D J Carmichael Pty Ltd v Bazzo

[2001] WADC 73

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   D J CARMICHAEL PTY LTD -v- BAZZO & ANOR [2001] WADC 73

CORAM:   DEPUTY REGISTRAR HEWITT

HEARD:   14 MARCH 2001

DELIVERED          :   29 MARCH 2001

FILE NO/S:   CIV 1721 of 2000

BETWEEN:   D J CARMICHAEL PTY LTD

Plaintiff

AND

TINA BAZZO
First Defendant

ALAN BRUCE CARATTI
Second Defendant

Catchwords:

Practice - Western Australia - Summary judgment turns on its own facts

Legislation:

Nil

Result:

Application dismissed

Representation:

Counsel:

Plaintiff:     Mr M J McPhee

First Defendant             :     Mr S V Forbes

Second Defendant         :     Mr G D Cobby

Solicitors:

Plaintiff:     Michell Sillar McPhee

First Defendant             :     Paiker & Overmeire

Second Defendant         :     Tottle Christensen

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

Hichens Harrison Woolston & Co v Jackson & Sons [1943] AC 266

London Founders Association Ltd and Palmer v Clarke (1888) 20 QBD 576

Mercator Property Consultants Pty Ltd v Sumampow [2000] WASC 157

Case(s) also cited:

Australian Can Co Pty Ltd v Levin & Co Pty Ltd (1947) VLR 332

Campbell v Campbell (1792) 29 ER 755

Clarke and Another v The Union Bank of Australia Limited (1917) 23 CLR 5

Cuncliffe Owen v Teather & Greenwood [1967] 3 All ER 561

Evans v Bartlam [1937] AC 473

Fancourt and Another v Mercantile Credits Limited (1983) 154 CLR 87

General Credits (Finance) Pty Ltd v Shipdon Holdings Pty Ltd & Anor, unreported; SCt of WA; Library No 2054; 19 May 1977

Reynolds v Smith [1891-4] All ER 1060

The Cloverdell Lumbar Company Pty Ltd v Abbott (1924) 34 CLR 122

Westwind Air Charter Pty Ltd & Mullins Investments Pty Ltd v Hawker De Havilland (1990) 3 WAR 71

1. DEPUTY REGISTRAR HEWITT:  The matter before me is the plaintiff’s application for a summary judgment which was filed on 11 October 2000.

2. The plaintiff is a stockbroker which sues the first and second defendants as its former clients on a number of bases.  All of those matters arise as a result of the purchase of a number of shares in a company Australian Resources Limited.  Contracts for the purchase of those shares were entered on 11 and 12 March 1999 for a total of 400,000 shares at a total price of $92,790.05.

3. Three days after the last contract an administrator was appointed to the company and its shares were suspended from trading.  Subsequently the plaintiff paid for the shares.

4. The orders for the purchase of shares emanated from the second defendant.  His original instructions were to purchase the shares in the name of a company called Jade Assets Pty Ltd and the first of the purchases was concluded in that name.  Subsequently the second defendant instructed the plaintiff to substitute the name of the first defendant as the purchaser in the earlier transaction and to purchase further shares in the name of the first defendant.

5. Ultimately the plaintiff paid the purchase price for the shares and it sues seeking to recover the monies paid.

6. The causes of action pursued against the defendants are as follows:

   1.against the defendants jointly as purchasers

   2.against the first defendant as the purchaser of the shares through the agency of the second defendant

   3.against the second defendant for breach of warranty of authority

   4.against the second defendant under the terms of a contract for payment of the monies due by instalments in consideration of a forbearance to sue.

7. Whilst there are many issues between the parties it seems to me an essential with which I have to deal is that which is included in pars 8 and 10 of the statement of claim which are couched in these terms:

   “8It was an express term (and if not express, an implied term, the implication arising by reason of the same facts pleaded in paragraph 7 hereof) of the said contract for the purchase of the said shares that the price for the said shares would be paid to the Plaintiff by the Defendant within three (3) days of the order; so that the Plaintiff in turn could settle the transaction within the said period of three (3) days or otherwise as directed by the Stock Exchange.

   9….

   10.On 10 January 2000 the Plaintiff was directed, by the Stock Exchange, in accordance with Business Rule 2.19 to settle the transaction as principal and pay the Vendor of such shares the purchase price, namely $92,790.05.”

8. The fulcrum upon which this case resets is the fact that the plaintiff was compelled to make that payment, that compulsion arising in the form of a direction from the Stock Exchange.  That direction is referred to in pars 8 and 9 of the affidavit of Michael Robert Stewart filed in support of the application.  The defendants have raised the issue as to whether the letter from the Stock Exchange of 10 January 2001 which is exhibited at Annexure D to the affidavit of Mr Stewart in truth properly interpreted can bear the character of a direction from the Stock Exchange.  At first blush the letter does not appear to be such a direction but appears to be to be rather the provision of advice from the Stock Exchange to the plaintiff following the suspension of ARL shares.  That impression is cemented by examination of a document dated 9 September 1999 which is Exhibit C to the affidavit of the first defendant sworn 15 January 2001 which is a letter to the partners of Messrs Okeby and Co (of which a copy is noted as being supplied to the plaintiff).  That letter contains in its material parts:

   “ASX is presently obtaining external legal advice on the matters associated with the settlement of transactions and securities of companies placed in external administration.  The advice will cover, in general, situations such as that of Australian Resources limited (in liquidation).

