Home Building Society Ltd v Layrate Pty Ltd - [2004] WADC 129

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: HOME BUILDING SOCIETY LTD -v- LAYRATE PTY LTD & ORS [2004] WADC 129

CORAM: CHANEY DCJ

HEARD: 11 & 16 JUNE 2004

DELIVERED : 24 JUNE 2004

FILE NO/S: CIV 317 of 2003

BETWEEN: HOME BUILDING SOCIETY LTD
Plaintiff
AND
LAYRATE PTY LTD
First Defendant
MARK EDWARD NORMAN
ROBERT JOHN NORMAN
Second Defendants

Catchwords:

Contract - Assignment of contractual rights - No assignment proved - Effect of notice - Damages - Entitlement to unpaid instalments

Legislation:

Property Law Act 1969 s20

Result:

Action dismissed

Representation:

Counsel:

Plaintiff:     Mr T Mijatovich
First Defendant             :     Mr K E Yin
Second Defendants       :     Mr K E Yin

Solicitors:

Plaintiff:     TRM Legal Services
First Defendant             :     Gordons Barristers, Solicitors, Mediators
Second Defendants       :     Gordons Barristers, Solicitors, Mediators

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

Carob Industries Pty Ltd (in liq) v Simto Pty Ltd (2000) 23 WAR 515

Case(s) also cited:

Van Lynn Developments Pty Ltd v Pelias Construction Co Ltd [1969] 1 QB 607
Irvine v Public Trustee [1979] 1 SR (WA) 23

