Creative Land Management Pty Ltd v Natural Science Centre - [1999] WASC 271

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CREATIVE LAND MANAGEMENT PTY LTD -v- NATURAL SCIENCE CENTRE & ANOR [1999] WASC 271

CORAM: STEYTLER J

HEARD: 25 OCTOBER 1999

DELIVERED : 22 DECEMBER 1999

FILE NO/S: CIV 1467 of 1998

BETWEEN: CREATIVE LAND MANAGEMENT PTY LTD
Plaintiff
AND
NATURAL SCIENCE CENTRE
First Defendant
BIO-GENETIC LABORATORY PTY LTD
Second Defendant

Catchwords:

Procedure - Supreme Court procedure - Summary judgment - Turns on own facts

Legislation:

Corporations Law, s 444D and s 444E(3)

Result:

Application for summary judgment dismissed

Representation:

Counsel:

Plaintiff:     Mr D M Stone
First Defendant              :     Mr R H B Pringle QC
Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Williams & Hughes
First Defendant              :     Granich Partners
Second Defendant         :     No appearance

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

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87

Case(s) also cited:

Beatty v Brashs Pty Ltd (1998) 79 FCR 551
BHG Nominees Pty Ltd v Ellis Young Investments (1998) 16 ACLC 1539
Brian Rochford Ltd v Textile Clothing & Footwear Union (NSW) (1998) 85 IR 332
Capita Financial Group Ltd v Rothwells Ltd (1989) 15 ACLR 348
Depsun Pty Ltd, Re (1994) 13 ACSR 644
Gordon Grant & Grant Pty Ltd, Re (1982) 1 ACLC 196
Hamilhall Pty Ltd (In Liq) v A T Phillips Pty Ltd (1994) 54 FCR 173
J & B Records Ltd v Brashs Pty Ltd (1995) 36 NSWLR 172
Knight v FP Special Assets Ltd (1992) 174 CLR 178
Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123
Nordglimt, The [1988] QB 183
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
Winterton Constructions Pty Ltd v MA Coleman Joinery Co Pty Ltd (1996) 132 FLR 247

