Bulong Operations Pty Ltd (Receivers and Managers Appointed) (Subject to Deed of Company Arrangement) v ComputerCorp Pty Ltd
[2005] WASC 147
BULONG OPERATIONS PTY LTD (RECEIVERS & MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) -v- COMPUTERCORP PTY LTD & ORS [2005] WASC 147
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 147 | |
| Case No: | CIV:2290/2003 | 12-14 APRIL 2005 | |
| Coram: | JENKINS J | 1/07/05 | |
| 36 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for the plaintiff in respect to certain claims Balance of plaintiff's claim and defendant's third party action adjourned sine die | ||
| B | |||
| PDF Version |
| Parties: | BULONG OPERATIONS PTY LTD (RECEIVERS & MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 008 930 881) COMPUTERCORP PTY LTD (ACN 009 261 116) BARRY JOHN HONEY ROBYN BEVERLEY MCKERN |
Catchwords: | Contract Hire purchase Non-compliance with statutory conditions Harsh and unconscionable term of the contract Corporations Receivers, managers and controllers Liability of receivers and managers Liability for arrears under a hire purchase agreement made before the control day |
Legislation: | Bills of Sale Act 1899, s 24 Corporations Act 2001 (Cth), s 419A(2) Hire Purchase Act 1959 (WA), s 13(1), s 2(1), s 3(2)(c), s 3(4), s 24 Money Lenders Act (1900) UK Supreme Court Act 1935 (WA), s 50 |
Case References: | Birstins v Associated Securities Ltd (1960) 77 WN(NSW) 877 Brown v Universal Guarantee Pty Ltd [1968] WAR 23 Castles v Freidman (1910) 11 CLR 580 Equipment Investments Pty Ltd v M J Dowthwaite & Co Pty Ltd (1969) 16 FLR 23 Samuel v Newbold [1906] AC 461 Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1 Wilson v Moss (1909) 8 CLR 146 Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185 Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Commonwealth v Verwayen (1990) 170 CLR 394 Considine v Citicorp Australia Ltd [1981] 1 NSWLR 657 Esanda Finance Corporation Ltd v Plessnig (1989) 166 CLR 131 Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Gillespie Brothers & Co v Cheney Eggar & Co [1896] 2 QB 59 Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 Liverpool City Council v Irwin [1977] AC 239 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 Nardell Coal Corp (In Liq) v Hunter Valley Coal Processing Pty Ltd (2003) 178 FLR 400 On Demand Information plc v Michael Gerson (Finance) plc [2000] NLJR 1300 Radio Frequency Systems Pty Ltd v Guthrie [2001] WASCA 195 Rafferty v Schofield [1897] 1 Ch 937 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
COMPUTERCORP PTY LTD
(ACN 009 261 116)
Defendant
BARRY JOHN HONEY
ROBYN BEVERLEY MCKERN
Third Parties
(Page 2)
Catchwords:
Contract - Hire purchase - Non-compliance with statutory conditions - Harsh and unconscionable term of the contract
Corporations - Receivers, managers and controllers - Liability of receivers and managers - Liability for arrears under a hire purchase agreement made before the control day
Legislation:
Bills of Sale Act 1899, s 24
Corporations Act 2001 (Cth), s 419A(2)
Hire Purchase Act 1959 (WA), s 13(1), s 2(1), s 3(2)(c), s 3(4), s 24
Money Lenders Act (1900) UK
Supreme Court Act 1935 (WA), s 50
Result:
Judgment for the plaintiff in respect to certain claims
Balance of plaintiff's claim and defendant's third party action adjourned sine die
Category: B
Representation:
Counsel:
Plaintiff : Mr T O Coyle & Mr W C J Zappia
Defendant : Mr M L Segler
Third Parties : Mr T O Coyle & Mr W C J Zappia
Solicitors:
Plaintiff : Phillips Fox
Defendant : Brennan & Co
Third Parties : Phillips Fox
(Page 3)
Case(s) referred to in judgment(s):
Birstins v Associated Securities Ltd (1960) 77 WN(NSW) 877
Brown v Universal Guarantee Pty Ltd [1968] WAR 23
Castles v Freidman (1910) 11 CLR 580
Equipment Investments Pty Ltd v M J Dowthwaite & Co Pty Ltd (1969) 16 FLR 23
Samuel v Newbold [1906] AC 461
Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1
Wilson v Moss (1909) 8 CLR 146
Case(s) also cited:
Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185
Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410
Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Commonwealth v Verwayen (1990) 170 CLR 394
Considine v Citicorp Australia Ltd [1981] 1 NSWLR 657
Esanda Finance Corporation Ltd v Plessnig (1989) 166 CLR 131
Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279
FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343
Gillespie Brothers & Co v Cheney Eggar & Co [1896] 2 QB 59
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57
Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60
Liverpool City Council v Irwin [1977] AC 239
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504
Nardell Coal Corp (In Liq) v Hunter Valley Coal Processing Pty Ltd (2003) 178 FLR 400
On Demand Information plc v Michael Gerson (Finance) plc [2000] NLJR 1300
Radio Frequency Systems Pty Ltd v Guthrie [2001] WASCA 195
Rafferty v Schofield [1897] 1 Ch 937
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170
Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396
(Page 4)
1 JENKINS J: This action concerns computer equipment the subject of a hire purchase agreement between the plaintiff, as hirer, and the defendant, as owner. Whilst the hire purchase agreement was still on foot the third parties were appointed as receivers and managers of the plaintiff. The equipment continued to be used. Subsequently the plaintiff purported to exercise the option to purchase the computer equipment. A number of disputes have arisen between the parties, including, whether the plaintiff became the owner of the computer equipment upon payment of the residual despite arrears still being owed under the agreement, whether the plaintiff was and is obliged to pay terms charges to the defendant, whether a clause of the hire purchase agreement was harsh and unconscionable and whether the third parties converted the computer equipment by selling it after the defendant had issued a notice of intention to repossess.
Factual Background
2 At the relevant times the plaintiff conducted a nickel mining and processing operation located near Kalgoorlie called the "Bulong Nickel Project". The defendant conducted a business of, amongst other things, the serviced rental of computer equipment.
3 On 1 August 2002 the plaintiff and the defendant entered into contract HA00450286 ("Agreement 286"). By that agreement the defendant agreed to supply and the plaintiff agreed to rent particularised computer equipment. The following terms were expressed in the agreement:
(a) the "minimum rental term" was to commence on 1 August 2002 and expire on 31 July 2003;
(b) the "rental payment period" was monthly;
(c) the "rental period payment" was $13,173.63; and
(d) the "rental charges" were based on a 12 months rental rate.
4 The "rental period payment" included $233.20 stamp duty and $1,176.40 Goods and Services Tax ("GST").
5 Some of the equipment the subject of Agreement 286 had been previously leased by the plaintiff under a number of separate agreements ("the old equipment"). The defendant consolidated those rental agreements into Agreement 286 and added further equipment ("the new equipment"). This was as a consequence of a request by a Mr Robinson on behalf of the plaintiff. The old equipment had been rented to the plaintiff for at least the previous 18 months.
(Page 5)
6 By e-mail dated 31 July 2002 a Mr Reece Power on behalf of the plaintiff wrote to Ms Jennifer Tweedie, the defendant's Information Technology Hire and Rental Manager and only witness. He asked her what the payout figure at the end of 12 months would be. By e-mail dated 2 August 2002 Ms Tweedie replied to the effect that the payout price for the old equipment was one month's rental. Further, the payout price for the new equipment was 30 per cent of the agreed value as set out in the attached quote. Ms Tweedie testified that attached to the e-mail was quotation number 90487. This is a two-page document which itemises the cost of the new equipment to the account of the plaintiff. The total value is $76,747, including GST of $6,977.
7 Agreement 286 includes the following paragraph:
"Existing equipment - 12 month extension. End of term purchase option of 1 month's rental - $5,140 ex taxes."
8 This statement occurs at the beginning of the agreement. There is then an itemised list of the old equipment. On page 5 of the agreement there is a further paragraph as follows:
"New equipment added 1 August – initial 12 month term. Purchase option at end of term for 30 per cent of original sale price as per QTE 00090487-$23,024.10."
