Sogelease Australia Ltd v Nauru Phosphate Royalties Trust
[2003] VSC 262
•17 July 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4058 of 2000
| SOGELEASE AUSTRALIA LTD | Plaintiff |
| v | |
| NAURU PHOSPHATE ROYALTIES TRUST | Defendant |
AND BETWEEN:
| NAURU PHOSPHATE ROYALTIES TRUST | Plaintiff by Counterclaim |
| v | |
| SOGELEASE AUSTRALIA LTD | First Defendant by Counterclaim |
| And COMMAND ENERGY PTY LTD | Second Defendant by Counterclaim |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 5-8, 12-15,19-22, 25-28 FEBRUARY, 4-7, 12-14, 19-21, 25-27 MARCH, 3-5, 8-11, 15-18, 22-23 APRIL, 3-7, 11-13, 18-19 JUNE 2002 | |
DATE OF JUDGMENT: | 17 JULY 2003 | |
CASE MAY BE CITED AS: | SOGELEASE AUSTRALIA V NAURU PHOPSHATE ROYALTIES TRUST | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 262 | First Revision 21 July 2003 |
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Finance agreement – Equipment purchased pursuant to third party contract – Assignment to financier of hirer’s rights thereunder – Whether notice to third party binds that party .
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APPEARANCES: | Counsel | Solicitors |
| For Command Energy | Mr G Golvan QC with Mr I Williams | Blake Dawson Waldron |
| For Nauru Phosphate Royalties Trust | Mr W Lally QC with Mr V Morfuni SC | Clayton Utz |
| For Sogelease Australia | Mr D Denton SC with Mr R Short | Phillips Fox |
HIS HONOUR:
By a writ issued on 28 July 1997 in proceeding No. 6425 of that year, Command Energy Pty Ltd ("Command") brought a claim in breach of contract against Nauru Phosphate Royalties Trust ("the Trust"). In a separate proceeding (No. 4058 of 2000) between Sogelease Australia Limited ("Sogelease") as plaintiff and the Trust as defendant, Sogelease seeks payment from the Trust of the sum of $2,050,471.50 or, in the alternative, damages. The prayer for relief also makes ancillary claims.
The two proceedings were heard together. I have already delivered judgment in that in which Command is the plaintiff. The present judgment (that is, in proceeding No. 4058 of 2000) is to be read with the other. Accordingly, I will assume that the reader is familiar with the factual background described in, and the entities relevant to, the first judgment.
The cause of action upon which Sogelease relies is pleaded in a further amended statement of claim filed on 16 April 2002. It alleges the entry into the maintenance agreement and the CERA. It then refers to two clauses of the latter: first, clause 1B (“Works” means all works, installations and equipment to be undertaken or installed by Command…under this agreement…”); and secondly, clause 3(a) (“Command…shall submit to [Gardner + Lang] the specifications of all works…for approval prior to the commencement of those works”). The pleading next asserts that during 1993 and 1994 Command submitted to Gardner + Lang for its approval the specifications for the supply and installation of the Barber Colman system, the fire alarm and detection system and the security access system (to all of which I shall collectively refer as “the systems”). Gardner + Lang subsequently gave the approval sought, following which Command, as it was by clause 7(c) of the CERA entitled to do, entered into a finance lease agreement with Sogelease. That occurred on or about 1 March 1994.
The terms of the finance lease agreement, as Sogelease alleges them to be, are set out in paragraph 12 of the further amended statement of claim. By those terms (so the pleading alleges):
(a)Sogelease was the financier of the sale by, and lease-back to, Command of the three systems;
(b)Command was required to make periodic payments of principal and interest to Sogelease;
(c)as security for those payments, Command assigned to Sogelease all of its interest to any money which might become payable to Command pursuant to clause 9 of the CERA, notice of which assignment had been (as Command covenanted) given to the Trust;
(d) Sogelease then became the owner, and Command the bailee, of the systems.
