Commonwealth Bank of Australia v Carver - [2014] WASC 15

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: COMMONWEALTH BANK OF AUSTRALIA -v- CARVER [2014] WASC 15

CORAM: ALLANSON J

HEARD: 26 AUGUST 2013

DELIVERED : 24 JANUARY 2014

FILE NO/S: CIV 2958 of 2011

BETWEEN: COMMONWEALTH BANK OF AUSTRALIA
Plaintiff
AND
GERARD MAURICE CARVER
First Defendant
LOUIS MARCEL ALLAN CARVER
Second Defendant
NORMAN REGAN LANGAN
Third Defendant
JOSEPH GERARD CLIFF CARVER
Fourth Defendant
JENNIFER ELIZABETH LOW
Third Party

Catchwords:

Practice and procedure - Application to strike out counterclaim - Application to strike out third party statement of claim in part - Deficiencies in pleadings - Turns on own facts

Legislation:

Competition and Consumer Act 2010 (Cth)
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B
Trade Practices Act 1974 (Cth), s 52, s 87

Result:

Substituted counterclaim struck out
Substituted third party statement of claim struck out in part

Category: B

Representation:

Counsel:

Plaintiff:     Mr G D Cobby
First Defendant             :     Mr J Eastoe
Second Defendant         :     Mr J Eastoe
Third Defendant           :     Mr J Eastoe
Fourth Defendant          :     Mr J Eastoe
Third Party                   :     Mr J Garas

Solicitors:

Plaintiff:     Norton Rose Fulbright Australia
First Defendant             :     Jonathan Eastoe
Second Defendant         :     Jonathan Eastoe
Third Defendant           :     Jonathan Eastoe
Fourth Defendant          :     Jonathan Eastoe
Third Party                   :     HBA Legal

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

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191
Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers Western Australian Branch v Bell‑A‑Bike Rottnest Pty Ltd [2005] WASCA 157
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Grainger v Williams [2009] WASCA 60
I & L Securities v HTW Valuers [2002] HCA 41; (2002) 210 CLR 109
Low v Bouverie [1891] 3 Ch 82
Marks v GIO Australia Holdings [1998] HCA 69; (1998) 196 CLR 494
Pancontinental Mining Ltd v Posgold Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191
Smurfs Childcare Centre (Ballajura) Pty Ltd v Commonwealth Bank of Australia Ltd [2013] WASC 49
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

ALLANSON J: In 2007, the Bank of Western Australia advanced funds to Cuddles Management Pty Ltd, a company in the childcare business. The defendants gave a guarantee as part of the security for the borrowing.
In 2009, an administrator was appointed to Cuddles Management, and in early 2010, the administrator was appointed as liquidator. Cuddles Management has not repaid the Bank, which brings these proceedings against the defendants for amounts owing under the guarantee.
The Bank began these proceedings in 2011. In 2012, the Australian Prudential Regulation Authority issued a certificate of transfer under s 18 of the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) to confirm that the total voluntary transfer of Bank of Western Australia Ltd to Commonwealth Bank of Australia Ltd would take effect on 1 October 2012. As a result of this transfer the proceedings have been amended to name the plaintiff as the Commonwealth Bank. In these reasons I will refer simply to the Bank.

