Esanda v Gibbons
[1999] NSWSC 1094
•29 October 1999
CITATION: Esanda v Gibbons [1999] NSWSC 1094 CURRENT JURISDICTION: Equity FILE NUMBER(S): 5051/98 HEARING DATE(S): 5 and 29 October 1999 JUDGMENT DATE:
29 October 1999PARTIES :
Esanda Finance Corporation Ltd (P)
John Raymond Gibbons (D1)
Trans-Pacific International Group Ltd (Receiver and Manager Appointed) (Administrators Appointed) (D2)
Busrent Pty Ltd (Receiver and Manager Appointed) (D3)JUDGMENT OF: Austin J
COUNSEL : C Newlinds (P)
G Sirtes (D)SOLICITORS: Kemp Strang (P)
Henry Davis York (D)CATCHWORDS: TORT - conversion - plaintiff relying on right to immediate possession - defendant precluded by conduct from pleading jus tertii; PRACTICE & PROCEDURE - application to strike out defence - principle where difficult question of law is involved CASES CITED: Butler v Hobson [1838] 4 Bing (NC) 290
General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125
Henry Berry & Co Pty Limited v Rushton [1937] SR (Qld) 109
Leake v Loveday (1842) 4 Man & G 972
Standard Electronic Apparatus Laboratories Pty Limited v Stenner (1960) 77 WN (NSW) 833
Woods v Mason Bros Ltd (1892) 8 WN (NSW) 114DECISION: Defence based on jus tertii struck out
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONAUSTIN J
FRIDAY 29 OCTOBER 1999
5051/98 - ESANDA FINANCE CORPORATION LTD V JOHN RAYMOND GIBBONS & 2 ORS
JUDGMENT (Ex tempore; revised 9 November 1999)
1 HIS HONOUR: This case involves a dispute about the proceeds of sale of nine buses. The plaintiff, Esanda, seeks by notice of motion to strike out the amended defence in the proceedings as regards six of the buses. The first defendant, Mr Gibbons, seeks leave by notice of motion to file a cross-claim and join an additional party as cross-claimant.
The companies
2 The proceedings involve a number of companies in the Clifford Corporation Group. The third defendant (‘Busrent’) is a company the directors of which are Mr J B Loiterton and Mr I R Hall, and the secretary is Mr C J Ellis. The company's shareholder is Clifford Corporation Ltd.
3 The second defendant (‘TPI’) is a company the directors of which are Mr I R Hall, Mr J B Loiterton and Mr C J Ellis, as well as Mr E Lusew and Mr L E Stewart, and the secretary is Mr C J Ellis. There is no evidence identifying the shareholders of TPI, but the evidence which is before me indicates that it has the same registered office and address as other companies which are subsidiaries of Clifford Corporation. It is appropriate for the purposes of the present application to infer that whoever the shareholders are, TPI is a subsidiary which is part of the Clifford Corporation Group.
4 The first defendant's notice of motion seeks to join as a cross-claimant another company called Austral Pacific Group Ltd (‘APG’). The directors of this company are Mr J B Loiterton, Mr I R Hall, and Mr C J Ellis and Mr L E Stewart ceased to be a director on 15 February 1999. Mr Ellis is the secretary, and the sole shareholder is Clifford Corporation Ltd.
Facts
5 Mr Gibbons says that during 1998 TPI supplied seven bus chassis to APG for the purpose of APG manufacturing and mounting bus bodies on each chassis supplied. TPI supplied the bus chassis to APG on terms, recorded by invoice, that the property in the bus bodies manufactured by APG would not pass to TPI until full payment was received by APG. Additionally, during 1998 APG manufactured and sold two complete buses to TPI, on terms that property in the buses would not pass until APG received full payment. Mr Gibbons says APG has not received full payment for either the seven bus bodies and or the two buses.