9 There is then an itemised list of the new equipment.
10 The defendant did not usually include a purchase option in its rental agreements. It did so on this occasion on the basis of a request by Mr Power on behalf of the plaintiff.
11 Although there is no evidence of it before me, the parties agree that Agreement 286 was entered into by the plaintiff and the defendant. The equipment, the subject of the agreement, was delivered and used by the plaintiff. The copy of the agreement which is in evidence is unexecuted but dated 1 August 2002. It is agreed by the parties that Agreement 286 was either "made" or "dated" 1 August 2002. This is despite the fact that the e-mails suggest that negotiations regarding the terms of the agreement occurred after this date.
12 On 27 May 2003 the third parties were appointed joint and several receivers and managers to the plaintiff. Norman Oehme, the plaintiff's and third parties' only witness, was assigned to the plaintiff's onsite office, near Kalgoorlie, on the appointment of the third parties. His role was to
(Page 6)
- assist the third parties to discharge their obligations as receivers and managers of the plaintiff.
13 By letter dated 30 May 2003, which was received by Mr Oehme on 3 June 2003, the defendant wrote to the receiver manager of the plaintiff advising that the plaintiff was in breach of cl 10 of the terms and conditions of Agreement 286. Clause 10 is a general clause saying that if a customer is in default of payment or is in breach of any provision of an agreement then the defendant may without notice resume possession of the leased goods and be entitled to charge default interest on any arrears. The letter went on to say that all rental agreements between the plaintiff and the defendant were terminated and the defendant required an audit to be carried out to verify the location and condition of each rental item. Despite this alleged breach and termination the parties continued to act as if the agreement was on foot.
14 It is clear from the terms of this letter that the defendant had received prior correspondence from the third parties. After considering all the evidence I conclude that the defendant had already received the "Circular to Creditors/suppliers" dated 27 May 2003. This document advised the plaintiff's creditors and suppliers that the third parties had been appointed receivers and managers on 27 May 2003. It further advised that the receivers and managers had assumed control of the Bulong group's affairs and entered into possession of the Bulong group's assets. It requested the creditors and suppliers to continue to make goods and services available to the Bulong group upon usual trading terms and conditions when so requested by the third parties or their authorised representatives, including Mr Oehme. The third parties requested the creditors and suppliers to adopt the following procedure with regard to the Bulong group's accounts:
"1. Close your present accounts for the Bulong group as at the date of our appointment; and
2. Open a new account for each company of the Bulong group respectively, styled
…
Bulong Operations Pty Ltd (receivers and managers appointed)."
15 The circular further advised that payments made by the receivers and managers must be applied against "this debt and cannot be applied against pre-appointment debt".
(Page 7)
16 The circular asked creditors and suppliers to note that no further credit should be extended to the Bulong group except on an order signed by the third parties or their representative.
17 The defendant's letter of 30 May apparently refers to this circular and requests from the third parties a signed order, presumably for the computer equipment. It also stated that there was no guarantee that the defendant would be continuing with further rentals.
18 Mr Oehme replied to the letter of 30 May by a faxed letter dated 3 June 2003. That letter attached a letter from one of the third parties, Mr Barry Honey, to Ms Tweedie also dated 3 June. The letter advised Ms Tweedie that it was intended that the company would continue to trade and continue to use the property the subject of Agreement 286. It advised that, until further notice, payments in respect of, amongst other things, the subject of the Agreement 286 would continue to be made in accordance with the Corporations Act 2001 (Cth) ("the Corporations Act"), s 419A. The letter stated that s 419A provided that the receivers and managers were only liable for the lease payments payable under the lease that were attributable to the period that begins more than seven days after the appointment until either the sooner of the resignation of the receivers and managers or the plaintiff ceases to use the leased property.
19 Mr Honey stated in the letter that he was not a party to and did not in any way adopt "this lease agreement" nor any of its terms or conditions. There were, in fact, two lease agreements referred to in the letter. The second agreement is numbered 388. It is referred to in these reasons to the extent that it is necessary to do so to make sense of the background. However, it is not the subject of this action. The letter also stated that the receiver and manager did not accept responsibility for any liabilities incurred by the company prior to the date of his appointment.
20 Mr Oehme's letter which accompanied Mr Honey's letter reiterated some of the points made by Mr Honey and stated further that Mr Oehme would arrange for a purchase order to be issued to the defendant for the period from 3 June 2003 to 30 June 2003, and thereafter on a monthly basis.
21 Ms Tweedie testified that she telephoned Mr Oehme on or about 3 June 2003 and said to him that the existing two rental agreements between the Bulong group and the defendant (Agreements 286 and 388) had different commencement dates. She asked him which date, if either, ought to be confirmed in the new single contract requested.
(Page 8)
22 The reference to a new contract is misleading and confusing. None of the parties contend that any of the discussions that took place after the receivers and managers were appointed resulted in a new contract which supplanted Agreement 286. The parties agree that as a consequence of the receivers and managers being appointed the defendants prepared a new rental agreement numbered 559 ("Agreement 559"). This was a means of facilitating the receivers and managers requests for the defendant's present accounts for the Bulong group to be closed and new accounts opened for the time following the appointment of the receivers and managers.
23 Ms Tweedie says that in the same telephone conversation she enquired of Mr Oehme whether all the equipment that had been hired by the Bulong group was to be included in the one rental agreement and he responded "Yes, that would be fine" and that he would issue the defendant with only one service order in respect to all such equipment each month. Mr Oehme said that he agreed to this for accounting purposes.
24 There is a dispute between the parties as to the accounting period that was agreed to following the appointment of the receivers and managers. Mr Oehme said that he told Ms Tweedie that the commencement date would be the date of the appointment of the receivers and managers but that they would only pay the portion of the account relevant from 3 June in order to take advantage of what he believed to be the seven day rent free period allowed for by the Corporations Act, s 419A.
25 Another representative of the receivers and managers issued a service order dated 6 June 2003 to the defendant for lease of goods from 3 to 30 June only. The total said to be payable by the plaintiff under the service order was $13,859.01. A second service order was issued and signed by Mr Oehme. It related to the same period of time and the total amount said to be payable by the plaintiff in respect to the hire of computers and printers was said to be $11,877.26. Neither of these two figures appear to relate to the amounts on Agreements 286 or 388, either singularly or in combination.
26 On 20 June 2003 Ms Tweedie wrote to Mr Oehme referring again to the alleged breach by the plaintiff of the Agreements 286 and 388 "thereby causing termination of these agreements". She also referred to the circular to creditors/suppliers requesting that new accounts be opened for future transactions. She advised that the new account number was ADM009 and that previous invoices had been credited and re-invoiced under the new account. The letter also referred to Agreement 559, a copy of which was enclosed. Agreement 559 stated that it commenced on
(Page 9)
- 3 June 2003 and expired on 2 July 2003. It was signed by Ms Tweedie on behalf of the defendant and related to the equipment the subject of Agreements 286 and 388. Agreement 559 did not include an option to purchase or a payout figure.
27 This letter was received by Mr Oehme on 25 June and he says that he then telephoned Ms Tweedie and told her that the receivers and managers considered that Agreements 286 and 388 remained on foot and that it was wrong for the defendant to create new contract numbers. He further alleges that Ms Tweedie told him that the defendant's accounting system required that she create new contract numbers when a new customer account was created. He says that he told her, in reply, that that was a matter for the defendant's internal systems but that Agreements 286 and 388 remained on foot and that the receivers and managers would only pay rental amounts owing pursuant to those agreements which accrued subsequent to their appointment. Ms Tweedie denies having this telephone conversation with Mr Oehme.
28 Whether this telephone conversation occurred is immaterial as the parties agree that Agreements 286 and 388 remained on foot despite the defendant's repeated claims that they had been terminated and despite the defendant's creation of Agreement 559.
29 On 1 July 2003 Mr Oehme sent Ms Tweedie a letter which enclosed a cheque for $29,545.51 purportedly being the rental owed under Agreement 286 for the periods 3 June to 2 July 2003 ($11,764.00) and 3 July to 31 July 2003 ($10,625.55) and under Agreement 388 for the periods 3 June to 2 July 2003 and 3 July to 2 August 2003. In addition, there was a payment of GST of 10 per cent of the rentals. Whilst the letter was written and signed by Mr Oehme he did it on behalf of Mr Honey. Mr Oehme believed that pursuant to the Corporations Act, s 419A the third parties were entitled to a seven day rent free period between the date of their appointment being 27 May 2003 and 2 June 2003 inclusive.
