Graywinter Properties Pty Ltd v BMW Australia Finance Ltd
[1997] FCA 940
•15 SEPTEMBER 1997
FEDERAL COURT OF AUSTRALIA
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3600 of 1996
BETWEEN: GRAYWINTER PROPERTIES PTY LTD (ACN 051 373 570)
First ApplicantGRAYWINTER MANAGEMENT PTY LTD (ACN 057 918 340)
Second ApplicantAUSTRALIAN INVESTMENT MANAGEMENT (HOLDINGS)
PTY LTD (ACN 055 803 298)
Third ApplicantAND: BMW AUSTRALIA FINANCE LIMITED
Respondent
JUDGE: RYAN J DATE OF ORDER: 15 SEPTEMBER 1997 WHERE MADE: MELBOURNE
MINUTES OF ORDER
THE COURT ORDERS:
That the application to set aside each of the statutory demands be dismissed.
That the period for compliance with each of the statutory demands be extended to 6 October 1997.
That in the event that any of the applicants be wound up in an application relying on the statutory demand addressed to that applicant, the respondent’s costs of this application form part of its costs in that winding up application but otherwise the applicants pay the respondent’s costs of this application, such costs to be taxed in default of agreement.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3600 of 1996
BETWEEN: GRAYWINTER PROPERTIES PTY LTD (ACN 051 373 570)
First ApplicantGRAYWINTER MANAGEMENT PTY LTD (ACN 057 918 340)
Second ApplicantAUSTRALIAN INVESTMENT MANAGEMENT (HOLDINGS)
PTY LTD (ACN 055 803 298)
Third ApplicantAND: BMW AUSTRALIA FINANCE LIMITED
Respondent
JUDGE: RYAN J DATE: 15 SEPTEMBER 1997 PLACE: MELBOURNE
REASONS FOR JUDGMENT
On 15 November 1992, the respondent, BMW Australia Finance Limited (“BMW”), served a statutory demand under s 459E of the Corporations Law on each of the three applicants, Graywinter Properties Pty Ltd (“Properties”), Graywinter Management Pty Ltd (“Management”) and Australian Investment Management (Holdings) Pty Ltd (“Investment”). The statutory demand indicated that Properties was the lessor from BMW of a BMW motor vehicle and each of Management and Investment had guaranteed the due performance by Properties of its obligations under the lease.
Each applicant applied on 9 December 1996 to set aside the statutory demand against it and relied on an affidavit in substantially identical terms sworn by Garrick Lewis Gray. Mr Gray’s affidavit in support of Management’s application was in these terms:
1.I am a director of the abovenamed Applicant and am duly authorised to make this Affidavit on its behalf. I depose positively to the matters set forth herein from my own personal knowledge, save where otherwise indicated.
2.Now produced and shown to me and marked with letters “GLG1” is a true copy of the statutory demand together with the accompanying Affidavit which were served on 18 November 1996.
3.The Applicant denies guaranteeing the amount of $98,939.28 or any other amount.
4.The Respondent obtained possession of the car without notice to the applicant.
5.The Respondent failed to mitigate its loss on the sale of the car.
6.The Respondent has failed to provide the Applicant with an accounting of the alleged transactions.
7.I verily believe that a genuine dispute exists between the Applicant and the Respondent as to the alleged liability and I therefore respectfully request that this Honourable Court set aside the statutory demand.
Although only Management and Investment are alleged to have been guarantors, the affidavit sworn on behalf of Properties contains a paragraph identical to paragraph 3 quoted above.
It was contended on behalf of BMW that none of the affidavits relied on by the applicants discharged the obligation imposed on an applicant by s 459G(3) of the Corporations Law in these terms:
An application is made in accordance with this section only if, within those 21 days:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
However, Counsel for the applicants pointed to the observations of Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253 to this effect:
There may be cases, and indeed it may be the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.
On the other hand, if proof of a claim was required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case. In Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No2) (1994) 13 ACSR 787; 12 ACLC 490 I indicated that so long as the claim is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion. Even if the proposition in Jesseron (No 2) goes too far, as Mr Hutley submits, it would seem to me that in a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures, or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of the debt.
It was said that the original affidavit of Mr Gray in each case went beyond the mere assertion of the existence of a dispute by identifying at least three bases on which liability to the respondent was denied. Accepting Young J’s proposition that the extent to which an affidavit on behalf of an applicant needs to travel beyond assertion may differ from case to case, the present was said to be a case where very little more was required. That was because the statutory demand contained only the most elliptical description of the alleged debt and was supported by an affidavit which did not properly verify the existence of a debt. The Schedule to the statutory demand addressed to Management was in these terms:
Description of debt Amount of the debt
Balance owing under Luxury Lease
Agreement (A/c 308253) dated 13
February 1996 with Graywinter
Properties Pty Ltd as lessee in
relation to a BMW 730iLA motor
vehicle (Reg No FHT 171), as
guaranteed by the Debtor pursuant
to an instrument of Guarantee and
Indemnity dated 11 February 1996. $96,839.28Total amount $96,839.28
The affidavit in support of the same statutory demand was sworn by one Kok Wah Siew in these terms:
1.I am a Collections Manager in the employ of the creditor and by virtue of my position I am authorised by the creditor to swear this affidavit on its behalf.