The admissions

The following matters pleaded by the Bank are admitted by the defendants:
1.The defendants were the lessees of premises in Forrestfield and Rivervale at which they owned and operated childcare businesses known as Cuddles Childcare Forrestfield, and Cuddles Childcare Centre Rivervale.
2.By letter of offer dated 16 July 2007 the Bank agreed to and did advance funds to Cuddles Management Pty Ltd (in liquidation) for the continued growth and expansion of childcare centres.
3.Material terms of the offer were:
a.Cuddles Management must pay all amounts of principal and interest to the Bank as and when they fall due;
b.Cuddles Management must pay the Bank's costs, charges and expenses, including legal costs in connection with exercising, enforcing or preserving rights under the offer; and
c.an event of default occurs if Cuddles Management becomes insolvent by way of a controller, which includes an administrator, being appointed over any of its property.
4.The defendants guaranteed the liability of Cuddles Management to the Bank.
5.Material terms of the guarantee were:
a.Cuddles Management would pay to the Bank all amounts payable when they are due;
b.the defendants must pay the Bank on a full indemnity basis for all costs which the Bank incurs in arranging, administering and terminating the guarantee;
c.the Bank may demand the defendants pay any amount payable under the guarantee at any time.
6.An event of default occurred on 7 December 2009 when Ms Jennifer Low was appointed voluntary administrator of Cuddles Management.
7.On 15 December 2009, the Bank gave notice of default and demand, demanding pursuant to the guarantee that each defendant pay the amount then outstanding and due and payable by Cuddles Management.
8.To date neither Cuddles Management nor the defendants have paid any monies to the Bank.
The Bank pleads that at 7 October 2011 the defendants were indebted to it pursuant to the guarantee for an amount of $507,814.12 plus interest accruing at the rate of 11.64% per annum, a daily rate of $158.44. The defendants deny that allegation. At 28 June 2013, the Bank certified the amount payable to be $604,473.11, with interest accruing at the rate of 10.14%, a daily rate of $166.08.
The defendants have filed a defence and counterclaim in these proceedings, and have brought third party proceedings against Ms Low. The defendants and another party, Smurfs Childcare Centre (Ballajura) Pty Ltd, brought separate proceedings against the Bank and Ms Low: CIV 3381 of 2011. In an earlier application in those proceedings, I struck out a substantial part of the statement of claim, and gave leave to re‑plead: see Smurfs Childcare Centre (Ballajura) Pty Ltd v Commonwealth Bank of Australia Ltd [2013] WASC 49. The defendants have now discontinued CIV 3381 of 2011, and amended their counterclaim and third party statement of claim in this action.
The Bank says, in effect, that the matters pleaded against it by counterclaim are no defence to the defendants' liability under the guarantee. Those pleas should be struck out and, having regard to the history of this matter and the admissions made by the defendants, judgment should be entered for the Bank on the admissions made.
Ms Low submits that the claim against her should be struck out in part.

The counterclaim

The defendants seek relief under two heads: a declaration that the Bank is estopped from recovering any monies from them pursuant to the guarantee and indemnity, and an order under s 87 of the Trade Practices Act 1974 (Cth) restraining the Bank from taking proceedings against them under the guarantee.
On this application to strike out the counterclaim, where the Bank contends that the pleading does not disclose a reasonable cause of action, the question is whether it would be open to the defendants, on the facts they have pleaded, to prove facts at the trial which would constitute a cause of action: Pancontinental Mining Ltd v Posgold Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405, 414; Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers Western Australian Branch v Bell‑A‑Bike Rottnest Pty Ltd [2005] WASCA 157 [54]. In the following reasons, the references to paragraphs are to paragraphs of the substituted counterclaim, filed 27 June 2013.
There are two preliminary comments that I wish to make before dealing with the detail of the pleading. First, in the earlier strike out application, the Bank complained that the manner in which the defendants pleaded that various entities carried on various childcare businesses associated with the defendants was embarrassing: see Smurfs Childcare Centre (Ballajura)[34] ‑ [37]. The material then before the court referred to eight companies and 11 businesses. Cuddles Management fitted into a relatively complex business structure, but it was not clear how. I concluded that the defendants needed to set out the facts relating to the ownership and management of the various childcare businesses with some particularity. The defendants have responded to the criticism of their earlier pleading with a substituted counterclaim which is no more informative than its predecessor.
Second, the defendants put some emphasis on a submission that their liability as guarantors was only a contingent liability. The starting point, however, has to be the admitted facts. On the appointment of Ms Low as administrator of Cuddles Management on 7 December 2009, there was an act of default under the loan. Under cl 2.1 of the guarantee, the amount owing was then payable by the guarantor on demand; under cl 6, interest accrued on any amount due for payment. On 15 December 2009, the Bank demanded payment from the defendants under the guarantee. The amount claimed by the Bank under the guarantee was then due and payable. To the extent that the Bank's claim includes interest which accrued after the demand, those amounts are payable by reason of an obligation which crystallised when the notice of demand was given.
The defendants are also liable under the indemnity they gave the Bank to indemnify it for any loss it suffers if the guaranteed agreement is unenforceable against Cuddles Management because of its insolvency.

