Mary v Schon - [2015] WADC 92

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: MARY -v- SCHON [2015] WADC 92

CORAM: DEPUTY REGISTRAR HARMAN

HEARD: 6 MAY 2015

DELIVERED : 6 AUGUST 2015

FILE NO/S: CIV 3629 of 2014

BETWEEN: BRANDON EDWARD MARY
Plaintiff
AND
IVAN THOMAS SCHON
Defendant

Catchwords:

Practice - Practice under the Rules of the Supreme Court of Western Australia - Application of the defendant for summary judgment - Claims against managing director for interference with contractual relations - Misleading conduct - Negligent misrepresentation - Sufficiency of pleading

Legislation:

Nil

Result:

Application successful

Representation:

Counsel:

Plaintiff: Mr T J Porter
Defendant: Mr J P Cook

Solicitors:

Plaintiff: Integra Legal
Defendant: Mendelawitz Morton

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

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332

DEPUTY REGISTRAR HARMAN: According to the amended statement of claim, the plaintiff's employment as general manager of SAS Telecom Pty Ltd (SAS) commenced in March 2007. Subject to SAS achieving budget targets his annual remuneration package included a bonus of 10% of its annual profits.
During a period prior to 31 October 2008 the plaintiff and SAS engaged in negotiations relating to termination of his employment. They then entered into what is characterised as a separation agreement. Apart from the plaintiff's resignation and that for a limited future period SAS would pay to the plaintiff or his nominee a monthly fee for consultancy services, the agreement provided a separation payment for the plaintiff and that SAS would relinquish the right to recover from the plaintiff one half of the balance of his loan account. The agreement was partly written, partly oral and partly implied.
The separation payment was not specified other than that it would be calculated at 10% of the value of the net profit of SAS for the period from 1 July to 31 October 2008 but without any deduction for tax, less the cost of a specified airfare and one-half of the balance of the plaintiff's loan account. Payment was due on 10 November 2008.
The plaintiff alleges a series of breaches of the separation agreement by SAS both by its failure to pay the separation payment and in the process of its calculation.
At all material times the defendant wholly controlled SAS. He was employed by SAS, a shareholder of SAS and its managing director. The plaintiff held the negotiations with the defendant, the written part of the agreement was signed by the defendant and at each of those points the defendant had acted for and on behalf of SAS.
The causes of action put against the defendant are for interference with contractual relations, negligent misrepresentation and loss arising from misleading and deceptive conduct.
The defendant has brought an application for summary judgment in relation to each cause. He has taken on the burden of establishing that he has good defences on the merits.
A cause of action for interference with contractual relations is established upon findings that a putative tortfeasor has intentionally procured a breach of contract whereby the plaintiff has suffered loss.
At pars 48 ‑ 56 under the heading 'Interference with contractual relations' the plaintiff puts his case as follows:
48.By virtue of the matters pleaded in pars 12 to 16, there was a contract between the plaintiff and SAS, being the separation agreement.
49.The defendant was aware of the separation agreement.
50.The defendant was aware that if the defendant
(a)Altered or caused SAS to alter, SAS's accounting records by making the Improper Deductions; and/or
(b)Caused SAS to make the Tax Reduction; and/or
(c)Caused SAS to make the Loan Reduction,
This would:
(d)Reduce in SAS's accounting records the amount due and payable to the plaintiff pursuant to the separation agreement;
(e)Thereby cause SAS to breach the separation agreement by failing to pay all or part of the separation payment; and
(f)Thereby cause loss or damage to the plaintiff.
51.The defendant was aware that, if the defendant caused SAS to refuse to pay the separation payment or any part of it, this would cause SAS to breach the separation agreement.
52.By virtue of the conduct pleaded at pars 50 and 51, the defendant intentionally caused or induced SAS to breach the separation agreement.
53.The conduct of the defendant that is pleaded in pars 20 to 23, 27 to 32 and 35 to 39 was unlawful.
54.The conduct of the defendant that is pleaded in pars 20 ‑ 23, 28 ‑ 32 and 35 ‑ 38 was not a bona fide exercise of the defendant's authority as a director or officer of SAS.
55.By virtue of SAS's breaches of the separation agreement, the plaintiff has suffered loss and damage.
56.By virtue of the matters pleaded in pars 48 to 55 the defendant:
(a)Has interfered with the plaintiff's contractual relations with SAS;
(b)Has caused SAS to breach the separation agreement; and
(c)Has caused the plaintiff loss and damage.
I take it that the plaintiff intends to draw on a breach or breaches specified elsewhere in the pleading. Although by par 52 the plaintiff would establish a causal link between an unspecified breach or breaches and the defendant's conduct, pars 50 and 51 do not assert any conduct of the defendant. Paragraphs 53 and 54 do not purport to establish any causal linkage of conduct of the defendant to any breach.
I take it that the plaintiff would rely on causal linkages between particular breaches and particular conduct specified elsewhere in the pleading.
The first pleaded breach of the separation agreement is put at par 18 as follows:
In breach of the separation agreement, SAS failed to pay the separation payment or any amount to the plaintiff on or before the payment date, or at all.
Insofar as the allegation relates to the payment date there is no pleading of any causal connection to any conduct of the defendant.
As for breach by failure to pay at all, at par 46 the plaintiff pleads as follows:
Despite demand, SAS has failed or refused to pay the separation payment, or any amount, due to the plaintiff pursuant to the separation agreement.
The generality of the allegation renders it of no utility for the purpose of locating any breach subsequent to the payment date and thereby any related conduct of the defendant.
