| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : CONSOLIDATED BUSINESS MEDIA PTY LTD (IN LIQ) (RECS & MGRS APPTD) -v- WEBFIRM PTY LTD [2006] WADC 158 CORAM : MACKNAY DCJ HEARD : 3 MAY 2006 DELIVERED : 29 SEPTEMBER 2006 FILE NO/S : CIV 628 of 2005 BETWEEN : CONSOLIDATED BUSINESS MEDIA PTY LTD (IN LIQ) (RECS & MGRS APPTD) (ACN 104 234 442) Plaintiff
AND
WEBFIRM PTY LTD (ACN 104 234 442)
Defendant
Catchwords: Bills of exchange - Cheques - Presentment, dishonour and consequent proceedings - Set-off - Claim by assignee - Whether drawer can raise claim for damages and relief under an allegation of fraudulent misrepresentation or the Trade Practices Act (Cth), s 52 and s 87 by way of defence - Appeal from grant of summary judgment Legislation: Cheques Act 1986 (Cth), s 3, s 50 and s 60
Property Law Act 1969 (WA) s 20
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Trade Practices Act 1974 (Cth), s 52 and s 87 Result: Appeal allowed Representation: Counsel:
Plaintiff : Mr D H Solomon
Defendant : Mr C C K Ko
Solicitors:
Plaintiff : Solomon Bros
Defendant : Brickhills
Case(s) referred to in judgment(s):
John Shearer Ltd v Gehl Company (1995) 60 FCR 136
Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GMBH [1977] 1 WLR 713
Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41-558
Rother Iron Works Ltd v Canterbury Precision Engineers Ltd [1974] 1 QB 1
Sun Candies Pty Ltd v Polites [1939] VLR 132
Case(s) also cited:
Abbey Panel & Sheet Metal Co Ltd v Barson Products [1948] 1 KB 493
Amalta Holdings Pty Ltd v Luff, unreported; FCt SCt of WA; Library No 8003; 21 December 1989
Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332
Australian Mutual Provident Society v Specialist Funding Consultants (1991) 24 NSWLR 326
Biggerstaff v Rowatt's Wharf Ltd [1896] 2 Ch 93
Brisbane Unit Development Corp Pty Ltd v Robertson [1983] 2 Qd R 105
Business Computers Ltd v Anglo African Leasing Ltd [1977] 1 WLR 578
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
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George Barker (Transport) Ltd v Eynon [1974] 1 All ER 900
Gye v McIntyre (1991) 171 CLR 609
Hiley v Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468
Hospitals Contribution Fund of Australia v Hunt (1983) 44 ALR 365
In re Asphaltic Wood Pavement Co, Lee & Chapman's Case (1885) 30 Ch D 216
Jedda Investments Pty Ltd v Krambousanos (1997) 72 FCR 138
Krambousanos v Jedda Investments Pty Ltd (1996) 64 FCR 348
Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700
Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439
Parsons v R (1995) 195 CLR 619
PCH Group Ltd v Hallbridge Pty Ltd (2002) 20 ACLC 1298
Re ACN 007 537 000 Pty Ltd (in liq); Ex parte Parker (1997) 150 ALR 92
Southern Region Pty Ltd v Minister for Police & Emergency Services (on behalf of the State of Victoria) [2003] VSCA 105
Southern Wine Corporation Ltd (in liq) v Frankland River Olive Company [2005] WASCA 236
Theseus Exploration NL v Foyster (1972) 126 CLR 507
Wallingford v Mutual Society (1880) 5 App Cas 685
Webster v Lampard (1993) 177 CLR 598
Wily v Commonwealth (1996) 66 FCR 206
Young v National Australia Bank Ltd (2004) 29 WAR 505
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Introduction 1 The plaintiff company is in liquidation, and the action is brought by receivers and managers appointed on behalf of the assignee of a charge over the company's assets. 2 The causes of action are said to arise from two cheques drawn by the defendant, and dishonoured when presented by the receivers and managers. 3 The plaintiff sought, and obtained summary judgment, and the matter comes before me on an appeal by the defendant.