The claim in estoppel

In one sense, the estoppel case is a traditional one: the Bank and the defendants are in an existing contractual relationship, and the estoppel is raised as a defence to the Bank's claim.
The defendants say that the facts pleaded show that, over a period of about 13 months, the Bank encouraged them to adopt an assumption that it would not seek to enforce its contractual rights, and that they would not become bankrupt. The defendants say that for the Bank to now seek to recover from them the money they owe would lead to their bankruptcy, and would be unconscionable.
The facts on which the defendants rely relate primarily to three matters: the failure of the bank to take additional security and its offer to forbear its demand for immediate payment; the Bank's approval of the process under which Ms Low marketed and sold various childcare businesses in the Cuddles group; and the Bank's approval of an agreement made in September 2010 between Ms Low, the Administrators under a Deed of Company Arrangement in the administration of Cuddles Group Pty Ltd (the DOCA Administrators), and the defendants.

The further security

The defendants plead that, on 14 December 2009, they told the bank that they were prepared to cause additional security to be granted over another childcare centre: par 6. They do not plead where that centre was, or who owned or operated it.
The defendants plead that, on 31 December 2009, in a letter to the second defendant, the Bank set out the terms and conditions on which it would forbear from requiring immediate repayment: par 8. The defendants do not plead that the Bank offered to forbear, and do not plead that there was an agreement that it would. They plead that the terms and conditions included a requirement for further security, but not whether the additional security they offered on 14 December 2009 complied with the terms and conditions specified by the Bank. They do not plead whether they were willing and able to comply with other terms and conditions specified by the Bank, or what those terms and conditions were.
The defendants do not plead anything said or done by the Bank representing that it would not enforce the guarantee and indemnity, or that they did anything in reliance on the letter of 31 December 2009.

The February Agreement

The defendants plead that:
(1)On or about 1 February 2010, Ms Low disclosed to the Bank 'the proposal to enter into the February Agreement', and the Bank gave 'express or tacit approval' for Ms Low to proceed: par 9.
(2)The February Agreement appointed Ms Low as the agent of the defendants to sell certain childcare centres and apply the proceeds of sale in payment to the Bank of the money potentially due by the defendants under the guarantee, and also money due by the defendants to the DOCA Administrators: par 10. It was 'evidenced' by a letter from Ms Low to the defendants dated 1 February 2010 and signed by them on 2 February 2010.
(3) At all material times the Bank was aware of the proposal reflected in the February Agreement for Ms Low to sell the childcare centre businesses, including the Rivervale business and the Forrestfield business, and of the defendants' expectation that the proceeds of sale would satisfy the money due by them under the guarantee: par 17. It elected not to take further security and elected not to exercise any of its rights under the charge which it held: par 9(c) and (d).
(4)One of the businesses to be sold under the February Agreement was the business known as Cuddles Child Care Centre Ballajura. There was a term of the February Agreement that 90% of the net sale proceeds of the sale of the Ballajura business would be paid to Smurfs Childcare Centre (Ballajura) Pty Ltd with the balance paid to Ms Low in her capacity as liquidator of Cuddles Management. That term was expressly included in order to enable payment of money due by the defendants to the DOCA Administrators: par 10, 11.
Although the defendants plead that the Bank gave approval for Ms Low to proceed with the February Agreement, they also plead (par 15) that at a meeting on 27 July 2010, the Bank became aware of the following matters:
(a)the debt to the DOCA Administrators;
(b)a payment of $46,951.10, made by or on behalf of the second defendant on or about 4 April 2010 (I assume to the DOCA Administrators, although it is not pleaded);
(c) it was unlikely the Bank would receive any substantial distribution out of the liquidation of Cuddles Management;
(d) the term of the February Agreement under which 90% of the proceeds of the sale of the Ballajura business was to be paid to Smurfs Childcare Centre (Ballajura);
(e) Ms Low and the defendants proposed to pay that 90% to the DOCA Administrators;
(f) the defendants did not have the financial capacity to satisfy their liability under the guarantee;
(g) the likelihood of the defendants being made bankrupt by reason of bankruptcy notices served on them in respect of the DOCA debt and their failure to comply with those notices.