To the extent that the plaintiff seeks to establish any case by reference to the breach expressed at par 18, he cannot succeed.
The second pleaded breach is specified at par 22:
The tax reduction was made by SAS improperly and in breach of the separation agreement.
At par 23 the plaintiff pleads a causal connection between unspecified conduct of the defendant and that breach.
Arguably par 20 establishes a causal link between particular conduct of the defendant and that breach. It is as follows:
In or about November 2008, and after the payment date, the defendant instructed SAS that the separation payment was to be calculated and paid by SAS to the plaintiff after an amount calculated at the defendant's marginal tax rate of 48% (Tax Reduction) was deducted by SAS from the net profit.
I shall return to consider the case that may be open under par 20.
The third pleaded breach is specified at par 31 as follows:
The improper deductions were made by SAS in breach of the separation agreement.
At par 32 the plaintiff asserts:
By reason of the matters pleaded in pars 27 to 31 above, the defendant caused or induced SAS to account for the improper deductions in the manner pleaded in pars 27 to 31 above.
There is no reference in in pars 27 ‑ 31 to any conduct of the defendant. Indeed there is no conduct referred to in those paragraphs at all. To the extent that the plaintiff relies on a case identified by the breach expressed at par 31 it must fail as the defendant is not implicated in the breach.
The fourth breach is pleaded at par 42 as follows:
The reduction of the amount of the separation payment to take into account more than $33,992.40 of the plaintiff's loan account was made by SAS improperly and in breach of clause 3 of the separation agreement.
Although at par 43 the plaintiff pleads a causal connection between matters pleaded in pars 35, 38 and 42 and the defendant, it is only at pars 35 and 38 that there is any pleading of his conduct. At par 35 the plaintiff asserts a communication from the defendant to the plaintiff that preceded the breach. According to its terms the plaintiff was to submit an invoice to SAS in the sum of $57,994 to be written off against the plaintiff's loan account. As is the case with par 42, contrary to the allegation at par 43, there is no reference to any engagement with SAS by the defendant.
The only conduct of the defendant that is expressed to have caused SAS to make the loan reduction is specified at par 38 as follows:
In or about March 2009 the defendant caused SAS's accounting records to be altered as follows:
(a)the sum of $57,944.28 was deducted from the plaintiff's personal loan account and the balance of the plaintiff's personal loan account balance was reduced from $57,944.28 to $0; and
(b)the sum of $55.72 … was deducted from the personal loan account of the plaintiff's then ‑ wife, Melissa Mary.
Accordingly the only conduct of the defendant for which there is pleaded causal link to any breach by SAS is that asserted at pars 20 and 38.
In putting the application the defendant relies upon the fact that by the pleading he is established as the managing director of SAS. He relies upon the proposition that it is by the actions of its officers undertaken for and on behalf of a corporation that it conducts its affairs; that as a matter of law such actions are of the corporation; and that the cause of action could only be established against a party who was not party to the contract breached.
According to par 20 the defendant instructed SAS that in calculating the separation payment tax was to be deducted from its net profit. The context in which the allegation is read is established by the defendant's office and the necessity for SAS to calculate the extent of its liability under the separation agreement. Those features reveal the proper construction put on the instruction: that SAS determined that in undertaking the task it would make the tax reduction. Under that construction is not significant that the allegation is put against the defendant.
On the basis of submissions made at the hearing I take it that by that allegation and recourse to findings under pars 53 and 54 the plaintiff would establish interference by the defendant. At the very least he contended that he had established an arguable case sufficient to defeat the application.
There is no pleading that a finding of either unlawful conduct on the part of the defendant under par 53 or lack of bona fides in the exercise of authority under par 54 would have any impact on either the instruction or the task. Such a pleading is necessary as there is no law that would operate so as to limit or qualify the construction established by par 20 and such findings would have no obvious impact upon the instruction. No finding under either par 53 or par 54 would have any bearing upon the determination of SAS to make the tax reduction.
In order to defeat the application the plaintiff must do more than propose that there is scope for argument upon a mere submission.
As for par 38, the detail pleaded at par 38(a) and par 38(b) was recorded as a consequence of some unspecified influence of the defendant. Because of that deficiency, properly considered the plaintiff does not put a case against the defendant. In any event under the terms by which the allegation is put, inevitably such influence had by the defendant was due to his office. And having processed what is described as the fake invoice; SAS was then engaged in the process of record keeping. It follows that the same course of analysis applies to par 38 that I have just applied to par 20 and with the same result.
No finding under either par 53 or 54 would have any bearing upon the determination of SAS to make the loan reduction.
It follows that neither pars 20 nor 38 provide a basis upon which to establish the defendant as sufficiently independent of SAS to cast him in the role of tortfeasor.
In relation to each case that conceivably is within the scope of the pleading at pars 48 ‑ 56, I have no difficulty with the proposition that there is a good defence on the merits. The defendant has established a clear case for judgment.
The plaintiff puts two statutory causes of action for misleading and deceptive conduct, one founded upon the defendant's representations to the plaintiff, the other for the defendant's representations to SAS.
