Carrello v Benchmark Debtor Finance Pty Ltd
[2003] WASC 140
CARRELLO -v- BENCHMARK DEBTOR FINANCE PTY LTD [2003] WASC 140
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASC 140 | |
| Case No: | CIV:2768/2002 | 16 JULY 2003 | |
| Coram: | MASTER NEWNES | 6/08/03 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Statement of claim struck out in part | ||
| B | |||
| PDF Version |
| Parties: | GIOVANNI MAURIZIO CARRELLO BENCHMARK DEBTOR FINANCE PTY LTD (ACN 082 607 654) |
Catchwords: | Practice and procedure Defendant's summary judgment Application to strike out statement of claim Turns on own facts |
Legislation: | Corporations Act, s 436A, s 443D Trade Practices Act, s 52 |
Case References: | Brenner v First Artists Managements Pty Ltd (1993) 2 VR 221 Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 Emery v Day (1834) 1 CM & R 245 In re Universal Distributing Co Ltd (In Liquidation) (1932) 48 CLR 171 MS Fashions Ltd v Bank of Credit and Commerce International SA (In Liq) [1993] Ch 425 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
BENCHMARK DEBTOR FINANCE PTY LTD (ACN 082 607 654)
Defendant
Catchwords:
Practice and procedure - Defendant's summary judgment - Application to strike out statement of claim - Turns on own facts
Legislation:
Corporations Act, s 436A, s 443D
Trade Practices Act, s 52
Result:
Statement of claim struck out in part
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr K L Christensen
Defendant : Mr N P Gentilli
Solicitors:
Plaintiff : Tottle Christensen
Defendant : Jackson McDonald
Case(s) referred to in judgment(s):
Brenner v First Artists Managements Pty Ltd (1993) 2 VR 221
Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64
Emery v Day (1834) 1 CM & R 245
In re Universal Distributing Co Ltd (In Liquidation) (1932) 48 CLR 171
MS Fashions Ltd v Bank of Credit and Commerce International SA (In Liq) [1993] Ch 425
Case(s) also cited:
Nil
(Page 3)
1 MASTER NEWNES: This is an application by the defendant for summary judgment under O 16, alternatively to strike out the statement of claim under O 20 r 19 or the inherent jurisdiction of the Court as disclosing no reasonable cause of action, as embarrassing or as an abuse of the process of the Court.
2 Tandem Holdings Pty Ltd ("Tandem") carried on business as an earthmoving contractor under the name "Collins Earthmoving".
3 On 10 October 1999, Tandem entered into an agreement with the defendant ("Factoring Agreement"). The Factoring Agreement provided that Tandem would sell and the defendant would purchase all debts arising during the currency of the agreement, and the title to any debt not in existence as at the date of the Factoring Agreement would pass to the defendant immediately the debt came into existence. Tandem could, once the debt was approved by the defendant, request the defendant to pay to it 80 per cent of the debt, less a management fee. The balance payable to Tandem under the Factoring Agreement would be paid as soon as the defendant was paid by the debtor.
4 The defendant could, by notice, "exclude" any debt and Tandem was then obliged to repurchase the debt from the defendant by paying to it the outstanding balance of the debt. Until the defendant was paid by Tandem the property in the debt remained with the defendant.
5 Under the Factoring Agreement, the defendant had the sole right to collect any debt assigned to it and Tandem was required to send to the defendant any payment Tandem received from a debtor. Until so remitted, the funds were held by Tandem on trust for the defendant.
6 By the Factoring Agreement, Tandem mortgaged its assets and undertaking to the defendant to secure Tandem's obligations under the Factoring Agreement.
7 Under its terms, upon the appointment of an administrator to Tandem, the Factoring Agreement terminated.
8 On 21 September 2001, the plaintiff was appointed as administrator of Tandem under s 436A of the Corporations Act.
9 On 26 September 2001, there was a meeting between the plaintiff, a Ms Henville and a Mr Daws of the plaintiff's firm, and Messrs Langham and Smith of the defendant. What was agreed at that meeting lies at the heart of the dispute between the plaintiff and the defendant.
(Page 4)
10 In support of the application, an affidavit of Peter David Langham sworn 4 February 2003 has been filed. Mr Langham is the managing director of the defendant.
