Copytime Pty Ltd v Action Leasing Pty Ltd
[1996] FCA 467
•14 JUNE 1996
CATCHWORDS
CONTRACT - lease agreement or rental agreement - residual value - question of ability to buy for nominal sum at end of period - alleged oral misrepresentations.
No DG 21 of 1995
COPYTIME PTY LIMITED Applicant
- and -
ACTION LEASING PTY LIMITED First Respondent
- and -
PORTFOLIO LEASING AUSTRALIA LIMITED Second Respondent
- and -
CHRISTOPHER JOHN FLETCHER Cross-Claimant
- and -
PORTFOLIO LEASING AUSTRALIA LIMITED First Cross-Respondent
- and -
COPYTIME PTY LIMITED First Cross-Respondent
- and -
COLIN WILLIAM ROHDE AND
INGRID WILHELMINE ROHDE Second Cross-Respondent
O'Loughlin J
Adelaide (heard in Darwin)
14 June 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
DARWIN DISTRICT REGISTRY ) No DG 21 of 1995
)
GENERAL DIVISION )
BETWEEN:
COPYTIME PTY LIMITED
Applicant
-and-
ACTION LEASING PTY LIMITED
First Respondent
-and-
PORTFOLIO LEASING AUSTRALIA LIMITED
Second Respondent
-and-
CHRISTOPHER JOHN FLETCHER
Third Respondent
-and-
PORTFOLIO LEASING AUSTRALIA LIMITED
Cross-Claimant
-and-
COPYTIME PTY LIMITED
First Cross-Respondent
-and
COLIN WILLIAM ROHDE and INGRID WILHELMINE ROHDE
Second Cross-Respondent
MINUTES OF ORDER
CORAM: O'Loughlin J
PLACE: Adelaide (heard in Darwin)
DATE: 14 June 1996
THE COURT ORDERS THAT:
The application be dismissed
The applicant pay the respondent's costs on the claim.
The cross-claim be allowed.
There be judgment for the cross-claimant against the cross-respondents jointly and severally in the sum of $21,675.96.
The cross-respondents pay the cross-claimant its costs on the cross-claim.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
DARWIN DISTRICT REGISTRY ) No DG 21 of 1995
)
GENERAL DIVISION )
BETWEEN:
COPYTIME PTY LIMITED
Applicant
-and-
ACTION LEASING PTY LIMITED
First Respondent
-and-
PORTFOLIO LEASING AUSTRALIA LIMITED
Second Respondent
-and-
CHRISTOPHER JOHN FLETCHER
Third Respondent
-and-
PORTFOLIO LEASING AUSTRALIA LIMITED
Cross-Claimant
-and-
COPYTIME PTY LIMITED
First Cross-Respondent
-and
COLIN WILLIAM ROHDE and INGRID WILHELMINE ROHDE
Second Cross-Respondent
REASONS FOR JUDGMENT
CORAM: O'Loughlin J
PLACE: Adelaide (heard in Darwin)
DATE: 14 June 1996
The applicant, Copytime Pty Ltd carries on business in Darwin as a business bureau. One aspect of its business is photocopying and plan printing. Its business is conducted by Ingrid Wilhelmine Rohde and her husband, Colin William Rohde, both of whom gave evidence on its behalf in these proceedings. The second respondent, Portfolio Leasing Australia Limited, carries on business in Sydney as a financier. The first respondent, Action Leasing Pty Ltd, which is also based in Sydney, carries on business as a finance broker. The third respondent, Christopher John Fletcher is the chief executive officer of the first respondent.
In these proceedings Copytime seeks an order for specific performance against Portfolio Leasing requiring it to assign ownership of a KIP 3800 digital engineering photocopier. It also seeks (inter alia) such orders as may be appropriate pursuant to s 87 of the Trade Practices Act 1974 (Cth) ("the TPA") and the corresponding provisions of the Northern Territory and New South Wales legislation.