CHANEY DCJ: The plaintiff claims an outstanding balance under two rental agreements. The rental agreements were entered into on 30 November 1999 and 14 January 2000 respectively. They were agreements between Easy Rent Pty Ltd, a company formerly in the finance business but now in liquidation, with the defendant Layrate Pty Ltd. Each of them was guaranteed by the second defendants. The plaintiff sues on the basis that it is an assignee of the rights of Easy Rent Pty Ltd under those agreements.
The first agreement, bearing the number ER 1516, and dated 25 November 1999 was an agreement by Layrate to rent certain specified air conditioners. The value of the equipment was said to be $120,000, and the agreement specified a repayment schedule of a first payment of $8000, with 47 subsequent monthly payments of $3405, making total payments due under the contract of $168,035.
The second agreement, bearing the number ER 1548 and dated 6 January 2000 related to the rental of various pieces of computer equipment to a total value of $71,500. Repayments were to be by way of a first instalment of $10,000, and 47 monthly instalments of $1983. The total payable under the agreement was thus $103,201.
It would appear from extracts of the loan account ledgers produced in evidence that the first defendant made the required payments pursuant to each contract until the latter part of the year 2000. Several copies of the ledger cards for the accounts were tendered, without objection, but they do not all show the same outstanding balance. Nor is it easy to discern from the records which instalments were cleared on payment, and which were dishonoured. Letters of demand written on 17 May 2001 in respect of each of the accounts suggested that default had occurred on 21 December 2000, and continued thereafter. The defendant's counsel did not address, either in cross‑examination or in submissions, questions of when default under the rental agreements occurred, and I find that default under each agreement occurred as from the instalment due on 21 December 2000.
Some time in 2001, the directors of Easy Rent Pty Ltd appointed Mr Martin Jones, a chartered accountant, as a voluntary administrator of the company. He was subsequently appointed liquidator. On 12 February 2002, the liquidator entered into an agreement with Home Building Society Ltd, the plaintiff, entitled "Transfer of Loan Contracts Agreement". It is that document which it is said by the plaintiff comprises a transfer and assignment to it by Easy Rent of all of its interests in the two rental contracts (amongst other contracts) with the first defendant.
On 5 April 2002, Mr Jones executed a number of letters addressed "To whom it may concern" in which he said:
"I confirm that on 12 February 2002 Easy Rent sold to Home Building Society Ltd ("HBS") of 184 Adelaide Terrace, Perth WA 6004, all of its interests in the company's outstanding loan contracts pursuant to a Transfer of Loan Contracts Agreement.
I confirm that the sale was ratified by the company's creditors at a meeting of creditors convened by the Deed Administrators of Easy Rent on 6 December 2001.
Effective 12 February 2002, HBS has full ownership of the company's outstanding loan/debtor contracts and thus has the rights to any benefits previously due to Easy Rent under those contracts. Accordingly, I confirm that Easy Rent no longer has any interest or ownership in the loan contracts.
Please note that nothing in this letter replaces or overrides any of the provisions set out in the Transfer of Loan Contracts Agreement.
Should you have any queries with regard to the above, please contact Lisa Jardine‑Hargrave of this office."
According to Mr Jones, he sent a letter in those terms to each renter under a rental agreement with Easy Rent. He was unable to say whether he sent a letter to the guarantors named in rental agreements.
The plaintiff's primary case is that the Transfer of Loan Contracts Agreement constituted an assignment of the rights of Easy Rent Pty Ltd against both the principal debtor, the first defendant, and the guarantors, the second defendants, pursuant to the rental agreements. The letter of 5 April 2002 is said to constitute notice of the assignment so as to make it effective in accordance with the provisions of s 20 of the Property Law Act.
The plaintiff also pleads that notice was given of the assignment on 16 September 2002. At that time, an account manager with a debt collection agency, Mr Lacey, wrote a letter to Mr Robert Norman, one of the second defendants, in which he said:
"Your reference: Layrate Pty Ltd. Account ER 1548/1516
Reference your fax dated 16 September 2002
Your client would have the above debt owing to Easy Rent Pty Ltd.
Easy Rent Pty Ltd went into administration in 2001 and Home Building Society now has ownership of all accounts. I am including a letter, which Home sent to all clients earlier this year showing ownership.
I am led to believe legal action has already started on this account, which I am trying to verify at the moment. If your client fails to negotiate a settlement for the above debt, I have instructions to continue what action has started or commence new action if necessary.
In order to avoid the above, I hope to hear from your client as soon as possible."
The letter enclosed with Mr Lacey's letter was Mr Martin Jones letter of 5 April 2002. The letter from Mr Lacey of 16 September 2002 is also relied upon as notice for the purposes of s 20(1) of the Property Law Act.
The plaintiff also relies upon another agreement that was made between Easy Rent and the plaintiff. The agreement was made apparently in September 1998. It is described as "Asset Sale Agreement". That agreement is said to constitute an assignment of the rights pursuant to the rental agreements, notwithstanding that those agreements were only made over a year later. The notices of that assignment are said to be constituted by the same two letters of 5 April 2002 and 16 September 2002.