   At this point in time we envisage that, when received, we will furnish to the market ASX’s interpretation of the issues.  As this advice will be our interpretation it will be open to alternate interpretation by other parties and will not be binding.  It will not be a ruling.  At best it may influence the views of the buyers and sellers to these transactions to negotiate a settlement.  Ultimately however, the final interpretation may be a matter for the Courts.”

9. The letter of 10 January 2000 is clearly the provision of the advice referred to in the letter of 9September 1999 and there is attached to it a formal opinion provided by Messrs Freehill Hollingdale and Page.

10. The effect of the suspension of trading in the relevant shares precluded a settlement within three days (and in any event the case is not pleaded on the basis that there was a failure to pay within that time) and the receipt of a direction from the Stock Exchange is pleaded as the trigger creating the plaintiffs liability to pay for the shares.  Since the letter dated 10 January 2000 is not such a direction the obligation of the purchaser (whichever defendant that may be) to pay has not arisen.  For this reason alone I consider that the plaintiff's case based on the contract pleaded in pars 1-11 is arguably defective and inadequate to sustain a summary judgment.

11. In the course of argument the plaintiff developed the proposition that in a contract for the sale and purchase of shares the seller gives no implied warranty that:

    (a)the shares have a value;

    (b)that the purchaser will be able to procure itself to be the registered holders of the shares sold,

    and that the obligation of the seller is to do the things necessary on its part to transfer title to the shares to the buyer, the English authorities of London Founders Association Ltd and Palmer v Clarke (1888) 20 QBD 576 Hichens Harrison Woolston & Co v Jackson & Sons [1943] AC 266 were cited in support of this proposition also cited was Mercator Property Consultants Pty Ltd v Sumampow [2000] WASC 157 which although relevant does not to my mind appear to be a compelling adoption of these principles in this jurisdiction.

12. This argument raises the question of what the vendor was obliged to produce in return for the purchase price.  The letter from the Stock Exchange suggests that the production of a transfer form to an entity TNS Clearing Pty Ltd (acting as intermediary) would satisfy the sellers obligation to give title and in the absence of other information I imagine that is what happened.

13. I do not have evidence nor the relevant expertise to determine what the appropriate method to:

    (a)investigate title; and

    (b)transfer securities,

    in relation to a company in respect of which trading has been suspended by the Stock Exchange might be. Obviously electronic trading would not be operating and it seems to me that a manual system would have to substitute of the Corporations Law. If that is the case the provisions of S1091D(2) which provides:

    “The directors are not required to register a transfer of shares in the company unless:

    (a)the transfer and any share certificate have been lodged at the company’s registered office; and

    (b)any fee payable on registration of the transfer has been paid; and

    (c)the directors have been given any further information they reasonably require to establish the right of the person transferring the shares to make the transfer.”

    may be relevant.

14. In the present case there is nothing before me to:

    (a)identify the seller of the shares;

    (b)satisfy me that the seller had good title to the shares sold;

    (c)satisfy me that the seller had done everything on its part required to give title to the shares and in particular whether that process required production of shares certificates for the shares sold,

    and for that reason I am of the view that in the circumstances of this case the argument cannot assist the plaintiff.

15. In par 6 of the statement of claim the plaintiff pleads that is was an implied term of the contract between the plaintiff and defendant that the business rules pleaded in par 3 should govern the contract between the plaintiff and the defendant.  That paragraph pleads in effect that the broker (plaintiffs) undertakes the settlement obligations of its client (defendant) which in turn owes those obligations to the broker (plaintiff).

16. That proposition brings into focus the issue of what the settlement obligations of the plaintiff were.  Was it as pleaded in par 11 obliged to pay “…the said sum of $92,705.05 (being the total consideration for the shares) to the Nominee of the Stock Exchange for distribution to the Vendor of the shares”.  That issue requires reconsideration of the letter from the Stock Exchange dated 10January 2000.  I have already explored and do not propose to revisit the issue as to whether or not this letter was a ruling.  I have concluded it was not.

17. If I am wrong on that issue and the letter should be so characterised a further problem arises that there is nothing before me to demonstrate what, if any, coercive powers the Stock Exchange possess in relation to the plaintiff.  Absent such materials I am unable to determine whether the effect of the letter was to oblige the plaintiff to pay the money.

