McDiarmid v Rycar Pty Ltd
[2006] WADC 39
•20 March 2006
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: McDIARMID -v- RYCAR PTY LTD [2006] WADC 39
CORAM: PRINCIPAL REGISTRAR GETHING
HEARD: 15 FEBRUARY 2006
DELIVERED : 20 MARCH 2006
FILE NO/S: CIV 415 of 2005
BETWEEN: NOLA ETHEL McDIARMID
Plaintiff
AND
RYCAR PTY LTD (ACN 008 752 805)
Defendant
Catchwords:
Summary judgment - Leave to defend conditional on payment into court
Legislation:
Rules of the Supreme Court 1971
Stamp Act 1921
Result:
Application for summary judgment dismissed
Leave to defend granted on condition
Representation:
Counsel:
Plaintiff: Mr J G Zadkovich
Defendant: Mr D H Solomon
Solicitors:
Plaintiff: Michael Whyte & Co
Defendant: Solomon Brothers
Case(s) referred to in judgment(s):
Bank of Western Australia v Stein & Anor [2005] WASC 43
Colonial Bank of Australasia Ltd v De Faro (1894) 20 VLR 241
DMS Shipping & Trading Co, Limited v Lionheart Asia Limited [1996] 2 Qd R 20
Gallo v Dawson (1990) 64 ALJR 458
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Jacka Nominees Pty Ltd (In liquidation) v Edwards Karwacki Smith and Co Pty Ltd; unreported; SCt of WA; Library No BC9200989; 12 October 1992
Jacobs v Booth's Distillery Co (1901) 85 LT 262
M V Yorke Motors (a firm) v Edwards [1982] 1 All ER 1024
Mackwell v Petkovic (1999) 20 WAR 367
Morgan v Pallister [2004] WASC 188
Morris v Wentworth-Stanley [1999] QB 1004
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Webster v Lampard (1993) 177 CLR 598
Case(s) also cited:
Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332
Commissioner of Taxation v Everett (1979) 143 CLR 440
Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
El-Mir v Risk [2005] NSWCA 215
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348
Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133
Legione v Hateley (1982) 152 CLR 406
McDermott v Black (1940) 63 CLR 161
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537
Shell Company of Australia Pty Ltd v Pengrow Pty Ltd (1992) WASC; unreported; BC9203162
State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170
Three Rivers District Council v Governor and Company of the Bank of England [2001] 2 All ER 51
Walker v Bowry (1924) 35 CLR 48
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Woodgate v Davis (2002) 55 NSWLR 222
Western Australia v Rothmans of Pall Mall (Aust) Ltd [2001] WASCA 25
PRINCIPAL REGISTRAR GETHING: In this application, the plaintiff has applied for summary judgment and for leave to bring the application out of time. The writ was filed on 1 March 2005. For reasons which I will touch on later in this decision, the summary judgment application was not made until 6 October 2005. The statement of claim had been filed shortly before this, on 13 September 2005. The memorandum of appearance was filed on 15 March 2005, hence the need for leave to bring the application pursuant to the Rules of the Supreme Court, O 14 r 1.
The defendant opposes the grant of leave and further submits that if leave is granted, the defendant ought to be given unconditional leave to defend the action.
The plaintiff's claim is for $48,441.78 together with interest said to be owing pursuant to a Loan Agreement ("Agreement") between the plaintiff, the defendant and Gumleigh Investments Pty Ltd ("Gumleigh"). The plaintiff pleads that the terms of the loan were that the $75,000 initially lent was to be repaid on or before 1 October 2004 and that interest was payable at the rate of 25 per cent per annum. The pleading goes on to provide that the loan was partly repaid by Gumleigh. The present action is for the balance.
A copy of the Agreement is annexure "A" to the affidavit sworn by the plaintiff on 8 September 2005 ("Plaintiff's First Affidavit"). The defendant raised the point that the loan agreement is not stamped, a point which I address at the conclusion of these reasons. Given the way in which the argument before me progressed, it is convenient to extract the key parts of the Agreement:
"BINDING AGREEMENT BETWEEN THE FOLLOWING PARTIES
Rycar Pty Ltd – Trustee for M. Kennedy Family Trust (Vendor)
and
Gumliegh (sic) Investment Pty Ltd - Trustee for Margaria Family Trust (Vendor) C-/ (sic) PO Box 4, MANDURAH WA 6210)For LOT 100 RIVER ROAD, BODDINGTON WA
39 Lot Subdivision as approved by the Shire of Boddington
And
The Investor - Nola Ethel McDiarmid
Address - 19 Waterside Drive, MANDURAH WA 6210
Phone - 9586 9095
Fax - 9586 9095The vendors of the above land estate require (two hundred and fifty thousand dollars) $250,000 for a minimum period of 12 months from the 1st October 2003 to the 30th September 2004 to assist with the acquisition of the said land estate. Cheques are to be made payable to Dolphin Settlements Trust Account, Mandurah WA.
