Harris v First Star Marine Pty Ltd

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: HARRIS -v- FIRST STAR MARINE PTY LTD & ANOR [2006] WADC 53

CORAM: CRISFORD DCJ

HEARD: 27 FEBRUARY 2006

DELIVERED : 11 APRIL 2006

FILE NO/S: CIV 1547 of 2005

BETWEEN: ROGER HARRIS
Plaintiff
AND
FIRST STAR MARINE PTY LTD (ACN 109 266 613)
First Defendant
MARK PETER AUNGIER
Second Defendant

Catchwords:

Practice and procedure - Appeal from decision of Deputy Registrar - Summary judgment - Defence of setoff and counterclaim - Legal set-off - Whether triable issue as to set-off exists - Stay

Legislation:

Rules of the Supreme Court 1971, O 14, O 20

Statutes of Set-off, Insolvent Debtors Relief 1728 (UK) s 13

Result:

Appeal allowed

Representation:

Counsel:

Plaintiff:     Mr M L Bennett
First Defendant             :     Mr M D Cuerden
Second Defendant         :     Mr M D Cuerden

Solicitors:

Plaintiff:     Bennett & Co
First Defendant             :     Verschuer Edward
Second Defendant         :     Verschuer Edward

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

Eng Mee Vong v Letchumanan [1980] AC 331
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62

Case(s) also cited:

Casella v Costin Pty Ltd, unreported; FCt SCt of WA; Library No 5416; 22 June 1989
Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18
Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40
Morgan & Son v S Martin Johnson & Co Ltd (1949) 1 KB 107
MV Yorke Motors v Edwards [1982] 1 All ER 1024
National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668
State Bank of Victoria v Parry [1989] WAR 240
Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529
White v Johnston (1986) 8 ALT 53

CRISFORD DCJ: On 20 December 2005 a Deputy Registrar of the District Court made an order granting summary judgment in favour of the plaintiff against the defendants in the sum of $75,000 together with interest on that amount at the rate of six per cent per annum from 14 March 2005.
The claim for $75,000 comprised an unpaid balance under a loan agreement. The first defendant was the borrower and the second defendant had guaranteed the loan. The loan was for $92,500 plus interest of $7,500. This total of $100,000 was repayable on or about 13 March 2005.
One need go no further than the defence filed on 19 December 2005 to confirm these facts as pleaded by the plaintiff.
The defendants repaid $25,000 on 20 June 2005 leaving a balance at that time of $75,000.
A further $22,100 was paid by cheque on 16 December 2005. Although this cheque cleared on 19 December 2005 at the time of the hearing on 20 December 2005 counsel for the plaintiff was apparently not aware of this fact. Of the original loan, $52,900 remains outstanding.
The appeal before this Court is in the nature of a hearing de novo. There is no need to demonstrate some error in the exercise of discretion or some error of judgment on a matter of fact or law. The matter is simply argued afresh as if for the first time; Hazart Pty Ltd v Rademaker (1993) 11 WAR 26.
It is not seriously in contention that the amount of $52,900 is due and owing to the plaintiff by the defendants.

Set‑off and counterclaim

The defendants filed a document entitled "defence, set‑off and counterclaim" on 19 December 2005. The defence of set‑off and counterclaim relates solely to the first defendant.
There is no suggestion that the facts relating to the set‑off and counterclaim arise out of the same transaction as the plaintiff's claim. It is not even suggested that the facts are closely related to the plaintiff's claim.
The second defendant ("Aungier") is the sole director of the first defendant ("First Star"). The business of First Star at the relevant time was the management and sale of luxury sports cruisers in the price range of $100,000 to $3,500,000.
In early November 2003 the plaintiff ("Harris") purchased a thirty seven foot Sunrunner 3700 boat ("3700") from First Star for, he says, $285,000.
Harris, for one reason or another, found the 3700 too small for his family's needs. However, he was not in a position to buy a larger model available, a Sunrunner 4800 ("4800").
In mid‑November 2004 the parties agreed a proposal that would allow Harris to purchase a larger boat, the 4800, but for First Star to be able to also use the 4800 as a promotion and demonstration model. Further, First Star would on‑sell the 4800 on consignment for Harris. Harris was to use the 3700 as a trade‑in on the purchase of the 4800. It was further agreed that First Star would receive 50 per cent of any profit made on the on‑selling of the 4800.
The 4800 was to be transported from the eastern states. Originally the parties were of the common belief that the manufacturer would pay the freight charges associated with the transportation. This apparently changed and the defendants allege that the costs were then agreed to be met by Harris. Harris says his understanding is that the freight costs would be borne solely by Aungier. The total freight costs amount to $22,900.
The defence of set‑off also includes a claim for a trade‑in shortfall of $30,000. Both parties agree that the $25,000 of the $30,000 represents the difference between what is alleged by Harris to be the original purchase price of the 3700 ($285,000) and what Aungier would allow as a trade‑in value for the boat ($260,000).
Both parties also agree that the $25,000 was to be paid by Harris to First Star from the proceeds of sale of the 4800. The parties diverge in relation to the exact circumstances in which this payment was to be made. Aungier's view is that the $25,000 was to be paid after a sale in any event. Harris's view is that the $25,000 was to be paid from any profits realised on the sale of the 4800.
The additional $5,000 is alleged to be owed by Harris on the basis that if the 3700 sold for more or less than $260,000 the difference would be split. The 3700 sold for $250,000, $10,000 less than the purchase price and this loss should be split equally. On that basis an amount of $5,000 is sought to be paid by Harris. Harris pleads that whilst the profit was to be split equally, there was no such agreement in relation to any loss.

