Reed International Books Australia P/L (trading as Butterworths) v King & Prior P/L

[1993] FCA 628

REED INTERNATIONAL BOOKS AUSTRALIA PTY LTD (trading as BUTTERWORTHS) v. KING
AND PRIOR PTY LTD; KENNETH PHILLIP PRIOR; MICHAEL DRUMMOND PRIOR; JOHN WILLIAM
MURPHY and MARTIN MADDEN
No. G3125 of 1993
FED No. 628
Number of pages -11
Practice and Procedure
(1993) 11 ACLC 935, (1993) 11 ACSR 560
(1993) 44 FCR 587

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
EINFELD J

CATCHWORDS

Practice and Procedure - motion to strike out applicant's statement of claim - whether cause of action disclosed - whether directors incurred a debt - personal liability of receivers - unjust enrichment - money had and received

Corporations Law: ss.419(1), 592

Dey v Victorian Railways Commissioners (1949) 78 CLR 62

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

ANZ Banking Group Limited v Westpac Banking Corporation (1988) 164 CLR 662

David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353

Unilan Holdings v Kerin (1992) 107 ALR 709

Ellis v Goulton (1893) 1 QB 350

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943) AC 32

HEARING

SYDNEY, 6 August 1993

#DATE 9:9:1993

Counsel and solicitors for the applicant: Mr N. Manousavridis

instructed by Baker and McKenzie

Counsel and solicitors for Ms M. Clarke instructed
the second and third respondents: by Cowley and Hearne

Counsel and solicitors for Mr N. Perram instructed
the fourth respondent: by Henry Davis York

ORDER

1. Paragraphs 36 and 37 of the statement of claim struck out.

2. Applicant to pay second and third respondents' costs of the motion on a party-party basis.

3. Motion of the fourth respondents dismissed.

4. Fourth respondents to pay applicant's costs of the motion on a party-party basis.

Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

JUDGE1

The Facts

EINFELD J The first respondent is a large privately-owned paper wholesaler. The second and third respondents are directors of the first respondent, and the fourth respondents are receivers subsequently appointed to the first respondent. It is in the nature of the first respondent's business that it will take orders for the supply of large tonnages of paper from clients such as the applicant, a book publisher, and then order paper direct from manufacturers such as Australia Pulp and Paper Mills Limited (APPM) to cover the orders.

1. On 10 August 1992, the first respondent received an order from the applicant for the supply of 30 tonnes of white APPM new Glopaque - 70 gsm, 940 mm width, 1020 diameter, 76 mm coir paper (the paper) - and on 13 August 1992 the first respondent acknowledged this order in writing. Between 10 and 15 August 1992, the first respondent placed an order with APPM for the paper to enable it to meet the applicant's order. On approximately 16 September 1992, the first respondent received the paper from APPM and invoiced the applicant for it in the sum of $38,424.57. The invoice required payment to be made by the applicant within 30 days.

2. On 6 October 1992, Westpac Corporation appointed the fourth respondents as Receivers and Managers to the business of the first respondent and the fourth respondents duly notified the applicant by a "Circular to Debtors" of their appointment. On 16 October 1992, the applicant paid the amount of the first respondent's invoice to the fourth respondents and the cheque was duly banked.

3. In mid November 1992 and prior to the fourth respondents being able to supply the paper to the applicant, APPM exercised its rights pursuant to a "Romalpa" clause and took back the paper earmarked for the applicant as the first respondent had not paid for it. On 8 February 1993 the applicant demanded repayment of the purchase price from the fourth respondents. Repayment has not been made and the applicants now sue for the amount involved.

4. The fourth respondents moved on notice given on 1 July 1993 for an order that the applicant's claim against them be dismissed on the ground that it discloses no reasonable cause of action. By a motion filed on 2 July 1993 the second and third respondents seek an order that paragraphs 36 and 37 of the applicant's statement of claim be struck out on the grounds that the pleading discloses no reasonable cause of action and is otherwise an abuse of the Court's process. Both these motions were heard together on 6 August 1993.

Second and Third Respondents' Motion
6. Paragraphs 36 and 37 of the statement of claim are based on section 592 of the Corporations Law. Those paragraphs read:

36. Further or alternatively:

(i) by reason of the appointment of the fourth respondents as receivers and managers of its assets, the first respondent is a company to which s.592 of the Corporations Law applies; an

(ii) at all material times:

(a) the first respondent was unable to pay its debts as and when they fell due; and

(b) the second and third respondents knew or ought reasonably to have known that the first respondent was unable to pay its debts as and when they fell due.