Sometime prior to September 1993 Mr and Mrs Rohde decided to acquire a KIP 3800 photocopier ("the copier") for use in the applicant's business. They approached Aarque Systems Pty Ltd ("Aarque") in Darwin, the distributor of the copier, and placed an order on 16 September (ExA2). The purchase price of the copier was $68,500.00 but the applicant needed financial assistance to complete the acquisition. Both Mr and Mrs Rohde gave evidence that they wished their company to acquire the copier through a "lease". This word had a very significant meaning to them: according to their evidence it indicated that the company would have, at the end of the period of the lease, a right to acquire ownership of the copier for a nominal sum which they referred to as "the residual". The proposal for "lease finance" was acceptable in principle to Aarque and a document entitled "Corporate Lease Plan" (ExA1) was duly executed under the seal of Copytime. This document was in the nature of an application for finance to a company called ARM Equipment Finance Pty Limited. Neither Mr nor Mrs Rohde recognised the name of this company and no evidence was led as to its identity. They both thought that they were still dealing with Aarque as an officer of that company had completed the application for finance and Aarque had delivered and installed the copier in Copytime's premises.
The Rohde's placed great importance on the presence of the words "Residual Value" appearing on the "Corporate Lease Plan" (ExA1) under the heading "Payments". The full information under that heading was:-
"Term 18 months from the commencement date. 1 Monthly payments (sic) of $22,833.00 followed by 17 Monthly payments of $2,989.83 (incl. of S/Duty) Residual Value $500.00."
All figures including money values were in handwriting; the balance was printed. The total of the eighteen instalments that would have been payable was $73,360.11.
The evidence of Mr Rohde, was that the reference to a residual value pointed, categorically, to a right of purchase at the end of the term of the lease. It is well known that over the years there evolved a business practise of finance houses leasing business equipment, motor vehicles and other personal property with the customer having the right to purchase the asset at the end of the term for a predetermined sum that was often called "the residual value". However ExA1, by its use of the term "Residual Value" does not fall into that category of document. In fact, the terms and conditions that are printed on the form (pars 1(e); 3(f) and 8) establish, quite clearly, that the lessee has no right of purchase at all. The term "residual value" has a very different meaning to that expounded by Mr Rohde. By par 12 it is provided that in the event of premature determination of lease, the lessor will sell the goods and "if the net proceeds of disposal ... are less than the present value of the residual value referred to in the Schedule hereto "(i.e. $500.00)" ... the Lessee undertakes ... to pay the Lessor the amount of the deficiency".
The clear inference is that neither Mr nor Mrs Rohde read the terms and conditions that were contained in the application for finance. They assumed that their company would have a right to purchase the copier for $500.00 but they were wrong.
Unexpectedly, ARM Equipment rejected Copytime's application. That placed Aarque in a severe predicament as they had delivered a very valuable copier without receiving payment. An officer of Aarque contacted Mr Fletcher in about mid October 1993 asking if he could assist in finding finance for Copytime. Mr Fletcher was willing to act; he spoke with the Rohde's and, as he acknowledged in his evidence, it was made clear to him that they wanted financial accommodation under which their company would be able to exercise a right to purchase the copier for a nominal sum at the end of the leasing period. Through his company, Action Leasing, Mr Fletcher made several attempts to obtain this financial accommodation but was unsuccessful.
It was the evidence of Mr Fletcher that on about 14 December 1993 he contacted the Rohde's, telling them that his efforts to obtain "lease" finance had not been successful. He said that he told them they should consider other options such as "rental" finance (under which the party renting had no right to acquire the goods at the end of the term). He also said that Aarque were threatening to repossess the copier unless they were paid for the copier by Christmas. All this was denied by Mr and Mrs Rohde.
Mr Fletcher submitted an application for finance on behalf of Copytime to the second respondent Portfolio Leasing. That application offered a first payment of $28,000.00 (an increase of about $6,000.00 on the original offer to ARM Equipment) and seventeen monthly payments of $2,002.00. Where the application form had provision for "Residual Value" nothing had been inserted. The printed word "Rental" had been circled as an indicator of the type of finance that was being sought. Mr Fletcher's evidence was that all this was done with the knowledge and authority of the Rohdes.
An internal document was compiled by Portfolio Leasing as a result of the application that had been lodged by Action Leasing on behalf of Copytime. Most of the primary information in that document had been compiled by the witness Lisa Porter. She was then an employee of Portfolio Leasing and the person responsible for receiving and processing the application for finance. Her purpose in preparing this document was to present it and the application for finance to an internal committee of three senior executives for consideration. The information that is contained in ExR3 is consistent with an application for rental finance; nothing in it points to the customer seeking any right of purchase at any time.