30 The letter also asked the defendant to advise the third parties of the residual payment amount for Agreement 286 as it was due to expire on 31 July 2003. The purpose of that request was expressed in the letter to be so that Mr Honey could assess his options regarding acquiring the equipment. In the letter Mr Honey said that he was not a party to it and did not in anyway adopt the agreements nor any of their terms or conditions and that he took no responsibility for any liabilities incurred by the plaintiff prior to the date of his appointment.
(Page 10)
31 In response to this letter Ms Tweedie wrote to Mr Oehme advising him that the cheque for $29,545.51 was insufficient to meet the outstanding rental due under Agreement 559. Agreement 559 provided for a monthly rental which was equivalent to the combined monthly rentals for Agreements 286 and 388. Consequently Ms Tweedie's reference to Agreement 559 was not significant. From looking at the breakdown of the figures in Mr Oehme's letter of 1 July it is obvious that what he omitted to pay was the stamp duty payable on the agreements. Ms Tweedie requested an alleged outstanding amount of $1,807.23 in respect to both Agreement 286 and Agreement 388 by 2 August 2003. This figure failed to take into account the particulars in Mr Oehme's letter to the effect that payment was only being made to 31 July 2003, the end of the minimum rental term of Agreement 286. Ms Tweedie's request was in respect to rentals up to 2 August.
32 She advised Mr Oehme that his "request to purchase the assets currently on hire" was being considered by the defendant's chief financial officer. She said that until such time as this has been agreed to and an amount has been agreed upon the rental of equipment would continue to be on a calendar month basis as per "our agreement".
33 At this time Mr Oehme was aware that there were amounts outstanding in respect to Agreements 286 and 388 relating to the time prior to the appointment of the third parties. In respect to Agreement 286 that amount was $13,173.63, including GST, for the period 1 May to 31 May 2003.
34 Mr Oehme wrote to Ms Tweedie on 21 July 2003. He again advised Ms Tweedie that the third parties considered that Agreements 286 and 388 remained on foot and that they intended to continue to make payments in respect to them as and when they fell due. He referred to the $29,545.51 which he had previously sent to the defendant and claimed that this was GST inclusive. By reference to the terms of Agreement 286 it is patently clear that the payment in respect to it was inclusive of GST but not inclusive of stamp duty. Mr Oehme did not refer to the $1,807.00 which Ms Tweedie claimed was still outstanding under those agreements.
35 Mr Oehme repeated his request for the residual payment amount for Agreement 286 so that he could assess his options regarding acquiring the equipment.
36 On 31 July Mr Oehme sent the defendant Service Order 71705 for computers and printers for the period 1 – 31 August 2003 for a cost of
(Page 11)
- $13,196.96. This order presumably related to equipment the subject of Agreement 286 and 388. However, on 6 August 2003 Mr Oehme sent the defendant Service Order 71877 which purported to be in relation to computer equipment hire the subject of Agreement 388 only and was stated to be in relation to "cancelled" order 71705.
37 Ms Tweedie responded to Mr Oehme by letter dated 25 August 2003. On behalf of the defendant she declined to accept order 71877 as it did not relate to Agreement 559 and requested Mr Oehme to issue a valid purchase order for the full amount of Agreement 559 for the period 3 August through to 2 September.
38 She also referred to the failure of Mr Oehme to forward the outstanding amount of $1,807.23. She stated that there was consequently a breach of Agreement 559 and that if full payment was not received within seven days the defendant may proceed to recover possession of the goods. This was despite the fact that Agreement 559 was not signed or agreed to by the plaintiff or the third parties.
39 As to Mr Oehme's request for a payout figure, Ms Tweedie advised him that as of 2 September 2003 the purchase price for all equipment under Agreement 559 was $64,719.60 including GST. She further stated that all rentals owing under that agreement had to be paid in full prior to transfer of ownership.
40 In cross-examination Ms Tweedie acknowledged that it was not possible to calculate, by reference to that asserted figure, the residual figure that was payable under Agreement 286. She said that that was because $64,719.60 included arrears from May 2003. However, she acknowledged that the letter did not point this out to Mr Oehme. Rather, in the following sentence it referred to arrears having to be paid in full. The letter did not point out that these arrears were different from the May arrears which had been supposedly included in the $64,719.60.
41 Ms Tweedie distinguished between a residual amount, which it seems she interpreted as being those amounts referred to in Agreements 286 and 388 and the payout amount or figure, which was what was stated in her letter. She agreed that that latter figure was a commercial proposal by the defendant which included supposed arrears from May.
42 Mr Oehme testified that as at 6 August he had assumed that Agreement 286 had expired on 31 July. Therefore no order was required for the month of August. He said that he did not return the equipment the
(Page 12)
- subject of Agreement 286 to the defendant because "we" had the intention of acquiring the equipment if the residual amount had been advised and depending upon what it was.
43 Mr Oehme testified that at that time he was unaware of cl 14 of the conditions of Agreement 286. This may have been because the page of standard terms and conditions of hire was not attached to the copy of Agreement 286 that he had access to. Many of the standard terms and conditions are inapplicable to a hire purchase contract. Clause 14 provides that:
"Upon expiration of the minimum term of renting this Agreement shall remain in force on a rental payment period to rental payment period basis upon the terms contained herein."
44 Mr Oehme's evidence is to the effect that he was not able himself to determine the residual payable under Agreement 286 with any certainty. He said that when he received Ms Tweedie's letter of 25 August 2003 containing the payout figure of $64,719.00 he was surprised at how high it was and noted that it was expressed to be the purchase price for the equipment relating to Agreement 559 whereas he had only asked for the residual in respect to Agreement 286. He testified that he could do the calculation to subtract the residual owing on Agreement 388 from the alleged payout figure but the resulting figure of approximately $55,000.00 was in his mind unreasonable for the sort of equipment the subject of Agreement 286. In response to a question posed by me as to how Mr Oehme thought the figure of $64,719.60 had been arrived at he said that he did not know what the calculation was and that was why he subsequently requested Ms Tweedie to advise him of the basis of the calculation.
45 As to the plaintiff's approach to the issue Mr Oehme said:
"As soon as we were told of the number, we made the payment. If they had told us the number on 1 July when we first asked for it, we would have made the payment. I asked on 2 September - I'm still asking for it – and we still haven't been given that number."
46 By facsimile dated 2 September 2003 Mr Oehme replied to Ms Tweedie's letter of 25August 2003. He repeated that he considered that Agreements 388 and 286 remained on foot and that the third parties intended to continue to make payments in respect of them as and when they fell due.
(Page 13)
47 He requested Ms Tweedie to provide him with details of the residual payment amount for the equipment leased under the Agreement 286 in order that he could assess his options regarding acquiring the equipment on behalf of the plaintiff. He stated that he had not received the details of the residual payment for the equipment leased under that agreement. He stated that he understood that as at the date of the appointment of the third parties, the plaintiff owed the defendant $13,174 relating to the outstanding lease payment for May 2003 under Agreement 286 and that the end of term purchase option for this agreement was $5,140 exclusive of taxes. He said that the third parties were willing to offer the defendant $18,314 plus GST as the final residual payment for the equipment leased under hire purchase Agreement 286. He asked that he be advised whether the defendant was willing to accept this offer.
48 In cross-examination Mr Oehme said that his letter contained a counteroffer to that contained in Ms Tweedie's previous letter. A question arises as to whether Mr Oehme knew, at that time, not only that $5,140 was the residual for the old equipment but that there was another residual for the new equipment. Mr Oehme said that he did not know when he became aware of the residual for the new equipment but that it was before the final payment was made for the equipment under 286. It remains possible that as of early September Mr Oehme had not read Agreement 286 in its entirety and was unaware that there was a residual sum in respect to the new equipment.