Each of these contentions is supported by the evidence and the law. I find that each has been made out. It will accordingly be seen that here was a sale and lease-back arrangement: Command sold the systems to Sogelease, who thereafter leased them back to Command. In those circumstances, it was a transaction which effected the application of clause 9 of the CERA. That clause operates when the maintenance agreement comes to an end. The then interest of Command (or any assignee from Command) in the “works”, including of course the systems, will be transferred to the Trust. In return for this transfer, the Trust will pay to Command an amount the calculation of which will depend on whether or not the ownership of an individual component of the “works” remained with Command or had been assigned. Each of the systems fell into the latter category. In their case, therefore, the Trust must (subject to another provision of the CERA, to which I shall return) pay an amount which represents the higher of (on the one hand) the “residual”, and (on the other) the market, value of the equipment. Command will thereafter be responsible for discharging any assignee's interest in that equipment. The “residual” value of each item of equipment to be transferred under these provisions of the CERA shall, by clause 9(c), “be the value of the item stated in a table to be provided by Command…to the client within 60 days of completion of the…assignment of the item, whichever shall last occur.”
According to paragraph 13 of the further amended statement of claim, the assignment duly took place on 1 March 1994. I find that this was so. Two days later, Command notified the Trust of the assignment: paragraph 14. This allegation is also made out. More contentious is the allegation, contained in paragraph 15, that at some time during the course of 1994, Command also notified the Trust of the residual value of each of the systems. I shall return to this allegation later in this judgment. In the meantime, I record that, as is pleaded by paragraph 16 of the further amended statement of claim, the Trust on or about 16 November 1994 acknowledged receipt of the notice of assignment, agreed with its contents, and thereby became bound by its terms.
It is convenient at this point to go to the notice. It is dated 3 March 1994. It informs the Trust that, “as security for all payments due under a finance lease facility entered into between Command…and Sogelease”, the former has assigned to the latter “all of its right, title and interest to any money which may become payable to Command…under clause 9 of the CERA”. It adds that the Trust “confirms…that it will not reduce the amount which may become payable to Sogelease under the said clause 9 as a result of any dispute between it and Command” and that the Trust “has not received any other notice of an assignment of any of Command’s…rights under the said contract.” This may mean that the Trust has not received notice of any assignment of ownership from Command to Sogelease.
The further amended statement of claim then pleads (by paragraph 18) that on 16 January 1998 the Trust terminated the maintenance agreement. Command thereafter defaulted in its obligations to Sogelease: paragraph 19. The default began on 25 July 1998, and has continued thereafter. What is more, on 19 January 1998 Command lost possession of each of the systems, while in any event the bailment from Sogelease to Command of the security access system was terminated in or about October 1996 – Sogelease alleges that, at that time and acting without the consent of Sogelease, the Trust removed the system from Nauru House.
According to paragraph 29 of the further amended statement of claim, Sogelease on 19 February 1998 demanded from the Trust payment of the sum of $2,050,471.50 due to Sogelease as assignee under clause 9(a) of the CERA. Of that sum, $1,455,929.00 was attributed jointly to the Barber Colman system and the fire alarm and detection system, while the balance of $594,542.50 was attributable to the security access system. The Trust has nevertheless, and wrongfully, refused to pay: paragraph 21.
Sogelease also makes an alternative claim. This is set out in paragraphs 21A-21C. By that alternative claim, Sogelease alleges that it was the owner of each of the systems. Following Command's default, Sogelease was (or so it claims) entitled to lawful possession of them. Moreover, the term of the finance lease agreement expired on 25 January 2002. Accordingly, Sogelease was on and from that date entitled to immediate possession of each of the systems. In contravention of these rights, however, the Trust has taken unlawful possession of the systems - and has thereafter continued to use them. In so doing, the Trust has converted them to its own use.
There are difficulties with this (alternative) claim. Each of the three systems was, as all the parties knew, to be placed in, on or even within the fabric of, Nauru House: a building owned by the Trust. Some if not all of the constituent parts of systems were custom built for Nauru House alone. They could not readily (or at all) be transported elsewhere; and their market value reflected that fact. In these circumstances, a claim that the Trust has taken unlawful possession of each of the systems when all it has done is continue to use them, has some unusual (and perhaps unusually contentious) features.