Relevant history 4 Several affidavits were filed by the parties, including a further affidavit on behalf of the defendant, after the decision of the Deputy Registrar and shortly before the hearing of the appeal. 5 Facts asserted for a defendant must, unless improbable, shown to be illusory, or lacking sufficient detail, form the basis on which the possible existence of a defence is to be determined, together with those facts asserted by the plaintiff which are not in dispute. 6 As so ascertained the relevant history of the plaintiff is as follows. 7 On 6 June 2002, Consolidated Business Media Pty Ltd ("CBM") gave a fixed and floating charge to the Bank of Western Australia Ltd (Bankwest) in respect of all future liabilities to the bank, that being executed on behalf of CBM by its sole director and secretary, John Raymond Webb. 8 At some point CBM also executed a guarantee in favour of Bankwest in respect of advances to another entity, Aquarian Acquisitions Pty Ltd ("Aquarian"). 9 Security was also provided to Bankwest by Denise Gail Webb, by way of a guarantee in relation to both potential liabilities of CBM, it would appear. 10 In 2004, both CBM and Aquarian defaulted in relation to their respective obligations to Bankwest. (Page 5)
11 On 23 June 2004 a provisional liquidator was appointed to CBM and on 17 August 2004, CBM was ordered to be wound up and a liquidator was appointed. 12 Subsequently Denise Webb repaid the sums advanced to each company by Bankwest, together with interest and costs. 13 As a result, and on 17 November 2004, Bankwest assigned the charge and all its benefits to her. 14 The occurrence of the default and insolvency events in relation to CBM entitled the chargee to exercise its powers under the charge, and on 28 January 2005 the assignee, Denise Webb appointed Brian Keith McMaster and Jack Robert James (the receivers) as receivers and managers in respect of the charge. 15 On 24 March 2005 the receivers brought this action in the name of the company against Webfirm Pty Ltd ("Webfirm") seeking damages of $66,000 pursuant to the Cheques Act 1986 (Cth), as well as interest thereon. 16 The history of the transaction that led to the drawing of those cheques is as follows. 17 On 30 January 2004, CBM executed as vendor an agreement with the defendant Webfirm, then known as West Australian Investments Pty Ltd, as trustee for the Asch Family Trust as purchaser, for the purchase by the defendant of the goodwill and assets of a business, such including "all associated client and marketing data bases used by the business", the business having the names "(1) Webfirm, (2) WebBasic". 18 The "gross purchase price" was $1,130,000, with provision for a deposit and a second pre-finalisation payment, and with settlement fixed for 1 March 2004. 19 In addition to the balance of the purchase price, the defendant also agreed to pay at settlement the value of outstanding work in progress. 20 There were special conditions of sale which related to both the ascertainment of that and also to the carrying out of "due diligence". 21 On 12 March 2004, Norman Asch, a director of the defendant, sent an email to John Webb in which he stated that the "final purchase price" had been agreed to, and that payment thereof was to be by payment of $700,000 at settlement, together with the provision of two cheques, each (Page 6)
for $30,000, one dated 7 June and the other 7 July, and the plaintiff confirmed that. 22 Settlement proceeded on 12 March 2004, and two cheques were delivered to the plaintiff. 23 Those cheques were however each for $33,000, and according to the plaintiffs first affidavit, each was intended to correspond to an invoice from CBM for "consultancy work for Webfirm" in an amount of $30,000, with GST of $3,000, payment being due on 7 June 2004 and 7 July 2004 respectively. 24 According to Mr Asch, attempts were made on behalf of CBM to present those cheques prior to the dates thereof, and as the parties were then in dispute, each was stopped.
