Groom v Creative Cardboard Pty Ltd
[2010] SASC 352
•23 December 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
GROOM v CREATIVE CARDBOARD PTY LTD
[2010] SASC 352
Judgment of The Honourable Justice Sulan
23 December 2010
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - TIME
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - MISLEADING OR DECEPTIVE CONDUCT GENERALLY - GENERALLY
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - CHARACTER OR ATTRIBUTES OF CONDUCT OR REPRESENTATION - INTENTION
Appeal against order of Magistrate - three contracts entered into by company - appellant was sole director and controller - second and third contracts entered into after company was deregistered by ASIC - respondent did not receive payment - appellant found personally liable on all three contracts by Magistrate - appeal filed out of time - whether time to appeal should be extended - whether appellant was personally liable on contracts - misleading or deceptive conduct - conversion - unjust enrichment.
Held: Appeal dismissed in relation to second and third agreements - misleading or deceptive conduct - appellant purported to act as agent for deregistered company - claim in relation to first agreement remitted to Magistrate - conversion - no evidence of title in goods or time of delivery - unjust enrichment - no evidence of personal benefit - pleadings should identify causes of action and give sufficient particulars.
Corporations Act 2001 (Cth) s 601AB; Magistrates Court Act 1991 (SA) s 40(1); Fair Trading Act 1987 (SA) s 56, s 84; Trade Practices Act 1974 (Cth) s 52, referred to.
Gikas v Police (1999) 202 LSJS 301; Black v Smallwood (1966) 117 CLR 52; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, applied.
Jackamarra v Krakouer (1998) 195 CLR 516, considered.
GROOM v CREATIVE CARDBOARD PTY LTD
[2010] SASC 352Magistrates Appeal: Civil
SULAN J: This is an appeal by the defendant, Stephen Barry Groom, from a decision of a Magistrate, in which Mr Groom was ordered to pay $18,228.50, plus costs, in respect of goods ordered from the plaintiff, Creative Cardboard Pty Ltd (“Creative Cardboard”).
The issue which arises on this appeal is whether Mr Groom can be held personally liable in respect of three agreements entered into between a company of which he was a director and Creative Cardboard.
Background
Creative Cardboard produces boxes used for packaging. Groom Technologies Pty Ltd (“Groom Technologies”) purchased boxes for packaging bike racks. Mr Groom conducted the business. He was the sole director and controller of the company. Creative Cardboard manufactured specialised cardboard cartons and displays.
Mr Groom approached Creative Cardboard in February 2009 and requested that they produce a number of cartons for bike rack products that Groom Technologies intended to supply to its customers. On 27 February 2009, Groom Technologies agreed to purchase, and Creative Cardboard agreed to supply, cartons for a total cost of $15,037 (“the first agreement”). A written order for the sale and purchase of the goods was raised by Creative Cardboard. The parties agreed that 50 per cent of the contract sum would be paid immediately and the balance within 30 days of delivery.
Groom Technologies paid $5,537. The balance of $9,500 remains unpaid. The cartons were produced in March 2009. Mr Groom collected the finished cartons some time between 20 March 2009 and 27 March 2009. A tax invoice for this order, dated 31 March 2009, for the balance of $9,500 was issued by Creative Cardboard.
On 20 March 2009, Groom Technologies was deregistered by the Australian Securities and Investments Commission (“ASIC”), the company having failed to pay fees and charges to ASIC.
On 11 May 2009, Mr Groom caused a new company, Groom Technologies (Aust) Pty Ltd (“Groom Technologies Aust”) to be formed.
Mr Groom placed a further verbal order for 1050 cartons, on behalf of Groom Technologies, in late April or early May 2009. Creative Cardboard informed Mr Groom by email, dated 8 May 2009, that they required payment of $9,500, the amount outstanding from the first agreement, before they would produce further cartons. Creative Cardboard then agreed to produce 100 cartons to be delivered upon payment (“the second agreement”). An invoice was raised to Groom Technologies on 20 May 2009 for an amount of $759, with a request that payment be made before the cartons were released.
