| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : BATLOW PROPERTIES PTY LTD -v- POPHAM [2002] WADC 144 CORAM : MULLER DCJ HEARD : 28 JUNE 2002 DELIVERED : 19 JULY 2002 FILE NO/S : CIV 12 of 2002 BETWEEN : BATLOW PROPERTIES PTY LTD Appellant (Plaintiff)
AND
MARK HAMILTON POPHAM
Respondent (Defendant)
Catchwords: Contract - Appeal against decision of Deputy Registrar's refusal to enter summary judgment - Loans made by plaintiff to defendant under oral and written agreements - Whether agreements subject to implied terms precluding repayment of loans on demand - Consideration of principles applicable to implied terms in formal and informal agreements
Legislation: Nil
(Page 2)
Result:
Appeal allowed Representation:
Counsel:
Appellant (Plaintiff) : Mr R Wilenski
Respondent (Defendant) : MR D A Lenhoff
Solicitors:
Appellant (Plaintiff) : Tottle Christensen
Respondent (Defendant) : Lenhoff & Co
Case(s) referred to in judgment(s):
Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Hawkins v Clayton (1988) 164 CLR 539
Heimann v Commonwealth (1938) SR (NSW) 691
Renards Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
South Sydney District Rugby League Football Club Ltd v News Ltd & Ors 177 ALR 611
Universal Greening Pty Ltd v Sabine (1999) 17 ACLC 880
Case(s) also cited:
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Bishopsgate Insurance Ltd v Commonwealth Engineering (NSW) Pty Ltd (1991) 1 NSWLR 429
Butt v McDonald [1896] 7 QLJ 68
Byrne v Australian Airlines (1995) 185 CLR 410
Central Exchange v Anaconda Nickel (2001) 24 WAR 382
Cordinup Resorts Pty Ltd v TGerena Holdings Pty Ltd (1997) 143 FLR 18
(Page 3)
General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125
Hughes Bros Pty Ltd v Trustees for the Roman Catholic Church for the Archdiocese of Sydney (1993) NSWLR 91
Jackamarra (an Infant) v Krakouer (1998) 198 CLR 276
John Holland Construction and Engineering Pty Ltd (formerly John Holland Constructions Pty Ltd) v World Services and Construction Pty Ltd, unreported; SCt of VIC; BC 9300767' 27 August 1993
Lee Kong Nelder Nominees Pty Ltd v John Holland Construction and Engineering Pty Ltd, unreported; SCt of WA; 980282; 27 May 1998
Moscow Narondy Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109
Royal Botanic Gardens and Domain Trust v South Sydney Council 186 ALR 289
Shirlaw v Southern Founderies (1926) Ltd [1939] KB 206
Webster v Lampard (1993) 177 CLR 598
(Page 4)
1 MULLER DCJ: This is an appeal against the decision of the Deputy Registrar made on 10 May 2002 dismissing the appellant's (plaintiff) application for summary judgment against the defendant (respondent).
The pleadings 2 The amended statement of claim reveals that the plaintiff was closely associated in a business venture with another company named WA Freightlines Pty Ltd. The defendant was employed by the plaintiff as a manager in WA Freightlines Pty Ltd. In the amended statement of claim it was alleged that between 13 May 1997 – 29 November 1997 the plaintiff lent the defendant moneys to purchase shares without any express agreement having been reached as to the time for repayment of the loans made. The situation changed on 30 November 1997 when, according to the statement of claim, the parties entered into a written agreement under which the plaintiff agreed to lend the defendant moneys up to a maximum amount of $200,000. The written agreement provided that the loan was repayable with interest on demand and that it superseded any previous agreements made between the parties in relation to the loan. The amounts loaned by the plaintiff to the defendant under both the oral and written agreements were duly recorded and the statement of claim alleged that on 18 December 2001 the plaintiff demanded from the defendant the sum of $162,178.30 representing the principal amount and interest owing by the defendant as at 30 November 2001. It was further alleged that, despite this demand, the defendant has failed to repay to the plaintiff any of the amounts advanced to him under either the oral or written agreements. 3 In his amended defence the defendant admitted that he borrowed moneys from the plaintiff under oral agreements of loan made from time to time between the parties. The defendant pleaded that at the time the loans were made the plaintiff was closely associated with two other companies known as WA Freightlines Pty Ltd and Coad-50 Pty Ltd. It was alleged that two of the directors of the plaintiff were also directors of Coad and WA Freightlines and were actively involved in the business activities of the group. The defendant went on to plead that Coad issued "employee shares" to the defendant and other shareholders in WA Freightlines and the plaintiff company. It was pleaded that the value of the defendant's shareholding in Coad was approximately $218,215. These shares were said to be redeemable and the entitlements payable as provided by the Articles and Memorandum of Association of Coad. In his defence the defendant alleged his Coad entitlements exceeded the amount of the debt he owed the plaintiff. He also pleaded that S & P Cassoti, the
(Page 5)
two directors of the plaintiff, had been given substantial loans by the plaintiff. 4 Paragraphs 6 and 7 of the amended defence provide as follow: "6. The defendant denies paragraph 5 of the amended statement of claim and, in amplification of the said denial, states that there were implied terms of the Loans that: 6.1 when repayment of the Loans was demanded by the plaintiff, the demand for repayment would be made from all persons who had loan accounts with the plaintiff and not selectively from any one person; 6.2 repayment of the loan accounts would not be demanded by the plaintiff from persons who had registered in their names employee shares in Coad which had attached entitlements with a value equal to or exceeding the amount of the Loans.
