]Affidavit of Bryce Graham Yates sworn 19 January 2018 (“First Bryce affidavit”), paragraph 8, 10, 20, exhibit BGY-01, BYG-05; Affidavit of Bryce Graham Yates sworn 19 February 2018 (“Second Bryce affidavit”), paragraph 14(e), 17, 19, 20, 27-29, 33-34, 65, 73-76, exhibit BGY-11.
[14]First Bryce Affidavit, paragraph 11, 12, exhibit BGY-02, exhibit BGY-03.
[15]First Bryce Affidavit, paragraph 12.
It may also be that some of the conduct alleged in the affidavit material could be construed as a breach of the obligation in Clause 5.1(d) to “not at any time after the date of the Contract do or suffer to be done any act, matter or thing whereby the Purchaser may be interfered with, interrupted or injured in any way in its conduct of the Business…”.
However, having regard to:
a) the late raising of the proposed defences based on Clause 11.3 and the Counterclaim based on the Australian Consumer Law;[16]
b) the lack of specificity in the proposed Amended Defence and Counterclaim and in the evidence in opposition to the application for summary judgment; and
c) the risk that refusing summary judgment in this proceeding will frustrate the intended purpose of Clause 2.3 of the General Security Charge,
it is appropriate that leave to defend be made conditional upon the payment into Court by Flow Smart of $100,000.00, plus interest at the rate which is 2% higher than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 from 26 June 2017 to 15 October 2018 (being the likely period within which this proceeding could be determined if conducted expeditiously). Counsel for Barry Murphy P/L submitted that I should also order payment into Court of a sum representing Barry Murphy P/L’s costs of the proceeding. I do not consider this is appropriate, particularly given Barry Murphy P/L has not sought judgment on the Counterclaim so might have been faced with those costs even had it been successful in its application for summary judgment.
[16]In the current Defence and Counterclaim there is no mention of Clause 11.3 or the Australian Consumer Law.
Finally, I note that if I am wrong in my conclusion that there is sufficient evidence to satisfy me that the defence has a real prospect of success, I would nevertheless refuse to give judgment under section 64 of the Civil Procedure Act 2010, conditional upon payment into Court of $100,000.00 plus interest as described above and the Defendants’ cooperation in the expeditious listing of this proceeding to trial.
I will hear from the parties as to the precise form of order to be made and appropriate directions to trial.
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Certificate
I certify that these 11 pages are a true copy of the reasons for the decision of Judicial Registrar Tran delivered on 20 April 2018.
Dated: 20 April 2018.
Larissa Travassaros
Associate to Judicial Registrar Tran
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