The Compromise Agreement

The defendants plead the following facts:
(1)On 13 and 23 February 2010 the DOCA Administrators served bankruptcy notices on the defendants in respect of their debt and the defendants failed to comply with those notices within the time specified: par 14.
(2) At 27 June 2010, the sum of approximately $159,000 was due by the defendants to the DOCA Administrators under the Deed of Company Arrangement: par 13.
(3)On 27 July 2010 the Bank became aware of the matters which I have set out at [20] above: par 15.
(4) On or about 2 August 2010, the Bank threatened to take bankruptcy proceedings against the defendants if the proposed payment to the DOCA administrators was made: par 16.
(5) The Bank informed the defendants and Ms Low that it had no objection to the 90% of the proceeds of sale of the Ballajura business being paid to and applied by Ms Low in her capacity as liquidator of Cuddles Management: par 16.
(6)On 31 August 2010, the DOCA Administrators issued a creditor's petition in the Federal Magistrates Court seeking a sequestration order against the defendants: par 18.
(7) On or about 22 September 2010, Ms Low concluded an agreement with the DOCA Administrators and the defendants (the Compromise Agreement). The defendants plead in par 19:
(a) the agreement was between Ms Low 'as agent of the defendants', the DOCA Administrators and the defendants;
(b) the agreement was 'with the approval of the [Bank]';
(c) under the agreement the DOCA Administrators agreed to accept $120,000 in full satisfaction of the defendants' liability to them, and to have the creditor's petition dismissed. Ms Low would pay $55,000, out of the Ballajura sales proceeds, and the defendants would pay $65,000. The balance of the Ballajura sale proceeds would be retained by Ms Low in her capacity as liquidator of Cuddles Management.
(8)On or about 1 October 2010, Ms Low with the consent of the Bank, paid the sum of $55,000 pursuant to the Compromise Agreement and retained the balance and applied it as if it were funds in the liquidation of Cuddles Management. The defendants paid the balance of $65,000 to the DOCA Administrators: par 20.
(9) On 5 October 2010 the Federal Magistrates Court, with the consent of the DOCA Administrators, dismissed the creditor's petition: par 21.
(10) At the time the defendants entered into the Compromise Agreement they had a 'reasonable expectation' that if the Bank intended to take bankruptcy proceedings against them, then that intention would be made known to the defendants: par 22.
(11) At the time the Compromise Agreement was reached, the Bank did not disclose any intention to proceed against the defendants, or make any reservation of its rights: par 24.
There are some obvious deficiencies in the plea. Although the defendants plead their liability to the Administrators of Cuddles Group Pty Ltd, they do not plead any details regarding their relationship with Cuddles Group, or the relationship between that company and Cuddles Management. They plead that on 20 May 2009, judgment was given in the District Court for $238,556 plus interest and costs. They give none of the particulars that you would normally expect, including who was the judgment debtor and who was the judgment creditor.
The defendants rely upon the letter of 1 February 2010 as evidencing the February Agreement. In the letter, the defendants acknowledge that Cuddles Management is the owner of the childcare centres to be sold, including the Ballajura business. In their submissions, the defendants deny that Cuddles Management was the owner of the various centres, and attempt to avoid the consequences of the acknowledgment in the letter by submitting that the agreement merely deemed Cuddles Management to be the owner, for the purposes of the agreement. The problem with that submission is that the defendants rely on the fact that the Bank knew of the terms of the February Agreement, and, specifically, the arrangement for dealing with the proceeds of the Ballajura sale. On the facts they have pleaded, it is not possible to ascertain who was entitled to the proceeds of the sale of the Ballajura business, or would been have entitled to them but for the February Agreement.
The defendants say the Compromise Agreement was concluded with the Bank's approval, but, in particulars, say the approval was given on or about 28 September 2010, about six days after the agreement was made.

