EROM Pty Ltd v Croft

[2006] WADC 162

EROM PTY LTD -v- CROFT [2006] WADC 162

Link to Appeal : [2006] WASCA 244

Jurisdiction:	DISTRICT COURT OF WESTERN AUSTRALIA	Citation No:	[2006] WADC 162
Case No:	CIV:1225/2003	Heard:	14 JUNE 2006
Coram:	GROVES DCJ	Delivered:	5/10/06
Location:	PERTH
No of pages:	9	Judgment Part:	1 of 1
Result:	Appeal dismissed
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Parties:	EROM PTY LTD (ACN 008 918 876) JOHN CROFT LAURENCE LAMBRO ANTHONY ZIATAS
Catchwords:	Practice and procedure Statement of claim Application for leave to further amend statement of claim Two alternative pleas Inconsistent sets of fact
Legislation:	Nil
Case References:	Brailsford v Tobie (1889) 10 ALT 194 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Heptonstall v Gaskin (No 2) [2005] NSWSC 30 Issitch v Worrell (2000) 172 ALR 586 JC Decaux Pty Ltd v Adshel Street Furniture Pty Ltd [2000] FCA 1118, 178 ALR 339 Atkinson v Fitzwalter [1987] 1 WLR 201 Braams Group Pty Ltd v Miric [2002] NSWCA 417 Davy v Garrett (1878) 7 Ch D 473 Government Employees Superannuation Board v Martin (1997) 19 WAR 224 Hooker Corp Ltd v Commonwealth (1986) 65 ACTR 32 Kenny v Sholl (1905) 7 WALR 197 Mutal Export Corporation v Asia Australian Express Ltd (the "Lakatoi Express") (1990) 19 NSWLR 285 Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 Olsson v Dyson (1969) 120 CLR 365 Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 Philipps v Philipps (1878) 4 QBD 127 Pierce CH & Sons Ltd v Stonechester Ltd The Time November 17 1983 (CA) Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 Sargent v ASL Developments Ltd (1974) 131 CLR 634

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION : PERTH CITATION : EROM PTY LTD -v- CROFT [2006] WADC 162 CORAM : GROVES DCJ HEARD : 14 JUNE 2006 DELIVERED : 5 OCTOBER 2006 FILE NO/S : CIV 1225 of 2003 BETWEEN : EROM PTY LTD (ACN 008 918 876)

Plaintiff (Appellant)

AND

JOHN CROFT
Defendant (Respondent)

LAURENCE LAMBRO ANTHONY ZIATAS
Third Party

Catchwords:

Practice and procedure - Statement of claim - Application for leave to further amend statement of claim - Two alternative pleas - Inconsistent sets of fact

Legislation:

Nil

Result:

Appeal dismissed

(Page 2)

Representation:

Counsel:

Plaintiff (Appellant) : Mr M A R Blundell
Defendant (Respondent) : Mr P Robinson
Third Party : Not applicable

Solicitors:

Plaintiff (Appellant) : Solomon Brothers
Defendant (Respondent) : Williams & Hughes
Third Party : Freehills

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

Brailsford v Tobie (1889) 10 ALT 194
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Heptonstall v Gaskin (No 2) [2005] NSWSC 30
Issitch v Worrell (2000) 172 ALR 586
JC Decaux Pty Ltd v Adshel Street Furniture Pty Ltd [2000] FCA 1118, 178 ALR 339

Case(s) also cited:

Atkinson v Fitzwalter [1987] 1 WLR 201
Braams Group Pty Ltd v Miric [2002] NSWCA 417
Davy v Garrett (1878) 7 Ch D 473
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Hooker Corp Ltd v Commonwealth (1986) 65 ACTR 32
Kenny v Sholl (1905) 7 WALR 197
Mutal Export Corporation v Asia Australian Express Ltd (the "Lakatoi Express") (1990) 19 NSWLR 285
Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628
Olsson v Dyson (1969) 120 CLR 365
Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405
Philipps v Philipps (1878) 4 QBD 127
Pierce CH & Sons Ltd v Stonechester Ltd The Time November 17 1983 (CA)

(Page 3)

Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146
Sargent v ASL Developments Ltd (1974) 131 CLR 634
(Page 4)

1 GROVES DCJ: By Chamber Summons dated 7 February 2006 the plaintiff sought leave to further amend its Statement of Claim in terms of a Minute of Re-amended Statement of Claim (the Minute) filed with the application. The application was opposed by the defendant. The application was heard by a Deputy Registrar on 23 March 2006 when it was ordered that:

"…the plaintiff do have leave to further amend…its statement of claim in a manner consistent with the reasons for decision of [the] Deputy Registrar…delivered 23 March 2006."

The plaintiff now appeals against that order. The appeal is to be approached as a hearing de novo.

