Kleiner v Ross

[2009] QDC 423

DISTRICT COURT OF QUEENSLAND

CITATION:

Kleiner v Ross [2009] QDC 423

PARTIES:

Herman Karl Kleiner and Inge Ilse Kleiner
(Plaintiffs)

And

David Allan Ross
(Defendant)

FILE NO/S:

444/08

DIVISION:

Civil

PROCEEDING:

Application

ORIGINATING COURT:

District Court, Townsville

DELIVERED ON:

24 February 2009

DELIVERED AT:

Townsville

HEARING DATE:

09 February 2009

JUDGE:

Durward SC DCJ

ORDERS

1. Application to strike out defence and counterclaim granted.
2. Application for summary judgment adjourned.
3. Leave to the Defendant to file and serve a further defence or defence and counterclaim within 14 days of the date of this judgment.
4. The parties each have liberty to apply on three (3) days notice.
5. The Defendant to pay the Plaintiffs’ costs of and incidental to the application assessed on the standard basis or as agreed.

CATCHWORDS:

PLEADINGS – claim for recovery of unpaid balance of moneys pursuant to a Deed of Loan – vendor finance – defence denying liability - counterclaim for restitution of moneys paid under Deed of Loan on basis of breach of Business Contract said to incorporate Deed of Loan.
CONTRACT – whether Deed of Loan and Business Contract are separate instruments – whether Business Contract completed – whether purported notice of termination valid – whether any claim for damages for breach in fact pleaded.
STRIKING OUT PLEADINGS – whether defence and counterclaim disclose any reasonable defence or claim
SUMMARY JUDGMENT – whether plaintiff entitled to summary judgment

Rules 171 and 292 Uniform Civil Procedure Rules.

General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125.

COUNSEL:

Mr AJ Moon for the Plaintiff/Applicant
Mr D Honchen for the Defendant/Respondent

SOLICITORS:

Connolly Suthers for the Applicant
LA Ward Legal for the Respondent

1. The applicants (“the plaintiffs”) have applied to the Court for summary judgment against the respondent (“the defendant”); or alternatively to strike out the defence of the defendant; and to strike out the counterclaim of the defendant.

THE CLAIM

1. The plaintiffs’ claim is for the sum of $71,000, being the unpaid balance of a Deed of Loan (“the Deed”) in the sum of $78,000 entered into between the parties. The Advance was made as ‘vendor finance’ for the sale and purchase of a business. The Deed so far as is relevant provided for the advance of the sum of $78,000 by the plaintiffs to the defendant; a payment regime of consecutive weekly payments of $500; and upon default by the defendant the advance, or any balance remaining unpaid, become immediately payable without the necessity for any notice or demand by the plaintiffs.

THE DEFENCE

1. The Deed is admitted. However, the respondent claims he is no longer bound to repay the balance of $71,000, apparently on the grounds that the Deed was a condition of the sale of the business and was one of two documents that constituted a single contract or gave rise to a single contractual obligation.

THE BUSINESS CONTRACT

1. The business contract is a standard REIQ “Contract Business Sale” that incorporates the ‘Standard Conditions of Sale – Business Sale (second edition)” (“the contract”).  The business was a painting and decorating services business styled “Herman’s Service”.  The purchase price was $88,000, with the balance of $78,000 remaining after payment of a non-refundable deposit of $10,000. The sale was on a ‘walk-in, walk-out’ basis.  The purchase price was apportioned between assets ($40,000) and goodwill ($48,000).

1. Clause 2 of the contract provided that “Where there is any conflict between the Standard Conditions and this Contract, this Contract prevails.

1. There are four special conditions in the contract, namely:

“1.       This contract is subject to and conditional upon the sellers providing to the                 buyer on or before the date of completion vendor finance in the amount of   seventy-eight thousand dollars ($78,000) to be repaid at the rate of $500 per                week, each week over a period of three (3) years commencing on the third day of   March 2008.

2.        The buyer acknowledges that for a period of three (3) years from the date of               settlement they will not provide any advice or assistance to customers on colour               concepts and designs and will refer customers to the sellers.

3.        The deposit shall be a non-refundable Deposit payable by the buyer on entering               into this contract.

4.        This contract is subject to the buyer obtaining an appropriate licence to conduct              the business from the Building Services Authority Queensland on or before the                  date of settlement of this contract.”

1. Special condition 2 contains an obvious error in that it refers to the ‘buyer’ rather than the ‘seller’. It is the seller who is acknowledging a restraint provision.  However, neither party has taken any issue about that error.

1. The date of completion of the contract was 14 March 2008. 

1. The Standard Conditions  relevantly include the following:

“39.     ENTIRE AGREEMENT

39.1    This contract contains the entire agreement between the parties with respect to                its subject matter and supersedes all prior negotiations, understandings and                    agreements, whether oral or written.

38.      SELLER’S DEFAULT

38.1     If the Seller fails:

(a)        …

(b)        to comply with the terms and conditions of this contract;

The buyer may:

(c)       affirm this contract or

(d)      terminate this contract.