The detriment

The defendants plead that by reason of the conduct of the Bank, they are likely to suffer detriment. The particulars of the detriment are stated as follows:
The expectation interest created by the Plaintiff's conduct … is that [the defendants'] contingent liability under the Guarantee would not be enforced and that they would not be made bankrupt by the Plaintiff. Unless estopped by declaration from recovering moneys from the Defendant pursuant to the Guarantee the Defendants will become liable for the moneys sought by the [Bank] in its Statement of Claim and as a consequence may be made bankrupt by the [Bank].

The requirements for an estoppel

In Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, 428 - 429, Brennan J set out what it is necessary for a plaintiff to prove to establish an equitable estoppel:
(1) the plaintiff assumed that a particular legal relationship then existed between it and the defendant, or expected that a particular legal relationship would exist between them and that the defendant would not be free to withdraw from the expected legal relationship;
(2) the defendant has induced the plaintiff to adopt that assumption or expectation, or, knowing that the plaintiff’s reliance on an assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs;
(3)the plaintiff acts or abstains from acting in reliance on the assumption or expectation;
(4) the defendant knew or intended him to do so;
(5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and
(6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
To found anestoppel, a representation must be clear and unambiguous in the sense that 'it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed': Low v Bouverie [1891] 3 Ch 82, 86. It is a party's conduct in acting to his or her detriment upon the representation, or the assumption or expectation to which it gave rise, which invites the intervention of equity: see Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191 [195] ‑ [204].
The Bank submits that the estoppel pleaded in the substituted counterclaim does not meet these requirements. That submission is correct.
The defendants have not pleaded that, acting upon the Bank's conduct, they have done or refrained from doing anything that will result in a relevant detriment if their expectation is not fulfilled. The detriment they plead is no more than their liability under the guarantee and the consequences of its enforcement.
The defendants submitted that they were led to assume that they would be free of the consequences of bankruptcy. The submission misses the point. Following the Bank's demand in December 2009, the defendants were liable to the Bank for the amount under the guarantee, which was then due and payable, and for interest that accrued. They also were liable to indemnify the Bank for costs it incurred. The consequences of the Bank proceeding to enforce its rights is not something occasioned by the defendants acting, or abstaining from acting, on the basis of an assumption or expectation induced by the Bank. On their pleaded case, the defendants have done nothing in reliance on the Bank's conduct to invite the intervention of equity.
The Bank also submits that the case pleaded by the defendants does not identify clear and unambiguous words or conduct on behalf of the Bank that, in the circumstances, would reasonably induce them to assume that the Bank was giving up its rights to recover the money due under the guarantee. The defendants' pleaded case in this regard is not compelling. It is not, however, necessary for me to consider whether the plea could arguably ground a case of estoppel, because of my conclusion on the issue of detriment.
The substituted counterclaim is fundamentally deficient and the plea in estoppel should be struck out.