11 According to Mr Langham, at the meeting on 26 September 2001 the plaintiff said that Tandem did not have sufficient funds to carry on, that it had a number of uncompleted contracts and that if those contracts were not completed the contracting parties were unlikely to pay the debts which had already been factored under the Factoring Agreement. The plaintiff said that if funding was provided to enable Tandem to continue trading, the defendant would be likely to get a better return under the Factoring Agreement. The plaintiff said he was prepared to continue trading if the defendant would continue the Factoring Agreement and provide funds under it to give the plaintiff a cash flow. Mr Langham says he agreed to continue the Factoring Agreement on that basis. He says it was also agreed that the plaintiff would collect the company's debts and remit the funds so collected to the defendant.
12 The plaintiff's version of the agreement is somewhat different. He says he told Mr Langham that unless Tandem continued to trade, the defendant would suffer a substantial deficit under the Factoring Agreement, and that he would continue to trade only if he had the defendant's financial support. He said he was not prepared to incur credit unless he knew the defendant was prepared to fund his creditors. The plaintiff says he told Mr Langham that if it continued to trade, Tandem would only break even at best, but the defendant was likely to get a better return from the debts it had already factored.
13 According to the plaintiff, he asked the defendant to fund the costs of future trading and Mr Langham, on behalf of the defendant, agreed to do so. The plaintiff says the funds were to be provided to him against details of debtors and creditors to be supplied by him to the defendant.
14 An affidavit of Michelle Lisa Henville of 11 March 2003 has also been filed on behalf of the plaintiff. Ms Henville is employed as a chartered accountant at the plaintiff's firm, PKF Chartered Accountants and Business Consultants ("PKF"). Ms Henville's description of the discussion at the meeting is to the same effect as the plaintiff's. According to Ms Henville, the plaintiff also said that wages were payable to Tandem employees on a weekly basis and that wages were due the following day. The plaintiff said that unless he received funding he would have to terminate the staff and cease trading. Ms Henville says Mr Langham said the defendant would provide funds to the plaintiff on
(Page 5)
- receipt of creditors' invoices, accompanied by a "request for payment" form to be provided by the defendant. The plaintiff told Mr Langham that the plaintiff would forward copies of all invoices to the defendant on a weekly basis. Ms Henville says the plaintiff told Mr Langham that he (the plaintiff) would collect all of the company's debts and remit the funds to the defendants.
15 In short, Mr Langham says that it was agreed that, despite the appointment of the plaintiff as administrator, the Factoring Agreement would continue in effect. The plaintiff, on the other hand, says that, in order to maximise its return on the debts it had already factored, the defendant agreed to fund the costs and expenses of Tandem continuing to trade. It was not a continuation of the Factoring Agreement.
16 In support of its contention, the defendant relies on a number of documents that it says are consistent with the arrangement simply being a continuation of the Factoring Agreement.
17 There are annexed to Mr Langham's affidavit a facsimile dated 27 September 2001 in which the plaintiff nominated the permitted signatories to payment request forms under the Factoring Agreement, and a completed payment request form on which was endorsed a statement that the request was made under the Factoring Agreement. Mr Langham says that after 26 September 2001, the plaintiff forwarded invoices accompanied by such client payment request forms to the defendant and remitted funds collected from debtors to the defendant. Of course, on the plaintiff's version of the agreement, the plaintiff was to use for the purposes of the funding arrangement the forms required by the defendant.
18 There are also annexed to Mr Langham's affidavit copies of the plaintiff's circulars to creditors under s 439A of the Corporations Act dated 10 October 2001 and 7 December 2001 respectively. In the circular dated 11 October 2001, the following passage appears:
"I advise that the ongoing trading of the company has been funded by Benchmark Debtor Finance ('Benchmark'). During January 2000, the company entered into a debt factoring arrangement with Benchmark. Subsequent to my appointment, Benchmark agreed to continue with the debt factoring arrangement. This has provided the company with the cash flow required to meet its short-term trading obligations whilst the directors explore the options available to enable the company to trade profitably in the future."
(Page 6)
19 In the circular dated 7 December 2001, the following passage appears:
"On or about 16 November 2001 the company had finalised work on contracts to a degree whereby debtor recoveries would be maximised. Accordingly, I terminated the company's employees on this date. The company was unable to continue trading after this date due to a lack of cash flow. (As detailed in my previous report, the ongoing trading to date was funded by Benchmark Debtor Finance ('Benchmark'))."