Transfer of Loan Contracts Agreement

Clause 2.1 of the Transfer of Loan Contracts Agreement provides:
"2.1The Transferor assigns to the Transferee the Assets free of Encumbrances.
2.2The Transferor warrants that it has the right to assign each of the Assets to the Transferee and that at the Completion Date, it shall have good title to each of the Assets."
"Assets" are defined to mean "the Transferors [that is Easy Rent Pty Ltd] interests in the Loan Contracts". The "Loan Contracts" are defined to mean "the written agreements specified in the Schedule, which contracts were entered into between the Transferor and each of the Debtors, the terms of which evidence the debt owing by each of the Debtors to the Transferor".
To determine, therefore, whether the document, by cl 2.1, effects a transfer of the rights pursuant to the rental agreements with the first defendant, it is necessary to determine whether those agreements are "specified in the Schedule".
The Schedule has a heading which is "Loan Contracts and Loan Contract Assets". It then consists of a spread sheet containing a number of columns. Those columns are headed respectively, "monthly dues", "credit charge", "net balance (o/s minus unearned interest)", "o/s balance", "overdue amount", "unearned interest", and "rented equipment". What can immediately be observed is that the Schedule does not identify any party to any loan contracts, nor does it identify contracts by their identifying number.
The plaintiff's counsel sought to make the connection between the rental agreements with the first defendant, and the Schedule by reference to the description of the "Rented Equipment" in the last column of the schedule. With respect to Rental Agreement ER 1516 which dealt with air conditioning equipment, the plaintiff suggested that that agreement could be identified by the entry in the schedule where the rented equipment was described as "nightclub equipment". That connection seems to emerge from a document tendered in evidence (exhibit 11) being an invoice for "air conditioning fit out for nightclub" in the sum of $4800. That invoice is dated 8 December 1999 and apparently formed part of the records of Easy Rent Pty Ltd. Although the document was not explained in any adequate way, its tender was not challenged and I am prepared to draw the conclusion that the air conditioning equipment, the subject of Contract ER 1516, was installed in a nightclub.
According to the ledger card relating to Rental Agreement ER 1516, an amount of $119,175, being the difference between the total amount payable under the rental agreement and the instalments paid to that point, was written off as a bad debt by Easy Rent. By February 2002, no rent having been paid since December 2000, some 13 months instalments on Rental Agreement ER 1516 were apparently overdue. That is an outstanding debt of $44,265 or thereabouts. The schedule shows in relation to the item dealing with nightclub equipment, an overdue amount of $2847.81 and an outstanding balance of $31,176.81. It is impossible to correlate the figures in the schedule with the financial details of Rental Agreement ER 1516. The description of the rented equipment as "nightclub equipment" is in any event, an odd way to describe air conditioning units, even though they may have been installed in a nightclub. Furthermore, under the heading "monthly dues" the "nightclub equipment" item has the figure $1518.73. The monthly payments under the Rental Agreement ER 1516 are $3405.
As to Rental Agreement ER 1548 which dealt with computer equipment to a value of $71,500, the same problem arises in identification of that contract under the schedule. There are a number of entries into the schedule which refer to "computer" in the "rented equipment" column. None of those shows the amount of $1983, being the amount payable under Rental Agreement ER 1548, as the "monthly dues". None of them shows a figure for an outstanding balance anything like the outstanding balance payable under Rental Agreement ER 1548 as at February 2002. Counsel for the plaintiff endeavoured to suggest that one item which identified an outstanding balance of $14,808.24 for computer equipment should be taken to be the reference to Rental Agreement ER 1548. The "monthly dues" entry for that item is $785. According to the ledger card, exhibit 19, which relates to that account, the outstanding balance after 25 May 2001 was $63,257.70. Counsel sought to suggest that the outstanding balance figure in the schedule related only to payments due as at February 2002. The logic of that in the context of this agreement is difficult to see, but even if it were right, the figure of $14,808 bears no relationship to the 13 months instalments that would have been due and unpaid as at February 2002, which total $25,779. I am simply unable to identify an entry in the schedule which suggests that the Rental Agreement ER 1548 was the subject of the assignment of loan contracts under the Transfer of Loan Contracts Agreement.
There is another problem with that agreement in any event. The agreement also deals with what are termed "Rental Agreements". They are defined to mean agreements between a debtor, who is a party to a Loan Contract with Easy Rent Pty Ltd, and a third party whereby the debtor is obliged to pay rental payments to the third party, and which rental payments are funded pursuant to a Loan Contract. The regime contemplated by the agreement is that a supplier of goods would rent them to a renter, pursuant to a rental agreement. Easy Rent Pty Ltd would, pursuant to a Loan Contract, then lend money to the renter to meet the rental payments due from the renter to the supplier of the goods.
That is not the regime which existed in relation to the supply of goods subject of the two rental agreements entered into by Layrate Pty Ltd. Those agreements assume that Easy Rent Pty Ltd is the owner of the goods, and rents them to Layrate Pty Ltd. The assets transferred by the Transfer of Loan Contracts Agreement were interests in loan contracts. It seems to me that the rental agreements between Easy Rent Pty Ltd and Layrate Pty Ltd are agreements of a different character from those described as "Loan Contracts" under the Transfer of Loan Agreement.
It follows that I find that the Transfer of Loan Contracts Agreement did not amount to an assignment of Easy Rent Pty Ltd rights under the two rental agreements with Layrate Pty Ltd.
The letter from Mr Jones to parties to loan contracts is, on its face, a notice of the transfer of assets dealt within the Transfer of Loan Contracts Agreement. I accept that at least by the letter of 16 September 2002, notice of that agreement was given to Layrate Pty Ltd in the terms of Mr Jones letter of 5 April 2002. The effect of that notice is not, however, to create any assignment beyond those actually effected by the Transfer of Loan Contracts Agreement. Counsel for the plaintiff sought to argue, on the basis of the decision of the Full Court in Carob Industries Pty Ltd(in liq)v Simto Pty Ltd (2000) 23 WAR 515, that the notice itself constituted an assignment. He also agreed that that case is authority for the proposition that I should take a "liberal approach" to construction of the relevant documents. In my view, the case is authority for neither proposition. The letter of 5 April 2002 can only be understood as to its effect by reference to the Transfer of Loan Contracts Agreement which it specifically recites. There is no basis whatsoever for suggesting that the letter expands the range and number of contracts assigned under that agreement simply by being directed to a party to some different agreement between that party and Easy Rent Pty Ltd.