The Trust now relies on a further amended defence and counterclaim dated simply June 2002. It of course admits that it is a party to each of the maintenance agreement and the CERA. On the other hand, it denies that Command submitted to Gardner + Lang the specifications for the supply and installation of the systems. It also denies the allegation that Gardner + Lang approved the commencement of these projects. It likewise denies having been notified of the residual value of the systems or any of them. Its acknowledgment of the receipt of the notice of assignment is also denied. It pleads that, in any event, such notice was void or voidable and of no force and effect because Command's "dealing" with the three systems was in breach of its obligations under the CERA. In effect, the Trust alleges that the transaction between Command and Sogelease was unduly favourable to the latter; and that the Trust has thereby been prejudiced. The Trust is concerned that, as a consequence, Command will now seek to impose upon the Trust, as the price of its acquisition of the three systems, costs which under properly prudent management would not have been incurred. As a further consequence, the Trust alleges, Sogelease is now in a position to make, and perhaps sustain, a claim to an interest in the systems, which interest might have priority over that of the Trust. The Trust also claims that the notice is vitiated by its so-called “confirmation” that it will not reduce the amount which may become payable to Sogelease under clause 9.
The Trust first pleads this part of its case in paragraph 16 of its further amended defence and counterclaim. Following a denial of Sogelease's allegation that, on or about 16 November 1994, the Trust (a) acknowledged, (b) agreed with the contents of, and (c) thereby became bound by, the notice of assignment, the Trust alleges that the notice was "void, voidable, of no force and effect and did not bind [the Trust] as a notice of assignment of legal rights." According to the Trust, Command was only entitled to assign any of the subject equipment if by doing so it was not in breach of the CERA. But (the allegation continues) Command was relevantly in breach. Accordingly, a condition precedent to the right to assign had never come into existence.
By paragraph 29, the Trust pleads that the CERA included a number of implied or "further" terms. I dealt with that pleading in paragraph 66 of the "Command" judgment. Save for emphasising one point, I will not repeat what I there said.
The first of the terms which the Trust would have me conjure by implication out of the CERA is that Command would not exercise or purport to exercise its rights under the CERA in a manner which increased or purported to increase the Trust's liabilities or obligations.[1] But, of course, Command could do no such thing. Standing directly in its path is not an implied term of a contract, but rather a fundamental element of contract law. One party to an agreement cannot unilaterally increase the liabilities or obligations of another party to that agreement. It is true that one party to a contract may seek to deal with property in a way which adversely affects another party's title to or interest in that property. But this is not what we are concerned about here. The Trust’s apprehensions in this respect may be put to rest. Its obligations under the CERA are fixed by the CERA. They have not been enlarged by any agreement made between Command and Sogelease.
[1]Further amended defence and counterclaim, paragraph 29(a)
I therefore do not accept that, by the mere fact of entering into the finance lease agreement, Command was in breach of the CERA. As the Trust admits, clause 7 of the CERA entitles Command to deal with each of the systems as it sees fit, provided that any such dealing does not result in a breach of the CERA by Command. Clause 7 expressly embraces such dealings as an assignment of the relevant equipment to and its lease back from "any financial institution for financing purposes." This is no more and no less than that which the finance lease agreement achieved. Command’s execution of it therefore cannot of itself constitute a breach of the CERA.
In my opinion, the finance lease agreement falls squarely within the provisions of clause 7. This being so, when on 16 January 1998 the Trust terminated its contractual relationship with Command, clause 9 of the CERA became applicable. By the terms of that clause, the interest (if any) of each of both Command and (as Command’s assignee) Sogelease, in the systems or any of them was transferred to the Trust. At the same time, and subject to what appears below, the Trust was obliged to pay Command the higher of the residual value of the relevant equipment as determined by clause 9(c) of the CERA, or the equipment's market value.
In the meantime, Command had (pursuant to clause 10 of the finance lease agreement) assigned to Sogelease all of Command's right, title and interest to any money which may become payable to Command under clause 9 of the CERA. As I have already held, notice of that assignment was given to the Trust by letter dated 3 March 1994 from Command. It was not until 16 November, however, that the Trust's acknowledgment of receipt was signed. The signatory was Mr Malcolm Reid, the then Secretary to the Trust. He was also its authorised officer for the purpose.