49 Ms Tweedie's final communication to Mr Oehme was by a letter dated 16 September 2003 wherein she advised him that his counteroffer was not accepted as the amount was well below the original agreed purchase price negotiated with the plaintiff. She repeated that the payout amount for all goods on hire from the defendant under Agreement 559 was $64,719.60 including GST and that the figure was based on 30 per cent of the original purchase price as agreed with the plaintiff. In the following paragraph she said that before ownership could be transferred "current rental arrears must be paid in full". She then provided a break down of the rental arrears incurred whilst the plaintiff was in receivership as follows:
(Page 14)
|
|
|
|
|
|
|
|
Thus, she said a total of $33,159.97 including GST and stamp duty was payable in respect to current rental arrears. These arrears would appear to relate to Agreement 559.
50 Ms Tweedie asserted that rentals would cease to accrue either upon return of the equipment or written confirmation that the plaintiff wished to proceed with the purchase of equipment. The issue was signified to be one of urgency as she said that unless the defendant had resolution within 24 hours it would be placing the matter in the hands of a collection agency to recover its goods.
51 Subsequently, the defendant's solicitors were instructed in respect of this matter. On 9 October 2003 the solicitor for the defendant wrote to the third parties enclosing by way of service notices of intention to repossess. The notices of intention to repossess were said to be issued pursuant to the Hire Purchase Act 1959 (WA) ("the Act"). The Act, s 13(1) states that an owner shall not exercise any power of taking possession of goods comprised in a hire purchase agreement until he has served on the hirer a statutory written notice and the period fixed by the notice, being not less than seven days after the service of the notice, has expired. The notice of intention to repossess in respect to Agreement 286 stated that the defendant was the owner of the goods described in it and advised that it intended to take possession of the goods after the expiration of 21 days from the service of the notice unless arrears of instalments amounting to $40,361.39 were paid to the defendant. A schedule was attached which calculated the arrears owing under Agreement 286 as being $64,989.90, which figure was made up of five months rental, stamp duty and GST from 3 June through to 30 October 2003. There was no claim for the May arrears. The amount said to be payable in respect to June was calculated as 28 thirtieths of the monthly rental of $13,173.63. From the total amount of arrears said to be owing the sum of $24,628.51 was subtracted being the amount the defendant had been paid under Agreement 286 by the third parties. It is agreed that this is the amount paid after the appointment of the third parties. The only amount said to be
(Page 15)
- owing up to the end of the minimum rental term was $840.50. The third parties accepted the defendant's position that this was an underpayment of GST and stamp duty. By my calculation that is more than the stamp duty that was omitted from the payment made by Mr Oehme. In my opinion, the larger sum arises because the third parties calculated that their rent free period gave them three rent free days between 1 June and 31 July, whereas by its calculation the defendant only gave two rent free days in the same period. In my view, the defendant's calculation was incorrect.
52 A notice of intention to possess in respect to the goods the subject of Agreement 388 was also enclosed in that letter. The notice to repossess stated that arrears under Agreement 388 to 24 October 2003 were $6,870.09.
53 The notices to repossess do not mention the options to purchase. On my reading of the Act the residual or payout figure should have been included in the notices as part of the total amount payable under the contracts. From this point the defendant abandoned any reliance on Agreement 559.
54 Negotiations subsequently occurred between the parties' solicitors. By letter dated 16 October 2003 the defendant's solicitor advised the plaintiff's solicitor that there was a residual payment of $28,164.10 together with GST and stamp duty thereon in respect to Agreement 286 that had to be paid in addition to the sums referred to in the notice of intention to repossess. This was reiterated in a further letter dated 21 October 2003.
55 Mr Oehme testified that if the defendant had provided him with the residual payout of $28,164.10 for Agreement 286 when initially requested it on 1 July 2003 he would have arranged for the equipment to have been purchased at the latest by 31 July 2003.
56 I note that that figure of $28,164.10 is the sum of the two payout figures referred to in Agreement 286. However, as in the agreement itself, the amount of taxes was not particularised.
57 The defendant's solicitor's letter of 21 October 2003 advised that unless the third parties "contemporaneously" agreed to pay the total amounts required for the purchase of the equipment, upon seizure it would be sold immediately.
58 Mr Oehme testified that upon receiving the payout figure for Agreement 286, by the letter dated 16 October 2003, he decided that the
(Page 16)
- plaintiff would purchase the goods the subject of that agreement. On 23 October 2003 he gave instructions for the plaintiff's solicitor to send a cheque for $46,344.33 representing payments as follows:
1. $17,339.73 being rental arrears, the payout and underpayment of stamp duty and GST in respect to Agreement 388; and
2. $28,164.10 being the "payout" for Agreement 286; and
3. $840.50 being the underpayment relating to stamp duty and GST in respect to Agreement 286 for the period 3 June 2003 to 31 July 2003.
60 The background facts indicate that on a number of occasions the defendant purported to terminate Agreement 286. Yet in some respects, in particular in the notice to repossess, it continued to treat it as if it was still on foot. Further, it has not pleaded that it was terminated at any stage. The plaintiff and the third parties allege that it remained on foot at all relevant times. I am satisfied it remained in effect at all relevant times.
61 On 29 October 2003 the plaintiff obtained an interlocutory injunction restraining the defendant from taking any steps to repossess the equipment the subject of Agreement 286. It was a condition of the court's order that the plaintiff pay into court or hold in an interest bearing deposit the sum of $11,288.29.
62 In November 2003 the plaintiff's mining operations were suspended and the mining site placed under care and maintenance. Some items of equipment the subject of Agreement 286 were used to maintain security systems at the mine site and the remainder was placed in storage. On 6 April 2004 the plaintiff by its agents, the receivers and managers, executed a sale agreement with a certain purchaser. The result of the various documents entered into on or about that date was that the plaintiff sold the equipment the subject of Agreement 286 to the purchaser along with the plaintiff's other assets. In pursuance of this sale it made the equipment available to the purchaser at settlement on 6 May 2004. The agreement that the plaintiff entered into with the purchaser did not disclose that the defendant may have an interest in the relevant equipment. It warranted that it was free from all encumbrances except those specified. The specified encumbrances did not identify the defendant's claim over the equipment. Mr Oehme claims to have acted in good faith in
(Page 17)
- purporting to sell the equipment on the basis that he understood that upon payment of the residual of $28,164.10 the plaintiff acquired full ownership of the equipment the subject of Agreement 286. The defendant unsuccessfully sought, in this Court, an injunction to restrain the plaintiff and third parties from disposing of or otherwise dealing with the equipment.
63 The above findings of facts are based on the documentary exhibits and the testimony of the only two witnesses. The witnesses were Mr Oehme for the plaintiff and third parties and Ms Tweedie for the defendant. Both witnesses were credible. There were some conflicts in their evidence but I have not found it necessary to resolve those conflicts.
The Pleadings
64 The parties made it clear from the outset of the hearing that the case was to be fought on the basis of the pleadings.
65 At the conclusion of the evidence the plaintiff sought to amend the re-amended statement of claim ("the statement of claim") to plead that Agreement 286 contained an implied term by which the defendant was to promptly provide details of the residual to the plaintiff or its agent from time to time, immediately upon any such request by the plaintiff or any such agent. It is said that the implied term is implied into Agreement 286 because:
"11.1 it is so obvious that it goes without saying;
11.2 it is necessary for business efficacy; [sic]
11.3 it does not contradict any express term of the contract;
11.4 it is fair and reasonable;
11.5 it is capable of clear expression."
66 In the alternative it sought to plead that the implied term is implied into Agreement 286 as part of the obligations of the defendant arising out of the defendant's obligation to perform co-operative acts reasonably requested by the plaintiff or its agents so that the plaintiff can obtain a benefit under Agreement 286.
67 This pleading is already contained in the third parties defence. Although the defendant was not taken by surprise by the pleading and although it could not identify any prejudice caused to it by the late
(Page 18)
- amendment, it objected to the amendment on principle. I would allow the amendment except that I find it embarrassing because the consequences of either the existence of the implied term or any breach of it are not pleaded in the statement of claim. I therefore disallow the amendment.
68 The statement of claim contends that the proper construction of Agreement 286 was that upon payment of the residual the plaintiff would acquire ownership of the equipment the subject of Agreement 286 whether or not any of the instalments were outstanding at the time of such payment. The residual is defined in the statement of claim to be the sum of $5,140.00 "ex taxes" and $23,024.10.