The vendor warrants that the interest will be paid as and when the first 11 titles sell and settle and paid at settlement over the first 12 months. The capital to be paid in full on or before the 1st October 2004.
SECURITY
A caveat will be lodged over the said land to cover all interested parties with a specific Interest to protect their position and investment.AMOUNT OF LOAN $75,000 (Seventy Five Thousand Dollars)
Interest Rate to be at 25% interest only per year paid without deduction from Dolphin Settlements upon Settlement of the Individual block as and when they settle."
In the Plaintiff's First Affidavit, the plaintiff verifies the facts in the statement of claim and deposes, as is required, that she believes the defendant to have no defence to the action. The plaintiff goes on to say that she agreed to invest the sum of $75,000 to provide part of the capital that the defendant and Gumleigh required to acquire and develop land at Lot 100 River Road in Boddington, Western Australia ("the Boddington Land") for the purposes of a property subdivision. The vendor of the Boddington land was Zephyr Holdings Pty Ltd ("Zephyr"). The development in question was a 39 lot subdivision ("the Development").
The Plaintiff's First Affidavit finishes with a paragraph dealing with the delay in making the application in the following terms:
"10. Prior to and subsequent to the commencement of the within action, Mr Kennedy, a director of the defendant, has repeatedly assured my husband that the moneys owing to me by the defendant would be repaid after the defendant had recovered deposit moneys of $100,000 paid to the vendor of the Boddington Land, namely, Zephyr Holdings Pty Ltd. On the strength of these assurances I have not taken further procedural steps in the action until now."
The defendant has not filed a defence. However, its position is set out in an affidavit of Mervyn George Kennedy sworn 7 November 2005 in opposition to the application. Mr Kennedy deposes to being a director of the defendant. In summary terms, the defendant's case is that the money "invested" by the plaintiff to develop the Boddington Land was invested on terms to the effect that the time has not yet arrived for it to be repaid.
Mr Kennedy deposes that in July 2003 the defendant, through him, and Gumleigh, through one Frank Margaria, agreed to enter into a partnership whereby, as equal partners, they would carry out the Development on the Boddington Land. All profits and expenses from the Development would be divided and borne equally between the defendant and Gumleigh. In order to finance the Development, the defendant and Gumleigh sought funding from two sources. The first was a loan in the sum of $1,000,000. The second was funding in the sum of $100,000 to enable the defendant and Gumleigh to complete stage one of the Development. Messrs Margaria and Kennedy decided to procure the shortfall in funding, being the $100,000, by way of a series of small loans from individual investors.
Mr Kennedy then deposes that Mr Margaria introduced the plaintiff and her husband to him and that Mr Margaria made certain representations about the basis on which the plaintiff and her husband might wish to invest in the Development. One of these representations was that the plaintiff would become a "silent partner" in the Development. Mr Kennedy subsequently attended a meeting on 26 September 2003 with the plaintiff and her husband. During the course of the meeting, Mr Kennedy deposes that he said to the plaintiff and her husband words to the following effect (par 12 of his affidavit):
"13.1an opportunity existed for the plaintiff to become a syndicate member/investor in the Development;
13.2the plaintiff could purchase a "unit" in the Development for the sum of $25,000.00;
13.3as the plaintiff would not be registered proprietor of the Land, each unit in the Development purchased by the plaintiff would attract a return of 25% as had been recommended by Mr Margaria;
13.4the defendant and Gumleigh had secured the purchase of the Land from Zephyr; and
13.5the plaintiff's investment would be repaid, and her 25% return would be paid, to her upon settlement of the sale of all of the 11 subdivided lots that comprised Stage 1 of the Development."
Mr Kennedy goes on to say that the plaintiff agreed to purchase three units, and therefore invest the sum of $75,000 in the Development on the terms which I have just quoted.
For present purposes, the critical paragraph in Mr Kennedy's affidavit is par 15, which I set out in full:
"On 26 September 2003, the defendant and Gumleigh executed the document that is annexure "A" to the affidavit to (sic) Nola Ethel McDiarmid sworn 8 September 2005. The plaintiff executed this document on 1 October 2003. This document was prepared by Mr Margaria and I and was intended to, in the briefest terms necessary, formalise the agreement between the defendant, Gumleigh and the plaintiff described in paragraphs 12 and 13 above. This document stated that the capital would be paid in full on or before 1 October 2004 for the reason that Mr Margaria and I both believed that all of the 11 subdivided lots comprising Stage 1 of the Development would have been sold long before this time. When executing this agreement on behalf of the defendant, I still understood that, pursuant to the oral agreement between the defendant, Gumleigh and the plaintiff described in paragraphs 12 and 13 above, the plaintiff's $75,000.00 investment, and the 25% return thereon, would not be repaid until all of the subdivided lots had been sold and that 1 October 2004 was an anticipated latest date for that to occur. I would not have caused the defendant to execute that document if I believed that the plaintiff would require repayment of her $75,000.00 investment on or before 1 October 2004 regardless of the status of the Development at that time because, if the plaintiff did that, she would be acting inconsistently with the oral agreement."
