Phantom Precision Engineering Pty Ltd v Luscombe

Case [2021] SASC 59

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeal: Civil)

PHANTOM PRECISION ENGINEERING PTY LTD v LUSCOMBE

[2021] SASC 59

Judgment of the Honourable Justice Lovell 

28 May 2021

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS - ANSWERING PLEADINGS - DENIALS AND NON-ADMISSIONS

DEEDS - DEED OF RELEASE - GENERAL WORDS OF RELEASE

APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - ADMISSION OF FURTHER EVIDENCE - IN GENERAL

The respondent advanced $100,000 to the appellant. An issue arose as to whether the advance was a loan or an investment. In any event, the appellant argued that it had been released from liability by virtue of a Deed of Settlement and Release.

A Magistrate considered the existence of a loan agreement and quantum of the claim were established on the pleadings. The Magistrate rejected the appellant's submissions as to the construction of the Deed or that the evidence established an accord and satisfaction. Judgment was entered in favour of the respondent.

On appeal, the appellant complained that the Magistrate erred in finding the existence of the loan and quantum of the claim had been established on the pleadings and that in any event the evidence could not support such findings (grounds 1 and 2). If the Magistrate was found not to have so erred, the appellant contended that the Deed and surrounding circumstances otherwise released the appellant from liability (grounds 3 and 4).

The respondent made an oral application to adduce fresh evidence establishing the quantum of the claim, should the appellant be successful raising grounds 1 and 2.

Held, refusing the respondent's application for fresh evidence:

1. It is not in the interests of justice to allow the fresh evidence. 

Held, allowing the appeal on grounds 1 and 2, dismissing the appeal on grounds 3 and 4, and dismissing the respondent's original claim:

1. The Magistrate erred in interpreting the pleadings such that neither the existence of a loan agreement or the quantum of the claim had been established;

2. The evidence does not establish the existence of a loan agreement or the quantum of the respondent's original claim;

3. The proper construction of the Deed would not have released the appellant from liability for the purported loan;

4. The evidence did not establish an accord and satisfaction.

Magistrates Court Act 1991 (SA) s 42; Magistrates Court (Civil) Rules 2013 (SA) r 24(1)(b); Uniform Civil Rules 2020 (SA) rr 100, 286(3), referred to.

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; Crampton v The Queen (2000) 206 CLR 161; El Mir v Risk (2006) 22 BCL 16; [2005] NSWCA 215; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR…

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Phantom Precision Engineering Pty Ltd v Luscombe [2021] SASC 59
Case
[2021] SASC 59
Decision Date

CaseChat Overview and Summary

In the case of Phantom Precision Engineering Pty Ltd v Luscombe, the appellant, Phantom Precision Engineering Pty Ltd, appealed against the findings of the respondent, Luscombe, in the Magistrates Court. The primary dispute between the parties centred on the nature of a financial transaction, specifically whether the sum of $100,000 provided by Luscombe to Phantom Precision Engineering Pty Ltd was a loan or an investment. Additionally, the court needed to determine whether the Deed of Release executed between the parties in March 2018 released Phantom Precision Engineering Pty Ltd from any debt obligations.

The legal issues at the core of the case involved the interpretation of the Deed of Release and the determination of whether the evidence presented at trial sufficiently established the existence of a loan and its outstanding balance. Furthermore, the court had to decide if the Deed of Release released Phantom Precision Engineering Pty Ltd from the alleged debt and whether there was evidence of an accord and satisfaction.

The court's reasoning on the appeal was grounded in the principles of contract construction and the admissibility of new evidence. The appeal court found that the Magistrate had erred in concluding that the existence of a loan agreement and the quantum of the claim were established on the pleadings alone. The court held that the evidence tendered did not substantiate the existence of a loan agreement or the quantum of the respondent's claim. Regarding the Deed of Release, the court agreed with the Magistrate's interpretation that it did not release Phantom Precision Engineering Pty Ltd from the alleged debt. The court also noted that there was insufficient evidence to support an accord and satisfaction.

Ultimately, the appeal court allowed the appeal on the grounds that the Magistrate's interpretation of the pleadings was erroneous and that the evidence did not support the existence of a loan agreement or the quantum of the claim. The court dismissed the appeal on the grounds concerning the construction of the Deed of Release and the accord and satisfaction. The appeal court also dismissed Luscombe's original claim against Phantom Precision Engineering Pty Ltd.