2.I believe that the amount of $96,839.28, being the debt specified in the accompanying demand, is due and payable by the debtor to the creditor.
3.I have access to the books and accounting records of the creditor and I swear this affidavit from my knowledge of those books and records and/or from my own knowledge. The debt arises from the shortfall in the amount owing by Graywinter Properties Pty Ltd (“GPPL”) to the creditor pursuant to a Luxury Lease agreement dated 13 February 1996 (no. 308253) in respect of a BMW 730iLA motor vehicle (Reg. FHT 171) leased by GPPL from the creditor, and specifically from the obligations of the debtor as a guarantor in respect of that lease pursuant to an instrument of Guarantee & Indemnity dated 11 February 1996 in favour of the creditor.
4.I believe that there is no genuine dispute about the existence or amount of the debt referred to in paragraph 2.
The passage from John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (supra) was quoted by Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581 where Properties was the applicant and relied on an affidavit, also sworn by Mr Gray, which consisted of these paragraphs:
1.I am a director of the abovementioned Applicant and am duly authorised to make this affidavit on its behalf. I depose positively to the matters set forth herein from my own personal knowledge, save where otherwise indicated.
2.Now produced and shown to me and marked with the letters “GLGI” is a true copy of the statutory demand together with the accompanying affidavit.
3.The Respondent agreed to a compromise, terms payment and to forbear to sue in relation to the alleged debt, which is disputed. I verily believe judgment was entered erroneously and have given instructions for an application to be made to set aside the judgment.
4.I verily believe that a genuine dispute exists between the Applicant and the Respondent as to the alleged liability and I therefore respectfully request that this Honourable Court set aside the statutory demand.
His Honour, after reproducing the passage from John Holland quoted above, continued at 586:
The cases discussed under this and the previous heading have not dealt with the issue that arises in the present case. John Holland was concerned with whether the affidavit material showed a genuine dispute. No question arose as to whether the affidavit was a “supporting” affidavit within s 459G(3). In Scanhill and 71 Paisley Street the principal question was whether the affidavit satisfied O 71 r 36B. This may have been a question preliminary to the ultimate “genuine dispute” or “offsetting claim” question, but it was not the same preliminary question as that raised here - whether the affidavit filed with the application satisfies the description of an “affidavit supporting the application”. But that issue was squarely raised in Hire Works [Pty Ltd v Elexpo Pty Ltd (1995) 19 ACSR 114 a decision of Senior Master Mahony in the Supreme Court of Victoria].
After setting out an extensive passage from the reasoning of the learned Senior Master, Sundberg J concluded, at 587:
The High Court in Grant said that compliance with the subsection is a limitation or condition upon the authority of the court to set aside a demand; it is a condition of the jurisdiction that subs (3) be observed; if the condition is not observed there is no application before the court. I am thus unable to agree with the Senior Master that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a “supporting affidavit” is not a jurisdictional impediment.
The minimum requirements in a genuine dispute case
In order to be a “supporting affidavit”, an affidavit must say something that promotes the company’s case. An affidavit which merely says “I am a director of the company but am too busy at present to make a full affidavit, and I will do so later” would not support the application. It would in no way advance, further or assist the company’s cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street.
In a s 459H(1)(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading.
An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify.
I am thus unable to accept the respondent’s submission that the affidavit must contain sufficient material to make out a case under s 459H. In reply, that submission was somewhat retreated from. It was said that the affidavit must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute - it might read more like a pleading than a story. That accords with what I consider to be the minimum requirement.
After concluding that later affidavits cannot be used to supplement an applicant’s case “in which the affidavit containing the minimum requirements has not been served within time”, Sundberg J proceeded to examine the sufficiency of the four paragraph affidavit quoted above with which he was concerned and noted, at 588:
The deponent says he is a director of the company and has personal knowledge of the matters deposed to. Although it is somewhat unclear, para 3 seems to be saying that the respondent claimed a sum of money as a debt due by the applicant; the applicant disputed the debt; a compromise was agreed to involving instalment payments by the applicant in return for which the respondent agreed not to sue; notwithstanding the compromise the respondent succeeded in entering judgment for the full amount of the debt; because of the compromise the respondent was not entitled to enter judgment; the deponent has given instructions to seek to have the judgment set aside; and by reason of the foregoing the deponent believes there is a genuine dispute between the parties as to the alleged liability. Although this material is not set out in point form, and is indeed ambiguous and in need of construction, that in substance is what the affidavit says. It thus sets out the facts, though not the evidence, which show a genuine dispute between the parties, and accordingly satisfies the minimum requirements. The applicant is therefore entitled to supplement the affidavit.