Law

The principle issue here is whether Harris can persuade the court that his claim is a good one and there is no defence to it. Where, in an application for summary judgment, there is a triable issue as to a set‑off against the amount claimed, the defendant will be given leave to defend the application. Where, however, a triable issue is established but only by way of counterclaim, and not by way of set‑off, the court is required to give a summary judgment but, if necessary, stay execution pending the trial of the counterclaim as envisaged by O 14.3(2) of the Rules of the Supreme Court. See Seamans Civil Procedure, par 14.3.5.
First Star contends that it has a cross claim against Harris. This may be either a set‑off or a counterclaim. In "Cairns Australian Civil Procedure" 5th ed, the distinction is explained in the following terms:
"A set‑off is a defence which precludes the plaintiff enforcing the claim, either in full or in part. A counterclaim is a separate proceeding in its own right. Where a counterclaim is pleaded it proceeds against the plaintiff in the same way as if the plaintiff had been sued by the defendant in a separate proceeding. If the plaintiff discontinues the proceeding a set‑off comes to an end. If the defendant's cross claim is a counterclaim the matter proceeds on the defendant's claim, irrespective of the fate of the plaintiff's proceeding."
Order 20 r 17 provides:
"Where a claim by a defendant to a sum of money (whether of an ascertained amount or not) is relied on as a defence to the whole or part of a claim made by the plaintiff, it may be included in the defence and set‑off against the plaintiff's claim, whether or not it is also added as a counterclaim."

Is the defence of set‑off available?

Counsel for the first defendant made it clear that reliance was placed upon a set‑off at law and not upon equitable set‑off.
Where there are mutual debts between a plaintiff and a defendant one debt may be set‑off against the other, and such matter may be given in evidence upon the general issue, or pleaded in bar as the nature of the case shall require. To constitute "mutual debts" the debts must be between the same parties and be held in the same right. The source of this is to be found in the Statutes of Set-off, Insolvent Debtors Relief 1728 (UK) at s 13. Those statutes have not been repealed in this state. See also Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62 at 67.
For the Statutes of Set‑off to apply, there is no need to show any connection between the respective actions. This is not so in equitable set‑off. However, under the Statutes there is a strict requirement of mutuality. This is a requirement that the parties be the same. Mutuality is also contemplated by reference to the legal title to any debts.
The Statutes only apply where there is a debt on each side of the account. The notion of debt in this context does not only apply to liquidated amounts but also applies to money demands the amount of which can be ascertained without difficulty. The debts are quantified with precision in the defence, set‑off and counterclaim filed on 19 December 2005.
It is clear that the required mutuality is satisfied in relation to the first defendant. At the hearing of the appeal counsel for the second defendant sought that First Star's right to sue Harris also be set‑off against Aungier's debt to Harris. This is not contained in the pleadings but was sought by defence counsel in both his written and oral submissions.
Harris' claim is against First Star as principle debtor. The loan, the subject of that action was guaranteed by Aungier. The guarantor has a right to be indemnified by the principle debtor. First Star's defence of set‑off relates only to alleged transactions between itself and Harris.
Does this bring about the required mutuality under the Statutes of Set‑Off? It is often suggested that legal set‑off is of a procedural nature rather than a defence of substance. Derham, The Law of Set‑Off, 3^rd ed, 2003.
As already stated, in all the circumstances, I find the legal defence of set‑off is available to First Star. It is at least arguable Aungier can also avail himself of it. This is so given the guarantor has the right to be indemnified by the principal debtor. In this case the guarantor is not so completely removed from the principal in its defence of set‑off to suggest he cannot avail himself of it. First Star does not object.

Is there a triable issue?