69 The statement of claim also relies upon certain provisions of the Act. It is not in dispute between the parties that Agreement 286 constituted a hire purchase agreement within the meaning of the Act, s 2(1). The statement of claim goes on to plead that certain matters required to be included in a hire purchase agreement pursuant to the Act, s 3(2)(e) were not included in it.
70 The plaintiff pleads the Act, s 3(4) which is to the effect that where a provision of s 3 is not complied with in relation to a hire purchase agreement the liability of the hirer under the agreement is reduced by the amount included in the hire purchase agreement for terms charges and that amount may be setoff by the hirer against the amount that would otherwise be due or become due to the owner under the agreement.
71 By virtue of the Act, s 3(2)(e) terms charges are the total of any other charges included in the total amount payable under the agreement not being payments by way of:
a. An amount payable for maintenance of the goods.
b. The expenses of delivering the goods to the order of the hirer.
c. Vehicle registration fees.
d. Insurance.
e. Fees to be paid under the Bills of Sale Act 1899 (WA).
f. The price at which the time of signing the agreement the hirer might have purchased the goods for cash.
72 The amount of the terms charges may be ascertained by subtracting the sum of a – f from the total amount payable under the contract:
(Page 19)
- Equipment Investments Pty Ltd v M J Dowthwaite & Co Pty Ltd (1969) 16 FLR 23 at 34.
73 The Act, s 3(2)(e) requires the above amounts together with the terms charges and total mount payable to be set out in the agreement. Subsection 4(a) enables an owner to apply to the Commissioner for Fair Trading for an order excusing it from non-compliance with subsection (4). There was no evidence before me that pursuant to subsection (4a) the defendant has relief from the provisions of the Act, s 3(4).
74 Thus, the plaintiff pleads that it is not liable to pay terms charges arising under Agreement 286. It calculates these charges as follows:
"a. Purchase price for the equipment $93,880.
b. Total amount payable by 12 monthly instalments, less stamp duty and GST, $141,168.
c. Difference (terms charges) $47,288."
75 Although it is not expressly pleaded it is clear that the plaintiff asserts that there were no amounts payable for maintenance, vehicle registration, insurance or fees under the Bills of Sale Act 1899.
76 The plaintiff also pleads the Act, s 24(1), (2) and (5). These subsections state:
"(1) In any proceedings under this Act or arising out of a hire-purchase agreement or instituted pursuant to subsection (4) where it appears to the court that the transaction is harsh and unconscionable (by reason of a provision for terms charges or other charges that are, in the circumstances of the case, excessive or by reason of any other provision of whatever kind) or is otherwise such that the Supreme Court in its equitable jurisdiction would give relief the court may reopen the transaction and take an account between the parties thereto.
(2) The court by which a transaction is reopened under this section may, notwithstanding any statement or settlement of accounts or any agreement purporting to close previous dealings and create a new obligation –
(a) reopen any account already taken between the parties;
(Page 20)
- (b) relieve the hirer and any guarantor from payment of any sum in excess of such sum in respect of the cash price, terms charges, and other charges as the court adjudges to be fairly and reasonably payable;
(c) set aside either wholly or in part or revise or alter any agreement made or security given in connection with the transaction;
(d) give judgment for any party for such amount as, having regard to the relief (if any) which the court thinks fit to grant, is justly due to that party under the agreement; and
(e) if it thinks fit give judgment against any party for delivery of the goods if they are in his possession
…
- (5) In any proceedings under this section the court has and may exercise all or any of the powers conferred by subsections (1), (2) and (3) notwithstanding that the time for the payment of any of the amounts payable under the agreement may not have arrived."
77 The plaintiff further pleads that Agreement 286 is harsh and unconscionable within the meaning of the Act, s 24 by reason of the following matters:
(a) the total monthly instalments incorporated the whole of the purchase price for the equipment (together with the terms charges). However, the effect of cl 14 of the agreement is that subsequent payments after the initial terms of 12 months are in excess of the full amortisation of the purchase price, thereby representing a windfall profit to the defendant;
(b) the residual is not adjustable depending on when after the end of the initial term the plaintiff might elect to pay the residual and thereby acquire the equipment; and
(c) the defendant did not provide in tabular form within Agreement 286 the information required by the Act, s 3 so that the time of entering into Agreement 286 the plaintiff
(Page 21)
- was unable to determine the rate at which the purchase price for the equipment was to be amortised. Consequently, the plaintiff was unable to make an informed commercial decision as to whether it should exercise the option or retain possession of the equipment and continue to make payment of the instalments or return the equipment to the defendant.
78 As a consequence of these matters the plaintiff claims declarations that it:
(a) became the owner of the equipment the subject of Agreement 286 upon its payment of $28,164.10 to the defendant on 23 October 2003;
(b) is not liable to pay any arrears that arose after the end of the initial term, being 31 July 2003; and
(c) was not and is not obliged to pay to the defendant any terms charges arising under Agreement 286.
79 The plaintiff also seeks restitution of the terms charges paid under Agreement 286 and orders pursuant to the Act, s 24:
(a) varying Agreement 286 by the deletion of cl 14 of the defendant's standard terms and conditions; and
(b) for the payment by the defendant to the plaintiff of the terms charges.
80 The statement of claim contains a general claim for such orders as the court thinks fit in relation to the agreement and the equipment, including under the Act, s 24. The plaintiff's counsel submitted that under this paragraph the plaintiff seeks to have the transaction re-opened and an account taken between the parties.
81 The defence denies most matters pleaded in the statement of claim and denies that the plaintiff is entitled to the relief claimed or any relief. The statement of agreed issues filed by the parties gives me more of an indication of the matters in issue between the parties than the defence does. Shortly, I will refer in more detail to the statement of agreed issues.
82 The amended third party statement of claim ("the third party statement of claim") pleads that if the defendant is found liable to the plaintiff it claims as against the third party, on the ground stated in the third party statement of claim, arrears of rent and other amounts payable
(Page 22)
- and interest thereon and costs of defending the main action and the costs of the third party proceedings.
83 The third party statement of claim pleads that in breach of their liability under the Corporations Act, s 419A(2) the third parties failed or refused to pay the rental and other amounts payable by the rental agreement for the period 3 June 2003 and thereafter. I note that the third party statement of claim is only in respect to rental and other amounts payable under Agreement 286 from 3 June 2003. No claim is made against the third parties in respect to amounts that may have been payable prior to that date.
84 The third party statement of claim goes on to refer to the notice of intention to repossess and the failure of the third parties to pay the amounts referred to in the notice. It also asserts the facts relevant to the sale of the equipment. It pleads that in selling the equipment the third parties converted the equipment to their own use and that as a consequence of the conversion the defendant has suffered loss and damage. That loss and damage is particularised as:
(a) Agreed value of the equipment $203,301.54;
(b) Arrears of rental totalling $144,031.68, representing rental and charges of $13,173.63 per month inclusive of stamp duty and GST for the period 3 June 2003 to 1 May 2004.
85 These amounts together with interest thereon are claimed by the defendant.
86 By the third parties re-amended defence to the third party statement of claim ("the third parties' defence") they plead that they made all rent instalments from 3 June 2003 to 31 July 2003 and admit that they did not make payments of rental thereafter. They deny that they are liable to pay any rental after 31 July 2003.
87 The third parties' defence goes on to plead the implied term and the Act, ss 2, 3 and 24. It pleads that for the same reasons referred to in the statement of claim, the plaintiff and third parties are not liable to pay terms charges and are entitled to setoff all terms charges arising under Agreement 286 against any monetary liabilities under Agreement 286.