Examining with a similarly benevolent eye the affidavit of Mr Gray on behalf of Management, I regard it as asserting in the manner of a pleading, first, that Management did not enter into an enforceable guarantee of the performance of the lessee’s obligations under a lease of the car. It is then apparently asserted by way of a further or alternative plea that the respondent took possession of the car without notice to the applicant and failed to mitigate its loss on the sale of the car. That seems to be tantamount to saying “If (as is not admitted) Management did enter into a guarantee in favour of the respondent, there were terms of such guarantee:
(a)that, if the respondent should seek to recover possession of the car, it should only do so after giving notice to Management;
(b)that, if the respondent were to retake possession of the car, it would take all steps reasonably necessary to mitigate the loss for which Management would become liable to indemnify the respondent;
It is further to be inferred from Mr Gray’s affidavit that neither of those conditions has been fulfilled by the respondent. Similarly, the assertion that the respondent has failed to provide the applicant with an accounting of the transactions seems to erect another further or alternative plea that, if Management had executed a guarantee of performance of the terms of a lease, it was a term or further term of that guarantee that before liability under it should attach to Management, the lessor would provide that company with an accounting of the transactions from which it was said to arise so as to quantify the amount for which Management was liable as guarantor. Such an accounting, presumably, would detail the instalments of rent paid by the principal debtor as lessee, the balance owing under the lease, and the amount realised from the sale of the car net of repossession and selling expenses and the like.
As in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (supra) the present affidavit requires some construction to tease out the bases of the alleged dispute. However, I have concluded on a very fine balance, having regard to the exiguous amount of material in the statutory demand and the supporting affidavit themselves, that, understood in the way outlined above, Mr Gray’s affidavit satisfies the minimum requirements.
It then becomes necessary to examine the further affidavits filed after 9 December 1996 on behalf of the applicants and the respondent respectively in order to see whether the applicants can maintain the allegation of a genuine dispute as to the existence of a debt.
Exhibited to an affidavit sworn 10 February 1997 by Dino Calvisi, the collections officer for BMW, is a copy of a lease constituted by an offer dated 11 February 1996 by Properties accepted on 13 February 1996 on behalf of BMW. That document bears the common seal of Properties apparently attested by Mr Gray as director and another signatory as secretary. The goods said to be leased were described as a BMW Model 730iLA 1193 sedan dark green in colour, registered number FHT 171. The term of the lease was expressed to be forty-eight months from the date of Properties’ offer to take the goods on lease and provision was made as follows for instalments of rent under the lease and the residual value of the goods:
5.Lease Instalments:
The Total Lease Instalments shall be paid by 48 monthly instalments as follows:
(1)The First Lease Instalment prior to delivery of the Goods is $2095.34
(2)The subsequent Lease Instalments shall be payable by 47 Instalments of $2095.34 each, comprising $2064.37 rent with $30.97 stamp duty and $0.00 FID.
The First Lease Instalment shall be paid on the date hereof and the subsequent Lease Instalments shall be paid on the same day in each succeeding month.
6.The Residual Value $45813.75.
Also exhibited to Mr Calvisi’s affidavit are copies of deeds of guarantee and indemnity each dated 11 February 1996 and executed under seal by Management and Investment and one Michael Frederick Winter personally. Mr Winter is described by Mr Calvisi as a “former director” of Properties and “now a bankrupt”. The affixation of the common seal of each of Management and Investment was attested by Garrick Gray as director and James Gray as secretary. In clause 1 of the terms and conditions forming part of that deed of guarantee, “Agreement” is defined to mean “the Agreement described in item 4 of the Schedule”. That Schedule identifies Properties as “the Customer” and by item 4 identifies the agreement as “Luxury Lease dated 11 February 1996”. Other terms and conditions of each deed of guarantee are as follows:
2. GUARANTEE (1) The Guarantor shall pay to BMW on demand by BMW all moneys payable by or recoverable from the Customer pursuant to the Agreement (a copy of which the Guarantor Acknowledges has been given to the Guarantor prior to execution of this Guarantee) which are not paid by the Customer on the due date for payment whether demand has been made by BMW on the Customer or not.
(2) The Guarantor shall observe and perform on demand by BMW all conditions, obligations and liabilities contained in the Agreement and on the part of the Customer to be observed and performed with which the Customer does not comply within seven (7) days after the due date for observance or performance whether a demand for such observance or performance has been made by BMW on the Customer or not.