Mr Kennedy then deposes that the defendant and Gumleigh entered in to a contract with Zephyr to purchase the Boddington Land. The companies paid Zephyr a deposit of $100,000 on 7 October 2003. Mr Kennedy goes on to say that in the last week of October 2003 or the first week in November 2003, he became aware that the Boddington Land, or part thereof, was the subject of certain encumbrances. As a result of those encumbrances, the defendant and Gumleigh did not proceed with settlement of the contract to purchase the Boddington Land. Subsequently, the defendant and Gumleigh commenced Supreme Court proceedings against Zephyr seeking repayment of the deposit paid for the Boddington Land. He says that as the date of swearing the affidavit Zephyr is defending the action and it has not been finally disposed of.
Mr Kennedy concludes his affidavit by referring to the fact that he has said "on numerous occasions at regular intervals" to the plaintiff and her husband words to the effect that the defendant would repay the plaintiff's investment, and a 25 per cent return thereon, upon recovery of the deposit paid to Zephyr for the Boddington Land. He goes on to say:
"I also told the plaintiff and her husband about the proceedings [against Zephyr] and that once the defendant and Gumleigh successfully recovered the deposit, plus interest, from Zephyr, the funds would be used to pay the legal costs of that action, which the defendant and Gumleigh would pay until the conclusion of the action. The remaining funds would then be distributed to investors in the Development."
In response to the affidavit of Mr Kennedy, the plaintiff filed three affidavits. These affidavits were filed pursuant to orders made by Deputy Registrar Hewitt on 18 October 2005. Leave having been given, no question arises as to their admissibility in these proceedings.
The first affidavit filed was a further affidavit of the plaintiff ("Plaintiff's Second Affidavit"). In particular, the plaintiff states (at par 14) that "there was never any discussion between myself, Mr Margaria or Mr Kennedy that I would be a silent partner in the Development". She reiterates at a number of points that the "agreement between myself, the defendant and Gumleigh was always that I would loan the sum of $75,000 and that interest at the rate of 25 per cent per annum would be paid to me". In pars 27 and 28, the plaintiff deposes (on information and belief) that on three or four occasions her husband telephoned Mr Kennedy regarding the unpaid loan since early 2004.
The second affidavit in reply is that of the plaintiff's husband, Norman William McDiarmid, sworn 22 October 2005. In this affidavit, Mr McDiarmid states that the plaintiff's statements in the Plaintiff's Second Affidavit about the meetings he attended with her and Mr Kennedy are correct.
The third affidavit filed in reply is that of Francis Peter Margaria, sworn 22 November 2005. Mr Margaria is a director of Gumleigh. Mr Margaria deposes that in approximately September of 2003, Mr Kennedy and he attempted to secure funding for the purchase of the Boddington Land for the purposes of the Development. Mr Margaria's affidavit supports the facts as outlined by the plaintiff and Mr McDiarmid. Specifically, he deposes that:
(a)he did not advise Mr Kennedy that the plaintiff would become a silent partner in the Development (par 14);
(b)he had not discussed with, or come to any agreement with, the plaintiff or her husband whereby either of them would become a silent partner in the Development (pars 14, 16);
(c)the discussions he had with the plaintiff and her husband regarding the Development were always on the basis that they may like to consider making a loan to Gumleigh and the defendant (pars 14,15);
(d)it was never his understanding that the plaintiff would purchase any "units" in the Development (par 23);
(e)the Agreement accurately reflected his discussions with Mr Kennedy regarding the loan (par 26); and
(f)Gumleigh has repaid the plaintiff the sum of $37,500 (being half of the original loan agreement) plus interest in accordance with the terms of the Agreement (par 30).
Legal principals
The basic legal principals regarding summary judgment applications are summarised in the judgment of Pullin J in Morgan v Pallister [2004] WASC 188 at par 4 in the following terms:
"The plaintiff carries the burden of persuading the court that the claim is a good one, that there is no defence to it, that leave to defend should not be granted, and that judgment should be given for the plaintiff. The party showing cause against the application assumes an evidentiary burden but the overall legal burden of persuasion remains on the applicant. The power to order summary judgment should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. It is clear however, that the procedure is not confined to cases which are immediately plain and obvious and the fact that a transaction is intricate does not disentitle the plaintiff to relief in a clear case. It was never intended that when the facts are in dispute, an action should be disposed of summarily. If a defendant's affidavit reveals inconsistencies which might in a trial persuade a court not to believe the defendant's evidence, this will not necessarily lead to judgment for the plaintiff. It is not necessary to cite authority for these propositions."