Mr Groom issued a cheque on the account of Groom Technologies on 21 May 2009 for the amount of $759. The 100 cartons were delivered. The cheque was subsequently dishonoured by the ANZ Bank and no further payment has been made. Mr Groom was aware at the time he tendered the cheque to Creative Cardboard that Groom Technologies had been deregistered. Without knowing that Groom Technologies had been deregistered, Creative Cardboard then completed a further 1050 cartons (“the third agreement”). A third invoice for this work, dated 29 May 2009, for an amount of $7,969.50 was raised and sent to Groom Technologies. Payment of this invoice has not been made, and the cartons are still held by Creative Cardboard.
On 3 June 2009, Creative Cardboard wrote to Groom Technologies demanding the outstanding amount totalling $18,228.50 in respect of the three invoices. Creative Cardboard only became aware of the existence of Groom Technologies (Aust) when they sought to recover the outstanding amount.
The pleadings
A statement of claim was issued on 7 July 2009 by Creative Cardboard, alleging that Groom Technologies (Aust) owed Creative Cardboard $18,228.50 “for work and labour done in March and May 2009”. The statement of claim does not identify each contract, nor does it particularise the dates of each transaction.
The pleading is as follows:
The plaintiff’s claim against the defendant (Groom Technologies (Aust)) is for the sum of $18,228.50 being monies owing by the defendant to the plaintiff for work and labour done March and May 2009. The defendant has full particulars.
The defendant, Groom Technologies (Aust), did not exist at the time when the first agreement was made. As to the second agreement, the invoice was made out to Groom Technologies and the cheque was issued by Groom Technologies. As to the third agreement, the invoice was to Groom Technologies. Creative Cardboard did not enter into agreements with Groom Technologies (Aust), the first defendant. At all relevant times, it was unaware of the existence of Groom Technologies (Aust). On 16 October 2009, a Magistrate ordered that Mr Groom be joined as a defendant to the action.
In an affidavit in support of the application to join Mr Groom, the solicitor for Creative Cardboard deposed that, on 11 May 2009, prior to the issue of the second and third invoices, Mr Groom incorporated Groom Technologies (Aust), and that he had entered into the contract in anticipation of Groom Technologies (Aust) being incorporated, and in circumstances in which he, Mr Groom, was personally liable.
In an affidavit in response, Mr Groom deposed that he first became aware that Groom Technologies had been deregistered in May 2009, and that all business dealings with Creative Cardboard had been with Groom Technologies, not Groom Technologies (Aust). He denied that he was personally liable. Creative Cardboard did not seek to amend the statement of claim.
The pleading relied on by Creative Cardboard was brief. Creative Cardboard submits that a short form of pleading is sufficient in the Magistrates Court.
Magistrates Court (Civil) Rules, r 24 states:[1]
24.(1) (a) Subject to any order of the Court a short form of pleading disclosing the dates(s), place(s), circumstances and the cause of action upon which the action is based is sufficient.
(b) If the Court requires a more detailed pleading the pleading must comply with the Supreme Court Civil Rules 2006.
[1] Magistrates Court (Civil) Rules 1992 (SA) r 24.
Creative Cardboard further submits that the Court can draw legal inferences from the findings of fact and arrive at a judgment. The Court can therefore give judgment upon any cause of action available on the evidence.
Even having regard to Magistrates Court Rules r 24, the pleadings are deficient. First, at the time of the first agreement, Groom Technologies (Aust) did not exist. In his reasons, with which I will deal in more detail later, the Magistrate has not drawn any distinction between Groom Technologies and Groom Technologies (Aust). The Magistrate made no findings in respect of the defendant, Groom Technologies (Aust), which was unrepresented. Mr Groom did not seek to represent that company. The Magistrate confined his reasons to the issue of Mr Groom’s personal liability.
I am satisfied that there has been no prejudice to Mr Groom in the Magistrate proceeding as he did. I have read the evidence, and I am satisfied that Mr Groom was aware of the case that was being presented against him.