As for the first, the plaintiff asserts that during the course of the negotiations that preceded the agreement the defendant made particular representations; further that by his execution of the agreement the defendant conveyed further representations.
The plaintiff contends for loss that he expresses along the lines that but for those representations he would not have entered into the separation agreement but rather would have entered into an agreement on terms that secured immediate payment of an unspecified amount of money by SAS.
He submitted that his case for loss was arguable and in so doing drew upon reasons of the High Court in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1. In that case Mason, Wilson and Dawson JJ state as follows at (82):
Because the object of damages in tort is to place the plaintiff in the position which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit, then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed … The lost benefit is referrable to opportunities forgone by reason of reliance on the misrepresentation. In this respect, the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract.
Unlike the circumstances that obtained in Gates, the plaintiff cannot be portrayed as having lost the opportunity to have recourse to an available market. In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Brennan J demonstrates that loss of a mere opportunity to acquire a benefit does not amount to loss.
In this case, the parties to an employment agreement entered into negotiations to terminate the employment. The negotiations resulted in the separation agreement. There is no pleading that the plaintiff brought to the process of negotiation any entitlement drawn from the terms of the contract of employment, from the fact that he had been so employed or from the circumstances that had precipitated termination of the contract.
In the context established by the pleading the plaintiff's loss is of a mere opportunity. To succeed under the cause he must establish actual loss: in the context provided by the pleading, some entitlement that preceded that generated under the separation agreement.
In an application for summary judgment it may be tempting to reflect upon the prospect that given the opportunity the respondent would be able to remedy a deficiency. The attraction of that prospect in this case is the likelihood that the extent of the benefits countenanced by the separation agreement suggests that the plaintiff, entered into the negotiations with an entitlement rather than the prospect of receipt of gratuities. However I am persuaded that an application ought to be determined as it is presented and on its merits. I would add that in bringing the application the defendant's solicitor certified that there had been conferral; that the pleading was amended five weeks after the date of the application; that counsel has been engaged by the plaintiff; and that although further amendment has been foreshadowed, not to remediate the particular deficiency.
In my opinion there being no plea of actual loss the case is not sustainable and the defendant ought to succeed in the application.
Following the course of the pleading the next cause of action is for negligent misstatement. Such a cause would be established upon a finding of a duty owed by the defendant to take reasonable care not to provide misleading information to the plaintiff. For present purposes the significant consideration is that such a cause of action is an exception to the broader proposition that a court would not establish a duty of care to protect against economic loss.
The plaintiff draws on the allegation that the defendant wholly controlled SAS to assert that he had special knowledge of its intentions. Thereby he suggests a case along the lines that he was at some particular disadvantage, however there is no such pleading.
The defendant relied on the proposition that as the managing director and controlling mind of SAS he owed a duty to SAS. He submitted that there was nothing significant in the process then being undertaken: the parties to an employment relationship were in the process of parting company; there is nothing in the representations themselves that could be construed as speaking to any special feature of the relationship of employment; there is nothing to suggest any feature of the process that would invite consideration of the proposition that the managing director of a corporation would owe a duty to inform a contracting party of the intentions of the corporation; there is nothing that provides any reason to either re‑evaluate the general proposition or to recognise that the circumstances of this case would establish the duty of care proposed.
It is difficult to conceive that the prospect of future breach by a contracting party would establish a duty of care on the part of a representative of one party engaged in pre‑contractual discussions with another. There is no basis upon which to discern that a duty of care had been owed to the plaintiff by the defendant. In my opinion there is no prospect that the court would impose a duty of care on the defendant.
Be that as it may, the clear case in favour of the defendant emerges in the context of the plaintiff's pleaded loss. It is put in the same terms as the case that I have just considered. Under each cause success would only be established upon a finding of actual loss. On the pleading there is no scope for such a finding. Accordingly the case must fail and the defendant is entitled to judgment.
The second cause of action for misleading and deceptive conduct is founded upon representations of the defendant made to SAS contrary to s 52 of the Trade Practices Act 1974 (Cth), s 10 of the Fair Trading Act 2010 (Cth) and s 18 of the Australian Consumer Law 2010 (Cth).
The first relevant allegation at par 24 is as follows:
… in or about November 2008, and, after the payment date:
(a)the defendant represented to SAS that the tax reduction should be made and the net profit reduced accordingly; …
The second at par 33:
(a)the defendant represented to SAS that the improper deductions should be made in the manner pleaded in par 27; …
The third at par 39:
… in or about March 2009 the defendant falsely represented to SAS that:
(a)the fake invoice was a genuine invoice; and
(b)the value of the fake invoice had been paid to EEZ, or alternatively to the plaintiff and Melissa Mary.