20 There is also annexed to Mr Langham's affidavit a letter dated 19 December 2001 from the plaintiff to the defendant. In that letter, the plaintiff says, among other things:
"Since my appointment as Administrator, the company has continued to trade under my control to enable me to establish the financial position of the business and to gain an understanding of the reasons for the company's position. Furthermore, the company was able to complete contracts in order to maximise the value of debtor recoveries.
The ongoing trading of the company has been funded by Benchmark Debtor Finance ('Benchmark'). The company entered into a debt factoring arrangement with Benchmark in January 2000 and subsequent to my appointment, Benchmark agreed to continue with the debt factoring arrangement. This has provided the company with the cash flow required to meet its short-term trading obligations."
21 In his affidavit, the plaintiff says that the statements in the circular of 11 October 2001 and the letter of 19 December 2001 were unclear but that the correct position was that there was simply a funding agreement, not a continuation of the Factoring Agreement.
22 In an affidavit of 3 April 2003, Ms Henville says that following the meeting of 26 September 2001 the defendant provided the necessary funds to pay the wages of Tandem's employees the following day. Ms Henville says that each week a request was sent to the defendant for funds to pay the wages of Tandem's employees and each fortnight to pay debts due to subcontractors. Up to the time of the cessation of Tandem's operations, those funds were provided by the defendant. In addition, Ms Henville says that she was responsible for forwarding to the defendant invoices for work done by Tandem but the funds received from the
(Page 7)
- defendant did not correlate to those invoices. The funds related to the specific requests made by the plaintiff for the payment of wages, subcontractors and other expenses. In other words, the funds were provided by the defendant in a manner consistent with the agreement alleged by the plaintiff.
23 Counsel for the defendant submitted that the plaintiff's own version of the discussion at the meeting of 26 September 2001 was consistent with the true agreement being the continuation of the Factoring Agreement. He contended that the plaintiff's reference to being "funded" by the defendant could only be understood as funding provided pursuant to the Factoring Agreement. It was not apposite to an agreement by which, in effect, the defendant indemnified the plaintiff in respect of liabilities incurred by the plaintiff in permitting Tandem to continue to trade.
24 I do not consider that, at this stage, any finding can be made on the basis of such nuances of language. As counsel for the plaintiff submitted, this was a discussion between men of commerce who cannot be assumed to have chosen their language with the care and precision that lawyers might employ. Counsel for the plaintiff also pointed out that, according to the plaintiff, he said at the meeting that if he continued to trade "at best Tandem would break even" and he was not prepared to incur credit unless he knew the defendant was prepared to fund his creditors. Counsel submitted that if that version of the discussion were accepted, it added weight to the plaintiff's contention that what was agreed was that the defendant would meet the costs and expenses of continued trading, not that there be simply a continuation of the Factoring Agreement. The mere continuation the Factoring Agreement would not necessarily avoid the plaintiff incurring liability to creditors.
25 In the circumstances, I consider that no determination can be made at this stage as to what was agreed between the plaintiff and the defendant at the meeting of 26 September 2001. That is a matter of fact which can only be determined at trial.
26 I will turn now to the plaintiff's specific complaints about the statement of claim.
27 In par 13 it is pleaded that debts of $313,007.97 became payable to Tandem a result of its continued trading ("Administrator's Debtors"), that the plaintiff caused to be paid to the defendant the sum of $365,446 recovered from Tandem's debtors, that the plaintiff received from the defendant the sum of $188,510 in respect of the cost and expenses of
(Page 8)
- trading, and that there remains owing by the defendant to the plaintiff the sum of $142,612.95 in respect of other creditors, for which the plaintiff is personally liable.
28 It is pleaded in par 15 as follows.
"On or about 22 September 2001 (being a time subsequent to 21 September 2001, but before 26 September 2001), the plaintiff forwarded invoices to the defendant to the value of $72,398.08 ('the First Debtors') in the mistaken belief that the Factoring Agreement had not been terminated. The defendant made no payment to Tandem with respect to the First Debtors. The invoices for the First Debtors had not at the time of the plaintiff's appointment as Administrator of Tandem been forwarded to persons to whom the invoices were addressed. The plaintiff subsequently caused to be delivered the invoices to the persons to whom they were addressed."
29 It is pleaded in par 18 of the statement of claim that the First Debtors were never assigned to the defendant. In par 19 the plaintiff claims a lien in respect of the First Debtors and in par 20 the plaintiff pleads that the defendant has failed to account or pay to the plaintiff moneys from the First Debtors and the Administrator's Debtors.