Claimed set-off 25 As stated, the subject of the agreement for sale included the assets of a business, and those included the client and marketing data bases used therein. 26 Mr Asch relevantly asserted in respect of the assets of the business: "10. Immediately upon taking possession of the Businesses, reviewing the operations of the Businesses and liaising with the employees of the Businesses, I became aware of several matters of serious concern, namely, that: a. The Plaintiff had retained the Businesses' client accounting databases, and had failed to deliver up same to the Defendant, in breach of the Agreement and Schedule; b. The Plaintiff had retained copies of the software utilised in the conduct of the Businesses including, inter alia, the content management system, mailing list and sales tool software, in breach of the Agreement and clause 7 of the SCOS. The said software was given a value in Annexure 'F' of the Document of $85,000.00; c. A quantity of the items stated in Annexure 'F' to the Document were not in fact the Plaintiff's property, but were subject to hire purchase (Page 7)
agreements with third parties, in breach of the Agreement. This included six laptop computers, three desktop computers and a server, rented through Delta Computers, and a quantity of furniture rented through Furniture Hire and Sales. This was in breach of clause 20 of the COS and clause 7 of the SCOS. I first became aware of the furniture's true ownership when, in August 2004, someone from Furniture Hire and Sales arrived to repossess it. I subsequently agreed to purchase the furniture. Produced to me and marked with the letters 'NAA3' is a copy of Furniture Hire and Sales' invoice and my payment order; d. A large number of client websites were made live or 'switched on' to the internet prior to their completion, so that the total contract amount could be collected from those clients. This was in breach of clause 6 of the SCOS. Produced to me and marked with the letters 'NAA4' is a copy of an email to me from the Executive Project Manager of the Businesses, advising which websites had been switched on prematurely at Webb's request; e. The correct cost of the software licenses required for the operation of the Business was significantly in excess of the $13,706.78 represented by the Plaintiff. There was a significant quantity of unlicensed software in use in the Businesses, and the total number of licenses required is tabulated and annexed hereto as 'NAA5'. We estimate that a total of $44,639.00 will need to be spent in total and, so far, we have purchased licenses costing $11, 273.86. Produced to me and marked with the letters 'NAA6' are copies of the relevant invoices; f. The Plaintiff had billed clients for the purchase of SSL Certificates and had received the proceeds of those bills, but did not in fact purchase the Certificates. This resulted in the Defendant being put to the cost of purchase, being $2,216.19. Produced to me and marked with the letters (Page 8)
'NAA7' is a copy of the relevant receipt for the Defendant's subsequent purchase; g. Clause 5 of the SCOS provided that the Defendant was to pay the Plaintiff the value of any outstanding work in progress at settlement. A table of debtors was produced and provided by the Plaintiff to the Defendant prior to settlement, annexed hereto as 'NAAS', and an allowance for the value of those clients was incorporated into the sale price. Since the date of settlement, we have become aware that the Plaintiff has received a total of $14, 157.02 in payments from the clients of the Business, listed in the debtors' lists, and has failed to reimburse the Defendant or account to the Defendant for the sums so received. Produced to me and marked with the letters 'NAA9' is a table of the relevant clients, invoice numbers and amounts, and further produced and marked 'NAA10' are copies of numerous of the various invoices; h. One such client shown on the abovementioned annexure 'NAA10' is Batteries Plus. On 15 July 2004, Batteries Plus forwarded a cheque for $2,425.00 made payable to the Plaintiff, by way of payment for work performed for that business by the Businesses. This should have been made payable to the Defendant. I am advised by an employee of that business, Len Bowman, and verily believe that the cheque for those funds was presented to the bank of that business endorsed as payable to 'Media and Events Australia'. I have been provided with a copy of that cheque by Mr Bowman, and note what appears to be Webb's signature thereon. Produced to me and marked with the letters 'NAA11' is a copy of the said cheque; i. I have also been advised by Ms Ann Spencer of SRD Consulting that their payment of $5,000.00 of 24 August 2004 has been received by the Plaintiff, who has failed to account to the (Page 9)