88 The third parties' defence pleads that by payment of the residual of $28,164.10 and the additional sum of $840.50 the plaintiff acquired ownership of the equipment consequently the third parties deny that they wrongfully sold the equipment as alleged or at all. The third parties plead
(Page 23)
- that if, which is denied, they converted the equipment they deny that the equipment had an agreed value of $203,301.54 or any other value. They further deny that if the agreement contained an agreed value then such terms was a penalty and should be struck out as it does not constitute a genuine pre-estimate of damage that might be suffered by reason of such conversion. They further plead that the defendant has suffered no loss because if, which is denied, the plaintiff was in breach of Agreement 286 and the defendant was entitled to forfeit the equipment, the third parties would have exercised the plaintiff's right to relief against forfeiture by payment of any arrears due to restrain against forfeiture of the equipment. There is a further pleading that the defendant was not entitled to terminate Agreement 286 and repossess the goods without consent of the Commissioner for Fair Trading pursuant to the Act, s 12A. That provision provides that:
"Where a hire purchase agreement has not been terminated by the hirer and:
(a) 75 per cent of the total amount payable under the agreement has been paid by or on behalf of the hirer; and
(b) the hirer does not part with or attempt to part with possession of the goods without the consent of the owner or commit or attempt to commit one of two statutory offences; and
(c) the interest of the hirer under the agreement is not assigned,
the owner may exercise any power of taking possession of the goods comprised in the agreement only with the consent of the Commissioner."
89 The parties have agreed that the following issues arise between them in respect to this matter. They have conveniently put the issues under five headings. I will use the same headings.
Construction of Agreement 286
90 There is an issue as to whether, on the proper construction of Agreement 286 and upon the payment of the residual on 23 October 2003, the plaintiff acquired ownership of the equipment the subject of Agreement 286 even though instalments had not been paid for August,
(Page 24)
- September and October 2003. I note that no mention is made of the May 2003 arrears.
91 If the plaintiff did become the owner of the equipment then it would be entitled to the declaration it seeks to this effect. Further, the third party claim in conversion would be dismissed as the damages sought therein are based on the alleged conversion of the property at a date subsequent to 23 October.
92 If the plaintiff did not become the owner of the equipment on that date the defendants claim in conversion survives for determination.
Implied Term
93 The parties agree that there is an issue as to whether Agreement 286 contained an implied term by which the defendant was to promptly provide details of the residual to the plaintiff or its agents from time to time immediately upon any such requests by the plaintiff or any such agent. If there was such an implied term it is agreed further that issues arise as to whether the defendant breached the implied term and if so with what consequences.
94 The third parties' defence asserts that the defendant breached the implied term and that they suffered loss and damage as a consequence. The third parties appear to assert that if the payout figure had been advised to them by 31 July, they would have exercised the option to purchase by that date and not have accrued arrears after it. As my view is, as I shall explain, that no arrears accrued after 31 July, I need not determine these issues.
The Hire Purchase Act 1959 (WA)
95 There is an issue as to whether in not specifying any of the matters required by the Act, s 3(2)(e) the defendant was in breach of s 3(4) of the Act so that the plaintiff is:
(a) entitled to orders for restitution of any such terms charges; and
(b) entitled to setoff all terms charges arising under Agreement 286 against any monetary liabilities.
96 If the plaintiff is entitled to orders for restitution of any terms charges it would also be entitled to a declaration that it was not and is not obliged to pay to the defendant any terms charges arising under Agreement 286.
(Page 25)
97 There is a further issue whether Agreement 286 is harsh or unconscionable within the meaning of the Act, s 24 and if so what orders should be made under that section. In this respect if the agreement is found to be harsh or unconscionable issues arise as to whether the plaintiff is entitled to the orders that it seeks varying the agreement by the deletion of cl 14 and for the payment by the defendant to the plaintiff of the terms charges.
The Corporations Act 2001 (Cth), section 419A
98 There is an issue as to whether the third parties are liable under the Corporations Act, s 419A(2) for the arrears in rental payments for the period 3 June 2003 and thereafter.
99 As my view is, as I shall explain, that the agreement should be varied by deleting cl 14 this issue does not arise for consideration except in relation to any arrears for the period 3 June – 31 July.
Conversion
100 There is an agreed issue as to whether the third parties converted the equipment by selling it to the purchaser and if so, the assessment of damages.
101 This issue only arises if title to the equipment did not pass on 23 October 2003.
102 I will not consider the issues in the sequence in which the parties have outlined them in the statement of agreed issues. In my view it is desirable to first consider the matters raised in respect to the Act.
Has the Defendant breached the Act, Section 3?
103 Although, it is denied by the defence, it is patent that Agreement 286 does not set out, in tabular form, the matters required to be set out by the Act, s 3(2)(e). For example, it does not set out the total amount payable under the agreement, the cash price for the equipment, other amounts payable under the contract for things such as maintenance or the terms charges. These omissions are substantial or material divergences from the statutory form: Equipment Investments Pty Ltd v M J Dowthwaite Co Pty Ltd (supra) at 31.
104 It is probable that neither the plaintiff nor the defendant considered inserting these matters in the agreement because they were unaware of the requirements of the Act.
(Page 26)
105 For the purpose of the Act, s 3(4) it is irrelevant whether the omissions were deliberate or not. The subsection provides that if the section is not complied with, as I have found, the liability of the hirer is reduced by the amount of the term charges contained in the agreement. The effect of s 3(4) is that rental payments have to be paid in accordance with the agreement but the total amount owing under the relevant agreement is reduced by the amount of the terms charges: Brown v Universal Guarantee Pty Ltd [1968] WAR 23 at 26. Thus, the plaintiff is entitled to a declaration to this effect.
Has the Plaintiff Proved the Amount of the Terms Charges?
106 The next issue I will consider is whether Agreement 286 contained terms charges as defined in the Act, s 3(2)(e) and if so, the amount of them. The defendant denies that it contained terms charges. The onus is therefore on the plaintiff to prove that it did.
107 There is sufficient evidence to enable me to draw an inference that there were terms charges payable under Agreement 286. I refer to this evidence later in these reasons when considering whether the agreement was harsh and unconscionable. I am satisfied that there was some money payable under the agreement in addition to the matters set out in the Act, s 3(2)(e)(i) and (iii) - (viia).
108 As I have already stated, the Act, s 3(2)(e) contains a statutory formula for ascertaining the amount of the terms charges. It is the total amount payable under the agreement less the total of the cash price, maintenance costs, freight costs, vehicular registration fees, insurance and agreement registration fees.
109 The Act defines cash price to be the price at which at the time of signing the agreement the hirer might have purchased the goods for cash. The Act, s 2 defines "total amount payable" in relation to a hire purchase agreement to mean the total amount to be paid or provided whether by way of cash or other consideration by or on behalf of the hirer under a hire purchase agreement. Assuming that Agreement 286 was in effect for 12 months, the total amount payable under the agreement was a minimum of 12 monthly instalments of $13,173.63 each. That is a total of $158,083.56.
110 In the statement of claim the plaintiff has not included the payout figure, stamp duty and GST in the total amount payable under the contract. It is not clear to me why it has done this. In my view, the payout figure is part of the total amount payable. Also, those taxes were
(Page 27)
- payable and thus would be part of the total amount payable under the contract. However, as the plaintiff does not claim these sums, I am content to accept for present purposes, that the total amount payable under the contract, at least for the minimum rental period, is as pleaded, that is $141,168.
111 The plaintiff pleads that the cash price for the equipment was $93,880. However, no evidence was led to support this figure in particular. Indeed the plaintiff's counsel, in his closing submissions, submitted that the plaintiff was not sure what the cash price was given that the old equipment was second-hand.
112 As to the cash price of the new equipment, as I have already indicated Agreement 286, two-thirds of the way through it, says:
"New equipment added 1 August – initial 12 month terms. Purchase option at end of term for 30 per cent of original sale price as per QTE 00090487- $23,024.10."
113 The defendant tendered quotation number 90487. It particularises the new equipment and each piece of equipment's "unit price". It states that the total value of the new equipment is $76,747. It has been e-mailed to the plaintiff's representative during negotiations in respect of Agreement 286. Ms Tweedie said that it represented the "true current sale value of the goods". On the basis of this evidence I conclude that the parties agreed that the cash price for the new equipment was $76,747 including GST.
114 Later, Ms Tweedie prepared a list of all equipment that she said was the subject of Agreement 559 with what she says was the agreed market value of each item of equipment. The plaintiff objected to this list being tendered in evidence. I allowed it to be tendered as evidence of what the defendant said was the agreed value of the goods. I am not satisfied that any such values were agreed. For the reasons given at trial I am not prepared to use the document for any other purpose. Further, the alleged agreed market values in respect to the new equipment are different to those values in quotation 90487. Ms Tweedie did not give an explanation for the differences. I do not accept that list as indicating the cash price of either the old or new equipment the subject of Agreement 286.