STEYTLER J: This is an application, brought by the first defendant ("Natural Science"), for summary judgment on its counterclaim against the plaintiff ("CLM").
Pleadings in the proceedings between the two parties disclose that CLM, in May 1998, commenced an action against Natural Science and the second defendant ("Bio‑Genetic"). In its statement of claim CLM relies upon a written distribution agreement made in about October 1997 between it and the two defendants. By that agreement Natural Science appointed CLM as exclusive distributor of certain microbial soil conditioning products ("the products") within a territory which included all of Australia other than Western Australia and the Northern Territory.
CLM pleads that by the terms of that agreement the period of the distributorship was one of five years from the date of commencement (with options for renewal) and payment for the products acquired pursuant thereto was to be made by CLM to Natural Science upon taking possession of those products except insofar as other terms for payment might from time to time be agreed to by Natural Science.
Next, CLM pleads (par 7 of the statement of claim) that Natural Science did agree to other terms for payment in respect of the products acquired from it by CLM, being payment by CLM after it was paid by its sub‑distributors.
In par 8 of the statement of claim CLM pleads that Natural Science has purported to terminate the distribution agreement for reasons of non‑payment but contends (par 9 and 10) that it has not yet been fully paid by its subdistributors for the products the subject of the notice of termination with the result that the payment therein referred to was not yet due. CLM seeks an injunction preventing Natural Science from acting on its notice of termination.
While other causes of action are also pleaded these are not presently relevant.
Natural Science, in its defence, does not admit that other terms for payment of the products were agreed to by it and says that payment was required to be made to it by CLM upon CLM taking possession of products supplied to it by Natural Science. It consequently contends that it was entitled to give the notice of termination by virtue of CLM's failure to pay to it $400,000 owing by CLM in respect of sales of one of the products, being quantities of a product known as"SC27".
It also pleads (par 6 of the defence) that CLM had, in any event, on‑sold the SC27 to a company, Barfam Holding Pty Ltd ("Barfam") which had paid to CLM amounts of $95,277, $24,190, $62,700 and $84,000 in respect thereof.
The sum of $84,000 was said to have been paid on 2 June 1998.
Natural Science has brought a counterclaim against CLM. In that document it alleges (par 12) that on about 12 February 1998 it sold and delivered to CLM two consignments of the products (apparently SC27), each being a consignment of 20,000 litres, at the price of $10 per litre. That sale, it says, was evidenced by invoices dated 12 and 24 February 1998.
In par 13 it alleges that, by a written undertaking signed on its behalf by its directors, Mr Ellis and Mr Baxter, dated 14 May 1998, and in consideration of Natural Science undertaking not to act upon its default notice until noon on 27 May 1998, CLM undertook to Natural Science that it would pay to it within three days of receipt all sums received by it from Barfam under its invoices to Barfam in respect of the SC27 supplied to CLM by Natural Science and on‑sold to Barfam.
Then, in par 14 of its counterclaim, Natural Science pleads that on 14 and 27 May 1998, and in consideration of undertakings by it recorded in orders of the court, CLM gave undertakings, by its counsel, to the Supreme Court of Western Australia and to Natural Science that all sums received by CLM from Barfam in respect of the SC27 supplied to CLM by Natural Science and sold by CLM to Barfam in February 1998 would be paid over to Natural Science by CLM within 24 hours of receipt.
In pars 15 and 16 of the counterclaim Natural Science pleads that on or about 2 June 1998 Barfam paid or caused to be paid into CLM's bank account with the Applecross branch of the Bank of Western Australia an amount of $84,000 but that CLM has failed, in breach of its undertakings, to pay that sum or any part thereof to Natural Science. Natural Science consequently claims payment of $84,000 with interest.
The evidence discloses that on 7 May 1998 CLM brought an application for an interlocutory injunction against Natural Science restraining it from acting on its notice of termination.
That application appears thereafter to have been dealt with, on an interim basis, by way of the making of various orders by consent on 27 May 1998. The Court record shows that those orders were made (by Scott J) upon the strength, inter alia, of an undertaking given by CLM that:
"[It] will pay to … [Natural Science] all sums received by … [it] from Barfam … received from today's date onwards until the disputed debt between … [CLM] and … [Natural Science] is repaid, such payments to be made by … [CLM] to … [Natural Science] within 24 hours from the date … of receipt of funds by … [CLM] from Barfam."
Natural Science contends that, although CLM received the sum of $62,700 from Barfam on 20 May 1998 and paid that sum to Natural Science on 2 June 1998, after the date of the undertaking, Barfam paid into CLM's bank account the further sum of $84,000 in respect of the SC27 bought by it from CLM but CLM has failed to pay that sum to Natural Science and instead paid it, on about 8 June 1998, to a company known as Creative Land Management Australia Pty Ltd ("CLMA").
On the following day the matter came back before Scott J. His Honour then dismissed the application for an injunction and gave Natural Science "liberty to apply in relation to any payment made by Barfam … to … [CLM] or any associated company of … [CLM]." It is pursuant to that liberty to apply that the present application has been brought.
CLMA is in liquidation, a liquidator having been appointed to that company on 3 July 1998. The liquidator of CLMA has sworn an affidavit in which he says that the sum of $84,000 is in his possession and that the National Australia Bank Limited, which has a debenture charge over the assets and undertaking of CLMA dated 21 December 1996, claims that that sum is subject to its charge.