In my opinion the cause of action first pleaded by Sogelease has been proved. It is, in essence, a simple case. Command acted within its rights when it entered into the finance lease agreement. Having done so, it assigned to Sogelease its entitlement to any payment made by the Trust pursuant to clause 9. It notified the Trust accordingly. The Trust itself “accepts that the letter from Command to [the Trust] dated 3 March 1994 was effective to assign Command’s right to receive payment from [the Trust] on expiry or termination of the CERA”.[2] The Trust must now pay the assignee, Sogelease, the amount which on termination of the CERA represents the price payable by the Trust for its acquisition of the systems. The Trust can hardly complain about this. Ever since the systems were installed, it has enjoyed whatever benefits followed from that installation. Now it is the owner of the systems as well. It can scarcely expect to get title to them for nothing.
[2]Closing submissions of the Trust in the Solegease proceeding, paragraph 50
But the Trust asserts that, on any view, it is being asked to pay too much. There may be substance in this contention. The CERA provides, in its appendix, that Command “is not entitled to recover costs in excess of the amounts set out in the table” which forms part of that document. This, in my opinion, means what it says. True, it also says that the amounts in question “are merely estimates and do not define the scope of the obligations of Command…; Command is not obliged to spend [those] amounts”. But that merely fits in with the proposition that Command must select equipment fit for the job, whatever the cost; the risk that costs might be higher than expected is, however, squarely in Command’s court. It is not a risk that the Trust is expected (still less obliged) to bear. Hence the restriction on Command’s right to recover. And Sogelease cannot recover under the CERA, an agreement to which it is not a party, more than that to which Command, had there been no assignment, would have been entitled to receive.
I of course accept that clause 9 says what it says. But in my view, the provisions of that clause must be read subject to the limitation expressed in the appendix. To conclude otherwise would be to deprive that limitation of content; and it is a fundamental rule of the construction of documents that, if possible, all words in them should be given effect.
There remains the question whether the amounts in the table do exceed the higher of the residual or market value of the systems. There is also the question whether the documents which have been supplied to the Trust in purported conformity with clause 9 (c) of the CERA do in fact do so. Some argument was addressed to this point at the trial, but I do not consider that I am at present in a position to resolve it.
In these circumstances, Sogelease would, as I understand its position, seek to rely on its rights as an owner of goods which, as Sogelease has pleaded, have been wrongfully converted to the use of the Trust. Apart from the doubts to which I have already referred, I do not think, however, that an action in conversion can succeed. The Trust has never asserted an unjustified claim to ownership of the systems. As Sogelease was at all material times aware, the CERA provides that on its termination “the interest of Command…and any assignee…from Command…in the works will be transferred to the [Trust]”: clause 9(a). Moreover, Solegease has never been in physical possession of the goods, and in the peculiar circumstances of this case its claim as against the Trust to legal possession of them cannot in my opinion be sustained. The plaintiff in an action for conversion must have been in either actual possession or entitled to immediate possession of the goods.[3] Sogelease did not fall into the first category; and, given the nature of the goods, immediate possession was not possible. Nor is there any evidence that Sogelease desired, let alone sought, physical possession of any of the systems. And this is true not only of the period immediately following the termination of the contractual relationship between Command and the Trust, but also of the period following the expiration or other termination of the finance lease agreement.
[3]Fleming The Law of Torts 9th edition, 1998.
For these reasons, it seems to me that the claim for conversion must fail. The same must, however, be said of the various propositions put forward by the Trust for avoiding liability altogether. I have considered them, and in some cases that consideration is reflected in my judgment in proceeding No. 6425 of 1997. In my opinion, they lack merit.
The result is that Sogelease is entitled to judgment for the total of the respective amounts allocated in the table to the CERA to each of the three systems, unless that total exceeds the higher of their residual or the market value. I shall hear the parties further, if that is their wish, on that point.
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