The claim for misleading or deceptive conduct

There is an alternative cause of action in par 26 of the substituted counterclaim, in which the defendants plead that the conduct of the Bank contravenes s 52 of the Trade Practices Act (now Competition and Consumer Act 2010 (Cth)). The defendant relies on the same conduct as that pleaded in the estoppel claim and says that it is likely to suffer loss and damage.
The defendants plead the following particulars of loss and damage:
1.At all material times, the defendants' liability was a contingent liability.
2.If, which is denied, the Bank is entitled to and is awarded judgment in its claim in this proceeding the defendants will be under an actual liability.
3.The sum of $65,000 paid by the defendants pursuant to the Compromise Agreement.
The defendants do not seek damages in the counterclaim, but an order pursuant to s 87 of the Trade Practices Act permanently restraining the Bank from taking proceedings against them under the guarantee. In my opinion, the defendants could not establish a cause of action under s 52 on the facts they have pleaded.
First, while s 87 does not require that the person seeking relief has suffered loss or damage, it requires that a party to the proceedings has suffered loss or damage or it is likely that it will: and see I & L Securities v HTW Valuers [2002] HCA 41; (2002) 210 CLR 109 [43] ‑ [46]. If the Bank is entitled to judgment on its claim under the guarantee, the award of judgment cannot be characterised as loss or damage. The defendants seek to so characterise it by the distinction between a contingent and an actual liability. But the distinction has no substance in this context. It is meaningless to speak of the defendants' liability, after the default of the principal debtor and the service of the notice of demand, as a contingent liability so that they incur some further loss or damage when judgment is awarded against them. If the Bank is entitled to judgment, on the case it has pleaded and which is substantially admitted, it is because the money owing under the guarantee is now due and payable. The Bank is not required to make demand on the principal debtor: Guarantee, cl 2.1. Nothing further needs to happen for this to be an actual liability.
The payment of $65,000 to the DOCA Administrators also cannot be characterised as loss or damage. On the plaintiff's pleaded case, the payment was in partial satisfaction of an existing liability for a greater amount. And they have not pleaded any basis on which they were entitled to have Ms Low deal with the proceeds of the sale of the Ballajura business in any other way.
Second, the defendants have not pleaded facts from which it could be found that they have suffered or are likely to suffer any loss or damage by the conduct of the Bank. The claim of loss calls for a comparison to be made between a party's present position, and the position it would have been in but for the conduct said to contravene s 52. A party's loss is, or is likely to be, caused by misleading or deceptive conduct, when that party has sustained or is likely to sustain a prejudice or disadvantage as a result of altering his or her position under the inducement of themisleading conduct: Marks v GIO Australia Holdings [1998] HCA 69; (1998) 196 CLR 494 [42], [46]. Even if it were established that the conduct of the Bank gave rise to the reasonable expectation pleaded, the loss particularised in par 26 would not be by reason of those facts, but by reason of the already existing liabilities under the guarantee and the debt to the DOCA Administrators.
Third, the Bank also submits that the substituted counterclaim fails to identify how any of the Bank's conduct was misleading and deceptive. I agree that it is difficult to ascertain what it is that the defendants say contravened the Act.
In their submissions, the defendants say that it is clear from the pleading that the Bank's conduct, itemised in par 23 of the substituted counterclaim, led them to assume that they would not suffer the consequences of bankruptcy, and, in view of the Bank commencing this action, was clearly misleading. This is a departure from the case they pleaded in CIV 3381 of 2011, where they pleaded that the Bank acquiesced in the conduct of Ms Low who made representations to them. But it shares a defect with the plea in the earlier matter. The test for whether conduct was misleading or deceptive is an objective test: see Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [25]; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 [109]; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 [8]; Grainger v Williams [2009] WASCA 60 [26]. It is not enough for a party to simply allege that the conduct was engaged in, and he or she was misled.
Ultimately, it is not profitable to discuss this aspect separately from the question of the damage suffered by that conduct. The substituted counterclaim is deficient in the plea of loss and damage, and in the plea of causation. It cannot stand.