Particulars
The terms are implied: (a) in order to give business efficacy to the Loans; (b) because they are reasonable and equitable; (c) because they are capable of clear expression and reasonably certain in their operation; and (d) because they do not contradict any express terms of the Loans. 7. The defendant repeats what is stated in paragraph 1 herein and says further that the plaintiff has not demanded repayment of the loan accounts of Mr S Casotti or Mr P Casotti. 5 The defendant expressly denied the plaintiff's allegation in the amended statement of claim that the oral agreement of loan was followed
(Page 6)
by a written agreement dated 30 November 1997 under which the loan advanced was a demand loan repayable immediately with interest. This written agreement, according to the amended defence, was executed in order to comply with income tax legislation and was never intended to govern the terms of the loans. 6 Given the alleged existence of the terms said to have been implied in the loan agreements the defendant alleged in his defence that he was justified in refusing to repay the loans.
The written agreement 7 The written agreement entered into by the parties was made on 30 November 1997. Clause 1 of the agreement provided that the lender agreed to lend various amounts to the borrower but that such amounts were not to exceed $200,000. Clause 2 of the agreement provided that: "2. The Loan as advanced, shall be a demand loan repayable immediately together with interest…upon written demand being made by the lender but each amount so advanced must be repaid before 7 years from the date that they were first advanced to the Borrower." Clause 8 of the agreement, as I have already mentioned, stipulates that the written agreement supersedes any previous agreements made between the borrower and the lender in relation to the loan. This stipulation, however, is restricted to the "loan" as defined in the written agreement. The loan, as defined, encompasses those amounts which the lender agreed to lend the borrower from time to time from 30 November 1997. The loan which is the subject of the written agreement obviously did not encompass earlier advances made by the plaintiff to the defendant between May 1997 - November 1997. Those earlier advances were the subject of oral agreements and, in my view, must be considered distinct from the amounts lent by the plaintiff to the defendant under the written agreement. 8 I have already mentioned the defendant's pleading that the written agreement was not a genuine reflection of the parties' intentions but was only executed to comply with the provisions of the Income Tax Assessment Act 1977.
(Page 7)
Implication of terms
9 The argument of the defendant is that the loan agreements contain two implied terms: first, that any demand of the defendant to repay the loan would only be made if the same demand was made of all other persons, including two directors of the plaintiff named S P Casotti and P G Casotti, who had also borrowed money from the plaintiff; and second, that no demand for repayment would be made from the defendant who was the holder of shares in Coad which had attached entitlements with a value equal to or exceeding the amount of the loans. These allegations bring into focus the major issues in this appeal. The questions to be decided are, firstly, whether the terms alleged by the defendant in par 6 of the defence can be implied in the oral agreements because, if the implication of such terms is justified, the plaintiff's application for judgment must necessarily fail in respect of that agreement or agreements. The second question is whether the written agreement governs the terms of the loans made after 30 November 1997.