38.2     …

38.3     If the buyer affirms this contract under 38.1, the buyer may:

(a)        sue the seller for either:

(i)        damages for breach; or

(ii)      specific performance and damages in addition to or instead of   specific performance.

38.4     If the buyer terminates this contact under clause 38.1:

(a)      all deposit and other moneys received by the seller or deposit holder   on account of the purchase price must be promptly refunded to the   buyer by the seller or the deposit holder as the case may be; and

(b)      the buyer may sue the seller for damages for breach.”

THE DEED

1. The Deed was made on 18 February 2008; the same date as the contract.  In the Deed the Recital provides as follows:

“A      The borrower has requested the lenders to advance to the borrower the sum   of seventy eight thousand dollars ($78,000) subject to the terms of this Deed                    which   the lenders have agreed to do upon the borrower executing this   Deed.”

1. The defendant  undertook to repay the advance “by way of consecutive weekly payments in the sum of five hundred dollars ($500) with the first payment due on 3 March 2008 and thereafter on the same day of each week thereafter until repaid in full.”

1. In clauses 4.1 and 4.2 the Advance or the unpaid balance became payable without the need for notice or demand, upon the happening of one of the following events:

“4.1     If default be made by the borrower in the due and punctual repayment of any                    part of the advance at any time due and payable by the borrower to the lenders      

4.2      If default be made by the borrower in the observance of performance of any                obligations contained in this Deed whatsoever on the part of them or any part                  of them. 

THE COUNTERCLAIM

1. The defendant relies on the restraint provision for his denial of liability to make further payments under the Deed and as the basis for his counterclaim.  He alleges that the male plaintiff is in breach of the restraint provision and has failed to deliver to him the business mobile phone or change or cancel the business telephone number.  The phone and the business telephone number were part of the assets that were purchased by the defendant. The defendant has, in reality but not as pleaded, claimed restitution of the $7,000 of weekly payments made under the Deed and interest.  However, the defendant – somewhat curiously – appears to have retained the business, its assets and the goodwill, continues to operate it, has not sought to recover the deposit paid to the plaintiffs and has not pleaded damages save for the sum of $7,000 which is characterised as damages in the counterclaim.

TERMINATION

1. In his pleading the defendant refers to a purported termination of the contract.  This is expressed in the following terms in the defence: 

·     In paragraph 3(b)(ii):            “…after 11 June 2008 the defendant had terminated the contract and the obligation under the Deed to make regular payments was no longer binding upon the defendant.”

·     In paragraph 5(b)(ii):            “…the defendant terminated the contract and notified the plaintiffs in writing through his solicitor on or about 25 June 2008.”

·     In paragraph 5(c):     “In the premises of paragraph 5(b)(i) and 5(b)(ii) above, the contact having been terminated the defendant was no longer under an obligation to make payments to the plaintiffs under the Deed.”

In the counterclaim the purported termination of the contract is referred to in the   following terms:

·     In paragraph 16:       “On 25 June 2008 the defendant gave to the plaintiffs notice in writing that the defendant would not be continuing with the contract.”

I will say something further about this matter shortly.

THE SUBMISSIONS

1. The plaintiffs submit the following: the defendant is in default under the Deed and is liable to pay the balance of the Advance; the Deed did not form part of the contract as a matter of law or pursuant to the contract itself; the claim is for money due under the Deed and not under the contract; the contract was concluded, discharged by performance and was not an executory contract; the proper remedy for the defendant was to sue for damages for breach of the restraint provision; and the contract gave rise to quite distinct and separate legal rights from the obligations and rights arising under the Deed. 

1. The defendant says that the plaintiffs are in breach of the contract, that the defendant has terminated the contract and that he has claimed damages by way of counterclaim. 

1. As I have observed, the sum claimed in the counterclaim is the amount of weekly payments made by the defendant to the plaintiffs, rather than a sum of damages referable to any alleged breach of the contract by the plaintiffs.

DISCUSSION

1. The contract contains the entire agreement between the parties (Standard Condition 39.1). The Deed is not part of the contract, even though reference is made to the advance in special condition #1 of the contract.  The Advance was made pursuant to the Deed and thereby special condition #1 was satisfied as at the date of completion.  The Deed is a separate agreement between the parties and provides for discreet liabilities and rights as between them.  The contract is a separate agreement between the parties and provides for discreet liability and rights as between them.  By way of analogy, if the defendant had borrowed the $78,000 from, say a financial institution, he would be liable to repay that loan even if the plaintiffs were in breach of the contract.  As a matter of law, his remedy would lie in a claim for damages for the breach of the contract.  That claim would be irrelevant in so far as his liability to the financial institution in meeting the repayments of the loan were concerned.  The legal position does not change simply because the source of the funds is the plaintiffs as vendors rather than a financial institution. Further, whilst a set-off is not pleaded by the defendant, it does not seem to me that it would be available given that the plaintiff is suing on the Deed and the defendant is counterclaiming (to the extent that the counterclaim is sufficiently pleaded) on the contract.