Where there are disputed facts, and in the absence of cross-examination, the application is to be determined on the basis that the defendant's version of the facts, assuming that it is not inherently incredible, would ultimately be accepted at the trial of the action: Webster v Lampard (1993) 177 CLR 598 at 608 per Mason CJ, Deane J and Dawson J. In the same case, the members of the High Court had previously commented that the "the issue before the learned Master on the application for summary judgment was …whether the material demonstrated that the action should not be permitted to go to trial in the ordinary course because it was apparent that it must fail" [at 602].
Leave to Make the Application
The plaintiff requires leave to make this application, it being filed more than 21 days after the defendant had entered an appearance. As I have noted above, the plaintiff says that she deferred taking steps in the action as the in reliance on Mr Kennedy's assertion that he would pay the money out of the proceeds of the action against Zephyr. Mr Kennedy's evidence confirms that conversations along those lines took place. It appears that after some months the plaintiff's patience wore out, and she instructed her solicitors to progress the action.
The policy rationale for the time limit is set out in the judgment of Master Adams in Jacka Nominees Pty Ltd (In liquidation) v Edwards Karwacki Smith and Co Pty Ltd; unreported; SCt of WA; Library No BC9200989; 12 October 1992 in the following terms:
"Summary judgment applications can involve a good deal of preparation and a substantial volume of affidavit evidence. The time limit reflects the policy of the rules requiring summary judgment applications to be brought at an early stage of the proceedings before too much expense has been incurred."
In Bank of Western Australia v Stein & Anor [2005] WASC 43, Commissioner Scopis SC referred to the following passage from the decision of McHugh J in Gallo v Dawson (1990) 64 ALJR 458 at 459 as being of application to the question of granting leave pursuant to O 14 r 1:
"The discretion to extend time is given for the sole purpose of enabling the Court of Justice to do justice between the parties. This means that the discretion can be exercised in favour of an applicant upon proof that strict compliance with the rules will work an injustice upon the applicant. In order to determine whether the rules will work an injustice, it is necessary to have regard to the history of the proceedings, the conduct of the parties, the nature of the litigation and the consequences for the parties of the grant and refusal of the application for the extension of time." [Case references have been excluded from this passage.]
In this case, the only step taken in the action between the filing of the memorandum of appearance and the filing of the summary judgment application was the plaintiff filing her statement of claim. It is not a case in which the action has progressed, and both parties have filed numerous court documents, prior to the summary judgment application having been made. The plaintiff's explanation for the delay is understandable; she was giving the defendant time to pay in response to assurances that action was being taken to secure funds to use for repayment. No evidence of specific prejudice was provided by the defendant. Accordingly, in the circumstances, I do not regard delay as being a factor weighing heavily against the grant of leave.
On the merits of the application, for the reasons set out below, I have doubts about the bona fides of the defence. This is a factor weighing in favour of granting leave.
On balance, I am satisfied that it is appropriate to grant the plaintiff leave to make an application for summary judgment pursuant to O 14 r 1.
Merits of the Defence
In determining the application for summary judgment, I must first determine what facts a court would find established if, following cross-examination, it accepted the evidence of Mr Kennedy as set out in his affidavit. The key facts which the court would find, on this scenario, would be as follows:
(a)that the plaintiff invested three "units" of $25,000 in the Development;
(b)each unit would attract a return of 25 per cent;
(c)the capital would be repaid, and the 25 per cent return would be paid, upon settlement of the sale of the eleven subdivided lots that comprise Stage 1 of the Development.
Accepting these facts, the defendant asserts that the Court would find that the agreement between the plaintiff and the defendant and Gumleigh comprised the (written) Agreement together with an oral agreement, critically containing the term that the plaintiff's capital would be repaid to her upon settlement of the sale of all of the eleven subdivided lots that comprised Stage 1 of the Development.
On Mr Margaria's own evidence, the agreement does not extend to the plaintiff being a "silent partner" in the Development. In particular, in par 15 of his affidavit, which I have quoted above, Mr Kennedy refers to the agreement being as set out in pars 12 and 13 of his affidavit. Paragraph 12 provides: "Shortly after my conversation with Mr Margaria, I telephoned the plaintiff and arranged to meet with her and her husband". I have quoted par 13 of his affidavit above. There is no reference in par 13 to the plaintiff being a silent partner. At best on Mr Margaria's evidence, the issue of the plaintiff being a silent partner was discussed, but did not form part of the final agreement.
The defendant submits that there are at least four issues in dispute that would flow out of this factual basis. The first is that there is no current contractual entitlement to repayment of the investment. The defendant's case is that the parties did not reduce the entirety of the agreement to writing, and that the oral term regarding repayment of the capital forms part of the agreement. On the defendant's case, the statement in the Agreement that "the capital to be paid in full on or before 1 October 2004" is more in the nature of a statement of the parties' intention as to when they believed that Stage 1 of the Development would be completed as opposed to a contractual term. It would follow that the loan is not yet due for repayment.