Defendant for the proceeds thereof. Produced to me and marked with the letters 'NAA12' is a copy of the receipt provided to me by Ms Spencer; j. I am advised by my solicitor and verily believe that, as at the time when the cheque was assigned, ASIC's records reveal that the company then known as Media & Events Australia Pty Ltd (ACN 079 908 768) had a single shareholder and director, namely, Millar. The ASIC records also listed Webb as a former director and shareholder, and a former shareholder, Consolidated Access Pty Ltd (ACN 079 159 710), was also controlled by Webb. Produced to me and marked with the letters 'NAA13' and 'NAA14' are copies of the ASIC Historical Extracts of ACN 079 908 768 Pty Ltd and Consolidated Access Pty Ltd respectively." 27 The defendant further complained that the plaintiff, through Mr Webb, had made written representations as to the likely future income of the business, and that those were false, misleading, and deceptive, as the plaintiff had in the year prior to settlement in some instances offered two years services to clients for the price of one, and in others had agreed to provide free services for the lifetime of particular contracts. 28 The defendant, according to Mr Asch, provisionally estimated its losses as following: "The Defendant presently estimates its loss and damage as follows: a. Furniture $1,500 b. Additional software licences $30,932.22 c. SSL Certificates $2,216.19 d. Money had and received $14,157.02 e. 'Two for One' offer $36,785.45 (Page 10)
f. Free search engine optimization per annum (based upon income of $550.00 p.a. inc GST) $74,250.00 $159,840.88" 29 In addition it was said there was loss and damage to the goodwill of the business. 30 The two cheques had been stopped and had remained stopped as a consequence of the defendant's losses, it was said. 31 In the defendant's last affidavit, Mr Asch asserted that the plaintiff was "aware of the falsities of the representations…and endeavoured to conceal them from the Defendant to induce the Defendant to purchase the Businesses."
Right in defendant to set-off against plaintiffs claim 32 The plaintiff says that the defendant cannot set-off against the claim for the cheques, for two reasons. 33 The first is encapsulated in the following extract from its submissions: "14. The Cheques, and the statutory cause of action on dishonour of the cheques, were 'Fixed Charge Property' within the meaning of that term in clause 1.1(p)(vii) of the charge: see page 10 of Mr Stork's affidavit. Consequently, the beneficial interest in the Cheques passed to the secured creditor on appointment of the receiver. 15. The benefit of the statutory cause of action from the appointment of the receiver vested in equity in the secured creditor. Since then, there has been no mutuality of interest – the 'benefit and burden' of the claims do not 'lie in the same interest': see Gye v McIntyre (1991) 171 CLR 609 at 623. 16. It is the equitable interest which is relevant: Gye v McIntyre at 623. The benefit (in equity) of the Cheques and the statutory cause of action lies with the secured creditor whilst the burden (in equity and at law) of the defendant's claim lies with the plaintiff. There is, in (Page 11)
circumstances where the secured creditor has the benefit of the claim no set off: see In re Asphaltic Wood Pavement Company, Lee & Chapman's Case (1885) 30 Ch D 216 at 221-2, 224-5, 226 cited with approval by Dixon J in Hiley v Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468 at 497-8. 17. The plaintiff also relies on the reasoning of Mansfield J in Re ACN 007 537 000 Pty Ltd (in liq), ex parte Parker (1997) 150 ALR 92 at 107 – 108 to the same effect. Mansfield J held that, where a floating charge crystallises, there can be no mutuality between a creditor and the company because the company's claim had vested in the secured creditor. See also Derham 'The Law of Set Off' (3rd Edn) at 11.25, 11.32-11.35; and in a different circumstance PCH Group Ltd v Hallbridge Pty Ltd (2002) 20 ACLC 1298 at 1300 [15], [18] per Master Sanderson. Once the charge had crystallised it attached to the Cheques and the secured creditor became an equitable assignee of all rights to and by virtue of the Cheques. That the Cheques are treated in law as chattels is uncontroversial: see Parsons v R (1995) 195 CLR 619 at 631-2 [30]-[33]. 18. It follows that the defendant is liable on the Cheques (s.71 of the Cheques Act) and the secured creditor (by the plaintiff) is entitled to recover as damages from the defendant in the sum ordered to be paid by the Cheques together with interest in accordance with the regulations (s.76 of the Cheques Act) without set off. Pursuant to Regulation 4 of the Cheques Regulations 1987, interest is payable at the rate of 4.83% from the date of dishonour, being on or about 11 March 2005." 34 I do not agree. 35 At the time any set-off arose here the charge had not crystallised. 36 On that occurring, Bankwest's rights against the defendant in relation to the cheques were necessarily subject to any rights in equity possessed by the defendant against CBM, subject to the special nature of a claim on a dishonoured cheque: Rother Iron Works Ltd v Canterbury Precision (Page 12)