7. CONTINUANCE OF LIABILITY The liability of the Guarantor shall continue notwithstanding that BMW has taken possession of any goods pursuant to the provisions of the Agreement.
8. PRINCIPAL OBLIGATION This Guarantee shall be a principal obligation and shall not be treated as ancillary to or collateral with any other obligations howsoever created and in particular shall be independent of any other security relating to the Agreement to the intent that this Guarantee shall be enforceable without first taking steps or proceedings against the Customer and notwithstanding the loss by BMW of any security.
9. NOTICES Any notice or certificate which BMW may decide to serve upon the Guarantor may be so served by delivering the same to the Guarantor or by leaving the same at the Guarantor’s address specified in item 1 of the Schedule or at any such other address of the Guarantor as is last known to BMW, or by posting the same to the Guarantor at either such address by prepaid letter, and any such notice so posted shall be deemed to have been served on the day following the date of posting.
10. CERTIFICATE EVIDENCE Any certificate signed by an Officer of BMW specifying as at a particular date an amount owing or payable to BMW under or pursuant to this Guarantee or specifying any other matter of a factual nature which is relevant to any of the rights or obligations of BMW or the Guarantor hereunder shall be admissible in any proceedings and shall be conclusive evidence of the matters so specified.
Mr Calvisi goes on to depose:
7.When the Lease was entered by GPPL payments of rental immediately fell into arrears. The same motor vehicle had previously been the subject of an operating lease finance agreement between BMW and GPPL, but the vehicle finance facility was renegotiated into a Luxury Lease, with different rental payment terms, at the request of GPPL in February 1996. Following the rental payments under the Lease falling into arrears, and prior to BMW repossessing the subject motor vehicle written notices were sent by post by BMW to the Applicant companies at their last known address. Produced and shown to me marked “DBC 3” are copies of Notices of Intention to Repossess which were posted by express post to the Applicants on 29 February 1996.
Each notice was in the same terms and recited:
TAKE NOTE THAT BMW AUSTRALIA FINANCE LIMITED (A.C.N. 007 101 715) the owner of:
1993 BMW 730iL
Registration No. FHT171
leased by you under an agreement dated February 13, 1996 intends to re-take possession of the goods after the expiration of Seven (7) days from the service of this notice unless the arrears of instalments as noted below are paid to BMW AUSTRALIA FINANCE LIMITED at 783 Springvale Road, Mulgrave 3170 on or before March 7, 1996
Total amount Payable $146,390.07
Amount Paid or provided by the Lessee to 28/02/96 $0.00
Arrears under agreement to 28/02/96 $2,095.34
Dated February 29, 1996
Paragraph 8 of Mr Calvisi’s affidavit describes various attempts made to contact representatives of the applicants about the arrears of instalments under the lease and the affidavit continues in paragraph 9 to assert:
It took some time to locate the vehicle. In or about early April 1996 BMW was called by a motor vehicle body repairer who advised that the subject vehicle was being held by them, and had been for approximately 12 months following a serious accident in which the vehicle was involved apparently while in the custody of Mr Winter. Produced and shown to me marked “DBC 5” is a copy of a report from BMW’s agent/loss adjuster concerning the condition of the vehicle and the subsequent negotiations undertaken in order to obtain the vehicle. Needless to say the value of the vehicle had been substantially reduced as a result of the serious collision. Ultimately a reduced repair bill of $35,000.00 was negotiated with the repairer, which was paid by BMW on or about 3 May 1996 in order for BMW to obtain the release of the vehicle for repossession. The collision and damage had not previously been notified to BMW, despite the fact that BMW was the owner of the vehicle at all material times.
Subsequent paragraphs of Mr Calvisi’s affidavit deposed to notices of repossession sent to the applicants, an unsuccessful attempt to sell the vehicle at auction and a private sale in August 1996 for $62,289 net of expenses from which the purchaser resiled when the vehicle was found to be unroadworthy. After further repairs at a cost in excess of $1,100, it was sold at auction for $63,500 ($62,992 net of selling expenses). The narrative of events until after the service of the statutory demand concludes with this paragraph:
14.After finalising the resale of the vehicle further notices were sent by BMW to the Applicants on 28 October 1996 detailing the sale proceeds received by BMW and describing the calculation of the remaining debt owing under the Lease. Produced and shown to me marked “DBC 8” are copies of those notices. In November/December 1996, after service of the Statutory Demands, I held several telephone discussions with Messrs Victor Kilby and James Gray on behalf of the Applicants discussing the Lease among other matters. I am informed and believe that Mr Alan Crookes, Associate Director of BMW, also spoke by telephone to Mr Gray on one or two occasions around that time. During those telephone conversations the abovementioned facts were discussed in general and the calculation of the remaining debt was again outlined. I do not believe the applicants have sought any further accounting of the transactions involved, which are relatively straightforward. Messrs Kilby and Gray have referred to the fact that the vehicle had been intended for the use of Mr Winter, who had since left the companies and become bankrupt. They were informed that has no bearing on the responsibility of the Applicants for the debt. They also asserted that the companies had moved address (without notice to BMW) and that BMW’s various notices had not been received.