The second legal issue is that of estoppel. The defendant submits that the terms set out in par 13 of Mr Kennedy's affidavit constitutes representations by the plaintiff to the defendant that the plaintiff would not seek repayment of her investment other than in accordance with the terms described by Mr Kennedy. The defendant goes on to say that it was induced by these representations to assume that the plaintiff's investment was an equity investment and, consequently, the plaintiff bore the risk that the Development may not succeed and her investment may not be repaid in full or on time, at least, the plaintiff's investment would not be repaid until settlement of Stage 1 of the Development.
The third legal issue is that the plaintiff would become a partner in the Development. Therefore the money invested is to be treated as an advance to the partnership which became partnership property. As I have set out above, Mr Kennedy's affidavit itself does not support the allegation that the plaintiff became a silent partner in the Development. This issue falls away.
The final issue is that the partial repayment of the loan by Gumleigh constituted an accord and satisfaction. The defendant refers to the proposition that the discharge of one joint debtor by accord and satisfaction discharges all joint debtors in accordance with a general principle that a joint liability creates only a single obligation, citing Morris v Wentworth-Stanley [1999] QB 1004 at 1011 per Potter LJ. However, all that the defendant can point to as a factual basis for accord and satisfaction is that Gumleigh has paid to the plaintiff the sum of $46,875 being one half of the principal and interest allegedly owing to the plaintiff pursuant to the Agreement. For there to be an issue to be tried in relation to accord and satisfaction, it is incumbent upon the defendant to at least show some factual basis to warrant the Court undertaking an enquiry that the payment by Gumleigh is something different from what it purports to be, namely partial repayment of a loan. There is no evidence in the affidavit material filed suggesting that the payment by Gumleigh of one half of the loan was on any terms that could form the basis for an accord and satisfaction. This issue thus falls away.
On the basis of the analysis I have set out above, there are issues to be tried as to:
(a)whether the terms of the agreement between the parties included a term that repayment of the interest and capital would not occur until completion of the sale of the lots comprising Stage 1 of the Development; and
(b)whether there is some actionable representation made by the plaintiff not to enforce repayment of the loan until such time as the proceeds of the sale of Stage 1 of the Development had been completed.
Paragraph (a) requires the Court to find that the contract between the parties is not what it is stated to be in the Agreement. The defendant faces considerable difficulties with this argument given that the Court hearing the trial of the action will need to construe the words of the Agreement objectively. In this regard, the High Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) stated in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 that:
"This Court, in Pacific Carriers Ltd v BNP Paribas [(2004) 218 CLR 451] has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. [218 CLR at 461-462]."
Having said that, there does remain a dispute to be tried. There is a factual dispute as to the terms of the agreement between the parties. The defendant's version of the facts, if accepted, may disclose a reasonable defence. I note here that the Agreement is not as clear on the question of the time for repayment of interest, as it is on the time for repayment of capital.
The application for summary judgment is thus not made out.
Leave to Defend
There remains the question of whether or not there should be any conditions imposed on the grant of leave to the defendant to defend the action. In this regard, Rules of the Supreme Court O 14, r 4(3) provides that the Court may grant leave to defend "either unconditionally or on such terms as to giving security or time or motive trial or otherwise as it thinks". In Hazart Pty Ltd v Rademaker (1993) 11 WAR 26, at 31-32, Anderson J with whom Malcolm CJ and Scott J agreed, stated the following about the grant of conditional leave to defend:
"In my experience of the practice in this Court, when the Court concludes that the bona fides of a defence and/or counterclaim are in doubt, the Court will usually require that the defendant provide some security. This is to ensure that a defence that appears to be very weak on its merits is at least being put forward in good faith. Unless the court was prepared to take this step in appropriate cases, injustice often would be done to plaintiffs pursuing good causes of action against debtors claim for time. When the plaintiff's claim appears clear cut, as, for example, in the case of the sale and delivery of goods for an agreed price, and the Court is left in real doubt about the defendant's good faith (although not able to say for certain there is no triable issue) it is not unusual for the Court to order, as a condition of leave to defend, that the full amount of the claim be secured. This will usually be by payment into court. If to do so would impose hardship on the defendant, the court may order that less than the full amount be paid in."
In DMS Shipping & Trading Co, Limited v Lionheart Asia Limited [1996] 2 Qd R 20, at 23 Thomas J stated the following of the discretion to grant conditional leave to defend (at 23):
"… the Rules of the Supreme Court [give] the judge an unfettered discretion, when leave to defend is granted, to impose such terms as to giving security as the judge may think fit. Commonly the discretion is exercised when the judge perceives the defence to be 'shadowy', 'insubstantial', 'tricky', 'suspicious' or 'almost one in which summary judgment should be ordered '.
…
In my view, it is sometimes appropriate that in a dubious case that security be provided as a condition of the advantage thereby secured of delaying the plaintiff, of running up costs which are probably going to be wasted and of giving a commercial advantage to a defendant who has faintly arguable defence.