In Hazcor (supra) at 69 Kennedy J said, when considering an application for summary judgment:
"It is well recognised that the jurisdiction to strike out a defence and to grant summary relief is to be exercised sparingly, and that the lack of a defence must be clearly demonstrated … But the jurisdiction should not be reserved for those cases where argument is unnecessary to evoke the futility of the defence."
A court is not bound to accept uncritically as raising a dispute of facts calling for further investigation every statement in an affidavit, however equivocal, lacking in precision or inconsistent with undisputed contemporary documents or other statements by the same deponent (Eng Mee Vong v Letchumanan [1980] AC 331 at 341.
In order to establish whether there is a fair issue to be tried it is necessary to consider the position of the defendants.
In relation to the issue of the payment of the freight, contemporaneous documents show that originally freight charges were included in the purchase price. There is no dispute over this.
On 15 November 2004 Aungier sent an email to Harris setting out a summary of their meeting in relation to the purchase of the 4800 held earlier in the day. Attached to this email detailing the terms is a price summary which shows that freight to Perth has been included in the price that applied to the parties. The manufacturer would meet the freight costs. This is consistent with the affidavit material filed by the parties for the purpose of the appeal.
I have been referred variously to the affidavits of Aungier sworn 3 February 2006, and 19 December 2005, to par 9 of the defence, set‑off and counterclaim, an affidavit of Harris sworn 20 January 2006 and the transcript of the hearing of 20 December 2005.
There is no dispute that this position subsequently changed. Paragraph 9 of the defence, set‑off and counterclaim pleads:
"9.By a further oral agreement entered into by the plaintiff and the first defendant in or about December 2005 the plaintiff agreed to pay the freight costs incurred by the first defendant of $22,900 incurred in transporting the new boat to its marina when the manufacturer declined to meet this cost." (sic)
The tax invoice to First Star for the freight is dated 8 December 2004 (the pleading suggests December 2005).
In an affidavit filed 3 February 2006 Aungier deposes that by 18 November 2004 he had been advised that the manufacturer would not pay the freight costs. He deposes that Harris agreed to pay the freight costs but the charges were unknown at that stage and they could not therefore be included in the total selling price. On 18 November a purchase order was signed by Harris and Aungier. The provision for the insertion of an amount for freight has been left blank in that purchase order.
In the transcript of proceedings before the Deputy Registrar of 20 December 2005 Aungier appeared in person. He was asked to explain the "mystery" about why First Star paid the freight costs. He explained that it was an item that would be recouped on the sale of the 4800. First Star would pay it and recoup it. Harris did not have to pay it "up front".
Aungier has deposed to the transaction not being a straightforward sale agreement. He clarified this at the hearing before the Deputy Registrar:
"It was an unusual – I mean the whole transaction was unusual in that the boat was, the new boat was purchased by the plaintiff for my cost price. So in turn that's where every little detail counted, including any shortfalls that fell on trades and freight, etc."
Harris deposes that albeit there was a change in the position of the manufacturer that change was after the purchase order was signed. He offered to contribute towards the freight costs but this was declined by Aungier who was to meet those costs himself. The original agreement was, insofar as it related to freight, based on a mistake common to both parties.
First Star eventually paid the freight and now seeks to recover it. It is not simply a matter of variation of a contract and lack of consideration. There was an agreement made upon a basis which subsequently changed through no fault of either party. I am satisfied there is a triable issue between Harris and First Star in relation to the claim for freight.
The issue of the trade‑in shortfall is somewhat unclear. The trade‑in shortfall, in my view, amounts to $25,000. This is documented in the communication detailing the agreement of 15 November 2004. Whilst both parties agreed it would be paid, it may well be necessary to determine whether this was predicated on such payment being "in any event" or simply on the basis that a profit on the sale of the 4800 would be realised. The documents are inconsistent. There is an issue to be tried and it is not possible to say it has no or little prospect of success.
An additional $5,000 is also claimed as "trade shortfall". This amount is claimed on the basis there was an agreement that after the sale of the 3700 any profit or loss would be split equally. As the loss was $10,000 the defendants are seeking payment of $5,000 from Harris. This agreement was never detailed in the communications between the parties made at the time of the conference on 15 November 2004. Those documents simply identify the trade‑in shortfall as $25,000. There is no explanation as to why the full agreement was not documented at the time it was made unlike the balance of the agreement.
I note that there was agreement between the parties that any profit from the sale of the 4800 would be split equally but no agreement as to how any loss on such sale would be borne. This is probably because no‑one contemplated there would be a loss. The 3700 was a second hand boat for sale and there were, no doubt, different considerations.
There is some documentation between the solicitors identifying the trade‑in shortfall as $30,000. This has been explained as a solicitor's error. Again it is not possible to say that this issue has no prospect of success at trial.

Conclusions

It follows from the above that there is a triable issue pleaded by way of set‑off in relation to the issues raised by First Star. Unconditional leave will be given to First Star to defend the claim.
In relation to Aungier, whilst it is not pleaded, I would be of the view it is at least arguable that he can take advantage of the defence of set‑off also. This is so given his position in relation to First Star and the nature of the guarantee.
In any event, once again given the nature of the relationship between Aungier and First Star would be an appropriate exercise of discretion to grant a stay of the action between Harris and Aungier pending disposal of the set‑off and counterclaim.
I will hear counsel as to the orders to be made in this matter.

[2006] WADC 53

11 April 2006