The further affidavit of Garrick Gray sworn 18 February 1997 refers to the affidavit of Mr Calvisi. The relation in which the applicants and Mr Winter stood in respect of the vehicle is described in this paragraph:
3.At the time that the Lease was entered into it was the understanding of all the parties that the motor vehicle in question was to be used by Michael Winter. Graywinter Properties Pty Ltd was responsible for the payment of lease instalments on behalf of Michael Winter. The motor vehicle was to be used exclusively by Michael Winter who was to bear the full cost of the Lease and be in all respects responsible to the Respondent in respect of the vehicle. The Applicants, including the first-named Applicant, were, in effect, guarantors of Michael Winter.
It is then contended that the instruments of guarantee and indemnity were not binding on Management or Investment because they were dated 11 February 1996 whereas the lease had been executed on 13 February 1996. Mr Gray’s affidavit goes on to assert a failure by BMW to keep each applicant advised of defaults under the lease by Winter who is said not to have been associated with the applicants since December 1995. It is further contended that on notices of intention to repossess having been returned unclaimed, BMW should have re-served them after ascertaining the applicants’ correct current address from the records of the Australian Securities Commission. In this context it is noted later in the same affidavit that BMW had been able to effect service of the statutory demands at the correct address. Paragraphs 10 and 11 of Mr Gray’s further affidavit are in these terms:
10.No indication is given in paragraph 8 of the Calvisi Affidavit as to when the Respondent’s agent was instructed to locate and repossess the vehicle. It would appear from paragraph 9 of the Calvisi Affidavit that the location of the vehicle was known to the Respondent in early April 1996. It is a fair assumption that that would have been prior to the proper service on each Applicant (if such in fact has taken place, which is denied) of the requisite Notices of Intention to Repossess. It would appear that the vehicle was located in early April 1996, and it is alleged that a facsimile message was sent on 23 April 1996. The Applicants have got no knowledge of any facsimile message of such date.
11.The Calvisi Affidavit states that the vehicle was at the repairer for approximately 12 months to early April 1996. As the Lease was entered into on 13 February 1996, the vehicle must have been at the repairer at the time the Lease was entered into. In that case the Applicants were misled and deceived concerning the Lease and the Guarantee as they were not informed that the vehicle had sustained damage. Moreover, the Lease contains a term that “the goods”, being a BMW vehicle, were of merchantable quality and fit for the purpose for which they were intended, namely driving.
Another contention made in para 12 of Mr Gray’s further affidavit is that, if the vehicle had already been damaged by 13 February 1996, BMW had no right to lease it to Properties because it was not unencumbered and was not roadworthy. It is next asserted that “it would appear from the Calvisi affidavit that no attempt appears to have been made by [BMW] to advise [Management] or [Investment] of any default under the Lease”. However, that assertion overlooks the claim in para 7 of Mr Calvisi’s affidavit quoted above that notices of intention to repossess were posted to the applicants on 29 February 1996.
It is also significant that a facsimile message dated 23 April 1996 was addressed “To: Michael Winter/James Gray Company: Gray Winter Properties P/L Subject: Luxury Lease #308253 1993 BMW 730iL Auto, Rego No. FHT171 Fax: (03) 9820 9685.”
The body of that facsimile message was in these terms:
With reference to the above we regret to note that the company or the guarantors have failed to respond to our numerous phone calls and faxes over the past two months. As you know the delays in returning the refinance documents back to us on or before 8 February 1996 has resulted in a shortfall between the payout figure and the refinance amount. In addition the first rental for the refinance agreement that commenced 13 February 1996 remain unpaid and another two rentals has since fallen due.
You will probably recall, I hope, that the reason given by you for refinancing the Operating Lease Agreement was to assist your budgeting requirement. This being the case we would appreciate if you could advise us of your intentions in resolving these problems immediately.
Regards
Brian Siew
cc Gray Winter Management P/L
Australian Investment Management.
Mr Gray does not dispute that the facsimile message just quoted came to the notice of the applicants. Rather, he contents himself with saying, in para 8 of his further affidavit:
8.... Furthermore, the telephone and facsimile messages referred to in paragraph 8 of the Calvisi Affidavit allegedly left for Michael Winter and/or James Gray do not amount to Notices of Intention to Repossess required to be given by the Respondent to the Applicants. No dates when these messages were sent is indicated in the Calvisi Affidavit.