37. In the premises, the second and third respondents are jointly and severally liable for the debt incurred by the first respondent to the applicant as pleaded herein and is jointly and severally liable to pay the sum of $38,424.57 to the applicant.

1. Section 592(1) of the Corporations Law provides:
   

Where:

(a) a company has incurred a debt before the commencement of Part 5.7B;

(b) immediately before the time when the debt was incurred:

(i) there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or

(ii) there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

(c) the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies;

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt.

1. The essential ingredient of section 592 upon which the second and third respondents rely in their application to strike out paragraphs 36 and 37 are the words "where a company has incurred the debt". The second and third respondents submit that the agreement entered into between the first respondent and the applicant for the supply of paper could not have been characterised as a "debt" at or immediately before that time.

2. In my opinion this is correct. All the first respondent incurred at that time was a contractual obligation to supply paper. All that the applicant could claim at the time the contract was entered into was that if the first respondent did not provide the paper at the time stipulated in the contract, there would be a total failure of consideration and the applicant would have an action for damages against the first respondent. A potential liability for damages does not constitute the incurring of a debt for the purposes of section 592.

3. However, the applicant does not appear to argue that there was a "debt" within the meaning of that section at the time the relevant agreement was entered into. Rather it asserts that a debt was incurred on 16 October 1992 when the applicant made the payment to the first respondent for the paper. The second and third respondents submit that the fact that the applicant paid for the paper before it was supplied did not give rise to the existence of a debt between the applicant and the first respondent for the purposes of the section.

4. To support this claim the second and third respondents rely on the decision of the High Court in David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353. In particular they point to the distinction drawn by Justice Brennan between moneys paid under a mistake of fact or law and a total failure of consideration. His Honour held at 389:
   

If under a mistake, money is paid to and unjustly enriches a payee, the payer's right to recover the amount paid accrues at the moment when the payee received the money. By contrast, a payment made for a consideration that totally fails is not affected by any operative mistake: it is made in order to obtain the consideration bargained for. The payer acquires no right to recover when the payment is received, but only when the consideration totally fails. The very hypothesis which makes it unjust for the payee to retain the payment when the consideration fails is that the payer has received no part of the contractual benefit for which the payment was made.

1. The second and third respondents' submission is correct. It is misconceived to state that a "debt" was incurred by these respondents at the time the applicant made the payment to the first respondent. No debt as such was incurred at all. The applicant's right to claim damages including no doubt the amount paid, only arose at the time when there was a total failure of consideration in mid November 1992 when APPM repossessed the paper.

2. It is, however, clear that the Court's power to dismiss proceedings on the ground that no reasonable cause of action is disclosed should be sparingly employed and only exercised where it is demonstrated that the case of the applicant is so clearly untenable that it cannot possibly succeed: General Steel Industries Inc. v Commissioner of Railways (NSW) (1964) 112 CLR 125 at 135 per Barwick CJ.

3. Given the strength of this test, despite my findings I would still be reluctant to strike out the paragraphs in question were it not for another fact. Even assuming a "debt" was incurred at the time the applicant paid the money to the first respondent, this was after the appointment of the fourth respondents as receivers and managers. The appointment of official managers had the effect of terminating or diverting the appointment and authority of the second and third respondents and placing the management of the company under the control of the fourth respondents: s. 442(1)(c) Corporations Law. Thus any "debt" was incurred without the second and third respondents' express or implied authority or consent. In such circumstances it is impossible to hold, even on the applicant's assertion of the facts, that the claim against the second and third respondents under section 592 evidences a reasonable cause of action.

4. Paragraphs 36 and 37 of the applicant's statement of claim will be struck out. The applicant will pay the second and third respondents' costs of this motion on a party-party basis.

Fourth Respondents' Motion
16. The fourth respondents seek to have the applicant's statement of claim dismissed in so far as it relates to them. The applicant alleges that the fourth respondents are liable on four bases:

1. under section 419 of the Corporations Law;

2. for unjust enrichment;

3. for money had and received; and

4. in debt.

1. Corporations Law
   17. The claim under section 419 of the Corporations Law is set out in paragraphs 33-35 of the statement of claim as follows:
   

33. Further or alternatively, the Fourth Respondents are persons who have entered into possession and assumed control of the assets of the First Respondent for the purpose of enforcing certain charges given in favour of Westpac Banking Corporation.