Assets Sale Agreement

At trial, and with some hesitation, I granted the plaintiff an amendment to the statement of claim to plead, in effect, that in addition to the assignment by the Transfer of Loan Contracts Agreement, the plaintiff assigned the debts of Easy Rent Pty Ltd pursuant to the Asset Sale Agreement entered into in 1998 by Easy Rent Pty Ltd and the plaintiff. My hesitation arose from the fact that that document had never been the subject of proper discovery, although a copy of it had been provided to the defendants' solicitors a week or so prior to trial. Quite extraordinarily, I was told that the Transfer of Loan Contracts Agreement, a pleaded document obviously central to the plaintiff's case, had also not been discovered nor had any copy been provided to the defendants until a week before trial. No explanation for that serious omission was proffered from the Bar table, and the fact that I permitted the amendment notwithstanding this serious breach of the plaintiff's obligations of discovery should not be construed as in any way excusing that conduct. Notwithstanding those concerns, however, I allowed the amendment because I was concerned that to refuse to do so may deprive the plaintiff of a cause of action permanently in circumstances where there is no apparent dispute that the defendants have received the benefit of these rental agreements, but failed to meet their obligations under them.
The Asset Sale Agreement, by cl 2, provided for the sale of trading debts in the following terms:
"2.1Easy Rent transfers to Home completely and unconditionally all trading debts owed to Easy Rent that Home specifies to Easy Rent. Easy Rent does so in return for Home paying Easy Rent one dollar (which Easy Rent acknowledges it has received), entering into this agreement with Easy Rent and for other valuable consideration.
2.2Home may specify both existing and future debts by type or general description. Home may, from time to time, vary its specifications.
2.3Debts in existence when specified become Home's immediately. Debts which do not exist when specified become Home's immediately when they come into existence."
It was argued by the plaintiff that the debts accruing under the two rental agreements with Layrate, were caught by this agreement as "future debts". The problem with the plaintiff's reliance upon this agreement is that no evidence was adduced as to any "specification" by Home that the debts, the subject of the rental agreements with Layrate Pty Ltd, were to be dealt with under the Asset Sale Agreement.
The Asset Sale Agreement creates a regime of an exchange of information in relation to what are described as "Transferred Debts". Clause 4 makes provision for each Transferred Debt to be presented to Home "as part of a batch". Each batch must be accompanied by a completed and certified summary sheet, and a batch may not contain a loan agreement which relates to a Transferred Debt advanced by Easy Rent to a debtor more than 21 days before the batch is received by Home. In this case, the evidence is that the rental agreements with Layrate led to payments by Layrate to Easy Rent of the monthly instalments for a number of months after the contacts were made. There is no suggestion that during that period the rights under the rental agreement, or the debts arising thereunder, had been transferred to the plaintiff. Clause 4 of the Asset Sale Agreement would preclude the rental agreements being the subject of transfer under that agreement in the absence of a specific agreement by Home to that effect, because of the lapse of time between the advance of money by Easy Rent, and Home seeking to obtain the benefits of the contracts. There is no evidence which touched on the subject of the inclusion of these debts in a batch, or any agreement between the plaintiff and Easy Rent to include the rental agreements with Layrate under the terms of the Asset Sale Agreement more than 21 days after the advance of money by Easy Rent.
Counsel for the plaintiff described the claim of an assignment under the Asset Sale Agreement as a "fall back position". The plaintiff has failed, however, to lay any evidentiary basis to support the application of the terms of that agreement to the facts of this case. The Asset Sale Agreement did not effect an assignment of the rental agreements which Layrate Pty Ltd entered into more than a year after the Asset Sale Agreement was entered into.
In any event, there is no evidence of any notice of an assignment pursuant to the Asset Sale Agreement to Layrate Pty Ltd nor to the guarantors.