30 Counsel for the defendant submitted that those pleas disclosed no cause of action. Whether or not the First Debtors' invoices had been sent to the debtors concerned was irrelevant. Under the terms of the Factoring Agreement, title in a debt passed to the defendant immediately the debt came into existence. Counsel submitted that, absent agreement to the contrary, the invoice did not create the debt; the debt came into existence when the relevant contract was performed. The invoice was merely a record of, or written demand for, an existing debt. Counsel referred to Emery v Day (1834) 1 CM & R 245 at 248 – 249 and MS Fashions Ltd v Bank of Credit and Commerce International SA (In Liq) [1993] Ch 425 at 447. There was no evidence of any agreement by which the debtors only became liable to Tandem upon delivery to them of an invoice. Accordingly, it was submitted, the invoices must relate to debts which had come into existence by no later than 20 September 2001, and which therefore passed to the defendant before the appointment of the plaintiff as administrator on 21 September 2001.
(Page 9)
31 In my view, that is correct. It follows that pars 15 and 18 of the statement of claim, and those parts of pars 19 and 20 of the statement of claim which plead the First Debtors, should be struck out.
32 The defendant next attacked par 21 of the statement of claim, on the basis that the evidence established that there was no agreement of the sort alleged. In view of my earlier finding that the existence of such an agreement is arguable, this objection must fail.
33 The next objection was to pars 22 and 23 of the statement of claim which plead a claim of unconscionability. It was submitted on behalf of the defendant that there was no factual or legal basis for such a claim. Counsel for the plaintiff referred to Brenner v First Artists Managements Pty Ltd (1993) 2 VR 221 at pages 256 and 259 and conceded that what was intended was, in fact, a claim in restitution. If that is what is intended, it does not emerge with sufficient clarity from the plea as it is currently framed. I would strike out par 23 with leave to replead.
34 The next objection taken by the defendant was to pars 24 and 25 of the statement of claim. They are as follows:
"24. Further and in the alternative, in causing Tandem to continue trading, in the performance of his duties as the Administrator's [sic] of Tandem, and by reason of that trading, the plaintiff had an obligation to care, preserve and realise the defendant's assets namely, the debts of Tandem which had been assigned to the defendant.
25. By reason of the matters pleaded in paragraph 24, the plaintiff was, and is, entitled to be paid that portion of the Remuneration and the Plaintiff's Creditors referrable to the care, preservation and realisation of the subject debtors from the proceeds of those debts to Tandem assigned to the defendant but which the plaintiff took steps to reserve or realise, in priority to the defendant's claims against such assets."
35 Counsel for the plaintiff referred to In re Universal Distributing Co Ltd (In Liquidation) (1932) 48 CLR 171 and Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 for those pleas.
36 In In re Universal Distributing the assets of a company, which was wound up by order of the Court on a creditor's petition, were insufficient to satisfy a debenture which charged its whole undertaking and uncalled
(Page 10)
- capital. The liquidator sought his remuneration and certain disbursements in respect of the winding up. The security holder contended that the remuneration and disbursements should not be allowed out of the assets in priority to the security. Dixon J held (at 174) that the security was paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realisation of the fund affected by the security must be borne by it. As part of the time and energy of the liquidator had been employed in recovering moneys which enured for the benefit of the secured creditor, so much of the liquidator's remuneration as represented these services, together with the expenses properly incurred in the care, preservation and realisation of the property, should be a first charge on the fund in priority to the debenture debt.
37 Counsel for the defendant argued that that principle had no application in the present case where the debts concerned had been assigned to and were always the property of the defendant. This was not a case of getting in moneys for the benefit of a secured creditor but taking care of property already owned by a third party.
38 The plaintiff's counsel conceded that the circumstances with which Dixon J was concerned In re Universal Distributing were different but argued that the principle was the same whether the assets which were brought together were owned outright by the claimant to them or whether the claimant had some other entitlement to them, such as a right by way of a security. A lien arose because, in agreeing to cause Tandem to continue trading, the plaintiff had assumed an obligation to care, preserve and realise the debts of Tandem that had been assigned to the defendant, and accordingly was entitled to be paid for such work in priority to the defendant's claim against those debts.
39 I have reservations that the decision in In re Universal Distributing is applicable in this case but, in any event, I do not consider that it can be said that on general principles a lien is incapable of arising in the circumstances pleaded. I would not therefore strike out pars 24 and 25.
