MEC Resources Limited v BHP Energy Limited
[2018] WADC 26
•23 FEBRUARY 2018
MEC RESOURCES LIMITED -v- BHP ENERGY LIMITED [2018] WADC 26
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2018] WADC 26 | |
| Case No: | CIV:3210/2017 | 13 DECEMBER 2017 | |
| Coram: | REGISTRAR KINGSLEY | 23/02/18 | |
| PERTH | |||
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| PDF Version |
| Parties: | MEC RESOURCES LIMITED BHP ENERGY LIMITED |
Catchwords: | Practice and procedure Application for summary judgment Turns on own facts No new principles |
Legislation: | Nil |
Case References: | Fancourt v Mercantile Credits (1983) 154 CLR 87 Theseus Exploration NL v Foyster (1972) 126 CLR 507 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
BHP ENERGY LIMITED
Defendant
Catchwords:
Practice and procedure - Application for summary judgment - Turns on own facts - No new principles
Legislation:
Nil
Result:
Application dismissed
Representation:
Counsel:
Plaintiff : Mr A D McDonald
Defendant : Mr J R B Ley
Solicitors:
Plaintiff : Pragma Legal
Defendant : Ensign Legal
Case(s) referred to in judgment(s):
Fancourt v Mercantile Credits (1983) 154 CLR 87
Theseus Exploration NL v Foyster (1972) 126 CLR 507
1 REGISTRAR KINGSLEY: In or around 14 November 2014 the plaintiff and defendant entered into a written Loan Agreement. The Loan Agreement provided for a maximum loan facility of $200,000 that could be drawn down by the defendant. In August 2015 the maximum loan facility was increased to $295,000. The plaintiff has paid the defendant a total of $270,000 drawn down under the loan facility. The plaintiff contends that the defendant has not repaid this amount and owes the plaintiff $270,000 together with interest.
2 The plaintiff has brought an application pursuant to O 14 of the Rules of the Supreme Court 1971 (WA) (RSC). The principles surrounding an application pursuant to O 14 RSC are well settled. The power to order summary judgment is one that should be exercised with great care and if it was not possible to say, without doubt, on the whole of the material before the court that there was no real question to be tried, then leave to defend should be given. Whilst it is only in the clearest of cases where there is a high degree of certainty about the outcome if the proceedings went to trial, a court may determine any difficult questions of law on an application for summary judgment. However, it is usually appropriate to leave determination of such questions for trial (see Fancourt v Mercantile Credits (1983) 154 CLR 87; Theseus Exploration NL v Foyster (1972) 126 CLR 507).
The evidence
3 The plaintiff has filed an affidavit of Deborah Leonie Ambrosini sworn 29 September 2017 (the Ambrosini affidavit), and the defendant has filed two affidavits in opposition – an affidavit of David Leslie Breeze sworn 13 November 2017 (the first Breeze affidavit), and an affidavit of Breeze sworn 7 December 2017 (the second Breeze affidavit).
Preliminary skirmishing
4 Plaintiff's counsel objected to a large number of paragraphs of the first Breeze affidavit being admitted into evidence. As defendant's counsel was not given notice of the objection I allowed time for conferral between counsel.
5 Upon resumption of the hearing defendant's counsel submitted that pars 14, 15 and 43 of the first Breeze affidavit could be struck out. Defendant's counsel then submitted that he would not be relying on pars 52 to 180 inclusive of the first Breeze affidavit.
6 After hearing brief argument on whether pars 39, 40, and 46 of the first Breeze affidavit should be admitted into evidence I allowed those paragraphs to be admitted into evidence.
The plaintiff's case
7 It is common cause that the plaintiff paid the defendant a total of $270,000 and the loan was first drawn down on 24 December 2014.