115 The plaintiff did not adduce any value of the old equipment. Ms Tweedie testified that it was of considerable value to the defendant as equipment that could be continued to be hired out. However, I have no
(Page 28)
- knowledge as to whether that value would in any respect equate to a cash price.
116 As I do not know the cash price of the old equipment I am unable to determine the amount of the terms charges in respect to Agreement 286.
117 The plaintiff submitted that if I concluded that there were terms charges but I could not determine what they were, I should order an inquiry and an account of the terms charges. In support of its claim for an inquiry and an account of all terms charges the plaintiff cited Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1 at 48. In that case the plaintiff pleaded that there had not been compliance with the Act, s 3(2)(e) in respect to the identification of the goods the subject of a hire purchase agreement, the identification of the date of commencement of the agreement or at all. At par 38(d) of Wenpac's statement of claim it claimed relief by way of an inquiry into and an account of all terms charges included in the total amount payable under the agreement.
118 Malcolm CJ found that the two particularised breaches of the Act, s 3(2)(e) had not been proven but that there had not been compliance with the section in any event. The Chief Justice said that as a consequence Wenpac was entitled to the relief claimed in par 38(d) of the statement of claim.
119 The Supreme Court Act 1935 (WA), s 50 provides that a Judge may refer to a Master or Registrar for inquiry any question arising in a cause. Pursuant to that power and the precedent provided by Wenpac (supra) I am prepared to order an inquiry and report as to the amount of the terms charges in Agreement 286.
Has the Plaintiff proved that the Agreement is Harsh and Unconscionable?
120 I now turn to the issue as to whether Agreement 286 is harsh and unconscionable.
121 Earlier in these reasons I set out the matters upon which the plaintiff relies to prove that Agreement 286 is harsh and unconscionable. I note that par 12 of the statement of claim pleads that Agreement 286 is harsh and unconscionable rather than it being a transaction such that the Supreme Court in its equitable jurisdiction would give relief. The defendant simply denies this claim. I have also previously set out the Act, s 24(1).
(Page 29)
122 It has been held that it is the substance of the transaction that must be harsh and unconscionable, not the enforcement of it: Wenpac (supra) at 62.
123 Despite the age of the Act and the existence of its cousins in other Australian States, there are few decided cases on the power in s 24 to re-open a transaction.
124 M J Trebilcock in "Re-opening Hire Purchase Transactions", (1967) 41 ALJR 424 said that, at that time, there were three Australian decisions bearing upon the meaning of "harsh and unconscionable" in s 24.
125 One of them is Birstins v Associated Securities Ltd (1960) 77 WN(NSW) 877, which Malcolm CJ cited with apparent approval in Wenpac (supra) at 60. His Honour quoted Manning J's comment in that case at 878:
"In particular, for example, the fact that a proposed purchaser under a hire-purchase agreement is in a position of financial difficulty and, and for practical purposes, is compelled to submit to whatever terms the proposed lender may demand, may be a material consideration. The policy of the Act is to enable the Court to prevent oppression: see Samuel v Newbold, per Lord Lorburn [1906] AC 461 at 467."
126 The other two cases are not of particular relevance to the issues in this case.
127 Samuel v Newbold [1906] AC 461 was concerned with the interpretation of the Money Lenders Act 1900 (UK) and, in particular, the parallel provisions to the Act, s 24. In the UK Act a court had power to re-open a money lending transaction where the interest or other charges were excessive and where the contract was harsh and unconscionable or was otherwise that a court of equity would give relief.
128 In respect to the meaning of this section, Lord Loreburn said:
"The section means exactly what it says, namely, that if there is evidence which satisfies the Court that the transaction is harsh and unconscionable, using those words in a plain and not in any way technical sense, the Court may re-open it, provided, of course, that the case meets the other condition required. A transaction may fall within this description in many ways. It may do so because of the borrower's extreme necessity and
(Page 30)
- helplessness, or because of the relation in which he stands to the lender, or because of his situation in other ways. There are only illustrations, and, as in the case of fraud, it is neither practicable nor expedient to attempt any exhaustive definition. What the Court has to do in such circumstances is, if satisfied that the interest or charges are excessive, to see whether in truth and fact and according to its sense of justice the transaction was harsh and unconscionable. We are asked to say that an excessive rate of interest could not be of itself evidence that it was so. I do not accept that view. Excess of interest or charges may of itself be such evidence, and particularly if it be unexplained. If no justification be established, the presumption hardens into a certainty. It seems to me that the policy of this Act was to enable the Court to prevent oppression, leaving it in the discretion of the Court to weigh each case upon its own merits and to look behind a class of contracts which peculiarly lend themselves to an abuse of power."
129 The other law Lords expressed similar views.
130 Samuel v Newbold (supra) has been cited with approval by the High Court in a number of cases involving equivalent Australian money lenders' statutes; Wilson v Moss (1909) 8 CLR 146 at 155 per Griffiths CJ and at 165 per Isaacs J; Castles v Freidman (1910) 11 CLR 580 at 591 per Isaacs J.
131 As the subject matter and words of the Act are similar to those of the money lenders' Acts I shall approach the issues before me in the manner suggested by the House of Lords in Samuel v Newbold (supra). However, that is not to say that I do not appreciate that there are differences between s 24 and the UK money lenders provision. In particular, I only have to determine whether the transaction was harsh and unconscionable and do not have to consider, as a separate issue, whether the charges in the transaction were excessive. The Act makes clear that excessive charges may by themselves render a contract harsh and unconscionable. Additional guidance as to the width of s 24 is given by the addition of the words "or by reason of any other provision of whatever kind".
132 I conclude that there is insufficient evidence to persuade me that the terms charges payable during the initial term were harsh and unconscionable. This is because it is not possible for me to determine what the terms charges were in respect to the old equipment.
(Page 31)
133 I understand the plaintiff's case to be that the further monthly payments of $13,173.63, payable if the option to purchase was not exercised by 31 July 2003, provided for a windfall profit to the defendant which was harsh and unconscionable.
134 As I have said the defendant merely denies this allegation. In his closing submissions, counsel for the defendant submitted that the transaction was not unconscionable because at any time after the expiration of the initial term the plaintiff or the third parties could have given the equipment back to the defendant and avoided having to pay the rental for the subsequent months.
135 It is true that the equipment could have been returned to the defendant and presumably negotiations continued with respect to the purchase of it. However, given that the defendant was quite aware that the plaintiff required the equipment for its continued operation this is hardly a solution that deflects any suggestion that the transaction was harsh and unconscionable. This is especially as the defendant took over three months to advise the third parties of the residual.
136 Ms Tweedie acknowledged that Agreement 286, together with any other hirings of that equipment, was set up in a way to contribute towards the generation of an overall profit or return on the subject equipment through the hiring contracts. In respect to the new equipment Ms Tweedie said that because it was "expensed over such a short term" the defendant was only just making its money back at the end of the initial term. She agreed that, with respect to a long term rental, presumably a reference to the old equipment, payments after the end of July 2003 "would become inertia payments". She further said that the lease of the initial term of the old equipment together with the residual of $5,140 in respect to it was "sufficient for the defendant's revenue purpose". I interpret this evidence to mean that the monthly instalments in the minimum rental term together with the residual represented what the defendant regarded as a fair and reasonable return to the defendant in respect to all the equipment. Thus, there were some terms charges in Agreement 286.
137 I can assess Ms Tweedie's claim that the defendant was only just making its money back in respect to the new equipment because I have before me the figures relating to it. The defendant agreed that the cash price of the new equipment was $76,747. In respect to this equipment the agreement provided that the plaintiff was obliged to pay 12 monthly instalments of $6,624 exclusive of taxes. This is a total of $79,488 for the initial 12 month term of the agreement. It was also agreed that if the
(Page 32)
- plaintiff exercised the option to purchase it had to pay a further $23,024. Thus, the defendant was to receive 100 per cent of the cash price plus approximately 33 per cent over one year. This in my view was more than adequate to cover the defendant's capital investment, the costs involved in the agreement and the risk under it.