The oral agreement 10 Paragraph 3 of the amended statement of claim provides as follows: "3. On or about 13 May 1997 and at various dates thereafter until 29 November 1997, the Plaintiff and the Defendant orally agreed that the Plaintiff would lend and the Defendant would borrow monies to expend on various share purchases ('Loans') without any express terms being agreed as to the time for repayment of the Loans (the 'Oral Agreement')". 11 In par 3 of his amended defence the defendant admits this pleading but denies it was limited to loans made up to but not after 29 November 1997. The oral agreement is elaborated on in the affidavit of Sergio Paolo Casotti, a director of the plaintiff company, who deposed to the fact that on 13 May 1997 the plaintiff orally agreed to lend the defendant the sum of $16,790 to enable the defendant to purchase shares from the plaintiff. In that same affidavit Casotti asserted that no express term was agreed as to the time for repayment of the loans. 12 The only other evidence in relation to the oral agreements is to be found in the defendant's affidavit where, in par 2.3, the defendant acknowledged that various amounts as reflected in the schedule had been lent by the plaintiff to him prior to 30 November 1997. In that same
(Page 8)
affidavit the defendant explained how, as a shareholder in the plaintiff company, he was entitled to any dividends that were declared by the plaintiff but, instead of receiving dividends, the payments he was entitled to were instead channelled by way of a loan from the plaintiff to him for the purchase of "employee shares" in Coad. Similar loans, it was alleged, were made by the plaintiff to the Casottis for the same purpose. In par 2.16 of his affidavit the defendant asserted: "Although it was never expressly stated, it was always understood between the plaintiff's shareholders and directors that because funds which would otherwise have been utilised to reduce the amounts of the loans had been utilised to acquire other assets (the employee shares in Coad), the loans by the plaintiff to the Casottis and myself were to be repaid only upon the redemption of those assets namely the employee shares in Coad. When that happens the loan will be paid by me immediately." The admissibility of this material is certainly questionable. In any event the plaintiff denies this allegation. The Casottis, who were the other parties to the loan transactions involving the plaintiff and Coad 50 Pty Ltd, have asserted in their respective affidavits that no discussion along these lines ever occurred and that, had these issues been raised by the defendant, they would never have been agreed to. 13 The defendant acknowledges in his defence that there was no discussion of the terms for the repayment of the moneys advanced. The question is whether the understanding which he refers to in par 2.16 of his affidavit can be implied in the oral agreements. Where, as in this situation, the oral agreements are silent on a particular issue the critical question is whether the Court should imply a term by reference to the imputed intention of the parties. The appropriate test was expressed by Deane DCJ in Hawkins v Clayton (1988) 164 CLR 539 at 573: "The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case."
(Page 9)
14 The actual intention of the contracting parties must be considered in arriving at any conclusion as to their presumed or imputed intention. That this is so is clear from the judgment of Finn J in South Sydney District Rugby League Football Club Ltd v News Ltd & Ors 177 ALR 611 at 695:
"Where the contract is an informal one that has not been reduced to any complete written form, the test for implying a term is whether the implication of it is 'necessary for the reasonable or effective operation of the contract' in the circumstances of the case: Breen v Williams (1996) 186 CLR 71 at 123-4; 138 ALR 259. In such a case, though, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention." 15 Where, as in this case, the oral agreements were silent as to the time for repayment of the loan the money advanced was repayable on demand. This principle was expressed by Kenny J in Universal Greening Pty Ltd v Sabine (1999) 17 ACLC 880 at 886: "The law is that where there is an agreement for a loan and the time for repayment is not fixed by the agreement, any money advanced will be repayable on demand: Bailes at 441 or perhaps, more accurately, without any previous demand. See Chitty on Contracts, 26th ed, at para 3582." 16 The onus of proving the terms said to be implied rests on the defendant. Heimann v Commonwealth (1938) SR (NSW) 691 at 695. I see absolutely no justification for the argument advanced by the defendant. The loans made by the plaintiff to the defendant under the oral agreement are admitted by the defendant; they are repayable on demand; and, on the defendant's own admission, there was never any discussion between the defendant and the Casottis that no repayments to the plaintiff would become due until the defendant's shares in Coad had been redeemed. I am unable to see how such an intention could be imputed to the parties. The terms sought to be implied are not "necessary for the reasonable or effective operation of the contract" and the agreement is effective without it. This is certainly not a situation where the terms sought to be implied are so obvious that "it goes without saying" the parties intended the qualifications advanced by the defendant to apply. On the contrary any such terms, which are so unusual and substantially qualify the right of the plaintiff to recover the moneys it advanced to the
(Page 10)
defendant, would, at the very least, have needed to be the subject of discussion between the parties and, in my view, agreed upon as an express term of the oral loan agreement. Even accepting the defendant's argument that his entitlement to the redeemable preference shares in Coad 50 Pty Ltd was worth more than the amount of the loans made by the plaintiff, and that had the dividends from the plaintiff to which he was apparently entitled been paid into his loan account with the plaintiff instead of being used to purchase shares in Coad-50 Pty Ltd the debt or debts could have been repaid in full, I am still unable to conclude that a trial court could infer the existence of the terms sought to be implied on the material available.