The fourth at par 44:
(a)the defendant represented to SAS that the loan reduction should be made; …
The plaintiff also alleges that the failure of the defendant to inform SAS that each of those representations had been false be constituted as a series of representations.
By his submission that a corporation would not be found to have made representations to itself, I took it to be the case that the defendant proposed that it is inconceivable that the court would distil actionable representations from the context of corporate governance.
The context in which each of the allegations I have cited is put is one in which the defendant was communicating with SAS as its managing director and SAS was engaged in the process of establishing and maintaining its records. It was the realm of governance of SAS. Given the communications are established the question raised by the application is whether they could be found to have been made in breach of the statutory provisions. Even taking into account the allegation at par 2(d), the result for which the plaintiff contends neither draws upon any law nor is obvious. Paragraph 2(d) is as follows:
The defendant at all material times … engaged in trade and commerce in Western Australia , for and on behalf of SAS , within the meaning of the Fair Trading Act 1987 (WA), the Trade Practices Act 1974 (Cth) and the Australian Consumer Law 2010 (Cth) … and the Fair Trading Act 2010 (WA).
I have no difficulty with the proposition that par 2(d) is contextual however the particular context from which the plaintiff draws representations is not established by any pleading as one to which the statutory provisions apply.
There is no distinction to be drawn between those representations and what is projected upon the defendant's ongoing failure to inform SAS. The context that bears upon the failure is of the governance of SAS.
Absent such a pleading the statutory provisions would have no application to representations made in the context of governance of a corporation. As it is pleaded the plaintiff's case could not succeed and the defendant is entitled to judgment.