8 Pursuant to cl 1.1 of the Loan Agreement (Ambrosini affidavit, Annexure DLA 3), the Repayment Date was the earlier of:
(i) the date falling two years after the first drawdown date; and
(ii) the date upon which the plaintiff issues a notice under cl 8.2
unless extended by the Parties in writing, in which case the agreed extended date shall be the Repayment Date.
9 The plaintiff argues that the defendant first drew down on the loan on 24 December 2014 (Ambrosini affidavit, [9] and Annexure DLA 4). Therefore the Repayment Date under the Loan Agreement was 24 December 2016, being two years after the first drawdown date.
10 Clause 5.1 of the Loan Agreement provides that the loan must be fully and finally repaid on the Repayment Date and cl 8.1(a) of the Loan Agreement provides that failure to pay constitutes an Event of Default a defined term in the Loan Agreement.
11 Pursuant to cl 8.2 of the Loan Agreement, upon occurrence of an Event of Default, the plaintiff may give written notice to the defendant declaring the loan amount to be immediately due and payable. A default notice was issued to the defendant on 16 June 2017.
The defendant's case
12 The defendant admits the Loan Agreement and admits that it was an express term of the Loan Agreement that the defendant would repay the plaintiff all monies paid by the plaintiff to the defendant under the Loan Agreement and the interest on the Repayment Date.
13 The defendant refers to the definition of Repayment Date in cl 1.1 of the Loan Agreement as being the earlier of the date falling two years after the first drawdown date and the date upon which the plaintiff issued a notice of default under the Loan Agreement unless the Repayment Date was extended by the plaintiff and the defendant in writing in which case the agreed extended date would be the Repayment Date.
14 Clause 16 of the Loan Agreement provided that at any time subsequent to the date of the Loan Agreement, the express terms of the Loan Agreement could be varied in writing executed by it and the defendant.
15 On or about 31 December 2014 at the request of the defendant, the plaintiff wrote to the defendant advising it would not require the defendant to repay to the plaintiff any monies outstanding under the Loan Agreement for at least 12 months from the date of signing of the defendant's financial report for the half year ended 31 December 2014 or until such time as the defendant was financially independent.
16 The defendant's counsel argues the proper construction of the 31 December 2014 letter is that the plaintiff agreed not to require the defendant to make repayment under the Loan Agreement for at least 12 months from the date of signing of the 31 December 2014 financial report, and not until the defendant was in a financial position to pay the monies outstanding without effecting its ability to operate as a going concern. Thus defendant's counsel argues the 31 December 2014 letter constitutes a variation of the Loan Agreement under the variation clause in cl 16 of the Loan Agreement (second Breeze affidavit, [7] – [9]).
17 On 31 December 2015 at the request of the defendant, the plaintiff wrote to the defendant's auditor advising it would not require the defendant to repay the plaintiff any monies outstanding under the Loan Agreement for at least 12 months from the date of signing of the defendant's financial report or until such time as the defendant was financially independent (first Breeze affidavit, [37]).
18 Defendant's counsel submits that the 31 December 2015 letter constitutes a variation of the Loan Agreement under the variation clause and the Repayment Date was varied or extended from 24 December 2016 to a date not earlier than 12 months from the date of signing of the 31 December 2015 financial report.
19 The defendant's counsel argues that the Appendix 4C Report of the defendant for the quarter ended 30 September 2017 shows that at the end of that quarter the defendant had cash of only $455,000 (first Breeze affidavit, Annexure DLB 21). Thus if the defendant were required to pay the monies claimed by the plaintiff, it would have considerable difficulties in passing the 'going concern' test conducted by the defendant's auditor. In that case the defendant could not continue to operate.
20 For these reasons the defendant's counsel argues the extended Repayment Date has not been reached and the monies outstanding under the Loan Agreement are not due and payable by the defendant to the plaintiff.
21 The plaintiff's counsel argues that any variation by deferral of the Repayment Date could only be to 31 December 2016. By a letter dated 31 December 2015 provided by the plaintiff to the defendant's auditors, the plaintiff stated:
The directors of MEC Resources confirm that the loans outstanding from BPH Energy Limited will not be called upon for repayment for at least 12 months from signing the financial report or until such time the company is financially independent.