1. The contract is completed.  The terms upon which its completion was made conditional (special conditions #1 and #4) were performed before the completion date.  The special conditions #1 and #4 were in the nature of contingent conditions.  The parties were respectively to fulfil them to complete the contract.  The defendant took possession of the assets and has conducted the business since the date of completion.  The contract was not a “terms contract” where for example it might have been conditioned that the purchase price was to be paid by instalments over time and hence was executory in character.  The contract has been performed.  It is complete. 

WAS THERE A VALID NOTICE OF TERMINATION?

1. The defendant, by his letter of 25 June 2008 addressed to the plaintiffs, purports to have given notice of breach of contract or, in other words, elected to discharge or rescind the contract. The defendant in his pleadings asserts that to be the case, as I have indicated by the particular parts of the pleading relating to this issue.

1. However, the letter does not explicitly assert such a termination of the contract.  So far as is relevant, the letter says in its concluding paragraphs:

“Your client is in breach.

In terms of the arrangement between our clients, our client has paid to your client the sum of $17,000 being an initial deposit of $10,000 and subsequently 14 weekly payments of $500.

Given your clients’ breach our client has a number of remedies available to him.  Also our client is entitled to damages for loss of income and exemplary damages given your clients’ actions.

As a result of your clients’’ actions our client shall retain the items delivered in terms of the business contract and shall not make any further weekly payments to your client.”

1. Whether that letter is a valid or sufficient notice of termination or election is a moot point. The defendant's conduct in retaining the assets, continuing the business and seeking to recover only the payments made pursuant to the Deed is not for my determination on this application.

THE DEED AND THE CONTRACT

1. In my view, the deed is not part of the contract as the defendant submitted it was.  The Deed and the contract stand alone.  They each contain their own discreet terms and conditions.  They each create separate legal liabilities and may give rise to discreet remedies.

1. It follows that the defence is misconceived.  On the pleadings there is no defence to the claim disclosed.  In so far as the counterclaim is concerned, it is not a proper pleading.  It seeks recovery of the weekly payments made under the Deed.  However, the plaintiffs are not in breach of the Deed.  The defendant is in breach of the Deed by reason of his cessation of the weekly payments.

1. In so far as the contract is concerned, the defendant may have a separate claim.  How such a separate claim might be dealt with as a matter of procedure is not for me to comment upon here.  However, such a claim is a separate matter to the Deed.  The plaintiff may have a defence to a claim for breach of the contract.  However, the defendant has not in my view pleaded a claim for damages in the counterclaim and as I have said, it may be arguable as to whether any notice of termination of the contract has in fact been given. 

1. I do not consider that the defence and the counterclaim set up any legal answer to the plaintiffs’ claim.

STRIKING OUT THE DEFENDANTS’ PLEADINGS

1. Rule 171 of the Uniform Civil Procedure Rules provides as follows:

“171    (1)      This rule applies if a pleading or part of a pleading –

(a)       discloses no reasonable cause of action or defence; or

(b)       has a tendency to prejudice or delay the fair trial of the   proceeding; or

(c)       is unnecessary or scandalous

(d)       is frivolous or vexatious, or

(e)       is  otherwise an abuse of the process of the court.”

1. The part of rule 171 that is relevant in this case is subparagraph (1)(a). The paragraphs sought to be struck out by the plaintiffs are, in the defence paragraphs 3, 4, 5, 6, 7 and 8.and in the counterclaim paragraphs 10, 14, 16, 17 and 18. Those paragraphs are the substantive paragraphs in the defendant’s pleading.

1. A Court will not lightly strike out a defence or parts of a defence. That principle applies equally to a counterclaim: General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125.  In my view the defence and counterclaim as pleaded cannot succeed. In that circumstance the application to strike out the paragraphs referred to above should be granted.

1. I have granted the application on that ground rather than grant summary judgment because the defendant may be able to improve its position upon amendment of his pleadings and /or the institution of a claim in respect of the allegation of breach of the contract. Accordingly, I am prepared to give the defendant an opportunity to re-plead the defence.  Whether a pleading of a counterclaim is open or is pursued or a Claim in respect of the contract is made is a matter for the defendant to determine. 

SUMMARY JUDGMENT

1. It follows that I would have granted summary judgment on the claim if I had not taken the view that the defendant should have an opportunity to re-plead his defence.  Subject to there being further pleadings filed and served within the time that I will allow and if the amended pleading is the subject of further challenge giving rise to the issue of summary judgment, the present summary judgment application is adjourned.  The parties will have liberty to apply.

ORDERS

1. Application to strike out defence and counterclaim granted

1. Application for summary judgment adjourned

1. Leave to the Defendant to file and serve a further defence or defence and counterclaim within fourteen (14) days of the date of this judgment

1. The parties each have liberty to apply on three (3) days notice.

1. The Defendant to pay the Plaintiffs’ costs of and incidental to the application assessed on the standard basis or as agreed.