Portfolio Leasing approved the application for finance conditional upon Copytime's directors guaranteeing the company's obligations to the financier. When this information was conveyed to the Rohde's they sought a variation. For reasons that were not explained in evidence, neither of them was a director of Copytime; the only directors were Mrs Rohde's brother and brother-in-law, both of whom were described as "nominal directors". Mr van Beest, a senior executive of Portfolio Leasing gave evidence in the trial. He produced a file note (ExR18) in his handwriting dated 21 December 1993 which, so he said, reflected his notes of a conversation that he had that day with Mrs Rohde. The note supports the conclusions first, that there was such a conversation, secondly that Mr and Mrs Rohde were acceptable as guarantors in place of the company's directors, thirdly that Mr and Mrs Rohde had received the rental agreement, guarantee and associated documents for execution by 21 December 1993 and finally that nothing was said to Mr van Beest by way of complaint about the fact that it was a rental agreement and not a "lease".
Mr Rohde claimed that he was surprised when he first saw Portfolio Leasing's document and realised that it was a rental agreement. He said that he rang Mr Fletcher complaining of this fact. It was the evidence of Mr Rohde, which Mr Fletcher denied, that he was reassured by Mr Fletcher who told him that Copytime would, notwithstanding the contents of the rental agreement, remain entitled to acquire the copier for a nominal amount. Asked to specify what would be a nominal amount Mr Fletcher allegedly said $300.00 to $500.00. Mr Rohde said that he passed on this information to his wife who told him to confirm it by ringing Portfolio Leasing. Mrs Rohde agreed with this passage of Mr Rohde's evidence. Mr Rohde then claimed that he rang and spoke to Lisa Porter on the same day as he had spoken to Mr Fletcher and she effectively confirmed what Mr Fletcher had said. Miss Porter denied this and the telephone records of Copytime do not support Mr Rohde's evidence that he spoke to Mr Fletcher and Miss Porter on the same day.
Mr Rohde also said that he noted that under Portfolio Leasing's documents Copytime would be required to pay less than would have been payable by it to Arm Equipment. Under Portfolio Leasing's rental agreement there was a first payment of $28,000.00 followed by seventeen monthly payments of $2,202.00. This totalled $65,434 and is to be compared with $73,660.11 that would have been payable to Arm Equipment if it had decided to finance the acquisition of the copier. Mr Fletcher's explanation, according to Mr Rohde was that taxation advantages were available to Portfolio Leasing and it was prepared to pass on some of these to its customers.
Mr Fletcher denied that any such conversation took place; the proposition was not put to either Miss Porter or Mr van Beest and I reject Mr Rhode's evidence. There was no reason why Portfolio Leasing would have made such a decision. It was in the dominant position in that Copytime was the applicant for funds. Through Action Leasing it had made an application based on a first payment of $28,000.00 and thereafter seventeen monthly payments of $2,002. In circumstances which were not the subject of evidence, but presumably on Portfolio's assessment of the situation, these payments were increased to $2,202.00 per month. Putting to one side overhead expenses and the cost of money the position could be described briefly in these terms: Portfolio Leasing was asked to pay out Aarque $68,500.00 and a brokerage fee of $2,000.00 to Action Leasing, a total of $70,500.00. In return it would receive an immediate payment of $28,000.00 and thereafter seventeen monthly payments; its total receipts would be $65,434.00. If to this there is added a "payout" of a nominal residual value it would mean that Portfolio Leasing, whose business is to make profits from lending money, would get back over an eighteen month period a total of about $66,000.00 for an outlay of $70,500.00. It is true that in the meantime it would be able to claim depreciation on the copier as a taxation deduction. There was evidence that it could claim 25% p.a. on the diminishing value method. But I cannot see in these figures any support for the proposition that Portfolio Leasing would have been prepared to enter into a transaction such as that described by Mr Rohde.