By para 14 of his further affidavit, Mr Gray contends:
14.Paragraph 10 of the Calvisi Affidavit states that “Custody Notices” were sent on 24 May 1996 to the Applicants “at their last known address”. It would appear that the Respondent had again sent the Notices to an address knowing that it was not an address at which the Applicants would receive the requisite Notice.
However, no basis has been established for that supposition. Moreover, the applicants appear to have moved no further from the address shown in the lease and deed of guarantee, Level 12, 484 St Kilda Road, Melbourne than to Level 9, 479 St Kilda Road, Melbourne.
In para 15 of Mr Gray’s second affidavit it is suggested:
15.It would also appear from paragraph 10 of the Calvisi Affidavit that the “Custody Notices” were allegedly posted to the Applicants on 24 May 1996 after the vehicle was repossessed on 3 May 1996. The Applicants were not given an opportunity to remedy any alleged default.
Mr Gray’s next contention is that after the first offer for the vehicle had been received, which he suggests was in August 1996, there was a conversation between Mr Calvisi and Mr James Gray in November 1996 in which Mr Calvisi intimated that the price which BMW had obtained on the first sale was $68,000 and not the $63,000 indicated in the Calvisi affidavit. The relevant part of Mr James Gray’s diary note was in these terms:
[Mr Calvisi] informs me that car sold at Fowles Auctions in late Sept, early Oct. The car had previously been sold for $68,000 to a purchaser who paid for it, but threatened to sue BMW for the return of its funds when they were unable to obtain a roadworthy.
Those allegations provided a basis on which Mr Gray went on to contend:
17.It would appear that the Respondent was negligent in offering to sell the vehicle when it knew or ought to have known that the vehicle was unroadworthy. The Applicants should not be expected to bear the additional cost and the reduced ultimate sale price arising from the failure of the vehicle to sell the first time due to the Respondent’s negligence. The Applicants should not be held responsible or liable for the Respondent returning the first sale price, which we are informed by Mr Calvisi to be $68,000.
The allegation that BMW had failed to mitigate the loss on the sale of the vehicle is made in paragraph 18 of Mr Gray’s further affidavit in these terms:
18.It would also appear that the Respondent did not obtain the best price for the vehicle. Our valuations obtained by us indicated that a price of at least $90,000 was obtainable had the sale been held in December. In all respects, the Respondent failed to mitigate its loss to the detriment of the Applicants.
Finally, in para 20 of Mr Gray’s second affidavit the allegation is repeated that “the applicants have not been provided with a proper accounting of the alleged debt and matters relating to the disposal of the vehicle”.
I regard as of no significance the fact that the deeds of guarantee were dated 11 February 1996 whereas the lease was not executed by BMW by way of acceptance of the offer until 13 February 1996. The consideration for the guarantee was expressed to be “BMW at the request of the Guarantor (as the Guarantor hereby acknowledges) agreeing to enter the agreement of the kind described in item 4 of the Schedule”. I construe that as a reference, not to BMW’s having executed the lease, but to its promise to accept the offer to take the vehicle on lease which was performed two days after execution of both the offer and the deed of indemnity. It is by no means unusual for the consideration for a guarantee to be expressed to be the promise to enter into the principal transaction rather than the actual assumption by the party guaranteed of the principal liability; see O’Donovan and Phillips The Modern Contract of Guarantee (2nd Edn) p. 55 and the cases there cited at n. 152.
The short answer to the contention that BMW should have kept the applicants advised of defaults under the lease by Winter is that the lessee from BMW was not Mr Winter but Properties. If, as seems to have happened, Properties bailed the vehicle to Mr Winter or otherwise allowed him to have the use of it on his undertaking to pay the lease instalments as they fell due, it was for Properties to enforce that undertaking as, vis-a-vis BMW, any default would be that of Properties which would be presumed by the lessor to be aware of its own default. Moreover, Mr Winter, as a director of Properties, owed it a fiduciary duty, in the circumstances, to keep it informed of the extent of its liability under the lease from time to time which he had not discharged by payment of instalments.
The contention that notices of intention to repossess the vehicle should have been sent to the correct current address of each of the applicants as disclosed in the records of the Australian Securities Commission is answered in respect of Management and Investment by the stipulation in each deed of guarantee that the guarantee is enforceable on demand whether demand has been made on the customer (Properties) or not. It was open to BMW by virtue of cl 9 of the guarantee to serve a notice of demand “by leaving the same at the Guarantor’s address specified in item 1 of the Schedule or at any such other address of the Guarantor as is last known to BMW or by posting the same to the Guarantor at either such address by prepaid letter” (emphasis added). There is no evidence that any later address for Management or Investment than that shown in the Schedule to the guarantee was known to BMW but, even if it had been, the words to which I have added emphasis allowed BMW to elect to send a notice of demand to the address shown in the Schedule as it did by the notice dated 28 October 1996.