6 Late in 1998 TPI and Busrent arranged for Esanda to provide finance on the security of the nine buses. The financing arrangement was by lease between Busrent and Esanda supported by a guarantee by Clifford Corporation Ltd. Esanda and Busrent entered into a master lease agreement dated 1 October 1998, apparently signed by Mr Loiterton and Mr Ellis on behalf of Busrent, and pursuant to its terms each bus was leased by separate contract, at least some of which appear to have been signed by Mr Loiterton and Mr Ellis on behalf of Busrent.
7 The master lease contained a provision headed ‘Acknowledgment of Delivery’, by which the lessee agreed that before taking delivery it would thoroughly examine the goods and satisfy itself as to their correspondence with the given description, their quality and their suitability for the lessee's purposes, and certify the same in writing to the lessor. In the case of each individual bus the form contained an acknowledgment of delivery which included a certificate by the lessee declaring and warranting, among other things, that the lessee had carefully examined the goods and that they corresponded with their description and were of a quality and condition suitable in all respects for the lessee's purposes. Although there appears to be no express acknowledgment or warranty on behalf of the lessee with respect to the lessor's title to the goods which were the subject of the lease in each case, the provisions to which I have referred clearly imply, in my view, an acknowledgment by the lessee that as between them the lessor had the better title to the goods.
8 At about the same time that the leasing arrangements were entered into, Esanda purchased each of the nine buses from TPI. It did not deal with APG, although as I have said, TPI and APG had four common directors at the time.
9 In the second week of December 1998 Esanda became aware that certain companies in the Clifford Corporation Group had gone into external administration. In fact Heller Financial Services Ltd appointed Mr Gibbons as receiver and manager of the assets of APG and of the book debts of Busrent. An administrator had also been appointed to TPI. Esanda says by virtue of these events Busrent came to be in default under the terms of the master lease agreement, and consequently under that agreement Esanda immediately became entitled to repossess the buses.
10 Mr Deeble, on behalf of Esanda, visited the premises of Busrent with a colleague and identified and inspected the buses on 10 December 1998. The person with whom he spoke at the premises indicated that the receiver needed to have Esanda’s title to the vehicles substantiated. On 16 December 1998 Mr Deeble sent Mr Gibbons a facsimile giving particulars of the invoices by which Esanda had purchased the buses from TPI.
11 On 17 December Esanda’s solicitors wrote to Mr Gibbons asserting that he had failed to deliver up a particular bus which Esanda had on-sold, or to allow Esanda to take possession of it, and making a demand that Esanda be permitted to take possession. On the same day Mr Gibbons' solicitors replied explaining that Mr Gibbons was the receiver and manager of all of the assets of TPI and that the particular bus which was the subject of the demand was in the possession of TPI. The solicitors asked for evidence of the consent of the administrator of TPI under s 440C of the Corporations Law. In fact, such consent was forthcoming on 22 December 1998. The solicitors also requested a schedule detailing the payments which Esanda had made to TPI.
12 Later on 17 December 1998 the solicitors for Esanda provided further information to the solicitors for Mr Gibbons and then on 18 December 1998 the present proceedings were instituted, after Esanda had not succeeded in obtaining possession of any of the buses.
13 On 18 December 1998 Esanda approached the Equity Duty Judge for abridgment of service of a summons seeking declarations that it was the owner of the nine buses and was entitled to immediate possession of them, and an order that Mr Gibbons do what was necessary to allow Esanda to take possession. Esanda also sought an immediate interlocutory order of that kind. There was a hearing on that day at which Mr Gibbons appeared and neither opposed nor consented to the making of orders. Windeyer J ordered abridgment of service and upon Esanda giving the usual undertaking as to damages, ordered Mr Gibbons to do all things necessary to permit it to take possession of the buses, subject to a conditional release by Esanda releasing Mr Gibbons from liability with respect to the detention of the buses, and subject also to Esanda undertaking to notify Mr Gibbons of the sale and sale price of the vehicles.