The deregistration of Groom Technologies
Groom Technologies was deregistered by ASIC on 20 March 2009, due to non-payment of fees. Mr Groom gave evidence that he was unaware that the company had been deregistered. He stated that correspondence from ASIC to the company was not forwarded to him from the company’s registered address. Mr Groom contends that he only became aware of the company’s deregistration when he was informed of the fact by another creditor of the company in about early May 2009.
Mr Groom said that he consulted his accountant, who advised him that it would be cheaper to form a new company rather than pay the outstanding fees, and have the company re-registered. Mr Groom registered Groom Technologies (Aust) on 11 May 2009, rather than re‑registering Groom Technologies.
Creative Cardboard disputed the evidence of Mr Groom. Counsel for Creative Cardboard relied upon the Corporations Act 2001 and submitted to the Magistrate that he should find that Mr Groom was aware that the company was to be deregistered at least two months prior to 20 March 2001.
Section 601AB of the Corporations Act 2001 (Cth) provides:
Deregistration – ASIC initiated
Circumstances in which the ASIC may deregister
(1)ASIC may decide to deregister a company if:
(a) the response to a return of particulars given to the company is at least 6 months late; and
(b) the company has not lodged any other documents under this Act in the last 18 months; and
(c) ASIC has no reason to believe that the company is carrying on business.
(1A)ASIC may also decide to deregister a company if the company’s review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment.
(2)ASIC may also decide to deregister a company if the company is being wound up and ASIC has reason to believe that:
(a) the liquidator is no longer acting; or
(b) the company’s affairs have been fully wound up and a return that the liquidator should have lodged is at least 6 months later; or
(c) the company’s affairs have been fully wound up under Part 5.4 and the company has no property or not enough property to cover the costs of obtaining a Court order for the company’s deregistration.
Deregistration procedure
(3)If ASIC decides to deregister a company under this section, it must give notice of the proposed deregistration:
(a) to the company; and
(b) to the company’s liquidator (if any); and
(c) to the company’s directors; and
(d) on ASIC database; and
(e) in the Gazette.
When 2 months have passed since the Gazette notice, ASIC may deregister the company.
(4)ASIC does not have to give a person notice under subsection (3) if ASIC does not have the necessary information about the person’s identity or address.
(5)ASIC must give notice of the deregistration to everyone who was notified of the proposed deregistration under paragraph (3)(b) or (c).
Creative Cardboard did not lead evidence that notice had been given to the company or to Mr Groom, the director, pursuant to s 601AB(3). The Gazette was not tendered. There was no evidence to support the contention that the requisite notice had been given. Counsel simply relied on the Act.
Findings of the Magistrate
The Magistrate found Mr Groom personally responsible for all three of the outstanding invoices. The Magistrate concluded that Mr Groom had had the benefit of the goods and that he had failed to take action to avoid the plaintiff’s loss. Judgment was entered against Mr Groom in the sum of $18,228.50. The Magistrate’s reasons were brief.
As to Mr Groom’s knowledge of when Groom Technologies was deregistered, the Magistrate said:
Be that as it may, Mr Geyer has correctly pointed out that the Corporations Act makes it quite clear that ASIC has in place a rigorous system of advice to companies that are about to be de-registered. Based on the extensive notice process and bearing in mind Mr Groom’s changeable and unimpressive evidence, I find in fact that he was aware of the imminent de-registration of the company. He purposely proceeded, did not advise the plaintiff when it was de-registered, and failed to advise the plaintiff at any time thereafter.
The Magistrate erred in concluding that it had been proved that Mr Groom had knowledge of the proposed deregistration of Groom Technologies prior to entering into the first agreement. The fact that the Magistrate disbelieved the evidence of Mr Groom is not evidence that Mr Groom was aware of the position at the time that the first agreement was entered into, or at the time he took delivery of the cartons between 20 and 26 March 2009. There was simply no evidence from which the Court could infer that Mr Groom had knowledge of the deregistration of Groom Technologies Pty Ltd on or before 20 March 2009.