34. The debt incurred by the First Respondent to the Applicant was a debt incurred in the course of the Fourth Respondents' receivership, possession and control of property of the First Respondent used by the Fourth Respondents in the course of their receivership.

PARTICULARS

(a) the Purchase Price was paid by the Applicant on or about October 21, 1992;

(b) a debt was incurred by the First Respondent on or about the that date by reason of the First Respondents' acceptance of the Purchase price;

(c) the debt was incurred after the date upon which the Fourth Respondents were appointed Receivers and Managers of the First Respondent's assets;

(d) the Purchase Price falls within the definition of "property" for the purposes of the Corporations Law; and

(e) subsequent to the receipt of the Purchase Price, the Purchase Price was used by the Fourth Respondents in the course of their receivership of the assets of the First Respondent.

35. In the premises the Fourth Respondents:

(i) are persons to whom section 419 of the Corporations Law applies; and

(ii) are jointly and severally liable for the debt incurred by the First Respondent to the Applicant as pleaded herein and are jointly and severally liable to pay the sum of $38,424.57 to the Applicant.

1. Section 419(1) provides:
   

A receiver or any other authorised person, who whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any charge is notwithstanding any agreement to the contrary, but without prejudice to the person's rights against the corporation or any other person, liable for debts incurred by the person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased, used or occupied.

1. Thus in order to render a receiver liable under this section, an applicant must establish that:
   

(a) there is a debt;

(b) the debt was incurred in the course of the receivership; and

(c) the debt was for -

(i) services rendered;

(ii) goods purchased; or

(iii) property hired, leased, used or occupied.

1. When entertaining an application to strike out pleadings on the ground that they do not disclose a reasonable cause of action, the Court should assume that the facts pleaded will be proved at trial: Unilan Holdings v Kerin (1992) 107 ALR 709 at 713. Here the applicant has pleaded a total failure of the consideration for its payment by mid November 1992 when APPM repossessed the paper. In such a case an obligation to repay is prima facie imposed upon the recipient of the payment: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943) AC 32 at 62 per Lord Wright. At least for the purposes of this motion, I am prepared to find that such an obligation is properly classified as a "debt" incurred by the receivers in the course of their receivership. It appears that this aspect of section 419 is not challenged by the fourth respondents.

2. The applicant asserts that this debt falls within the section 419 on two bases - as a debt for property used and for goods purchased.

a) Debt for Property Used
22. The applicant points to the definition of "property" contained in section 9 of the Corporations Law which provides:

Unless the contrary intention appears:

"Property" means any legal or equitable interest (whether present or future and whether vested or contingent) in real or personal property and includes a thing in action .....

1. The applicant argues that the cheque by which it made payment for the goods was "property" and that the receivers "used" that property by depositing it into a bank account controlled by them for the purposes of the receivership.

2. The fourth respondents submit that this argument is specious. They say that section 419 is aimed at redressing the harshness of the general principle that where a receiver contracts with a third person and the receivership is disclosed, the receiver contracts as an agent and has no personal liability. Section 419 ameliorates this situation by making the receiver liable in the three limited circumstances previously mentioned. The fourth respondents argue that "property" only includes a chose in action if a contrary intention is not disclosed, and that this is the case in section 419. In particular, they claim that the effect of including a chose in action in this definition would be to include situations where goods are sold but not delivered, making receivers liable for goods sold. By indicating that a receiver is liable for "goods purchased", the argument runs that parliament has evidenced an intention that a receiver is not liable for goods sold: expressio unius est exclusio alterius.

3. In my opinion there is merit in the fourth respondents' arguments. However, authority in this area clearly adheres to the view that an applicant ought not to be denied access to the hearing of his action, unless the cause of action is so clearly untenable that it cannot possibly succeed. As Chief Justice Barwick stated in General Steel Industries at 129, the test to be applied has been variously expressed - - "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed".The requisite test was put by the Chief Justice at 130:
   

Although I can agree with Latham CJ in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.