Administrators were appointed to CLM on 21 September 1998 pursuant to s 436A of the Corporations Law. On 17 December 1998 the creditors of that company resolved, pursuant to s 439C of the Corporations Law, that CLM should execute a Deed of Company Arrangement upon the terms of a deed ("the deed") which was subsequently entered into on 27 January 1999. Its current financial position is parlous. One of the joint administrators under the deed has sworn an affidavit in which he says that CLM has cash of $6,142.97, that it has creditors totalling $422,768, that the National Australia Bank Ltd is a secured creditor of CLM and is owed approximately $268,383.81 by CLM and that the value of the administrators' work in progress in respect of the administration was then (25 October 1999) in excess of $11,500.
Notwithstanding this, Natural Science has brought this application for summary judgment in respect of the sum of $84,000 to which I have referred above.
While Natural Science has also claimed, in the alternative, a peremptory order under O 55 r 11 of the Supreme Court Rules requiring CLM to honour its undertaking, it does not wish to pursue that alternative, at least for the present. It prefers, instead, to rely solely upon its application for summary judgment independently of the undertaking or undertakings given on behalf of CLM, those undertakings now being said by CLM to have been given by it as a consequence of a mistaken belief that the money received and to be received by it from Barfam was payable to it by Barfam when, in fact, that money was payable by Barfam to CLMA and was received by CLM on CLMA's behalf.
There is a preliminary issue which has been raised on behalf of CLM. It contends that Creative Land, as a creditor which is bound by the deed, is precluded by cl 10 thereof, read with s 444D of the Corporations Law, from proceeding with its application for summary judgment. Clause 10 of the deed reads as follows:
"Subject to s 444D of the Corporations Law a Creditor (whether the Creditor's claim is or is not admitted or established) must not before the termination of this Deed except for the purpose and to the extent provided in this Deed [and there is no relevant provision in that respect]:
(a)institute or prosecute any legal proceedings in relation to any Claim; or
(b)take any further step (including any step by way of legal or equitable execution) in any proceedings pending against or in relation to the Company on the Relevant Date; or
(c)exercise any right of set off or defence, cross claim or cross action to which a Creditor would not have been entitled had the Company been wound up on the date of this Deed."
A "Creditor" is defined in cl 1 of the deed as meaning "any person who has a Claim against the Company … being a Claim from circumstances which arose before the Relevant Date".
A "Claim" is defined as meaning "any action, demand, suit, proceeding, debt, claim, loss, damage or other liability … whatsoever and howsoever incurred arising directly or indirectly from any act or omission by the Company or by any agreement, circumstance or event occurring on or before the Relevant Date".
The "Relevant Date" is defined as being 21 September 1998.
Section 444D of the Corporations Law provides as follows:
"444D(1) [Deed binds creditors] A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).
444D(2) [Realisation of securities] Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security, except so far as:
(a)the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or
(b)the court orders under subsection 444F(2).
444D(3) [Owners and lessors of property] Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property, except so far as:
(a)the deed so provides in relation to an owner or lessor of property who voted in favour of the resolution of creditors because of which the company executed the deed; or
(b)the court orders under subsection 444F(4)."
However Creative Land has, notwithstanding that it is bound by cl 10 of the deed and that its claim against CLM was pending against that company on 21 September 1998 (this application having been filed on 14 September 1998), been given leave to proceed with its application for summary judgment by order of a Master of this Court made on 28 September 1999. The learned Master then made orders to the effect that Natural Science (and Bio‑Genetic) had "leave pursuant to s 444E(3)(c) of the Corporations Law to proceed with this action against … [CLM]" and that, if successful with, inter alia, its application for summary judgment, execution on that judgment "be stayed until further order".
Section 444E(3) provides as follows:
"444E(3) [Proceedings against company] … [A person bound by the deed] cannot:
(a)begin or proceed with a proceeding against the company or in relation to any of its property; or
(b)begin or proceed with enforcement process in relation to property of the company;
except:
(c)with the leave of the court; and
(d)in accordance with such terms (if any) as the Court imposes."
While it was put to me on behalf of CLM that it was not open to the learned Master to have given leave under s 444E(3)(c) having regard for the provisions of cl 10 of the deed, the fact is that leave has been given and it is not appropriate for that issue to be reopened otherwise than by way of an appeal. Because I am, in any event, not prepared to make an order for summary judgment, for reasons which I shall set out below, it is unnecessary for me to say anything further with respect to this issue or, for that matter, as regards the question (also mentioned in argument) what, if any, purpose would be served by ordering a summary judgment, and then staying execution, having regard for the terms of the deed and, for that matter, the financial position of CLM.
Natural Science's contentions in support of its application for summary judgment are simple. It says that the evidence discloses that it sold and delivered 40,000 litres of SC27 to CLM and that, even if CLM is right in its contention that payment was only required once it had been paid by its sub‑distributor (and there is plainly a triable issue in that respect), CLM is obliged to pay to Natural Science the sum of $84,000 in respect of those chemicals because it has been paid that sum by Barfam.
CLM, on the other hand, denies that Barfam bought the SC27 from it. It says that the SC27 was bought by Barfam from CLMA. That being so, it says, the sum of $84,000 was payable by Barfam to CLMA, CLM received and held that sum on CLMA's behalf (shortly before it went into liquidation and at a time when it was insolvent), CLM passed that sum on to CLMA and CLM (and consequently Natural Science) has no entitlement to it.