138 Even accepting that after July 2003 the defendant was entitled to charge some fee for the risks it took in allowing the plaintiff to remain in possession of goods when the plaintiff had not exercised the option to purchase them, in my view, monthly payments of $13,173.63 represents far more than that to which it was entitled under a fair bargain. This may also be tested by using the figures available for the new equipment. Three months rent at $6,624.00 per month is 25 per cent of the cash price.
139 Ms Tweedie testified that if the equipment had been returned to the defendant, it would have been able to continue to lease the equipment out for not less than $12,000 per month. One characterisation of this evidence is that it was adduced in an attempt to persuade me that cl 14 was not harsh and unconscionable. However, it is not to the point. The issue for me is not whether the equipment could have continued to be a valuable asset to the defendant. Rather the question for me is whether the agreement, providing as it appears to do for a sufficient return on investment to the defendant under the initial term, is harsh and unconscionable insofar as it requires the plaintiff to pay the instalments under the contract, the residual and to continue to pay instalments until the option to purchase is finalised. As the defendant agreed to include an option to purchase in Agreement 286 it cannot complain that it thereby deprived itself of the ability to continue to earn income from the equipment. If it wished to only enter into a hire agreement then it could have done so. Once it included the purchase option it was obliged to comply with the provisions of the Act and the law relating to them.
140 In my opinion, the provision for the continuation of the agreement and the obligation on the plaintiff to pay the monthly instalments during any period in which the plaintiff remained in possession of the equipment after the initial term and before the option to purchase was finalised is prima facie excessive to the extent of being exorbitant.
141 My only hesitation in concluding that cl 14 rendered the agreement harsh and unconscionable is that on one view of the matter the parties were in an equal bargaining position and the effect of cl 14 was obvious. The plaintiff was a commercial party, apparently entering into an arm's length transaction, and it voluntarily agreed to the terms of
(Page 33)
- Agreement 286. Ms Tweedie gave evidence that the defendant, being keen to keep the plaintiff's business, had agreed to the option to purchase at the request of the plaintiff. She said that the defendant did not normally provide an option for purchase.
142 Against this there is some evidence from Ms Tweedie that the plaintiff was not in an equal bargaining position in that it did not have the financial capacity to purchase the computer equipment it required and that it had had "difficulties" with respect to late payment of rentals under previous agreements. To support this evidence there is the obvious fact that receivers and managers were appointed to the plaintiff in May 2003.
143 In determining this issue it is relevant for me to take into account that I am not constrained by the rules of equity. As was said in Samuel v Newbold (supra) I am to determine whether the transaction was harsh and unconscionable "using those words in a plain and not in any way technical sense". I have come to the conclusion that cl 14 of the agreement is harsh and unconscionable in the context of Agreement 286, read as a whole. I have arrived at this conclusion because of the terms of cl 14 together with the failure of the agreement to comply with the Act, s 3(2). As a consequence of the failure to comply with s 3(2) the plaintiff was unaware of:
1. The cash price for the old equipment;
2. the cash price for all the equipment;
3. the amount included in the total amount payable for maintenance of the equipment;
4. the total amount payable to cover delivery costs;
5. the amount financed; and
6. the terms charges.
144 Thus, the plaintiff was unable to assess for itself whether the provisions of cl 14 were fair and reasonable.
145 When determining if the transaction was harsh and unconscionable, it is not permissible to take into account the conduct of the parties relating to the attempts by the plaintiff to ascertain the amount of money that it had to pay to exercise the option to purchase. However, the events that did transpire highlight the problems that occur in a transaction where the matters required to be specified pursuant to the Act, s 3(2) are not particularised in the agreement. If they had been, there would probably not have been any delay in the exercise of the option to purchase caused
(Page 34)
- by confusion over the amount of the payout or residual payment. This is because the obligations and purchase option under the agreement would have been clear to the plaintiff and third parties.
146 I do not doubt that an owner, may, under a hire purchase contract, specify charges or interest due and payable to it should the option to purchase not be completed on time but the parties elect to keep the contract on foot. However, it is clear that these charges or interest must be reasonable in all the circumstances having regard to any terms charges that have been levied in the agreement. I have determined that the charges in cl 14 are excessive. The defendant has not justified them. The defendant failed to include in the agreement the statutorily prescribed information that would have enabled the plaintiff to determine the fairness of the charges for itself. Taking all these matters into account I conclude that cl 14 is harsh and unconscionable. I am therefore prepared to grant the remedy, sought by the plaintiff to re-open the transaction relating to Agreement 286 and relieve the plaintiff from payment of monthly instalments after the initial term. In these circumstances the plaintiff is also entitled to an order varying Agreement 286 by deleting cl 14 from it.
147 It follows from the deletion of cl 14 of the agreement that neither the plaintiff nor the third parties were liable to pay what the defendant called "arrears" relating to periods after 31 July 2003.
Has the Plaintiff Proved that Ownership Passed on 23 October 2003?
148 The plaintiff says that it was not a condition of Agreement 286 that arrears had to be paid before title could pass upon the payment of the residual amount.
149 In any event, the plaintiff says that if it is successful in its claims to be relieved of the terms charges and payments under cl 14 there were and are no arrears. I have found in the plaintiff's favour in respect to these claims. However, it is not possible to determine whether there were arrears under the contract, in particular those relating to May 2003, until an inquiry has been held as to the amount of the terms charges.
150 The defendant says that "until and unless all required payment" is made, there can be no entitlement to exercise the option to purchase. Again, until there has been an inquiry into the terms charges I do not know whether "all the required payment" was made.
151 In my view, I should await the outcome of the inquiry before I finally determine whether title to the equipment passed on 23 October 2003.
(Page 35)
Are the Third Parties Liable under Section 419A of the Corporations Act 2001 (Cth) for Arrears which Accrued after 3 June 2003?
152 As a result of my decision to vary Agreement 286 by deleting cl 14 the only arrears accruing after the appointment of the third parties are arrears, if any, up to the end of the minimum rental term on 31 July 2003.
153 I find that whether or not there is to be a setoff of terms charges, there are no such arrears.
154 Pursuant to the Corporations Act, s 419A(2) the third parties were liable for so much of the rent as is attributable to a period:
(a) that begins more than 7 days after the control day; and
(b) throughout which:
(i) the plaintiff continues to use the defendant's equipment, and
(ii) the third parties were the receivers and managers.
156 My interpretation of s 419A(2) is that the third parties were personally liable for rent between 4 June and 31 July 2003, inclusive of those dates. I have already pointed out that the third parties ultimately paid rent on the basis that they were liable as of 3 June 2003. They stipulated that their payments related to rental due after their appointment. The defendant accepted the payments on that basis. The defendant cannot now attribute their payments to rentals due in May or any earlier time. That means that the third parties have paid all the rent they were liable for. Of course this does not extinguish the liability of the plaintiff for monies that remain outstanding under Agreement 286.
Did the Third Parties Convert the Equipment?
157 For the reasons I have expressed in respect to the issue as to whether title passed to the plaintiff, the determination of this issue should await the receipt of the report on the terms charges.
Conclusion with respect to the Plaintiff's Claim
158 I am prepared to make a declaration that the plaintiff is not liable to pay any arrears that arose after the end of the initial term and that it was
(Page 36)
- not and is not obliged to pay to the defendant any terms charges arising under Agreement 286. Given my findings it is also appropriate that I order that Agreement 286 be varied by the deletion of cl 14 of the defendant's standard terms and conditions. I am also prepared to order the payment by the defendant to the plaintiff of the terms charges. I would also order that the transaction be re-opened for the purpose of an inquiry and report in respect to the terms charges. I would adjourn the plaintiff's application for a declaration that it became the owner of the equipment on 23 October 2003 to a date to be fixed after my receipt of the report.
The Third Party Statement of Claim
159 The success of the defendant's third party proceedings relies upon a finding that the sale of the equipment amounted to a conversion of it by the third parties contrary to the interests of the defendant. It follows from my decision to adjourn that part of the plaintiff's claim that I would adjourn the third party statement of claim to the same date.
2
24
0