Orders

Orders of the court

Held, refusing the respondent's application for fresh evidence:

1. It is not in the interests of justice to allow the fresh evidence.

Held, allowing the appeal on grounds 1 and 2, dismissing the appeal on grounds 3 and 4, and dismissing the respondent's original claim:

1. The Magistrate erred in interpreting the pleadings such that neither the existence of a loan agreement or the quantum of the claim had been established;

2. The evidence does not establish the existence of a loan agreement or the quantum of the respondent's original claim;

3. The proper construction of the Deed would not have released the appellant from liability for the purported loan;

4. The evidence did not establish an accord and satisfaction.

Background

Background to the litigation

At trial in the Magistrates Court, the Magistrate accepted the respondent’s submissions and found that the monies were advanced by way of a loan. She also rejected the appellant’s construction of the Deed. The appellant appeals those findings.Background The respondent was a director of the appellant company. On or about 6 November 2014, the respondent provided a sum of $100,000 to the appellant for the purchase of a small engineering firm. At around the same time, a Mr Randall Wilson and Mr Grant Gilbert also forwarded monies to the appellant for the same purpose, in the sums of $100,000 and $250,000, respectively. From time to time, payments were made by the appellant to the respondent, but payments ceased on or about 3 May 2018. Consistent with his categorisation of the monies as a loan, on 18 March 2019, the respondent issued a notice of demand for $61,434.17 which he claimed to be outstanding. The notice went unanswered. On 6 May 2019, proceedings were commenced in the Magistrates Court for recovery of the alleged debt. The appellant defended the claim for debt on the basis that the advance was not a loan, but rather an investment. The appellant claimed payments were made to the respondent (and Mr Randall Wilson and Mr Grant Gilbert, collectively categorised as “the Investors”) only when surplus funds became available for distribution. Consequently, the appellant contended that no loan agreement existed nor was there any debt owed to the respondent. In any event, the appellant claimed that the Deed executed by inter alia the respondent and the appellant provided for full and final settlement of any dispute between the parties, upon payment of a settlement sum by the appellant. The appellant pleaded that “the Dispute” as defined in the Deed covered the alleged debt. Consequently, upon payment of the settlement sum in March 2018, the appellant submitted it was released from the alleged loan. Further, the appellant contended that the Deed contained a covenant by the respondent not to sue. In the further alternative, the appellant contended that the Deed and other evidence (namely communications between the parties following execution of the Deed and the further payment of $750 by the appellant to the respondent) released the appellant from liability, as a consequence of an accord and satisfaction. The trial No oral evidence was called at trial; the parties were content to argue their cases on various tendered documents. The parties agreed there was no written agreement relating to the alleged debt. Nor did the parties dispute the existence of the Deed, and whilst the Deed was not dated, the parties agreed it was executed in about March 2018. There were three main issues at trial. First, whether the monies advanced were a loan or an investment. Secondly, if it was a loan, how much of the loan remained unpaid. Thirdly, whether the respondent released the appellant from the alleged debt in any event. The Magistrate found the existence of the loan agreement and the quantum of the claim were established on the pleadings. Further, the Magistrate held the appellant was not released from liability by operation of the Deed nor was she satisfied that there was evidence of accord and satisfaction. Consequently, judgment was ordered against the appellant in the sum of $61,434.17.Principles on appeal