2 The effect of the Deputy Registrar's decision was to disallow amendment to the statement of claim by the introduction of alternative pleas, namely the pleading of an oral novation agreement and the pleading of an estoppel by convention.

3 The plaintiff agreed to loan $100,000 to Jadetex Minerals Pty Ltd (Jadetex) a company with which the defendant was associated. The plaintiff alleges that the defendant agreed to guarantee the loan. Jadetex has failed to repay the monies to the plaintiff and despite demand the defendant has failed to honour his guarantee. As events transpired Regalbird Pty Ltd (Regalbird) another company with which the defendant was associated executed a charge in favour of the plaintiff providing security for the loan.

4 In its statement of claim the plaintiff pleads the following causes of action (all paragraph references are to the Minute):

1. Breach of the guarantee agreement – pars 1-8 .

2. Rectification – pars 19-25, and

3. Misleading or deceptive conduct – par 26.

5 By the Minute the plaintiff seeks to introduce two additional causes of action, namely:

(i) Breach of an oral novation agreement – see pars 9-11; and

(ii) Estoppel by convention – pars 12-18.

(Page 5)

Novation

6 The plaintiff pleads that it, the defendant, Regalbird and Jadetex entered into an agreement by novation, which was oral, alternatively written. The agreement was made by the parties by their agents namely Mr Dominic Martino (Martino) on behalf of the plaintiff and Mr Laurie Ziatas (Ziatas) on behalf of the defendant. It is said it was a new agreement to discharge the old one – effectively to substitute one company, namely Regalbird, for a different company, namely Jadetex, as borrower in respect of the loan agreement and the guarantee agreement. The Deputy Registrar allowed the pleading of the written novation agreement. He could see nothing in that plea which conflicted with the material otherwise already in the pleading.

7 However the Deputy Registrar considered the pleading of an oral novation agreement was not consistent with the pleading in par 20, namely, that there was a misrepresentation that Regalbird was the new name of the company previously known as Jadetex. He said:

"I have difficulty understanding how it can be advanced as a proposition that that representation was relied upon in any way by the plaintiff when it is elsewhere pleaded that the plaintiff was fully informed of the situation and in fact entered a novation agreement under the terms of which Regalbird was substituted for Jadetex. … In my view, the plaintiff must know whether there was a conversation such as is pleaded in the particulars to par 9, and if that conversation did take place, then the plea of reliance on the letter of 20 November 1996 pleaded in par 20 is unsustainable."

On that basis the Deputy Registrar regarded the pleading in par 9 as "…a bad pleading and ought not be permitted".

Estoppel by convention

8 The plea at pars 12-18 of the Minute is a plea that in the circumstances pleaded, the defendant is estopped from denying his liability because the plaintiff agreed to his proposal that Regalbird be substituted for Jadetex. It is pleaded in par 15 that the deed was ultimately executed by the parties notwithstanding their knowledge of the true position as is set out in par 12. The Deputy Registrar concluded:

"Again I am unable to reconcile that proposition with the proposition of reliance upon the representation said to be

(Page 6)

contained in the letter pleaded in par 20 and it seems to me that for the same reasons as for par 9 that pleading is a bad pleading and ought not be permitted."

Alternative pleas

9 It is trite law that alternative claims and contentions may be pleaded so long as the facts to support them are separately pleaded: see Civil Procedure in Western Australia at [20.19.11]. Furthermore, a proposed amendment will only be disallowed as containing no discernible cause of action or defence if the claim is "manifestly groundless" or "so obviously untenable" that it cannot succeed, or so "manifestly faulty that it does not admit of argument": General Steel Industries Inc v Commissioner for Railways (NSW) (1964) CLR 125; Heptonstall v Gaskin (No 2) [2005] NSWSC 30 at [12].

10 But for the pleading in par 20 the plea of an oral novation agreement and estoppel by convention would not otherwise seem objectionable. The pleas of oral and written novation agreement are pleaded in the alternative to each other and the plea of estoppel by convention is pleaded in the alternative to both the oral and written novation agreements. They are pleaded separately and they plead the facts which are said to support them. Nor can it be said at this stage that those pleadings are "so obviously untenable".

Inconsistent pleas

11 The concern of the Deputy Registrar and the defendant's complaint is that the plaintiff is now seeking to plead distinctly inconsistent factual scenarios, in circumstances where it must know one of these scenarios is false; a fortiori is able to decide which of the scenarios is true.

12 I am grateful for the industrious research of counsel in identifying what they believe to be the only authorities on this area. The cases where a party has been denied the right to plead alternative and inconsistent pleas are rare. Only two have come to light, namely Brailsford v Tobie (1889) 10 ALT 194 and more recently Issitch v Worrell (2000) 172 ALR 586.