Engineers Ltd [1974] 1 QB 1; Sun Candies Pty Ltd v Polites [1939] VLR 132. 37 The assignee of those rights, Denise Webb, took subject to the defendant's equitable rights: Property Law Act 1969 (WA) s 20(1). 38 The second reason put forward by the plaintiff is that it says there is a principle "on negotiable instruments of pay first – pursue counterclaim later." 39 In that respect the plaintiff relies on Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GMBH [1977] 1 WLR 713, certain passages of which were cited in the judgment of the full Federal Court in John Shearer Ltd v Gehl Company (1995) 60 FCR 136 at 140-141: "At the heart of his Honour's judgment lies the decision of the House of Lords in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmgH [1877] 1 WLR 713; [1977] 2 All ER 463. In that case the defendants were sued by the plaintiffs for moneys due on six bills which had been dishonoured. The defendants wished to assert, by way of defence, set-off or counterclaim, a claim for unliquidated damages against the plaintiffs alleging, inter alia, that there had been a supply of secondhand and not new machinery. These claims had been the subject of arbitration proceedings in Germany. The defendants sought a stay of the court proceedings seeking to have the whole of the dispute between the parties determined by arbitration pursuant to a provision of the Arbitration Act 1975 (UK). The House of Lords held that the proceedings on the bills should not be stayed. Lord Wilberforce, with whose reasons Viscount Dilhorne and Lord Fraser agreed, said (at 720; 469): 'I take it to be clear law that unliquidated cross-claims cannot be relied upon by way of extinguishing set-off against a claim on a bill of exchange…As between the immediate parties, a partial failure of consideration may be relied upon as a pro tanto defence, but only when the amount involved is ascertained and liquidated…The amount claimed here in respect of the machines is certainly neither ascertained nor liquidated, and the claim in respect of mismanagement is one for a wholly unrelated tort, so that there would seem to be no basis for (Page 13)
denying the appellants' claim that, as regards the bills, there is no dispute.' As his Honour the trial judge pointed out, Lord Salmon dissented but not with respect to what Lord Wilberforce had said in the passage cited above. Thus, Lord Salmon said (at 726; 474): 'I agree that there is no defence to the bills, since the only possible defence (which is not relied upon by the respondents) could be that their acceptance had been procured by fraud, duress or for a consideration which had failed and because the damages claimed in the arbitration are unliquidated damages and such damages cannot be set off against a claim on the bills of exchange: James Lamont & Co Ltd v Hyland Ltd [1950] 1 KB 585.' Lord Russell, who reached the same conclusion as did Lord Wilberforce, said (at 732-733; 479-480): 'It is in my opinion well established that a claim for unliquidated damages under a contract for sale is no defence to a claim under a bill of exchange accepted by the purchaser: nor is it available as set-off or counterclaim. This is a deep rooted concept of English commercial law. A vendor and purchaser who agree on payment by acceptance of bills of exchange do so not simply on the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale. The bill is itself a contract separate from the contract of sale. Its purpose is not merely to serve as a negotiable instrument, it is also to avoid postponement of the purchaser's liability to the vendor himself, a postponement grounded on some allegation of failure in some respect by the vendor under the underlying contract, unless it be total or quantified partial failure of consideration.' In the earlier case of Cebora SNC v SIP (Industrial Products) Ltd [1976] 1 Lloyd's Rep 271, referred to in the judgment below, reference is made to the significance of the principle in mercantile commerce. Sachs LJ said (at 278-279): (Page 14)