Quantum

It is not necessary for me to address in detail the quantification of the plaintiff's claim, since the plaintiff has failed to establish any assignment of the debt. However, in case I am wrong in my conclusions, it may be useful to make some observations on the amount of the claim. The question of quantum received almost no attention at trial, although, as I have observed, a number of slightly different ledger accounts were tendered during the course of the trial, and I took it that the plaintiff was endeavouring to rely upon figures contained in a notice of default as evidence of the amount due as at the date of those notices. The defendant took no interest in any of these issues, but it is regrettable that the plaintiff made no effort to present a clear breakdown of the quantification of the amount claimed in the statement of claim. The total claimed in the pleading was not adequately particularised.

At my invitation, after completing his closing address without mentioning quantum, the plaintiff's counsel advised that the claim was made up of the balance of two of the ledger accounts, being exhibits 18 and 19, together with a figure of $9192.14 for collection costs which the plaintiff's debt collector, Mr Lacey, said had been incurred but in respect of which no documentary evidence was produced, nor any explanation of how that sum was made up, was given. Undertaking that exercise gives a different amount from the amount claimed in the writ. The difference is not great, but was unexplained.
More significantly, I note that the ledger accounts are prepared on the basis that the opening balance consists of a debit of the total amount payable under each of the rental agreements. That is an amount somewhat greater than the cost of the goods, the subject of the rental agreement, no doubt because the repayments include a notional interest return to Easy Rent in respect to the capital outlaid to purchase the goods at the outset.
The ledger cards then reduce the balance by the progressive crediting of payments made by the first defendant. The final balances shown on the ledger cards represent the total amount that would have been paid for the balance of the contract term, if it ran its course. The plaintiff pleaded, although it gave no evidence as to this issue, that there was an attempt to retake possession of the equipment "on or after 17 May 2001." I do not know whether that in fact occurred, but if it did, it would of course have amounted to an acceptance by the plaintiff of the defendants' repudiation by failing to meet the payments due under the contract. The writ was issued on 11 February 2003, well before the end of the terms of the rental agreements. The writ was generally endorsed and claimed a sum which, however it might be calculated, must amount to the whole of the balance payable under the contracts. There is a termination provision in the rental agreements which contains a requirement for redelivery of the property, the subject of the agreements in the event of termination. Easy Rent's entitlement, whether under the contract termination clause, or under general contractual principles, is a claim for damages, not for the immediate payment of all future instalments.
If there were no contractual termination nor acceptance of repudiation by an attempt to reclaim possession as the pleadings suggest, the issue of the writ claiming what appears to be the full amount of all future instalments, probably constituted an acceptance of repudiation so as to bring the contract to an end. The writ was issued well before the term of each rental agreement had expired. The remedy in those circumstances, is damages, not the immediate payment of all future instalments under the contract.
It follows that the basis of the calculation of the plaintiffs' remedy is fundamentally flawed. Had it been necessary, I would have had grave difficulty in assessing the proper entitlement of the plaintiff to damages.

Conclusion

The plaintiff has failed to establish its entitlement to the benefit of the rental agreements entered into between Easy Rent Pty Ltd and the first defendant, and it follows that the claim must be dismissed.