13 In Brailsford v Tobie the defendant pleaded two factually inconsistent accounts in justification for not having paid moneys claimed by the plaintiff. Holroyd J ordered that the defendant elect which one of these two cases she would maintain, saying:

(Page 7)

"…I think it would be most improper to allow the defendant to plead as she has done. The actual facts must be within her own knowledge, and that being so she has set up two sets of facts inconsistent with one another. If this were allowed it would be permitting a party knowing the facts to deliberately place on the record statements, one or other of which must be known to be a lie. This, in my opinion, ought not to be allowed."

14 The principle was applied in Issitch v Worrell (supra). There the appellant at the hearing of an appeal endeavoured to set up an alternative defence to that which was run unsuccessfully at trial. The Court held that the appellant was not entitled to set up in the alternative the inconsistent answer.

"A party can as a general rule plead inconsistent sets of facts in the alternative…but not where one of those sets must be known to the party to be false. It has long been recognised that such a pleading is embarrassing and will be struck out." Per Drummond J at par 32.

15 Again the Court in JC Decaux Pty Ltd v Adshel Street Furniture Pty Ltd [2000] FCA 1118, 178 ALR 339 at par 21 reiterated that:

"Although a party can, as a general rule, plead inconsistent sets of facts in the alternative, it cannot do so where one of those sets of facts must be known to the party to be false. Such pleading is embarrassing and will be struck out.

Analysis of the plaintiff's argument

16 The plaintiff claims in its submissions that "…the essence of the plaintiff's case [is] that the corporate plaintiff was ignorant of the true state of affairs, and the defendant fostered that ignorance." That assertion is in stark contrast to that which the plaintiff pleads in the proposed amendments. In par 9 it is pleaded that the parties "…agreed to discharge [the original agreement]…and substitute therefor an agreement in the same terms but for the following" namely, inter alia, to substitute Regalbird for Jadetex. The plaintiff particularises the agreement as having been made in a telephone conversation between Ziatas as agent for the defendant, Regalbird and Jadetex and Martino as agent for the plaintiff, in which Ziatas proposed the novation and Martino agreed.

17 More simply stated it was orally agreed that one company was to be substituted for another. The plaintiff by its agent, Martino, agreed to the

(Page 8)

novation. It is not the plaintiff's case that Martino was acting without the plaintiff's authority. The knowledge of Martino as the plaintiff's agent is imputed to the plaintiff. The plaintiff's plea of an oral novation concedes that the plaintiff knew that Regalbird and Jadetex were separate entities. That concession is apparent in the plaintiff's submissions (par 3) that:

"It was a new agreement to discharge the old one – effectively to substitute one company Regalbird for a different company Jadetex as borrower in respect of the loan agreement and the guarantee agreement."

18 In those circumstances it is not apparent to me in what respect it can be said that the corporate plaintiff was ignorant of the true state of affairs or "suffered lack of knowledge". The pleading leads one to conclude that the plaintiff was fully informed.

19 The plea of estoppel by convention is also premised on the same oral conversation between Ziatas and Martino in their telephone conversation in early November 1996. Again, what is relevant is the knowledge of the corporate plaintiff which is the knowledge of its agent Martino.

20 The pleas of oral novation and estoppel by convention are to be contrasted with the plaintiff's claim for rectification (pars 19-24). The plea for rectification is premised on the content of a letter dated 20 November 1996 which described the borrower in the heading as "Regalbird Pty Ltd (formerly Jadetex Minerals Pty Ltd)". The plaintiff contends that by that statement it was represented that Regalbird was the new name of the company previously named Jadetex so that there had been no change of borrower and only a change of name of the borrower. It was, so it is pleaded, in reliance of that representation that the plaintiff executed the Charge.

21 Thus, what the plaintiff is saying by that plea is that it did not know that Regalbird and Jadetex were separate corporate entities. That contention in my view is completely contrary to the assertions in the pleas of oral novation and estoppel by convention. The plaintiff is pleading two factually inconsistent scenarios. The plaintiff either knew or did not know that Regalbird and Jadetex were separate corporate identities.

22 If the plaintiff did have knowledge of the novation arising from the telephone conversation it could not be said, at least in my view, that it relied on the representation in the letter of 20 November 1996 whereby it seeks rectification. If, on the other hand, it relied upon a misrepresentation it could only have done so if it was ignorant of those

(Page 9)

matters which are relied upon for the oral novation. There is a mutual inconsistency between the pleas of oral novation and estoppel by convention and the plea for rectification. Either there was an oral novation in which event it cannot be said that there was reliance on the alleged misrepresentation. Alternatively, reliance on the alleged misrepresentation could only arise in the context of the original contract and not a substituted agreement. The plaintiff must know the case which it intends to rely on and thus must know which of the scenarios is true.

23 The proposed pleading as to the oral novation and estoppel by convention is embarrassing and will not be allowed.

24 The appeal will be dismissed.