Cymru Dragon Pty Ltd v Dean George Scook and Carol Norma Hardie
[2002] WADC 143
•18 JULY 2002
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: CYMRU DRAGON PTY LTD -v- DEAN GEORGE SCOOK AND CAROL NORMA HARDIE [2002] WADC 143
CORAM: MULLER DCJ
HEARD: 24 JUNE 2002
DELIVERED : 18 JULY 2002
FILE NO/S: CIV 3494 of 2001
BETWEEN: CYMRU DRAGON PTY LTD (096 827 968)
Appellant (Plaintiff)
AND
DEAN GEORGE SCOOK AND CAROL NORMA HARDIE
Respondents (Defendants)
Catchwords:
Contract - Refusal of summary judgment - Appeal against decision of Deputy Registrar - Loan by plaintiff to defendants - Obligation of defendants to transfer shares to plaintiff in consideration of loan - Failure by defendants to transfer shares - Whether failure constitutes total failure of consideration - Restitution of amount of loan
Legislation:
Nil
Result:
Appeal allowed
Judgment for plaintiff
Representation:
Counsel:
Appellant (Plaintiff) : Mr G D Cobby
Respondents (Defendants) : Mr M D Howard
Solicitors:
Appellant (Plaintiff) : Tottle Christensen
Respondents (Defendants) : Haydn Robinson
Case(s) referred to in judgment(s):
Baltic Shipping Co v Dillon (1993) l76 CLR 344
Moscow Narodny Bank Ltd v Mosbert Finance (Australia) Pty Ltd [1976] WAR 109
Case(s) also cited:
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Re Vanderwell's Trust (No 2); White v Vanderwell Trustees Ltd [1974] Ch 269
White and Carter (Councils) Ltd v McGregor [1962] AC 413
MULLER DCJ: In its statement of claim the appellant (plaintiff) alleged that by a deed dated 3 August 2001 the plaintiff loaned $50,000 to the respondents (defendants) subject to the defendants agreeing to transfer to the plaintiff on or before 15 September 2001, 1,000,000 fully paid shares in a company named Tuart Resources Limited.
The statement of claim alleged that the contract conferred on the plaintiff an option, exercisable after 15 September 2001 and before 30 September 2001, to call on the defendants to re‑purchase the shares for the sum of $75,000 and that the defendants agreed to pay the plaintiff this amount within 5 days of the issue of an executed transfer of the shares by the plaintiff to the defendants. The statement of claim also alleged that the defendants agreed to pay interest on the amount of $75,000 at a rate of 15 per cent per annum and undertook to pay the costs incurred by the plaintiff in completing the deed or in any litigation to recover the amount owing.
In its statement of claim the plaintiff alleged that it exercised the option in writing on 27 September 2001 and on 10 October 2001 issued to the defendants an executed share transfer as required by the contract. The statement of claim alleged that the defendants were required to pay $75,000 to the plaintiff on or before 15 October 2002 but did not do so.
In the alternative the statement of claim alleged that in breach of their obligations under the contract the defendants did not transfer the shares in Tuart Resources Limited to the plaintiff on or before 15 September 2001 and, because of that failure, became liable to pay the plaintiff the sum of $75,000 within 5 days of the plaintiff purporting to exercise its option to sell the shares.
The plaintiff claimed it had lost the value of the shares which were never transferred to it and claimed from the defendants the sum of $75,000 or, alternatively, restitution in the sum of $50,000 and interest.
The deed executed by the parties reads, in part, as follows:
"1.The Recitals to this Deed are included as if repeated in this part of the Deed.
2."Scook and Hardie" shall include any company in which they or either of them have or has a controlling interest and any company in which they are Directors which may have or has any interest in shares or options in Tuart Resources Limited.
3.The Lender shall lend to Scook and Hardie the loan amount on or before 3 August 2001, payment and receipt of which is acknowledged by the execution of this Deed.
4.Scook and Hardie agree to transfer to The Lender on or before 15 September 2001 One Million (1,000,000) Fully Paid Ordinary Shares in Tuart Resources Limited (the TRT Shares).
5.Should the shares to which they are entitled be released to Scook and Hardie prior to 15 September 2001, they shall transfer to The Lender the TRTO Shares within 24 hours of such release becoming effective.
6.Scook and Hardie agree that their interest in any shares or options to which they may be entitled in Tuart Resources Limited are held in trust for The Lender as security for their obligations under this Deed and to the full extent of those obligations.
7.Upon the sole option of The Lender, exercisable in writing after 15 September and before 30 September 2001, The Lender may call upon Scook and Hardie to repurchase the TRT Shares for 7.5 cents per share, being a total consideration of Seventy Five Thousand Dollars ($75,000), and Scook and Hardie shall, upon the issue of an executed transfer of the TRT Shares to them, pay such amount to The Lender within five (5) days of such transfer.
