Eyezon Consolidated Media Limited v Pugh - [2009] WADC 147

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: EYEZON CONSOLIDATED MEDIA LIMITED -v- PUGH & ANOR [2009] WADC 147

CORAM: DEPUTY REGISTRAR HEWITT

HEARD: 15 SEPTEMBER 2009

DELIVERED : 29 SEPTEMBER 2009

FILE NO/S: CIV 1778 of 2009

BETWEEN: EYEZON CONSOLIDATED MEDIA LIMITED (ACN 125 417 718)
Plaintiff
AND
TREVOR EDWARD PUGH
First Defendant
INTERWEST GROUP PTY LTD (ACN 118 159 845)
Second Defendant

Catchwords:

Practice and procedure - Summary judgment application - Turns on its own facts

Legislation:

Nil

Result:

Application dismissed
Defendants given leave to defend

Representation:

Counsel:

Plaintiff:     Mr M G Pendlebury
First Defendant             :     In person
Second Defendant         :     Mr C MacLennan

Solicitors:

Plaintiff:     Middletons
First Defendant             :     Not applicable
Second Defendant         :     Lavan Legal

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

Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87

DEPUTY REGISTRAR HEWITT: In this matter the plaintiff has brought an application for summary judgment which was argued before me on 15 September 2009.
Briefly the plaintiff's claim against the first defendant is that as a director of the plaintiff he acted in breach of his fiduciary duty by paying certain money to the second defendant to which the second defendant was not entitled, and insofar as the claim against the second defendant is concerned that it received those monies in knowledge of the breach committed by the first defendant.
This being a summary judgment application it is well established that the power to order summary judgment should be exercised with great care and should never be exercised unless it is clear there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99.
In May 2007 a company Eyezon Pty Ltd entered a contract with the defendant under the terms of which the defendant agreed to incorporate the plaintiff company and to assist the plaintiff company to list on the Australian Stock Exchange. The first defendant was one of three directors of the plaintiff and the plaintiff's bank account was organised such that he was the sole signatory to that account. Additionally the first defendant was a director of the second defendant.
It is alleged by the plaintiff that commencing September 2007 and concluding in August 2008 the first defendant made a number of payments from the account of the plaintiff to the second defendant in circumstances where he knew that the second defendant was not entitled to receive those payments and as such in breach of fiduciary duty to the plaintiff.
It is further alleged that the knowledge of the first defendant can be imputed to the second defendant and as a consequence both the first and second defendant are liable to pay to the plaintiff equitable compensation of the amount of the monies paid a total of $95,700.
In essence the case which has been advanced by the plaintiff is that the payments were not properly payable under the terms of the agreement to which I have earlier referred.
That agreement referred to an entitlement of the second defendant for reimbursement of various monies paid and charges incurred by the second defendant subject to the second defendant raising a seed capital for the plaintiff of not less than $300,000.
Notwithstanding the fact that the agreement to which I refer was entered into by another entity prior to the incorporation of the company, and there is no evidence presented to me that the plaintiff ever ratified that agreement such that it would be bound by its terms, nonetheless the application has proceeded on the basis that agreement is a binding agreement and governs the relationship between the plaintiff and the second defendant.
Although the position to my mind is rather confusing it does appear to be the case that the parties have conducted themselves on the basis that at least some of the provisions of the contract are applicable to the relationship between the plaintiff and the second defendant. On that score however there is evidence in the form of an answering affidavit by Mr R R Roget sworn 20 July 2009 to the effect that the parties orally agreed to modify the terms of the original agreement such the plaintiff no longer required the second defendant to raise $300,000 seed capital. The case advanced by the second defendant is that it was to continue to provide services of the kind contemplated by the agreement but that it would no longer be required to raise that capital as a condition of it being entitled to be remunerated for the services it provided.
The plaintiff points to a number of peculiarities within the documentation obtained from the first defendant which includes a number of invoices which purportedly support the payments made to the second defendant. It notable that all save one of those invoices are for $11,000 plus GST bringing the total to $12,100. It is also notable that a number of the invoices appeared to have been paid for before they were issued. All of the amounts are round figures in thousands of dollars and they do not convincingly suggest that they were a calculation of a proper amount due for the provision of services and the reimbursement of expenses within the contemplation of the contract. Certainly there is much about those documents to raise suspicion. The defendant characterises these issues as largely irrelevant and asks me to focus specifically on the statement of claim. In order for the plaintiff to succeed it must demonstrate that the second defendant was not entitled to receive the payments which total being $95,700 the subject of the claim.
The evidence establishes that the second defendant performed some work under the terms of the contractual arrangement. A draft form of prospectus has been put in evidence in the affidavit of Mr Roget sworn 14 September 2009 which suggests that some work at least was undertaken by the second defendant to assist the plaintiff in listing on the Australian Stock Exchange.
It is argued by the plaintiff that the invoices which were paid by the first defendant from the plaintiff's funds were in fact retainers and that those retainers were not authorised under the terms of the contract.
As I have earlier mentioned the contractual relationship between the plaintiff and the second defendant is rather muddled and it is difficult to say with any precision precisely what that contractual arrangement was.
In order to succeed it is necessary for the plaintiff to establish that the second defendant was not entitled to receive the payments which were made to it and that the first defendant knew or ought to have known that fact.
As against the first defendant it is very difficult for me to reach that conclusion to the necessary standard of proof to support a summary judgment application. That stems largely from the fact that the terms of the contract and its status between these parties seems to me to be much in doubt together with the fact that there is evidence before me that the second defendant did at least some work to assist the plaintiff in listing on the Australian Stock Exchange. The position with the second defendant is some more complicated. The information available to the second defendant was presumably contained in the mind of the first defendant. Since the pleading is simply that the first defendant either knew or ought to have known, it is difficult to elevate that second proposition to the necessary degree of knowledge or suspicion which would make the second defendant liable to pay equitable compensation.
In my view in order for this application to succeed it would be necessary to show in effect that the invoices upon which the cheques were paid were a sham such that the first defendant and the second defendant both well knew that the work for which the invoices were allegedly rendered was either not performed, or were performed at a level which could not justify the amount claimed.
The evidence before me does not establish that fact and does no more than raise a suspicion that it might be the case. Accordingly in my view this application ought not succeed and the defendants should be given leave to defend the plaintiff's action.