14 Subsequently, possession of the buses was obtained by Esanda for the purposes of sale and they were sold for a total consideration of $1,534,655. The buses having been sold, the dispute between the parties became a dispute with respect to the proceeds of sale.
15 Subsequently, the matter continued by pleadings and Esanda filed a Statement of Claim seeking declarations as to its ownership and entitlement to immediate possession of the nine buses at the relevant time, together with damages and an order for payment of moneys owing by Busrent.
16 By his amended defence, Mr Gibbons admitted that six buses were in the possession of TPI but asserted that three buses were in the possession of APG (paragraph 14). The amended defence said that Esanda was not entitled to possession of the buses at the relevant time because Esanda had purchased the buses from TPI, which did not have title to confer by that transaction since the buses were subject to retention provisions in favour of APG. In effect, the pleadings raised the question whether on 18 December 1998 Esanda was entitled to immediate possession of the buses and, more particularly, the question whether TPI, being in possession of six of the buses, could raise a jus tertii in order to defeat Esanda's claim that it was entitled to possession of them.17 Esanda filed its notice of motion on 24 June 1999 and Mr Gibbons filed his notice of motion on 12 July 1999. By its notice of motion Esanda sought leave to proceed against TPI, notwithstanding that it was in administration, for the purpose of obtaining a declaration that Esanda was entitled to immediate possession of the nine buses, and an order that Mr Gibbons' amended defence be struck out. By his Notice of Motion Mr Gibbons sought an order that APG be joined as a cross-claimant and leave to file a cross-claim. These applications are the subject of the present judgment.
The application
18 The principal question before me relates to Esanda's application to strike out the amended defence by Mr Gibbons. The standard by which that application is to be judged was set out in the judgment of Barwick CJ in General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125. Having reviewed the authorities his Honour remarked (at 129) that ‘these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its power of summary dismissal - is clearly demonstrated.’ In the present case, of course, the question relates to the defence rather than the plaintiff's cause of action. Barwick CJ referred to the various formulae which courts have used to articulate the standard which must be achieved for success in an application of this kind. He said (at 130) that ‘once it appears that there is a real question to be determined whether of fact or law, and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and as an abuse of process.’ He contemplated that the Court may reach a conclusion favourable to the applicant even in a case where the conclusion that the other side's claim is futile is reached only after extensive argument. He said (at 130) that ‘argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.’ In the present case Esanda says that while its application raises some interesting questions of law, and the outcome is not obvious from the beginning, nevertheless upon proper consideration the Court should conclude that the defence is hopeless and should be struck out.
The ‘strike out’ application
19 Esanda puts its case on the basis of the principle which precludes reliance on a jus tertii, and also on the broader ground of estoppel. As Professor Atiyah has remarked (‘A Re-examination of the Jus Tertii in Conversion’ (1955) 18 Mod LR 97,105), standard formulations of the law in this area hide a ‘mass of ambiguity’, especially as to the concepts of jus tertii and right to possession. The orthodox application of the jus tertii principle to an action in trover or conversion was explained in the judgment of Henchman J in Henry Berry & Co Pty Limited v Rushton [1937] SR (Qld) 109, who said (at 119):
Pleading a jus tertii
‘although where the plaintiff was in actual possession of the goods when the defendant by a wrongful act got possession of them the defendant can plead the jus tertii only in certain cases ..., it is otherwise when the plaintiff was not in actual possession when the wrongful act was done. When the plaintiff was not in actual possession, but relies upon his right to possession, he must recover on the strength of his title, and the defendant may, under a plea of not guilty or not possessed, show that the plaintiff has no right to immediate possession because that right is in some other person.’
20 In the present case Esanda was not in possession of the buses on 18 December 1998 and the proceedings which it commenced on that day rely upon its right to immediate possession, arising under the terms of the master lease agreement. The principles stated by Henchman J, if one were to pause at that point, would imply that Mr Gibbons would be entitled to raise a jus tertii by denying Esanda’s right to immediate possession on the basis that TPI did not have good title to the buses when it sold them to Esanda in 1998.