The third party statement of claim

Ms Low also seeks to strike out pars 5 to 8 and 9(a) of the substituted third party statement of claim.
The defendants plead (in paragraphs that are not challenged in this application): that the Bank provided finance to Cuddles Management, and the security for that finance, including the guarantee: par 1; Ms Low was appointed administrator of Cuddles Management, and on 21 January 2010 was appointed its liquidator: par 2 and 3; Cuddles Management, to Ms Low's knowledge, had an excess of liabilities over its assets of $1,756,977 including $413,000 owed to the Bank: par 2.
In pars 4.1 and 4.2, the defendants plead that Ms Low owes them $68,900 in management fees.
In the plea which is challenged, the defendants say:
1.They appointed Ms Low as their agent. Paragraph 5 alleges:
On about 2 February 2010 the Defendants appointed the Third Party as their agent to sell certain childcare centres (the Businesses) at or about certain figures (Minimum Sales Values) and apply the proceeds of sale in payment to [the Bank] of the moneys potentially due by the Defendants pursuant to the Guarantee and the moneys due by the Defendants to the DOCA Administrators.
Particulars
1.The appointment of the Third Party is evidenced by a letter from the Third Party to the Defendants dated 1 February 2010 and signed by the Defendants on 2 February 2010 (February Agreement).
2. The Businesses are described in Schedule A to the February Agreement and included the business known as 'Cuddles Child Care Centre Ballajura' (Ballajura Business) and the Rivervale Business and the Forrestfield Business.
(Particular 3 sets out the Minimum Sale Values)
2.Ms Low had duties to the defendants as their agent: par 6.
3.Ms Low breached those duties, and the defendants have or will suffer loss and damage, being the judgment in favour of the Bank against them in these proceedings, if judgment is awarded: pars 7 and 8.
The defendants claim an indemnity against any judgment against them: par 9(a).
The letter of 1 February 2010, evidencing the February Agreement, is before me and, as it is a pleaded document, I can have regard to it. In CIV 3381 of 2011, the defendants relied on a different letter, dated 27 January 2010. The letter of 1 February is not identical. In particular, it does not include Ms Low's statement that, in her opinion, Cuddles Management was the owner of the childcare centres to be sold. Otherwise, the two letters are not materially different.
In the letter of 1 February 2010, Ms Low states:
I am willing to acknowledge to [the Department of Education Employment and Workplace Relations] that the company is the operator of the eight childcare centres listed on the attached schedule (Schedule A), and to continue to receive DEEWR funding on the following conditions:
1. That I take control of the eight childcare centres with a view to selling them to a new operator(s).
2.That I am in control of the process of selling the childcare centres (eg selection of agent, negotiations regarding potential sales, sale price accepted).
3.That any proceeds received from the sale of the eight childcare centres are to be considered company funds and distributed in the liquidation of the company according to the normal statutory priorities.
…
5.That the directors of the company and Mr Cliff Carver (in their capacity as directors of the company and directors of any other related entity) agree with the following:
(a) That the company is the owner of the eight childcare centres.
(b) That I have authority to take control of and sell the eight childcare centres.
(c) That as Liquidator of the company I am entitled to retain all the net proceeds of sale (after respective selling costs) with the exception of Cuddles Child Care Centre Ballajura and Cuddles Child Care Centre Maddington.
(d) That 90% of the net sale proceeds (after respective selling costs) of Cuddles Child Care Centre Ballajura are to be retained by Smurfs Child Care Centre (Ballajura) Pty Ltd with the balance being retained by me as Liquidator of the company.
(e) That $50,000 of the net sale proceeds (after respective selling costs) of Cuddles Child Care Centre Maddington is to be retained by Cuddles Childcare Centre Bertram Pty Ltd with the balance being retained by me as Liquidator of the company if the current sale agreement for a sale price of $125,000 progresses to settlement. If the current sale agreement for a sale price of $125,000 to not progress to settlement, but the centre is subsequently sold, Cuddles Childcare Centre Bertram Pty Ltd will not receive any funds and I as liquidator will retain all the net sale proceeds.
(f) That if, at the end of the 90 day sale period, any of the centres has not become subject to a sale agreement, the centre(s) will be closed.
(g) That the company owns any unencumbered plant and equipment located at the eight childcare centres.
6.That the directors of the company and Mr Cliff Carver (in their capacity as directors of the company and directors of any other related entity) agree to fully cooperate with the process of sale of the eight childcare centres, in particular:
(a)Continuing to manage, on a day to day basis, the eight childcare centres.
(b)Assisting me and my nominated sales agent with the sales process.
(c)The lessee to each lease agreement for the eight childcare centres, if not the company, agreeing to novate the lease agreement to any potential purchaser, if requested.
(d)Agreeing to novate any finance agreements if requested by a potential purchaser.
7. That the directors of the company and Mr Cliff Carver (in their capacity as directors of the company and directors of any other related entity) agree to the following operational conditions:
(a)That I will be notified immediately (within 24 hours) of any significant operating issues that arise …
(b)That I will retain all CCB receipts [that is, childcare benefit receipts] from DEEWR.
(c)That each entity managing the eight childcare centres will submit an application for funds on a regular basis (probably weekly) for its usual and supportable operational costs (wages, rent, groceries etc).
(d)Once the periodic applications have been reviewed, I will remit the authorised funds to the entities managing the eight childcare centres.
(e)That the authorised funds remitted to the entities managing the eight childcare centres will be properly used for the stated operational expenses.
(f)That no parents at the eight childcare centres will be charged more than the shortfall owing after receipt of CCB payments.
8.That the directors of the company and Mr Cliff Carver (in their capacity as directors of the company and directors of any other related entity) agree to provide the following documentation within three business days of signing this document:
(a)Written confirmation from each relevant entity within the Cuddles Group that they employ the employees working in the eight childcare centres (and not the company).
(b)[confirmation of insurance]
(c)The cash flow schedules recently prepared for the eight childcare centres.
(d)Financial statements for each entity managing the eight childcare centres.
(e)A copy of the current sale agreement for Cuddles Child Care Centre Maddington.
If you agree to the conditions at points 1 to 8 above, would you please sign this letter is evidence of your agreement and cooperation.
The letter is signed by each of Cliff Carver, Allan Carver, Norman Langan, and Gerard Carver, with their signatures dated 2 February.
Despite the differences between the two letters, I remain of the view I expressed in Smurfs Childcare Centre (Ballajura) at [101] - [102]. There is no ambiguity in what is agreed. On no construction of the letter can it be said that the parties intended that Ms Low would act for or on behalf of the defendants or in their interests in the sale of the businesses. The fact that she sought their cooperation does not convert the arrangement she proposed into an agency.
The defendants plead no other facts regarding the creation of the alleged agency. The pleas in pars 5 to 8 depend upon the asserted agency and all four paragraphs should be struck out. Paragraph 9(a) is the prayer for relief based upon the plea of agency and should also be struck out.
Paragraphs 8 and 9(a) are also subject to the separate complaint that the loss and damage pleaded is based upon the defendants' liability to the Bank under the guarantee. The plea does not disclose how a judgment requiring the defendants to pay that liability could arise from the breaches of duty alleged against Ms Low. On that basis also, those paragraphs should be struck out.