Such factors namely the perception of the strength of the defence, influence many forms of pre-trial execution, such as Mareva injunctions, applications for security for costs and the imposition of a condition of the present kind which is in effect a security for judgment. The apprehension of the strength of the case or of the flimsiness of the defence may be a relevant basis for the exercise of the discretion and of course questions of degree are involved."
In Hazart Anderson J, went on to say that the Court should not order payment into court of the amount of the claim where the defendant was able to show that "compliance with such condition would be so onerous as to practically deny the defendant a real opportunity to present his defence" (at p 32). It is thus usual for the defendant to be given an opportunity to produce evidence as to its financial position to assist the Court within the exercise of its discretion.
In M V Yorke Motors (a firm) v Edwards [1982] 1 All ER 1024, Lord Diplock makes it clear that the condition must be impossible for the defendant to fulfil before a court would defer making an order granting conditional leave to defend that it would have otherwise made. In that case, the amount of money paid into court was reduced from the value of the claim, taking into account the financial position of the defendant. Lord Diplock (with whom the other members of House of Lords agreed) noted that the onus is on the defendant to "put sufficient and proper evidence" before the court of his impecuniosity. The disclosure must be "full and frank" (at p 1027).
Lord Diplock then made the following comments about the decision in Jacobs v Booth'sDistillery Co (1901) 85 LT 262, a decision relied on by the defendant in the present case (at p 1028):
"I would accordingly dismiss this appeal; but before parting from the subject of imposing terms as to the giving of security as a condition of granting leave to defend an action under Ord 14, it may be helpful to mention an old decision of this House Jacob v Booth's Distillery Co (1901) 85 LT 262. This case, decided at the close of the Victorian age before inflation and high interest rates had made delay in payment of debts of such great benefit to the debtor and so disadvantageous to the creditor as it has become of recent years, is often cited as authority for reducing to minimal proportions the number of cases in which security should be ordered, however shadowy or dubious in its bona fides the suggested defence may be.
My Lords, … the facts in Jacobs v Booth's Distillery Co were complex and its value as an authority against giving conditional leave to defend may not be as great as had been thought; but, quite apart from this, an expression of opinion by this House as to the way in which a judicial discretion ought to have been exercised in circumstances as they existed many years ago, ought not to be regarded as immutable when circumstances have altered radically from those current when the judgment containing that expression of opinion was delivered. To depart from it in the changed circumstances does not involve any question of overruling a previous decision of the House. The greater premium now accruing to the debtor who manages to achieve delay is an important causative factor in the change in practice recorded in … The Supreme Court Practice: 'The condition of payment into Court, or giving security, is nowadays more often imposed than formerly…' This is a statement that my own experience, extending over half a century, can confirm."
On the evidence before me, I have doubts as to the bona fides of the defence. This is for the following reasons:
(a)The Agreement, prepared by the defendant and Mr Margaria, is styled as a loan document, referring to the "amount of loan" and "interest" and "Interest Rate". There is no reference in it to "units" or any form of "syndicate" participation in the Development.
(b)The term as to the repayment of capital is unequivocal; "the capital is to be paid in full on or before 1st October 2004". The term as to payment of interest is linked to settlement of the first eleven titles in the Development. It was open to the defendant to have included in the Agreement a term linking repayment of the capital to the settlement of the first eleven blocks. It did not do so.
(c)The preamble to the Agreement refers to the vendors of the Boddington Land requiring "$250,000 for a minimum period of twelve months from 1st October 2003 to 30th September 2004 to assist with the acquisition of the said land estate". The preamble is consistent with the money being required for a set term. It is also inconsistent with the plaintiff's interest being anything other than a loan. A clear distinction is made between the purchasers of the land - Rycar and Gumleigh - and the plaintiff as the "investor". If there was any form of unit participation or syndicate participation, one would have expected this to be included in the plain English (as opposed to legally drafted) preamble to the agreement.
(d)There are no documents before the court recording or evidencing existence of any partnership agreement between Rycar, Gumleigh and the plaintiff, nor any syndicate agreement. Neither is there any document reflecting any "unit" agreement. One would have expected that if there was any syndicate participation in the Development, there would have been some document outlining the respective rights of the syndicate members. Likewise, if there had been any "unit" participation in the development, one would have expected some form of unit holders agreement, perhaps even a unit trust style agreement, setting out the rights of the parties, in particular, the rights of various unit holders or syndicate holders.
(e)As I have noted above, Mr Kennedy's own affidavit evidence does not support the position that the plaintiff was a silent partner in the Development.
(f)Taken to its logical conclusion, the defendant's position appears to be that if there is insufficient money in the Development "partnership" comprising the defendant and Gumleigh to repay the plaintiff, there is no obligation to pay the plaintiff. If that was the true position as between the parties, it is a term of such significance that its omission from the agreement would have been surprising to say the least.