As far as Properties is concerned, two of the “events of termination” specified in cl 12(1) of the standard terms and conditions annexed to the lease as entitling BMW to retake possession of the vehicle were:
if:-
(a)the Lessee defaults in payment of any Lease Instalment and such default continues for seven (7) days or more;
...
(d)the Lessee fails to observe or perform any condition, covenant or other obligation on its part contained in or implied by this Agreement and, in the case of a default which is capable of being remedied, the Lessee has not caused the default to be remedied within the period (being not less than seven (7) days) specified in a notice in writing given to the Lessee by BMW requiring that such default be remedied.
It is to be observed that the first event of termination, which apparently occurred, required no period whatsoever to elapse before BMW became entitled to possession. However, even if BMW were required to rely on the event of termination specified in cl 12(1)(d) which did require service of a notice on the lessor, it had, by virtue of cl 17 a right to elect between addresses of the lessee to which to send the notice. Clause 17 was in these terms:
Any notice or certificate which BMW may decide to serve upon the Lessee may be so served by delivering the same to the Lessee or by leaving the same at the Lessee’s address specified in item 1 of the Schedule or at such other address of the Lessee as is last known to BMW, or by posting the same to the Lessee at either such address by prepaid letter, and any notice so posted shall be deemed to have been served on the day following the date of posting.
The notices of repossession posted on 29 February 1996 to the address of each applicant as shown in the Schedule to the lease and to each guarantor respectively were therefore sufficient to satisfy any condition precedent to the enforcement by BMW of its rights against each applicant.
I do not accept the unstated premise underlying para 10 of Mr Gray’s further affidavit that BMW was precluded from serving notices of intention to repossess before it had located the vehicle at the repairer’s workshop. It is clear from the provisions of the lease and the deeds of guarantee discussed above, that such notice could be given to Properties as lessee immediately upon its falling into arrears in payment of instalments under the lease irrespective of whether the whereabouts of the vehicle were then known to BMW. Although the notice of demand dated 29 February 1996 was also posted to Management and Investment as well as to Properties, I consider that the notice of 28 October 1996 was all that was required to fix the former two companies with liability under the guarantee.
The claim that the applicants were misled by some suggestion that the vehicle was in good repair when the lease was entered into and the guarantees were given is answered by cl 5(1)(a) and (b) of the standard conditions annexed to the lease which were in these terms:
(1)Subject to clause 20 the Lessee warrants, agrees and acknowledges that:-
(a)the Lessee has thoroughly examined the Goods before signing this Agreement and is satisfied as to the condition, quality and suitability of the Goods for the Lessee’s purpose and that the Goods are, or will when delivered be, in accordance with the description contained in item 3 of the Schedule and are of a design, size, capacity, type and manufacture as selected by the Lessee.
(b)the Lessee has relied solely on the Lessee’s own skill and judgement in selecting the Goods as suitable for the purpose of the Lessee’s business and if the Lessee either expressly or by implication has made known to BMW or to the person by whom any antecedent negotiations were conducted any particular purpose for which the Goods are required, the Lessee has not relied on nor would it have been reasonable for the Lessee to have relied on the skill or judgement of BMW when deciding whether the Goods were reasonably fit for that purpose;
Sub-clauses (1) and (2) of cl 20 of the standard terms and conditions forming part of the lease stipulated:
(1)All warranties on the part of BMW expressed or implied by any Act or the general law, are to the extent permitted by law expressly excluded from this Agreement.
(2)If any condition, warranty or term is implied in this Agreement by any Act or the general law and has not been excluded from this Agreement, then to the extent to which such condition, warranty or term is binding on BMW the liability of BMW for breach of that condition, warranty or term other than a condition, warranty or term implied by section 69 of the Trade Practices Act 1974 (Commonwealth) or any similar condition, warranty or term implied by any other Act shall be limited to any one or more of the following as determined by BMW in its absolute discretion: (a) the replacement of the Goods or the supply of equivalent Goods; (b) the repair of Goods; (c) the payment of the cost of replacing the Goods or of acquiring or hiring equivalent Goods; or (d) the payment of the cost of having the Goods repaired.
Section 69 of the Trade Practices Act is concerned with implied conditions or warranties that the supplier of goods will have a right to sell them at the time when the property is to pass, that the consumer will enjoy quiet possession and that the goods will remain free from undisclosed encumbrances. To the extent that it may be suggested that the vehicle was encumbered by a lien in favour of the repairer to whom Mr Winter had delivered it, that encumbrance was clearly disclosed or known to the consumer (Properties) before the making of the contract in the form of the lease of 13 February 1996. Accordingly, none of those conditions or warranties affords Properties, or through it, the other applicants, a defence to BMW’s claim in the present case.