22 The 31 December 2015 financial report states:
Subsequent to year end the group has received confirmation from the lender that the current financial liabilities of $797,760 (2014: $589,460) will not be called for repayment for a period of 12 months from the date of this financial report or until such time as the group is financially independent.
23 The plaintiff's counsel argues that the report referred to in the 31 December 2015 letter is the financial report for the half year ended 31 December 2015. The plaintiff's counsel refers to the fact that the 31 December 2015 financial report clearly states that the loan '… will not be called for repayment for a period of 12 months from the date of this financial report …'. Thus the plaintiff's counsel argues that the Repayment Date is 31 December 2016.
24 In any event the plaintiff's counsel argues the defendant has been financially independent since at least 25 November 2016. The plaintiff's counsel argues that the plaintiff has not provided further funding to the defendant. On 7 March 2017 the plaintiff's counsel submits the defendant had announced it received applications for shares totalling $941,507 and had received net funds of $821,468. On 13 November 2017 the plaintiff's counsel submits the defendant announced a further rights issue to raise approximately $1,177,404 (before costs).
Discussion
25 Clause 1.1 of the Loan Agreement provides that the Repayment Date was a date two years after the first drawdown date and the date upon which the plaintiff issues a notice of default unless the Repayment Date was extended by the plaintiff and the defendant in writing. Clause 16 of the Loan Agreement provides that at any time subsequent to the date of the Loan Agreement, the express terms of the Loan Agreement could be varied in writing executed by the defendant and plaintiff. The first drawdown occurred on 24 December 2014 and the Repayment Date under the Loan Agreement was therefore 24 December 2016.
26 However, by the 31 December 2015 letter the Repayment Date has now been varied from 24 December 2016 to 31 December 2016.
27 Both the 31 December 2015 letter from the plaintiff to the defendant and the financial report for the half year ended 31 December 2015 refer to the outstanding loans and that the loans will not be called upon for payment until such time as the company (the defendant) is financially dependent.
28 It is arguable, in my opinion, that the Loan Agreement has been varied to provide that the Repayment Date has been extended to a time when the defendant is financially independent.
29 The plaintiff seeks to argue that the defendant has been financially independent from the plaintiff since at least 25 November 2016. However, in my opinion, the arbitrary selection of financial information is not the criteria for determining financial independence. In my opinion there is an argument as to whether the defendant was financially independent at 31 December 2016.
30 In my opinion it then becomes questionable whether under cl 8.1 of the Loan Agreement failure to pay on 31 December 2016 constitutes an Event of Default. If the Loan Agreement has been varied to provide that the loan will not be called upon until such time as the defendant is financially independent then, at 31 December 2016, there no amount is due by the defendant at that date. As cl 8.1 of the Loan Agreement provides that failure to pay or repay any amount due by the defendant, when due, constitutes an Event of Default it is arguable that there has been no Event of Default.
31 The plaintiff's counsel submits that the loan amount is due and payable by virtue of the default notice dated 16 June 2017 (Ambrosini Affidavit, [15] –[18] and Annexure DLA 9). The default notice was issued pursuant to cl 8.2 of the Loan Agreement. Clause 8.2 provides that upon the occurrence of an Event of Default, the plaintiff (Lender) may, by written notice to the defendant (Borrower) declare the outstanding moneys due and payable.
32 The authority to issue the default notice rests on their being an Event of Default. If there has been no Event of Default then there is no contractual basis to issue the default notice.
33 For the reasons above, in my opinion it is arguable whether the moneys are due, and therefore arguable whether there has been an Event of Default.
Conclusion
34 The defendant has made out an arguable case such that judgment pursuant to O 14 RSC should not be entered. The plaintiff's application is dismissed. I will hear counsel on the issue of costs and the future conduct of the action.
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