The Magistrate found that Mr Groom had acted fraudulently and had misled Creative Cardboard by continuing to represent to it that the company was registered and solvent. The Magistrate said:
As already indicated, Mr Groom was an unsatisfactory witness who had no interest in telling the truth if it did not suit his imagined case. He purposely attempted to defraud the plaintiff by tendering a cheque that could never have been honoured and notwithstanding his protests to the contrary, was quite happy to mislead the plaintiff and represent to it that the company was registered and solvent. In my view, Mr Groom’s actions were unprincipled and deliberate.
I find that the defendant behaved mischievously by continuing to conduct himself as if the company was alive and well and thereby misled the plaintiff. From 20 March 2009 the company was no longer registered, yet Mr Groom purported to carry on business on behalf of Groom Technologies (Aust) Pty Ltd.
In conclusion, I am satisfied that Mr Groom was aware of his company’s imminent de‑registration but chose to rely on a deceit that he was unaware of same in order to avoid the debt. Since it is not possible for the defendant company to have transacted with the plaintiff, Mr Groom must be deemed to have been acting in his personal capacity.
The appeal
Mr Groom relies upon the ground that he should not be held personally responsible for the three outstanding invoices totalling of $18,228.50. He submits that he was acting in his capacity as a director of Groom Technologies.
Counsel for Creative Cardboard submits that the initial contract with Groom Technologies, evidenced by written order dated 27 February 2009, became ineffective and was frustrated by reason of the deregistration on 20 March 2009 of Groom Technologies.
Counsel further submits that Mr Groom received a personal benefit. He collected the cartons on approximately 26 or 27 March 2009, after the company was deregistered.
Counsel relies on the findings of the Magistrate that Mr Groom misled the respondent by continuing to represent to it that Groom Technologies was registered and solvent.
Extension of time
The appeal was instituted on 13 July 2010. The judgment had been entered on 6 April 2010. Mr Groom was required to commence his appeal 21 days after the date of the judgment.[2] The Court is empowered to extend the time in which an appeal can be instituted.[3] In considering whether to grant an extension of time, the Court will consider a number of factors, including the length of the delay, the explanation for the delay, whether there is any prejudice suffered by the opposing party, and whether there are some prospects that the appeal will be successful.[4] The question for the Court is whether, in refusing an application for extension of time, there is a real possibility that a miscarriage of justice will occur. The party seeking the extension of time must show that there is a real possibility that a miscarriage of justice might occur by failure to extend the time.
[2] Supreme Court Civil Rules 2006 (SA), r 281(1), Magistrates Court Act 1991 (SA), s 40(1).
[3] Supreme Court Civil Rules 2006 (SA), r 295(1).
[4] Gikas v Police (1999) 202 LSJS 301.
If a case is strong on the merits and ought to be heard, then there are good reasons to extend the time in which a party is able to institute their appeal. Nevertheless, that must be considered having regard to the factors to which I have earlier referred. If an appeal has little prospect of success, an extension will not be granted.[5]
[5] Jackamarra v Krakouer & Anor (1998) 195 CLR 516, 520.
Mr Groom sought to explain the delay in instituting the appeal on the basis that he had not been able to obtain a copy of the judgment and transcript of the proceedings in the Magistrates Court until 13 July 2010, the date on which he lodged his notice of appeal. Mr Groom was not represented, either in the Magistrates Court or before me. A failure to obtain a transcript or a copy of a judgment is not of itself a basis upon which an extension of time will be granted, but it is a factor to which the Court can have regard.
Creative Cardboard has not demonstrated a substantial prejudice if this Court were to extend the time. The Magistrate erred in concluding that Mr Groom misled or deceived Creative Cardboard about the status or future status of Groom Technologies. For the reasons I have given, Creative Cardboard failed to prove Mr Groom had notice of the intention of ASIC to deregister the company. Creative Cardboard failed to prove that Mr Groom had knowledge that Groom Technologies had been deregistered at the time he took delivery of the boxes the subject of the judgment. I would extend the time to institute the appeal to 13 July 2010.
The first agreement – is Mr Groom personally liable?