21 However, the principles with respect to jus tertii are subject to further qualifications. Henchman J remarked (at 121) that ‘in cases of bailment for a term, the bailor has no right of possession and cannot sue in trespass or conversion until the contract is determined.’ In such a case, the bailee is precluded from setting up a jus tertii against the bailor. See also Butler v Hobson [1838] 4 Bing (NC) 290; 132 ER 800; Leake v Loveday (1842) 4 Man & G 972; 133 ER 399; Woods v Mason Bros Ltd (1892) 8 WN (NSW) 114.
22 The principle behind the rules concerning bailor and bailee has been explained by Messrs R P Balkin and J L R Davies in Law of Torts 2 ed (1996) p 73 as follows:23 In my view, though they are expressed by reference to the particular case of bailor and bailee, the principles with respect to pleading the jus tertii are best understood not as a series of mechanistic rules but as a series of propositions which relate to the same fundamental concern for fairness which gives rise to the modern law of equitable estoppel. An understanding of the basis of principle should help to avoid confusion about the relevant legal concepts. Essentially, the defendant in an action in conversion in modern times will be precluded from pleading and relying upon the title of a third party in order to defeat the plaintiff's assertion of a right to immediate possession, when:
‘The idea that the jus tertii can be pleaded by a converter of goods as against a plaintiff with only an immediate right to possession, is subject to the exception that a bailee, if sued by the bailor, is estopped from denying the bailor's title, although some other defence may be available. Moreover, the rule that the bailee is not entitled to dispute the bailor's title and therefore cannot plead the jus tertii against the bailor is itself subject to certain exceptions. Herron J in Edwards v Amos stated the rule thus: ((1945) 62 WN NSW) 204 at 206):
‘the defendant, although a bailee, can plead the jus tertii in three cases, (a) where he defends the action on behalf of and by the authority of the true owner, (b) where he committed the act of conversion complained of on the authority of the true owner, and (c) where he has already made satisfaction to the true owner by returning the property to him.’’
(a) the defendant's conduct has contributed to the plaintiff's belief that its right to immediate possession exists; and
(b) the defendant does not act with the authority of the true owner.
24 It may be that the principle underlying the cases on jus tertii is an application of the doctrine of equitable estoppel. It is unnecessary for me to decide whether the jus tertii cases are merely cases of equitable estoppel or have some special characteristics. It is enough for present purposes to say that (assuming the true owner has not intervened) the cases require, inter alia, an inquiry with respect to the defendant's conduct, in order to determine whether there is in that conduct something which justifies the Court from preventing the defendant from defeating the plaintiff's right to immediate possession by pleading or relying upon the better title of the third party.
25 That this is the correct approach is confirmed, in my view, by the judgment of Walsh J in Standard Electronic Apparatus Laboratories Pty Limited v Stenner (1960) 77 WN (NSW) 833, 836. That was a case where the plaintiff in an action for conversion was the bailee of goods which had been taken by the bailor. Walsh J held that the bailee had special property in the goods in question by virtue of work done on them which had created a lien; that special property was sufficient to support the action. The question was whether the bailor, having entered into the bailment, could defend the action by asserting a jus tertii . His Honour held that the bailor, having purported to bail the goods to A, could not dispute his own right to do so by setting up a jus tertii even if the third party was in fact the true owner. His Honour contemplated that the position may have been different had it been shown that the true owner demanded the goods or that the bailor was acting under the authority or direction of the true owner. In the case before him, a claim of that kind had not been made, the bailor merely asserting that he had not made any agreement with the bailee in relation to the goods. Since this defence had failed and as between the parties to the proceedings the bailee was properly in possession, Walsh J held that the bailor should be precluded by his own conduct from pleading the jus tertii.