18. There are however other points raised by the defendants.  The most obvious of those points is that the investment in the relevant company was made upon advice received from a Mr Saunders who was an employee of the plaintiff's company and who acted in respect of the relevant transactions.  Differing versions of the advice received has been given in the affidavits of Mr Saunders and the first and second defendant.  What does emerge however is that advice that there was some prospect of a takeover bid for the ARL was given and on Mr Saunders evidence some assurance of the financial soundness of the company was offered to the second defendant.  In particular Mr Saunders indicated that the previous quarter had indicated an improvement in performance and the company should have had adequate cash reserves because it had had a capital issue a few months earlier.  That advice appears to have been suspect since the company had an administrator appointed three days later, its shares were suspended from trading and it is likely to be wound up without a payout to the share holders.

19. The defendants rely on a different version of events in which they allege that Mr Saunders was much more positive in his endorsement of ARL as a potential investment.  One thing is clear however and that is that the investment in ARL was stimulated by the advice which was given by the broker.

20. On the face of it there would appear to be some potential for a counterclaim based upon either negligence or breach of the Trades Practices Act as a consequence of the advice given.  Another issue which is raised is the fact that the plaintiff was uncooperative with the second defendant when the second defendant apparently ratified the purchase of the shares in her name and required information which would allow her to take steps to minimise or eliminate her obligation under the terms of the purchase.  That information was never provided and on the face of it should have been provided.  The first defendant has testified in her affidavit that she purchased other shares in ARL through other brokers and was able to avoid liability in respect of some of those purchases by acting promptly with the assistance of the broker.  That opportunity was denied her in this case through the lack of cooperation by the broker and as a consequence if there was an opportunity to either remove or limit the liability it was lost.

21. On the plaintiff’s case an agreement was reached between the plaintiff and the second defendant that he would pay the plaintiff the sum of $92,790.05 by instalments monthly at $10,000 each pursuant to which two payments of $10,000 were made.  The second defendant has provided an entirely different (and inherently unlikely) explanation for the payments.  There is no doubt on the materials that discussions did take place between the parties on this issue.  The question is did those discussions lead to a concluded agreement?  According to the affidavit of S E Saunders sworn 11October 2000 discussion on this point took place on 7 February 2000 and concluded with a director of the plaintiff stating “I am not happy in not receiving an up front payment.  I will think it over.  I will ask Joe to arrange to have a sample agreement drawn up and signed.”

22. It is common ground that an agreement was drawn up and presented.  A copy appears as Annexure JES E to Mr Saunders' affidavit.  That document required both the first and the second defendants to acknowledge their debt to the plaintiff.  The deed was not signed and although there was further discussion on the point I am unable to see that those discussion proceeded to a stage where a contractual relationship was achieved.  In my view the deed presented was a counter offer which was not accepted.  The subsequent payments and their acceptance do not elevate the matter beyond that.

23. Furthermore in analysing whether or not an enforceable contract arose between the plaintiff and the second defendant it appears to me necessary to note that on the plaintiff’s evidence the second defendant was acting as an agent at all times in regard to the relevant transactions.  He first apparently acted as an agent of Jade Assets Pty Ltd and secondly as an agent of the first defendant.  The first defendant appears to have ratified the contracts entered on her behalf by the letters from her solicitors to the plaintiff and on that analysis is would appear to me that the second defendant was not under any personal obligation to pay the relevant monies to the plaintiff.

24. The second defendant effectively explains his payments of two instalments of $10,000 not as a payment in respect of the agreed instalments for repaying the monies as the plaintiff alleges but rather as some arrangement intended to preserve Mr Saunders from the anger of his employer, which was intended to be recouped in some way by other profitable share trading adventures.

25. I do not find the explanation for the payments to be at all convincing.  However on my interpretation of these materials there was no primary obligation by the second defendant to pay anything to the plaintiff and it is not very obvious on these materials precisely what consideration the second defendant received for any undertaking to repay the debt by instalments or otherwise.  The obvious suggestion is forbearance to sue but whether or not the plaintiff was contractually bound not to sue while payments were made and whether that would amount to a good consideration if the primary debt is in doubt is a moot point.  I do not find the issue of the undertaking to pay to be of sufficient force to entitle the plaintiff to a judgment against the second defendant.

26. My conclusion is therefore that the application for summary judgment should be dismissed on the following grounds:

    (a)that the direction referred to in par 11 of the statement of claim was not in truth a direction;

    (b)that the claim against the second defendant as a purchaser in his own right is not supported by the facts;

    (c)that the purchase of the shares by the first defendant was attended by circumstances which potentially give rise to a claim for negligence or false and misleading conduct under the Trade Practices Act which is sufficiently entwined with subject matter of the action to create an equitable defence upon which the first defendant can rely;

    (d)that the arrangements for repayment of the debt allegedly entered into by the second defendant is open to various matters upon which the first defendant may rely to demonstrate that was no concluded contractual arrangement; and

    (e)that there is doubt as to whether the seller of the shares did everything on its part required to give title to the shares to the purchaser.

27. For these reasons I am of the view that the plaintiff's application should fail and the defendant should have unconditional leave to defend.