The general common law rule is that a person cannot be held liable for a contract unless they personally intended to be a party to the contract. Windeyer J in Black and Another v Smallwood and Another,[6] stated:
It would, I think, be contrary to now-established principle to hold a man personally liable on a contract when he did not intend personally to contract, and when, the transaction being in writing, the writing could not upon its true construction, when read in the light of what both parties took to be the facts, mean that he had done so. The purported contract in this case was a nullity, for the supposed purchaser did not exist when it was made. The suit for specific performance therefore must fail.
[6] (1966) 117 CLR 52, 64.
The parties to the first contract were Groom Technologies and Creative Cardboard. At the time the contract was entered into, Groom Technologies was registered with the ASIC. Proofs of the printing were sent to Mr Groom for his approval and, in an email dated 12 March 2009, he authorised Creative Cardboard to proceed. Mr Groom collected the finished cartons at some time between 20 March 2009 and 27 March 2009. Groom Technologies had been deregistered on 20 March 2009. An invoice for the amount of $9,500 was issued to Groom Technologies on 31 March 2009.
The Magistrate was in error in concluding that Mr Groom misled Creative Cardboard at the time of entering into the contract. At the time, Groom Technologies had not been deregistered. The evidence does not support a conclusion that, at the time, Mr Groom was aware that ASIC was about to deregister the company. There was no evidence of when advice of the proposed deregistration had been sent by ASIC to Groom Technologies. The Magistrate made no finding of the exact time at which Mr Groom became aware that the company had been deregistered. The Magistrate was in error in concluding that Mr Groom knew that the company had been deregistered when Mr Groom took delivery of the cartons. The Magistrate was in error in concluding that Mr Groom was personally liable in respect of the first agreement.
It does not follow that Mr Groom is personally liable because he took delivery of the cartons. However, if he took delivery of the cartons after Groom Technologies had been deregistered, he may be liable to Creative Cardboard in conversion. Conversion involves a dealing with goods in a manner unconnected with the right of the person entitled to them, and an intention in so doing to deny that person’s right.[7] If, therefore, the property in the cartons remained with Creative Cardboard and Creative Cardboard was entitled to retain the goods of which Groom Technologies took delivery, then if Mr Groom, without the lawful authority of Creative Cardboard or Groom Technologies, received the goods, he may be liable in conversion, even in circumstances in which he innocently received the goods, believing that he was receiving them for and on behalf of Groom Technologies. The question of whether Mr Groom is liable in conversion was not argued before the Magistrate or before me.
[7] Winfield & Jolowicz on Tort (9th Edition) at p 422.
Before the issue of conversion can be determined, there are matters of fact which need to be determined and which have not been addressed by the Magistrate. The question of who had title in the goods at the time of delivery, and when exactly the goods were delivered, was not decided.
Mr Geyer, counsel for Creative Cardboard, further submits that Mr Groom is liable in restitution in respect of the first agreement in that he personally was enriched when he took delivery of the goods and is, therefore, liable to pay the balance of the purchase price. It appears no argument was addressed to the Magistrate seeking restitution on the basis of unjust enrichment. The evidence does not establish when Mr Groom first became aware that Groom Technologies had been deregistered. The evidence does not establish when Mr Groom took delivery of the boxes the subject of the first agreement. The Magistrate made no finding of the date upon which Mr Groom took delivery of the boxes. He made no finding of whether Mr Groom personally benefitted when he took delivery of the boxes.
The Magistrate’s reasons in respect of the first contract fail to make the necessary factual findings to support the case now presented by Creative Cardboard.
The second and third agreements
An oral order for further cartons was placed by Mr Groom in late April or early May on behalf of Groom Technologies. Creative Cardboard sent an email to Mr Groom, dated 8 May 2009, informing him that they required payment of the $9,500 outstanding on the first order before they proceeded with the order.