All this is apparent without the need to refer to the plaintiff's affidavits and the affidavits of Messrs McDiarmid and Margaria. When recourse is had to these affidavits, it is not only apparent that the plaintiff and her husband view the transaction as a simple loan, but so does the other alleged "partner", Gumleigh, through Mr Margaria. Indeed, Gumleigh has acted consistently with the relationship between the plaintiff, the defendant and Gumleigh being that of a loan with a fixed date for repayment, by repaying one half of the loan, together with interest. This conduct on the part of Gumleigh is inconsistent with the version of facts set out by Mr Kennedy.
I am conscious of the authorities to the effect that care must be taken in allowing a plaintiff to rely on affidavit evidence in reply if it does no more than contradict the facts on which the defendant relies: Colonial Bank of Australasia Ltd v De Faro (1894) 20 VLR 241 at 242-243. However, the decision of the Full Court in Hazart is an example of a case where the court looked closely in to the affidavit evidence, including evidence in reply, to form views as to the bona fides of the defendant's defence.
I am also conscious of the fact that it is apparent from the affidavit material that Mr Margaria is a friend of the plaintiff and her husband. However, this fact does not undermine the total absence of documentary evidence supporting the defendants claim.
Accordingly, I am of the view that the defence lacks bona fides. The present case falls squarely within the type of case set out by Anderson J in Hazart, quoted above: the plaintiff's claim appears clear cut, and it is difficult to escape the conclusion that the defendant is a debtor playing for time.
Having formed the view that the defence lacks bona fides, it is appropriate for me to consider whether there should be any condition placed on the defendant's ability to defend the action. At the end of oral argument, I raised with counsel for the defendant the fact that ordering the defendant to pay money into court as a condition of giving the defendant leave to defend the action was one of the options which I considered open to the Court on the facts of the case. I then raised with counsel for the defendant whether the defendant wished to provide affidavit evidence as to its financial status. Counsel for the defendant said that providing such information may be prejudicial to the defendant, and its preference was to defer filing such an affidavit until it was needed.
Consequently, at the point of time in the development of my reasoning I formed the view that I should give serious consideration to granting leave to defend conditional upon payment of an amount into court, I wrote to the parties and invited the defendant to file any affidavit material it wished me to consider and any submissions on the issue, and invited the plaintiff to file submissions on the issue thereafter.
I subsequently received an affidavit of Mr Kennedy sworn 28 February 2006 ("Second Kennedy Affidavit") setting out financial information relating to the defendant as at 30 June 2005. I also received submissions from both parties. Annexed to the Second Kennedy Affidavit is a copy of the statement of financial position of the M Kennedy Family Trust. Mr Kennedy deposes to the fact that the defendant is the trustee for this trust, and that all assets are held in that capacity. The salient points from the statement of financial position, when read with Mr Kennedy’s explanation, are:
(a)Current assets total $91,056, of which $516 is cash and $90,540 is receivables, being loans from related companies that Mr Kennedy does not anticipate the defendant receiving before 31 December 2006.
(b)Non-current asset total $296,437, predominantly made up of a residential property valued at $117,631.00, several motor vehicles valued at (net of depreciation) $159,969.00.
(c)There is a "negative" current liability of $14,343 which is said to be "payables related to trust distributions to be made by the defendant".
(d)Non-current liabilities total $410,816, being loans to financial institutions relating to the motor vehicles and a loan made by the National Australia Bank to the defendant.
(e)All of the defendant's non-current liabilities are secured against the residential property and motor vehicles owed by the defendant. The total amount secured exceeds the value of those motor vehicles (net of depreciation) and the residential property.
(f)Net equity is $20.
(g)The only income of the defendant is rental from the residential property at $7,800.
All this paints is a picture of a company in a tight financial position, with no cash, no assets against which to borrow and no surplus income with which to satisfy interest payments on the borrowing.
However, Mr Kennedy goes on to depose the following (par 10):
"The defendant has entered into a contract to purchase a further residential property for the sum of $950,000. Of this sum, the defendant has currently paid $10,000 to the vendor of the property. However, settlement of the purchase of the property will not occur until 7 March 2006. Upon settlement the defendant will be loaned the sum of $995,000, being the total of the purchase price and acquisition costs for that property. The defendant’s repayment of the sum of $995,000 will be secured by a mortgage over that property."
The plaintiff submits that if the defendant has the financial capacity or financial wherewithal to enter into the contract for a property worth almost one million dollars, it must have the ability to satisfy any conditions of security which the Court might impose. It is hard to disagree with that conclusion.
At a nominal rate of interest of 6.5 per cent, the interest component on $995,000 is some $64,675 per annum. The interest on the existing non-current receivables, which as I have noted appear to be from commercial lenders, totals some $26,118.04 per annum, again at a nominal rate of interest of 6.5 per cent. The stated income is $7,800 per annum. The plaintiff submits that the defendant must, of necessity, have undisclosed sources of income.