Section 71(1) of the Trade Practices Act imports an implied warranty that the goods are of merchantable quality but that condition is not available:
(b)if the consumer examines the goods before the contract is made, as regards defects which that examination ought to reveal.
Since it appears that Properties, through Mr Winter, consigned the vehicle to the repairer, it is to be taken that Properties was well aware of the nature and extent of the damage requiring repair.
There is considerable doubt whether the second lease entered into on 13 February 1996 was a contract for the supply of goods within the meaning of s 79(2) of the Trade Practices Act which imports an implied condition that the goods are reasonably fit for a purpose made known to the supplier. In any event, the circumstances which I have just recounted show that Properties did not rely, or that it was unreasonable for it to rely, on the skill or judgment of BMW as to whether the vehicle was, on 13 February 1996, reasonably fit for the purpose of “driving”.
Similar considerations preclude Properties from asserting that BMW had no right to lease the vehicle to it because it was unroadworthy. The present state of the evidence indicates that BMW was a victim, rather than the perpetrator, of any misleading or deception in respect of damage which the vehicle had sustained before 13 February 1996.
The “custody notices” exhibited to para 10 of Mr Calvisi’s affidavit which were sent to each of the applicants recited that, in default of payment of “lease rentals” amounting to $43,381.36, BMW had exercised its entitlement to “take the goods the subject of the Lease in custody”. Each notice further gave the recipient until 31 May 1996 to remedy the default whereupon it could retake delivery of the goods. BMW is not obliged by the terms of the lease or the guarantee to give any “custody notice” before retaking possession of the goods. The right to recover possession arose on the expiration of seven days from service on Properties of the notice of intention to repossess dated 29 February 1996. For reasons explained above, that notice was properly served by posting it to Level 12, 484 St Kilda Road, Melbourne.
Even if BMW should not have entered into the earlier, abortive, sale of the vehicle without first ensuring that the vehicle was roadworthy, it does not follow that the applicants can set off the difference between the price of $68,000 which they say was obtained on that first sale and the $62,992 net for which it was later, successfully, sold. In any event, a counterclaim or setoff for an amount in the order of $5,000 would not, in the absence of a genuine dispute about the existence of the debt claimed by BMW, require the setting aside of the statutory demand pursuant to s 459H of the Corporations Law. Similar considerations apply to any claim which the applicants may be able to advance that BMW has miscalculated the “recoverable amount” to which it is entitled under the terms of the lease.
The “valuations” referred to in para 18 of Mr Gray’s second affidavit have not been exhibited or otherwise disclosed to BMW. It does not appear whether they were based on an actual inspection of the vehicle in its damaged condition. Moreover, it is not open to the applicants to rely on an appraisal of what the vehicle would have fetched in December 1995 when the default under the lease did not occur until February 1996 and possession of the vehicle was not recovered by BMW until April of that year. For these reasons I do not regard the alleged failure by BMW to mitigate the loss on the sale of the vehicle as giving rise to a genuine dispute as to the existence of the debt due from the applicants or to a genuine offsetting claim maintainable by the applicants.
Neither the terms of the lease nor the provisions of the guarantee imposed any obligation on BMW to provide a “proper” or any form of accounting to the applicants in respect of the amount realised on the sale of the vehicle or otherwise related to the calculation of the balance of the “recoverable amount” due under the lease. Moreover, I consider that adequate disclosure of the information to which a lessor could reasonably be required to provide in the circumstances has been made by the notices sent to each of the applicants on 28 October 1996. There is no specific denial that those notices were received but such a denial would not avail the applicants because, for the reasons explained above, the notices were properly served.
For all of these reasons, I am not satisfied that there is a genuine dispute as to the existence of the debt claimed by BMW. Nor am I satisfied that any of the applicants has a genuine offsetting claim. I therefore decline to set aside the statutory demands. I shall extend the time for compliance with them for a further 21 days. The applicants must pay the respondent’s costs of the application including any reserved costs and I shall order that, in the event of a winding up order being made on the basis of non-compliance with any of the statutory demands, BMW’s costs of the present application shall be recoverable as the petitioning creditor’s costs in the winding up.
I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Judgment of the Honourable Justice Ryan.
Associate:
Dated: 15 September 1997
Counsel for the Applicants: Mr P K Searle Solicitors for the Applicants: Garrick Gray & Co Counsel for the Respondent: Mr J Simpson Solicitors for the Respondent: Mills Oakley Date of Hearing: 19 February 1997 Date of Judgment: 15 September 1997
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