Leave to re‑plead

The Bank submits that the defendants should not have leave to re‑plead. First they say the defects in the case the defendants have advanced to date are matters of substance, and the case is untenable. Second, the proceedings were instituted in 2011. The defendants have had the benefit of particular discovery before being required to plead, and have had the opportunity to amend the pleading. They were granted an extension of time in which to file and serve the substituted counterclaim on the basis that counsel was to be briefed to draft the pleading, but that did not occur.
Ms Low submits that the defendants should not have leave to re-plead the issue of agency. Twice now they have relied on letters which are not materially different and which, in my opinion, cannot be construed as creating the agency relationship.
If I refuse leave to re‑plead against the Bank, it would follow that judgment would be entered on the admissions the defendants have already made. The defendants have a claim against Ms Low, for a relatively small amount, the pleading of which is not challenged. Their third party action would, to that limited extent, proceed.
The decision whether to permit the defendants to re‑plead is discretionary, and must be exercised in accordance with the case flow management principles in O 1 r 4A and r 4B of the Rules of the Supreme Court 1971 (WA). Those principles require the balancing of potentially competing considerations, where the court must consider whether the course which offers the most efficient and timely disposal of business will also promote the just determination of the litigation. The progress of this matter to date had not been timely and efficient. But it is well recognised that there is a need for caution in exercising a power to summarily determine proceedings. The defendants should only be denied the opportunity to proceed in the ordinary way, and after taking advantage of the usual interlocutory processes, if there is a high degree of certainty about what the outcome would be should this matter go to trial: see Agar v Hyde[2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].

I have decided that the defendants should be given the opportunity, within a limited time, to bring in a further minute of proposed counterclaim and third party statement of claim, and an application for leave to re‑plead. If they do not comply with the time limited, or if the proposed plea is again not sustainable, I will enter judgment for the Bank.