26 It appears to me that the present case is quite similar to the Standard Electronic case. Here Esanda asserts its right to immediate possession against Busrent. In the amended defence it is admitted that six of the buses were in the possession of TPI on 18 December 1998. As far as those buses are concerned, it is not asserted that TPI had any better right to possession than Busrent. However TPI, it is said, had no title to confer upon Esanda in 1998 when it purported to sell the buses to Esanda subject to a leasing arrangement in favour of Busrent. Putting to one side for the moment the complexity which arises because there is more than one related company concerned and a separate party to the proceedings is the receiver and manager, the case appears as one in which a defendant to an action in which the plaintiff asserts a right to immediate possession of goods pleads that the plaintiff's title, and consequently its right to possession, are defective, because the defendant had no title to give when at an earlier time it purported to sell the goods to the plaintiff. Viewed in that manner the facts fall within the principles enunciated by Walsh J in the Standard Electronic case.
27 In the present case, however, additional complexity arises out of the corporate group relationship and the receivership. As far as the corporate group relationship is concerned, TPI can have no better right to retain possession of the buses than Busrent. Consequently, any assertion on behalf of TPI or Busrent challenging Esanda's right to immediate possession is an assertion of a jus tertii falling within the principles of the cases, whichever of those two companies makes the assertion.
28 Mr Gibbons has not asserted that APG authorised TPI to resist Esanda’s demand for possession on its behalf. The fact that there were four common directors is not of itself a basis for inferring that such authority was given.
29 Both TPI and Busrent were parties to the overall transaction of October 1998 by which TPI purported to sell the buses to Esanda for substantial valuable consideration and Esanda leased the buses to Busrent. In those circumstances, it can hardly lie in the mouth of either TPI or Busrent to assert now that a part of the transaction in which they both took part was ineffective because TPI was not able to confer good title. The facts that Mr Loiterton and Mr Ellis were signatories to the lease documentation on behalf of Busrent, and were also at the relevant time directors of TPI, merely confirm this conclusion.
30 As far as the position of Mr Gibbons is concerned, it is clear from the statement of claim that he has been joined as a defendant in his capacity of receiver and manager of the assets of TPI and part of the assets of Busrent (although the latter capacity is not significant because the receivership is confined to Busrent’s book debts). By the amended defence Mr Gibbons admits that he is receiver and manager of the assets of TPI. In that context it is clear that the rights which he purports to assert are not rights which he claims as an individual, but are rights asserted in his capacity as the receiver and manager of the assets of TPI. In other words, Mr Gibbons has no capacity in these proceedings other than as receiver and manager. And that being so, his assertion of a jus tertii must effectively be regarded as an assertion made by TPI through him rather than by him as an individual.
31 It appears to me, therefore, that the standard set by the General Steel Industries case has been met by Esanda with respect to six of the buses concerned. Mr Gibbons submitted that in the present case the dispute between the parties relates to difficult questions of law and some unresolved questions of fact, and consequently, it is not an appropriate case for the Court to accede to an application to strike out the defence. However, the mere fact that there are difficult questions of law involved does not prevent an application to strike out a pleading from succeeding, for the reasons explained by Barwick CJ in the General Steel Industries case. Once one analyses the difficult legal issues, one may, as I have here, reach the view that the claim which is challenged is so clearly untenable that it cannot possibly succeed.
32 As far as unresolved questions of fact are concerned, my view is that it is unnecessary to determine them in order to reach a conclusion on Esanda's application. Mr Gibbons' difficulty flows directly from the incontrovertible fact that TPI, as part of the finance lease transaction which it entered into with Busrent and Esanda, purported to confer good title to the buses upon Esanda for the purposes of the lease. Once one identifies that this is the case, it flows inexorably that the principles with respect to jus tertii should prevent Mr Gibbons as receiver and manager of TPI from making an assertion inconsistent with TPI's conduct in that respect.