8.If The Lender fails to exercise its option as set out herein prior to the close of business on 30 September 2001, the option shall lapse and The Lender shall retain the TRT Shares."
In an affidavit sworn on 9 March 2002, Marc Hugh Morgan Davies, a director of the plaintiff company, asserted that the plaintiff did not receive the transfer of shares from the defendants by 15 September 2001 as required by clause 4 of the deed. In his affidavit he alleges that on 27 September 2001 the plaintiff purported to exercise the option under clause 7 of the deed requiring the defendants to re‑purchase the TRT shares for $75,000. An executed share transfer form was sent by the plaintiff to the defendants. The shares, however, have not been transferred by the defendants to the plaintiff and the amount loaned under the deed remains unpaid.
Purported exercise of option by plaintiff
The consideration for the $50,000 loan was the undertaking by Scook and Hardie to transfer to the plaintiff 1,000,000 fully paid shares in Tuart Resources Limited. The transfer was to occur on or before 15 September 2001. That undertaking was never fulfilled. The shares were never transferred by Scook and Hardie to the plaintiff. Since the plaintiff never acquired the shares I am unable to see how it could purport to exercise the option to re‑sell those shares to the defendants under clause 7 of the deed. The option was contingent upon the shares being transferred by the borrower to the lender. That transfer never took place. Leaving aside the question of whether the failure by Scook and Hardie to transfer the shares to the plaintiff constituted a breach of contract it seems clear the plaintiff could not purport to exercise an option to re‑sell shares which it had never acquired or owned. The plaintiff's claim pursuant to clause 7 of the deed must fail.
Recovery of $50,000 loan
In the alternative the plaintiff has claimed the repayment of the $50,000 loan by the defendants. The claim is based upon an alleged total failure of consideration. This concept is explained in Cheshire & Fifoot's Law of Contract (7th Australian edition) at par 25.5 where the learned authors say:
"A payment made for a consideration which has wholly failed is prima facie recoverable by an action for restitution. A payment made in anticipation of or under a contract in return for a performance which does not eventuate is a payment for a consideration which has failed. 'Consideration' here means actual performance and not a mere promise to perform."
In Baltic Shipping Co v Dillon (1993) l76 CLR 344 at 375 the High Court emphasised the need for there to have been a total failure of consideration before money paid under a contract can be recovered. In that case a passenger on a cruise ship failed to recover a refund of the total fare he had paid when the vessel sank on the 10th day of a 14 day cruise. At p 350 Mason CJ said:
"In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, at p 48. In that context, the receipt and retention by the plaintiff of any part of the bargained‑for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract."
In the context of this case the money was advanced by the plaintiff to the defendants on the footing that the defendants would transfer to the plaintiff 1,000,000 shares in Tuart Resources Limited. That was the sole basis upon which the contract of loan was made. There was no other consideration for the loan of $50,000. In that context the failure of the defendants to transfer the shares to the plaintiff constitutes a total failure of consideration. The plaintiff got nothing in return for the loan.
The defendants have submitted that a total failure of consideration has not been established because there is no evidence that the defendants failed to comply with par 6 of the deed. Mr Howard, who appeared as counsel for the defendants, sought to draw a distinction between recital C and clause 5 of the deed, on the one hand, and recital B and clause 6 of the agreement on the other. Recital B refers to the entitlement of Scook and Hardie both to shares and options in Tuart Resources Limited while clause 6 constitutes an undertaking by the defendants that their interest in any shares or options to which they may be entitled in Tuart Resources Ltd are to be held in trust for the lender as security for the borrower's obligations under the deed.
The deed requires the defendants to transfer to the plaintiff 1,000,000 shares only. Clause 6, in Mr Howard's submission, provides consideration in a different form. The argument advanced is that this clause gives the lenders the same beneficial interest as the defendants have in the shares and options to which they are entitled. I do not believe this argument is tenable. I see no difference between an undertaking to hold shares and options in trust as security for the performance of contractual obligations and a mere promise. See Baltic Shipping Co v Dillon (supra). Consideration must mean actual performance which, in the context of this case, means the transfer of the shares from the borrower to the lender on or before 15 September 2001.
I believe there has been a total failure of consideration entitling the plaintiff to restitution of the amount advanced under the contract and any incidental costs it is entitled to claim.
For these reasons I am satisfied that the defendants have failed to discharge the onus of raising a triable issue or some other reason why the matter ought to proceed to trial. Moscow Narodny Bank Ltd v Mosbert Finance (Australia) Pty Ltd [1976] WAR 109.
I believe restitution is the appropriate remedy open to the plaintiff. Although the plaintiff has also sought damages as an alternative to restitution I do not believe that an award of damages for breach of contract is appropriate.
I would allow the appeal and enter judgment for the plaintiff in the sum of $50,000.
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