Creative Cardboard notified Mr Groom, by email dated 11 May 2009, that one of their suppliers had a gap in their production and that Creative Cardboard could produce a small initial run quickly. Creative Cardboard produced a second invoice for this order, dated 20 May 2009, for 100 cartons in the amount of $759, and requested payment to be made before further cartons were released. A cheque, dated 21 May 2009, for the amount of $759 was drawn on the account of Groom Technologies in trust for Groom Investment Trust, and issued to Creative Cardboard by Mr Groom. The cartons were released to Mr Groom. The cheque was subsequently dishonoured by the ANZ Bank. It is Mr Groom’s evidence that he knew that Groom Technologies had been deregistered at the time he presented this cheque. Mr Groom said in cross-examination:[8]
[8] T 40-1.
QNow, looking at Exhibit P9, you’ll see a couple, in fact there’s an e-mail in the middle of the page on P9, would you agree that you’ve sent an email dated 11 May to Roger Burrato.
A Yes.
Q That’s the same day that you registered the new company, correct.
ACorrect, yes.
QSo, certainly on 11 May you were aware that the old company had been de-registered.
AYes.
Creative Cardboard proceeded to produce the remainder of the cartons, pursuant to the oral order of late April or early May. Creative Cardboard produced a third invoice for this order, dated 29 May 2009 for 1050 cartons in the amount of $7,969.50.
Misleading and deceptive conduct
I turn to the issue of whether Mr Groom is personally liable on the ground that he misled or deceived Creative Cardboard as to the status of Groom Technologies.
Section 56 of the Fair Trading Act 1987 (SA) provides:
56 – Misleading or deceptive conduct
(1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2)Nothing in the succeeding provisions of this Division limits by implication the generality or subsection (1).
The equivalent Commonwealth provision, s 52 of the Trade Practices Act 1974 (Cth), has been held to apply even though the conduct that misled or deceived was unintentional. Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd said:[9]
It has been held that the section is not confined to conduct that is intended to mislead or deceive: Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre Ltd. There is nothing in the section that would confine it to conduct which was engaged in as a result of a failure to take reasonable care. A corporation which has acted honestly and reasonably may therefore nevertheless be rendered liable to be restrained by injunction, and to pay damages, if its conduct has in fact misled or deceived or is likely to mislead or deceive.
[9] (1982) 149 CLR 191, 197.
A party that suffers loss or damage as a result of the misleading or deceptive conduct of another may recover the amount of the loss or damage against the other person or any person involved in the contravention.[10]
[10] Fair Trading Act 1987 (SA) s 84.
The Magistrate concluded that Mr Groom misled Creative Cardboard by continuing to represent to Creative Cardboard that Groom Technologies was still in existence after it had been deregistered by the ASIC on 20 March 2009. Even if Mr Groom was unaware that the company had been deregistered, he is liable for having misled Creative Cardboard when he represented to it that he was authorised to contract on behalf of Groom Technologies. Even if Mr Groom’s evidence that he did not know that the company had been deregistered until 11 May 2009 is accepted, he purported to act as an agent for a deregistered company. Mr Groom’s conduct misled and deceived Creative Cardboard into the erroneous assumption that they were dealing with Groom Technologies, a registered company.
The oral orders made in late April and May by Mr Groom, the subject of the second and third agreements, were made on behalf of Groom Technologies, after the company had been deregistered. Mr Groom presented a cheque, dated 21 May 2009, for payment of the second invoice, dated 20 May 2009, in the amount of $759 drawn on the account of Groom Technologies. Mr Groom knew that Groom Technologies had been deregistered when he presented the cheque. The cheque was dishonoured by the ANZ Bank. Mr Groom misled and deceived the respondent by purporting to act on behalf of an unregistered company in respect of the second and third agreements.
Conclusion
Insofar as the Magistrate’s findings relate to the first agreement, I would allow the appeal and order that the issues raised in respect thereof be remitted to the Magistrate for further hearing. I remit that part of the claim to the Magistrate for further consideration. I direct the respondent, Creative Cardboard, to file a further statement of claim identifying, with sufficient particularity, the causes of action upon which it relies.
As to the findings and judgment in respect of the second and third agreement, I would dismiss the appeal. I would vary the Magistrate’s order, and order that judgment be entered in respect of those claims in the total amount of $8,728.50, plus the fees of $1,084.75, making a total of $9,813.25.
I shall hear the parties as to costs.
0
4
1