33 As regards the remaining three buses, the amended defence denies that they were in the possession of any defendant because they were in the possession of APG on 18 December 1998. Esanda says in those circumstances the correct procedure is for it to discontinue the present proceedings with respect to these buses, on the basis that APG may seek to recover damages from it in appropriate proceedings if it wishes to do so. In the circumstances, Esanda says the correct orders are orders that the amended defence of the first defendant be struck out, that (on a final basis) the first and second defendants deliver up to it the six buses which the amended defence admits to being in the possession of TPI on 18 December 1998, and that Esanda be granted leave to discontinue the proceedings against Mr Gibbons and TPI with respect to the other three buses.34 I turn to Mr Gibbons’ application for leave to join APG as a cross-claimant and to file a cross-claim. If I make the orders which Esanda seeks, then effectively any cross-claim will be the only substantial remaining part of the proceedings which is likely to be contested. It would be almost as easy for APG to institute separate proceedings to assert a claim against Esanda on the basis of its allegation of a superior title to the buses at the relevant time. However, I see no particular objection to that claim being asserted in what is left of the present proceedings and therefore I propose to grant leave to Mr Gibbons to join APG and file a cross-claim if that is what he is advised to do.
The application to join APG as cross-claimant
Costs
35 Esanda says that Mr Gibbons should be ordered to pay the costs of the proceedings to date other than costs directly referable to the three buses referred to in paragraph 14(b) of the amended defence; and that as to the costs referable to those three buses, Esanda should be ordered to pay costs because it now wishes to discontinue the proceedings with respect to them.
36 It appears to me that Esanda is entitled to the benefit of a costs order, but the order proposed on its behalf would give it too much. My conclusions in this case were reached only after analysis with the aid of substantial argument by counsel. The main point at issue was not an obvious one at first blush, though in the end I have decided that the defence is unsustainable upon analysis. That being so, my view is that the proper order as to costs should reflect the fact that Esanda has been successful with respect to six of the nine buses but (in effect) unsuccessful with respect to three of the buses. The best way to reflect that outcome is to order Mr Gibbons as receiver and manager of TPI and Busrent to pay two-thirds of Esanda's costs of the proceedings to date.
37 Esanda submits that its costs should be assessed and paid forthwith. It seems to me there is force in that submission because, if a cross-claim is filed, the proceedings are not likely to be finally determined for some time, and yet the orders which I shall make now are final orders with respect to six of the buses. Moreover, it seems likely that any cross-claim will assert as its principal ground a claim by APG based upon its alleged title. This is essentially a different claim from the one which is the subject of this judgment. I see no good reason for depriving Esanda of the benefit of my order for costs while that different matter is determined.
Orders
38 At the hearing of the application on 5 October 1999 counsel for Esanda handed up short minutes of order which I now initial and date for identification.
39 I note for the purposes of the orders that the administrator of TPI consented by letter dated 22 December 1998 for the purposes of s 440D of the Corporations Law to Esanda commencing the present proceedings, and that the liquidators subsequently appointed to TPI consented to leave being granted under s 500 of the Corporations Law on condition that no orders for costs be made against them or the company and that no liability be imposed on the liquidators.
40 I make the following orders:
1. Grant leave to the plaintiff to proceed against the second defendant for the purpose only of obtaining orders in terms of paragraphs 3 and 4 below.
2. Order that the Amended Defence of the first defendant be struck out.
3. Order on a final basis that the first and second defendants deliver up to the plaintiff the vehicles specified in paragraph 14(a) to the Amended Defence.
4. Grant leave to the plaintiff to discontinue the proceedings against the first and second defendants with respect to the vehicles referred to in paragraph 14(b) of the Amended Defence.
5. Order the first defendant to pay two thirds of the plaintiff’s costs of the proceedings to date.
6. Direct the costs referred to above be assessed and paid forthwith.
7. Grant leave to Austral Pacific Group Limited (In liquidation)(Receiver and Manager appointed) to file a cross-claim in what is left of the proceedings.
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