Evidence

Evidence Before The Court

In my view, the respondent, at trial, did not establish the basis or the quantum of the Claim, nor could he have established the basis or quantum of the Claim on the evidence tendered. Can the respondent call further evidence? Counsel for the respondent made an oral application to adduce fresh evidence on appeal. The respondent submitted that, if the only aspect not established is quantum, he should be allowed to adduce further evidence on appeal as to the alleged outstanding amount. Alternatively, the matter should be remitted to the Magistrate for further evidence to be called. Mr Douglas, counsel for the respondent, conceded on appeal that prior to closing the respondent’s case at trial he was aware of the appellant’s submissions on the pleadings issue and the alleged absence of evidence. He accepted that he made a forensic decision at trial not to call further evidence. Nonetheless, Mr Douglas submitted that it would be in the interests of justice to allow either fresh evidence to be adduced on the appeal or to remit the matter to the Magistrate for further evidence to be called. To that end, Mr Douglas sought to tender an affidavit of the respondent which exhibited bank statements and various spreadsheets said to evidence payments made by the appellant in accordance with the alleged loan agreement. The appellant opposed the application. The appellant submitted that the respondent made a forensic decision as to how to prove his case by relying on the pleadings and the documents discussed earlier. That is, the respondent’s counsel made a tactical decision not to call the respondent and that decision is fatal.Applicable principles SCR 286(3) permits this Court, at its discretion, to hear further evidence on a question of fact. In considering the operation of this rule, Blue J in Sunlight Nominees v Zotti and Zotti stated:[4] Common law courts considering the exercise of the power to order a new trial generally required an applicant to satisfy two criteria:1. the evidence sought to be admitted could not with reasonable diligence have been obtained for use at the trial; and2. if the evidence had been available at the trial, it is reasonably clear that an opposite outcome would have resulted. However, these criteria were not rigid and were applied with some flexibility in reconciling the competing demands of justice and finality. In CDJ v VAJ the High Court held that the common law criteria do not apply as such to the discretion to admit new evidence on a statutory appeal conferred by section 93A(2) of the Family Law Act 1975 (Cth). Nevertheless the extent to which the evidence was or could by the exercise of reasonable diligence have been available at trial and the extent to which the evidence was capable of resulting in a different result are clearly critical factors to be taken into account in the exercise of the discretion.In Viscariello v Livesey White J held, or proceeded on the basis, that the approach articulated by the High Court in CDJ v VAJ applies to the determination of a civil Magistrates appeal (under section 40 of the Magistrates Courts Act 1991 (SA)) because the provisions of rule 286(3)(a) of the Supreme Court Civil Rules 2006 (SA) are in very similar terms to section 93A(2) of the Family Law Act 1975 (Cth). It appears that both parties on the appeal before the single Judge proceeded on this basis and I therefore assume that the reception of the new evidence on appeal to the single Judge was to be determined on this basis.[4] [2019] SASCFC 11 at [39]–[42] (citations omitted).

Decision

Reasons for decision

For the same reasons, I would not remit the matter to the Magistrate for further hearing. To do so would simply be to allow the respondent to change his mind about how to conduct the trial. The finality of litigation is a significant impediment to such a course. Conclusion on Grounds 1 and 2 I would allow the appeal on Grounds 1 and 2 and I would dismiss the respondent’s claim. In these circumstances, it is strictly unnecessary for me to decide the other grounds of appeal. However, given they were argued before the Magistrate and on appeal, I will proceed to determine them. Grounds 3 and 4 It was common ground that inter alia the appellant and respondent entered into a Deed of Settlement and Release (“the Deed”) in March 2018. The other parties to the Deed were Mr Randall Wilson, Bargwanna Pty Ltd (“Bargwanna”), Momentum Medical Technologies Pty Ltd (“Momentum”), and Ms Margaret Gilbert (as executor of the Estate of Mr Grant Gilbert). The respondent was the sole director and shareholder of Momentum. That is, both the respondent personally and his company, Momentum, where named parties to the Deed. Bargwanna was Mr Gilbert’s company. An issue arose at trial as to the construction of the Deed. The appellant argued that on a proper construction of the Deed, the respondent had released the appellant or alternatively had covenanted not to sue the appellant. The respondent submitted that the Deed was confined to resolving a more narrow dispute such that the appellant’s liability in relation to the alleged loan was not impacted by the execution of the Deed. The Deed The Magistrate concluded that the Deed, properly construed, did not release the appellant from the loan that she found had been admitted in the pleadings. I agree with the conclusion reached by the Magistrate in relation to the effect of the Deed, although for slightly different reasons. My reasons follow. Legal principles of construction The usual principles applying to the construction of a contract apply to the construction of a deed.[10] The plurality of the High Court in Electricity Generation Corporation v Woodside Energy Ltd provided the following summary of the relevant principles:[11]Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties ... intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.[10] See Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45.[11] (2014) 251 CLR 640 at [35] (citations omitted).

Ratio Decidendi

Legal Principle Established

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