1. In the present case, despite my own inclinations and notwithstanding extensive argument, I am not persuaded that the case of the applicant in relation to this aspect of its case is so clearly untenable that it cannot possibly succeed. Upon a superficial reading of the statute it appears that a chose in action may fall within the definition of "property"; there is thus at least an arguable case that section 419 may apply to the present circumstances.

b) Debt for Goods Purchased
27. The applicant argued that the debt can also be characterised as a debt for goods purchased. In this respect the word "for" used in section 419 should be read as meaning "with regard or respect to", and the words "goods purchased" should be read as "including goods purchased by the company in receivership" as well as "goods purchased by the company". I must say that I have problems with this argument but given my previous finding it is not necessary for me to determine the matter here.

1. Unjust Enrichment
   28. The claim for unjust enrichment is set out in paragraphs 31 and 32 of the statement of claim as follows:
   

31. Further or alternatively:

(i) the First Respondent and/or the Fourth Respondents have been unjustly enriched and have benefited by reason of the payment by the Applicant of the Purchase Price pursuant to the Agreement;

(ii) the First Respondent and/or Fourth Respondents have been so enriched and have so benefited at the expense of the Applicant;

(iii) it is unjust and inequitable in the circumstances for the First Respondent and/or Fourth Respondents to retain the said benefit; and

(iv) the First Respondent and/or Fourth Respondents are obliged to restore the said benefit to the Applicant.

32. In the premises, the First Respondent and/or Fourth Respondents are jointly and severally liable to pay the sum of $38,424.57 to the Applicant.

1. The fourth respondents submit that unjust enrichment is not a cause of action but rather a unifying legal principle, and is inappropriately included in the statement of claim. The applicant submits that the two paragraphs, properly construed, simply conclude that the facts pleaded in the preceding paragraphs of the statement of claim constitute an unjust enrichment such as to give rise to a legal liability.

2. Strictly speaking, these paragraphs may be superfluous; they certainly need amendment in that only facts should be pleaded in a statement of claim. However, clearly a reasonable cause of action is disclosed and these paragraphs should not be struck out.

3. Monies had and received
   31. Paragraphs 29 and 30 of the statement of claim provide:
   

29. Further or alternatively, the consideration for the payment of the Purchase Price has wholly failed and the First Respondent and/or the Fourth Respondent have had and received the Purchase Price to the use of the Applicant.

30. In the premises, the First Respondent and/or the Fourth Respondents are liable to pay the sum of $38,424.57 to the Applicant.

1. The fourth respondents submit that as an action for monies had and received as a result of a total failure of consideration arises only when that consideration actually fails, any right to restitution in this case did not arise until after APPM had repossessed the paper. The fourth respondents rely on the decision in Ellis v Goulton (1893) 1 QB 350 to support an argument that where a liability to repay arises after the time the original payment occurs, a receiver is not liable whether he has the money or not.

2. In my opinion, Ellis v Goulton does not stand for that proposition, but rather that when an agent receives money on behalf of the principal, the money reaching the agent's hands is the same thing in legal terms, so far as the payer is concerned, as if it has reached the hands of the principal. Assuming that this decision should be followed and applied, it may be able to be used by the fourth respondents to deny the applicant's claim by an argument that they did not receive the money personally but as agents for the first respondent. However, once again I do not feel that the applicant's claim is so clearly untenable as to justify the striking out of these paragraphs.

3. Alternatively the fourth respondents call upon the decision of the High Court in ANZ Banking Group Limited v Westpac Banking Corporation (1988) 164 CLR 662 at 673 to argue that if the receivers paid the money to a third party such as APPM, there is no question of their being liable. What this passage actually says is:
   

It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (e.g., that the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognises would make an order for restitution unjust.

1. The application of this dictum requires evidence to ascertain its appropriateness in any particular case. The statement of claim provides only a bare hint of what evidence may be available in this case but in my opinion it is at least arguable that the fourth respondents are liable to the applicant under the common law action for money had and received on this principle. I refuse the fourth respondents' motion to strike out paragraphs 29 and 30 of the statement of claim.

2. Debt
   36. This claim is found in paragraphs 28 of the statement of claim which provides:
   

28. Further or alternatively, the Fourth Respondents are liable to repay the sum of $38,424.57 to the Applicant.

1. The motion to strike out this claim is indistinguishable in principle from the other claims and must have the same fate. In my opinion the applicant's claim is not so clearly untenable that it cannot possibly succeed. The fourth respondents may be personally liable for a debt of the company as alleged, and accordingly their motion to strike out paragraph 28 of the statement of claim fails.

2. The motion of the fourth respondents will be dismissed. Those respondents will pay the applicant's costs of the motion on a party-party basis.