The defendant makes the point in its further submissions that the Agreement treats the date of payment of interest differently from the date of payment of the capital. The Agreement clearly states that the capital is to be repaid in full on or before 1 October 2004. The Agreement only refers to interest being paid once lots sell. That being so, the case for the repayment of the capital must be stronger. Accordingly, I accept the defendant's submission that, if any condition is to be imposed, it should be no greater than $35,000.
As discussed above, any condition must not make it impossible for the defendant to defend the action. The Full Court in Hazart states that in some cases it is appropriate to order that part only of the amount in issue be paid into Court. Balancing the competing interests here, the appropriate order is that leave to defend be granted conditional upon the defendant paying the sum of $17,500 (being one half of the principal claimed) into court within 30 days of the date of formal orders being made. From the plaintiff's perspective, it is sufficiently high to provide some comfort that what appears to be a very weak defence on the merits is at least being put forward in good faith. From the defendant's perspective, it is not sufficiently high that I perceive there to be any risk that it will be impossible to satisfy. For a company that is able to borrow nearly a million dollars on security less than the amount borrowed and service debts with an annual interest bill which appears to be many tens of thousands of dollars, to find $17,500 within 30 days does not seem impossible.
Stamp duty issues and final orders
The defendant takes the point that the Agreement is not stamped. It relies on Stamp Act 1921 s 27(1) to say that the plaintiff cannot rely on it for the purposes of the application for summary judgment. Stamp Act s 27(1) creates a prohibition on the use of unstamped documents in civil litigation in wide terms, as follows:
"(1) Except as otherwise provided by a stamp Act no instrument chargeable with duty and executed in Western Australia, or relating, wheresoever executed, to any property situate or deemed to be situate or to any matter or thing done or to be done in Western Australia, shall, except in criminal proceedings, be pleaded or given in evidence or admitted to be good, useful, or available in law or equity, unless it is stamped in accordance with the law in force at the time when it was first executed."
The plaintiff may be able to rely on the Stamp Act s 27(3) which is designed to ameliorate some of the harshness of the consequences of s 27(1) for parties other than the party who had the obligation to stamp the document. It is in the following terms:
(3)Sections 29 and 30 and this section do not apply to an instrument or a document relating to an acquisition, transaction or transfer for which a dutiable statement is required to be lodged under section 31B, 31C or 77A, and this section does not apply to an instrument or a document relating to a disposition for which a dutiable statement is required to be lodged under s 73DAA(1), where the instrument or document is pleaded in a pleading filed in any court, or tendered as evidence in any court, on behalf of a party (not being a person who is liable to pay the duty in respect of the instrument or dutiable statement, as the case requires) —
(a) in the case where the instrument or document is pleaded, if before the pleading is filed in the court, the person —
(i) has informed the Commissioner of the name of the person liable to pay the duty in respect of the instrument or dutiable statement; and
(ii) has lodged
(I) the instrument or a copy of the instrument; or
(II)the document or a copy of the document, as the case requires, with the Commissioner; and
(b)in the case where the instrument or document is tendered, if the court is satisfied that the person —
(i) has informed, or will in accordance with arrangements approved by the court, inform the Commissioner of the name of the person liable to pay the duty in respect of the instrument or dutiable statement; and
(i) has lodged, or will in accordance with arrangements approved by the court, lodge —
(I) the instrument or a copy of the instrument; or
(II)the document or a copy of the document, as the case requires, with the Commissioner.
In Mackwell v Petkovic (1999) 20 WAR 367, Malcolm CJ (with whom Ipp and Steytler JJ agreed) considered the question of whether the words "relating to a transaction for which a statement is required to be prepared and lodged under s 31B", as they appear in s 27(3) qualify, not only the word "document", but also the word "instrument" in that section. The Chief Justice held that the qualification did not apply to the word "instruments". Consequently, in the words of the Chief Justice (at 377-378):
"…s 27(3) is available to any person who is a party to a transaction, not being a party liable to pay the duty, but who wishes to rely on the unstamped document. Such a person is required to inform the Commissioner of the identity of the person liable to pay the duty in respect of an instrument, and is required to lodge the relevant instrument or document with the Commissioner."
The Chief Justice went on to say that the hearing in question could have proceeded on the basis of appropriate undertakings being given to comply with s 27(3), or could have been adjourned to allow s 27(3) to have been complied with.
In the present case the appropriate course is to allow the plaintiff a short period of time in which to either arrange for the Agreement to be stamped or to arrange for Stamp Act s 27(3) to be complied with if it asserts that the obligation is on the defendant to pay stamp duty. To this end, I have brought on the plaintiff's application for summary judgment for mention in chambers on 24 March 2006. At this time I will hear counsel on the form of final orders and the question of costs. If the stamp duty issues have not been dealt with one way or the other, then it may well be that the application must be dismissed due to Stamp Act s 27(1), though I will hear submissions on that point as well.
2
8
2