'Any erosion of the certainties of the application by our Courts of the law merchant relating to bills of exchange is likely to work to the detriment of this country, which depends on the international trade to a degree that needs no emphasis. For some generations one of those certainties has been that the bona fide holder for value of a bill of exchange is entitled, save in truly exceptional circumstances, on its maturity to have it treated as cash, so that in an action upon it the Court will refuse to regard either as a defence or as grounds for a stay of execution any set-off, legal or equitable, or any counterclaim, whether arising on the particular transaction upon which the bill of exchange came into existence, or, a fortiori, arising in any other way. This rule of practice is thus, in effect, pay up on the bill of exchange first and pursue claims later.' As the last citation makes clear the rule is a rule of practice. It does not mean that the person liable on the bill but claiming to have an unliquidated claim against the holder of the bill is left with no remedy at all. It means merely that, the claim must be litigated elsewhere, except in exceptional cases." 40 The plaintiff also refers to Amalta Holdings Pty Ltd v Luff, unreported; FCt SCt of WA; Library No 8003; 21 December 1989 in which Kennedy J (with whom Seaman J agreed) cited Nova (Jersey) Knit Ltd v Kammgarn Spinnerei (supra) with approval. 41 Here, the plaintiff says, it is apparent on the evidentiary material referred to that the issue of the cheques was a matter separate to the defendants entry into the agreement for sale, and that the "only fraud alleged is in connection with entry into the contract of sale, not in procuring the issue of the cheques." 42 Again, I do not agree. 43 If the original agreement was procured by a fraud, as asserted by Mr Asch for the defendant, then it would follow, in the ordinary course of events, that each subsequent step would also come about as a result of the defendant's belief in the falsehoods which caused entry into the agreement, in the absence of evidence to contrary effect. 44 There is no evidence of that kind here. (Page 15)
45 I am therefore of the view that there is evidence that the cheques were drawn and issued as a result of the alleged fraud. 46 A case involving an assertion of fraud is quite different in that respect to Nova (Jersey)Knit or Amalta Holdings where mere breaches of contract were relied on for the asserted set-off. 47 The set-off and cross claim sought to be raised by the defendant here do contain many matters of a merely contractual kind, and it is the case, as was confirmed in Amalta Holdings such matters cannot be raised in answer to a claim on a dishonoured cheque. 48 However, the defendant also asserts losses in excess of the value of the cheques do arise from the falsity of the representations said to have been made. 49 It is clear, and indeed apparently conceded by the plaintiff, that a set-off involving fraud can be raised in answer to a claim on a cheque. It was also said in John Shearer (141-142): "One of the exceptions to the rule, as is made clear in the judgment of Lord Salmon in Nova (Jersey) Knit is the case of fraud. There are three possible explanations for this. The first is to be found in s 34(3) of the Bills of Exchange Act 1909 (Cth) which sets out the circumstances where the title of a person who negotiates a bill may be defective. Those circumstances include fraud as well as where the bill has been obtained by unlawful means. The second is that a Court of Equity could set aside the bill if obtained by fraud, so that it is necessary to deal with the case in fraud before permitting judgment to be entered for the face value of the bill. The third is that it would be unconscionable in a case where the bill was obtained by fraud to permit the fraudulent party to rely on the bill without permitting the party liable on that bill to raise the liability of the holder of the bill in damages or to an account by way of a cross-claim." 50 The complaint was made that the defendant had not "condescended to particulars" in the evidentiary material provided, but I do not agree that is the case. 51 Further, although fraud was not alleged in terms until the defendant's final affidavit, I consider the allegation had already been made, by necessary implication, in the evidentiary material before the Deputy Registrar. (Page 16)
52 If the defendant was able to make good its assertion of fraud on the part of the plaintiff then, in the circumstances here, it would be likely to have an answer to the plaintiff's claim brought on the dishonoured cheques. 53 I would however say that I agree that a claim under the Trade Practices Act 1974 (Cth) s 87 would not in the circumstances be effective against a third party not involved in any contravention: Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41-558. 54 The defendant's assertion that the cheques were stale does not appear to have merit. 55 Subject to the above, the defendant ought have leave to defend so as to raise those issues which I have indicated appear not without merit, on the facts asserted by it, and the appeal is allowed to that extent.
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