The question for determination is consequently whether or not there is, on the affidavit material before the court (no oral evidence having been given), a real question to be tried in this respect (see Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99), or some other reason for having a trial of the claim (O 14 r 3 of the Rules of the Supreme Court). The burden of persuading the court that a summary judgment should be given is that of Natural Science. However CLM, as the party showing cause against the application, has assumed an evidentiary burden by that process. (See Seaman, "Civil Procedure Western Australia" vol 1 par 14.3.1 and Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18 at 23).
CLM (which shared a registered office with CLMA and had directors in common with that company) relied, in support of its contentions, primarily upon three documents.
The first of these is an order lodged by Mr Antony Barton on behalf of Barfam (trading under the name CLM (SE Aust)) dated 12 December 1997 for the delivery of 100,000 litres of SC27 at a cost of $14.75 per litre. That order is addressed to Mr Frank Ellis of CLMA.
The second is an invoice, addressed by CLMA to "Growth Power", apparently a trading name of Barfam, dated 24 February 1998 in respect of 1,000 20 litre drums of SC27 at a price of $14.75 per litre.
The third is a similar invoice dated 25 February 1998.
CLM also referred to a letter dated 16 February 1998 (albeit this date appears to have been inserted by mistake) addressed to Mr Frank Ellis of CLMA, acknowledging receipt of his letter dated 26 February 1998 and of CLMA's invoices numbered 98003A (misdescribed as 9980030) and 980031, being the two invoices respectively dated 24 February 1998 and 25 February 1998. That letter records that the "quoted terms" (apparently of the sale of SC27 from CLMA to Barfam) are not "as per our previously agreed arrangements" and tells Mr Ellis of CLMA when Barfam "will be in a position to pay for all products which … [it has] sold". There is also other correspondence passing between CLMA and Barfam with respect to payment of the invoices including a letter from CLMA to Barfam dated 25 March 1998 in which Mr Ellis told Mr Barton of Barfam that " … [we are under increasing pressure from Natural Science Centre Pty Ltd to settle the above accounts [and there is a reference to orders 9800030 and 9800031] within seven … days".
On the face of it these documents provide persuasive evidence in CLM's favour. However senior counsel for Natural Science contended that there were four possible explanations for the existence of these documents, the most likely of which is that CLMA was CLM's agent for the purposes of its dealings with Barfam.
The first possibility was said to be that CLMA was an assignee of CLM's rights under the distribution agreement. However, it was submitted, this could not be so because cl 7.1(j) of the distribution agreement expressly prohibits CLM from assigning its rights under that agreement without the consent of Natural Science and there is no evidence of any such consent from Natural Science.
It submits that, similarly, CLMA could not have been a subdistributor of CLM, that being the second of the four possibilities, because there was no evidence of this. There is no evidence of any invoices having been rendered by CLM to CLMA for supply of the SC27 which was sold to Barfam.
The third possibility was said to be that an employee of CLM used the wrong stationery when invoicing Barfam. This last possibility is said to be supported by the fact that the evidence disclosed that CLM and CLMA shared premises and had common directors. I find little attraction in this possibility. There is presently no evidence to support it and it is contradicted by the order for 100,000 litres of SC27 which was addressed by Barfam to CLMA.
As to the final possibility, being that pressed by senior counsel for Natural Science to the effect that CLMA was CLM's agent for the purposes of its dealings with Barfam, the argument is open that CLMA was the plaintiff's agent in its dealings with Barfam. This possibility would be consistent with cl 12.1 of the distribution agreement which expressly allowed CLM to appoint agents, albeit with Natural Science's consent. However CLM denies that it did appoint CLMA as its agent and points to the fact that there is no evidence of this or of any consent by Natural Science to such an appointment.
While CLM is right in its contentions that there is no direct evidence that it appointed CLMA as its agent in this respect and that there is no evidence that Natural Science consented to any such appointment there are two difficulties with its argument which are particularly troubling The first is that the terms of the undertaking given by CLM in May 1998 are not consistent with the case now advanced by it. It seems most unlikely that CLM would have undertaken to pay to Natural Science "all sums received by … [CLM] from Barfam … until the disputed debt between … [CLM] and … [Natural Science] is repaid" if it did not consider that the sums to be received by it from Barfam were owed to it or, for that matter, if it did not consider that like sums were owed, in turn, by it to Natural Science. The second is that the contents of an affidavit sworn on 5 May 1998 by Mr Henry Baxter, a director of CLM, in support of the application for an interlocutory injunction, are directly inconsistent with CLM's present position. Mr Baxter there said (par 5(g)) that on 12 December 1997 Barfam ordered 100,000 litres of SC27 from CLM at a price of $14.75 a litre, with delivery to take place in instalments from February 1998. He also said (par 5(h)) that in February 1998 Natural Science delivered to CLM a total of 40,000 litres of SC27 at $10 per litre and that (par 5(i)) the chemicals so delivered were "duly supplied to Barfam in February or March 1998. Next, he said (par 5(j)) that on 1 April 1998 CLM received from Barfam the sum of $95,227.50 by way of part payment for the supply of the chemicals delivered in February. Finally, he said (par 5(i)) that, after the deliveries had been made to Barfam in February or March 1998, that company owed to CLM the sum of $590,000, being the cost of 40,000 litres of SC27 at $14.75 per litre.