The written agreement 17 I have already set out the relevant clauses in the written agreement and there is no need for me to repeat them. The defendant's allegation that the formal agreement was entered into for tax purposes and was never intended to govern the terms of the loans is, in my view, quite without foundation. For a start there is no admissible material before the Court that the parties did not intend the written agreement to apply to the loans. The defendant's assertions to this effect in pars 2.4-2.6 of his affidavit are, in my view, inadmissible. The material contained in those paragraphs is simply expressive of the defendant's own understanding. It is simply argument or comment which has no probative value. The significant point is that the defendant does not allege any negotiations occurred or any agreement was reached between the parties as to the non-application of the written agreement to the loans. Even if such discussions had occurred their admissibility would have been doubtful. The application of the parol evidence rule might have excluded such material. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352-353. 18 The defendant sought to draw some support for his argument that the formal agreement did not apply to the loans by referring to the plaintiff's omission to plead the written agreement in its original statement of claim. It is true the original statement of claim was silent as to the written agreement. Counsel for the defendant submitted that the plaintiff's failure to rely upon the written agreement in the original statement of claim lends itself to the more probable inference that the defendant and the Casottis never intended the written agreement to be binding. I do not believe that is the more probable inference at all. It is equally probable, as the plaintiff has asserted, that the written agreement was simply overlooked at
(Page 11)
the time proceedings were commenced. This oversight was explained in the affidavit of Edwards and there is no reason to regard it as being anything but truthful. There was, in my view, nothing sinister or untoward in the omission to plead the written document. 19 Clause 2 of the written agreement stipulates that the loan shall be a demand loan repayable immediately upon written demand being made by the lender. This express provision is irreconcilable with the terms sought to be implied by the defendant. That, as I see it, is the end of the matter. Even if one were to go further and apply the recognised tests to the written agreement it is impossible to reach any conclusion other than the one advanced by the plaintiff. The implication of a term in a written agreement is subject to the five criteria expressed by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3. In South Sydney DRLFC v News Ltd & Ors (supra) the test was expressed by Finn J in the following terms (p 695): "Where a term is implied in fact rather than in law, the implication is based upon the presumed or imputed intentions of the parties. Where the contract is a formal one complete on its face, if a term is to be implied it must be reasonable and equitable; necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; so obvious that 'it goes without saying'; capable of clear expression; and must not contradict any express term of the contract." 20 Much of what I said in relation to the implication of terms in the oral agreements applies to the written agreement as well. I am unable to conclude on the evidence available that an intention to qualify the repayment of the loan under the written agreement in the manner alleged by the defendant can be imputed to the parties. Any such qualification is not necessarily reasonable or equitable and is certainly not necessary to give business efficacy to the contract. The defendant's submission that the terms sought to be implied would necessarily give business efficacy to the loans in the sense that the share entitlements for which the loans were made are still in existence and have a higher value than the loans, is, in my view, completely without foundation. Once again I believe that terms such as those sought to be implied constitute such a substantial qualification to the plaintiff's contractual rights that they would necessarily need to be expressed in the agreement itself.
(Page 12)
Good faith
21 The defendant has submitted that the loan agreements are subject to a term implied by law that the plaintiff, through its directors, will act in good faith in exercising its rights under the informal loan agreements. Renards Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263. In pars 2.14-2.16 the defendant has asserted that the loans made to him by the plaintiff which he used to purchase shares in Coad were in substitution of dividends in the plaintiff company to which he would otherwise have been entitled and, had those dividends been declared by the plaintiff, they would have been credited to his loan account and extinguished his indebtedness to the company. What the defendant is unable to point to is the existence of admissible evidence as to such an arrangement having been reached. At best par 2.16 of his affidavit simply reflects the defendant's own understanding of the arrangement. It is certainly not evidence that the other directors of the plaintiff company, notably the Casottis, were of the same view or understanding. I am simply unable to make that finding. Without that finding being made the defendant's argument is untenable. The argument that the plaintiff ought not to have demanded repayment from the defendant without demanding repayment from others to whom it had loaned money is unsustainable because the Casottis were the only others to whom moneys were advanced and those debts have been repaid to the plaintiff. The submission that the plaintiff ought not to have demanded repayment of the loans from the defendant unless and until he redeemed the shares he held in Coad is also, in my view, untenable. Coad-50 Pty Ltd is a separate legal entity and there is no evidence before the Court as to when or how any preference shares in that company can be redeemed. Even if an obligation of good faith involving the notions of co-operation, honesty and reasonableness were to be implied in the informal agreements there is no evidence that this term was breached by the Casottis.
Summary judgment 22 I am satisfied that no triable issue of law or fact has been raised by the defendant. Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99. If the terms sought to be implied by the defendant cannot be implied in either the oral or written agreements there can be no uncertainty as to the plaintiff's right to judgment. Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332 at 335. In the absence of such implied terms the loans made to the defendant by the plaintiff under the oral agreements are repayable on demand as are the loans made under the written agreement after November 1997. Proper demand has been made by the
(Page 13)
plaintiff to the defendant and the amounts outstanding have not been repaid by the plaintiff to the defendant. The defence as pleaded cannot succeed. In these circumstances the plaintiff is, in my view, entitled to judgment. 23 For these reasons I would allow the appeal and enter judgment for the plaintiff in the amounts claimed. |