40 The next attack was on pars 26 and 27 of the statement of claim. They provide as follows:
"26. By reason of the plaintiff's appointment as Administrator of Tandem, the plaintiff, was, and is, entitled to an equitable lien upon the assets of Tandem including the first debtor's and the Administrator's debtors in priority to the defendant's interests under the terms of the Factoring
(Page 11)
- Agreement, the agreement pleaded in paragraph 12 hereof and the Mortgage.
- 27. On the creation of invoices and debts subsequent to the September meeting, no assignment of such debtors was made to the defendant until such time as invoices were delivered to the defendant. Accordingly, at the time such invoices were delivered to the defendant, the debts represented by the invoices were subsequent to the plaintiff's equitable lien pleaded in paragraphs 29 and 30 hereof and the plaintiff's lien under section 443D of the Corporations Act."
41 The defendant submitted first, that no lien could arise in respect of the First Debtors because those debts had passed to the defendant before the appointment of the plaintiff as administrator and secondly, the Administrator's Debtors passed to the defendant upon their creation as a result of the September agreement to continue the Factoring Agreement. Accordingly, it was submitted, no lien could arise either in equity or under s 443D of the Corporations Act.
42 In my view, that submission is correct in relation to the First Debtors. The submission in respect of the Administrator's Debtors, however, depends upon the proposition that at the September meeting it was agreed to continue the Factoring Agreement. As, in my view, no such finding can be made at this stage, the objection, to that extent, must fail. I would therefore strike out the reference to the First Debtors in pars 26 and 27 of the statement of claim but otherwise would allow the pleas to stand.
43 Next, the defendant attacked par 28 of the statement of claim. That plea is as follows:
"Further, and in the alternative, by reason of the promises made by the defendant pleaded in paragraph 17 and the plaintiff acting in reliance upon those promises, it would be unconscionable for the defendant to assert any claim to any of Tandem's debtors, whether under the terms of the Factoring Agreement, or otherwise in priority to the plaintiff's claims to the plaintiff's creditors in respect of the First Debtors and the Administrator's debtors."
44 It is pleaded in par 17 as follows:
(Page 12)
- "The defendant allowed Tandem (and thereby the plaintiff) from 21 September 2001 to collect Tandem's debtors (whether factored to the defendant or otherwise) until 21 January 2002, at which time the defendant asserted its right to collect all of Tandem's debtors to the exclusion of Tandem and the plaintiff."
45 The defendant submitted that there is nothing pleaded which is capable of giving rise to a plea of unconscionable conduct. Counsel for the plaintiff said in argument that par 28 was intended to plead an estoppel. I do not, however, consider that that clearly emerges from the plea as it is currently framed. Moreover, so far as the plea refers to a claim in respect of the "First Debtors", it must fail for the reasons I have given previously. I would strike out par 28 with liberty to the plaintiff to replead it in respect of the Administrator's Debtor's debts.
46 The next attack was on pars 29 to 34 of the statement of claim which plead that the defendant engaged in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act. The specific complaint was in respect of par 30, which it is pleaded as follows:
"By reason of the matters pleaded in paragraph 12, and in particular the conduct of Langham and Smith, each on behalf of the defendant, pleaded in paragraph 12.2 and 12.3, the defendant made representations to the plaintiff, in trade and commerce that the defendant would:
30.1 pay the costs and expenses to be incurred in the continued trading of Tandem's business and the plaintiff's remuneration for doing so, the quantum of which was to be agreed at a later time (as pleaded in paragraph 12.1); and
30.2 pay to the plaintiff such amounts as were requested by the plaintiff from time to time, within a reasonable time of delivery to the defendant of invoices created by Tandem whilst it was in administration, for the purpose of meeting the costs and expenses incurred by the plaintiff in the continue trading of Tandem's business (as pleaded in paragraph 12.3)."
(Page 13)
- Agreement would be continued. It was argued that once par 30.1 fell, then the whole plea of misleading and deceptive conduct must fall with it.
48 In light of the finding I have made in respect of the 26 September 2001 agreement, this objection must fail. Whether or not representations of the kind alleged in par 30.1 were made is a question of fact for trial.
49 I would therefore strike out pars 15, 18, 23 and 28, and pars 19, 20, 23, 26 and 27 to the extent they refer to the "First Debtors" and otherwise would dismiss the defendant's application. I would grant the plaintiff leave to amend the statement of claim. I will hear counsel on the time within which that should be done and on costs.
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