Mr Baxter has since recanted what was earlier said by him. In an affidavit sworn on 22 October 1999 he has said that these references to CLM in his earlier affidavit are incorrect and were made inadvertently. He says that the correct contracting parties were CLMA and Barfam and not CLM and Barfam.
While these inconsistencies, and in particular the fact of the undertaking (albeit Natural Science does not presently seek to enforce it), are disquieting to say the least (and I should add that Mr Baxter has made no attempt to explain why it is that the errors in his previous affidavit had not earlier been corrected), the fact remains that Barfam's order dated 12 December 1987, the two invoices issued in February 1988 and the correspondence at the material time lend support to what has most recently been said by Mr Baxter.
Also, in par 5(g) of his earlier affidavit Mr Baxter annexed, in support of his proposition that Barfam ordered the 100,000 litres of SC27 from CLM a copy of Barfam's order dated 12 December 1987 which, as I have said, was directed to CLMA.
In all of the circumstances I am not persuaded that there is no real question to be tried in this regard.
I should also touch upon the evidence as regards the question who it was who placed the order for 100,000 litres of SC27 in February 1999 from Natural Science. I have mentioned that Natural Science contends that the order was placed by CLM.
Counsel for CLM did not admit this to be so. However he was not prepared to dispute it. He said, in the course of his submissions in this respect, that "as a matter of rationalisation, … the best view is probably that there is some arrangement between CLM and CLMA which is … unwritten and that CLM ordered product from National Science and on‑sold it to CLMA". However he added that this was "only rationalisation" and that it "may not be what a trial court would decide". This concession, if that is how it should be described, is consistent with the fact of the undertaking and with Mr Baxter's initial affidavit. It is apparent from each of these that he and CLM, at the time of giving the undertaking, appear to have assumed that the order was placed by CLM.
However the evidence in this respect is at least equivocal. On 26 May 1998, less than two weeks after CLM had given its undertaking to the Supreme Court, one of the directors of Natural Science, Mr Francis McKenna, swore an affidavit for use in proceedings between Barfam and CLMA in the Federal Court. In that affidavit Mr McKenna said (par 8) that on 6 January 1998 Natural Science received an order from CLMA for 100,000 litres of SC27 and that he told CLMA that the order would be fulfilled in separate components of 20,000 litres each, the first of which was delivered to CLMA's Canning Vale store on or about 13 February 1998. He said that the second component of the order was prepared and delivered to CLMA's Canning Vale store on or about 24 February 1998.
There is also in evidence a written order dated 6 January 1998 placed by CLMA with Bio‑Genetic for 100,000 litres of SC27. That order is expressed to have been placed on behalf of a client identified as CLM (SE Aust) being, as I have earlier said, Barfam. This is, on the face of it, the order pursuant to which Natural Science made the delivery of SC27 on 13 and 24 February 1998.
Having regard for this equivocal evidence, and notwithstanding the disquieting features to which I have earlier referred and the somewhat half‑hearted "concession" made by counsel for CLM in this respect, it seems to me that there is a real issue to be tried in this respect also.
It follows that I am not prepared to accede to Natural Science's application for summary judgment on its counterclaim. Rather, having regard for the conclusions at which I have arrived, its application in that respect should be dismissed.