I believe that Mr and Mrs Rohde have convinced themselves that their cause is just. I accept their basic premise that it was their preferred course to lease with an option to purchase. But that is as far as I can go. Despite Mr Rohde's belief to the contrary, the application for finance to ARM Equipment, if successful, would not have given Copytime a right of purchase for $500.00. This is a clear example of Mr Rohde's willingness to make assumptions and to jump to conclusions. Faced with the denials of Mr Fletcher and Miss Porter, both of whom gave their evidence impressively, I find myself unable to rely on the evidence of Mr and Mrs Rohde. Mr Spargo counsel for the applicant in his final submissions, questioned Mr Fletcher's knowledge and experience in matters of finance. I reject the proposition that some duty or onus was caste on Mr Fletcher to do more than he, in fact did. In particular, I reject the submission that Mr Fletcher should have tendered
advice in writing to Mr and Mrs Rohde. The critical feature in this case is whether Mr Fletcher made it clear to the Rohdes' that it had become necessary for them to consider a rental proposition without any right of purchase. On that critical feature I accept the evidence of Mr Fletcher and reject the evidence of Mr and Mrs Rohde. The claim of Copytime must be dismissed; it has no contractual or other right to claim ownership of the copier.
The second respondent, Portfolio Leasing has cross-claimed against Copytime and also against Mr and Mrs Rohde as guarantors of Copytime's obligations under the rental agreement. The basis of the cross-claim is par 8 of that agreement which provides as follows:-
"8 RENEWAL After the expiration of the initial Term, this Agreement shall be automatically renewed pending one of the following events:-
(a)Owner receives Renters written notice of cancellation ninety (90) days prior to the expiration of the Term of this Agreement. In this event the rent payments shown above shall be due and payable in accordance with paragraph seven (7) up to the effective date of cancellation being the rent due date on or after the expiry of ninety (90) days from the date of receipt by the Owner of such notice of cancellation. The Renter shall return the Equipment on or before such effective date of cancellation in accordance with paragraph twelve (12).
(b)Owner does not receive from the Renter any written notice of cancellation ninety (90) days prior to the expiration of the Term of this Agreement or Renter does not return Equipment in accordance with paragraph twelve (12) by the effective date of cancellation associated with valid notice of cancellation as provided in paragraph eight (a) (8a). In either of these events the Term of this Agreement shall immediately be renewed for a period equal to the lesser of the Initial Term or twelve (12) months. The provisions of this paragraph eight(8) shall also apply after the expiration of each such period of renewal."
The events contemplated by par 8 have not occurred. Copytime did not give written notice of cancellation; I reject any suggestion that the contents of pages 21 and 25 of the book of documents could amount to such a notice. Furthermore such a proposition is inconsistent with Copytime's attempt to acquire title to the copier in August 1995 when it paid $300.00 into Portfolio Leasing's bank account.
It is common ground that Copytime has not returned the copier. Having regard to the provisions of clause 8 of the rental agreement, the term of the agreement has been renewed for a further period of 12 months to 22 June 1996 and Copytime and Mr and Mrs Rohde are indebted to Portfolio Leasing for 12 months additional rental less agreed credits of $4,748.04. That amounts to $21,675.96 and there will be judgment against all three cross-respondents in that sum. As Portfolio Leasing elected to sue for outstanding rent in respect of the renewed term up to and including 22 June 1996, it seems to me that it would not be competent for it to claim the return of the copier or for it to claim damages for the purported conversion of the copier. No such causes of action could accrue until after the expiration of the current renewed term of the rental agreement.
There will therefore be judgment for the cross-claimant Portfolio Leasing against Copytime and Mr and Mrs Rohde jointly and severally in the sum of $21,675.96.
The applicant must pay all respondents' costs on the claim and the cross-claimant is entitled to its costs against the cross-respondents on the cross-claim.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of The Honourable Justice O'Loughlin.
Associate:
Dated:
Counsel for the Applicant and
Cross-Respondents : Mr M Spargo
Solicitor for the Applicant and
Cross-Respondents : Close & Carter
Counsel for the Respondents and
Cross-Claimant : Mr M Stevens
Solicitor for the Respondents and
Cross-Claimant : Lincoln Smith & Co, Darwin agents Barr Moore & Co
Hearing Date : 22-24 May 1996
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