Suncorp Metway Advances Corporation Pty Limited v PNS Graphics Australia Limited
[2009] NSWDC 29
•4 March 2009
CITATION: Suncorp Metway Advances Corporation Pty Limited v PNS Graphics Australia Limited [2009] NSWDC 29 HEARING DATE(S): 02/03/09 and 04/03/09
JUDGMENT DATE:
4 March 2009JURISDICTION: Civil JUDGMENT OF: Rolfe DCJ DECISION: Verdict for the Plaintiff against the 1st Defendant. CATCHWORDS: Asset Purchase Agreement - Application of s 28 (2), Sale of Goods Act 1923 - Mercantile Agent - Was third party acting in this capacity - Conversion - Scope of damages award - Claim for restitutionary relief based on sale price achieved by a third party without title to the goods. LEGISLATION CITED: Sale of Goods Act 1923
Civil Procedure Act 2005CASES CITED: Helby v Matthews (1895) AC 471
Lee v Butler (1893) 2QB 318
Associated Midland Corporation v Sanderson Motors Pty Limited (1983) 3 NSW LR 395 at 400
Oppenheimer v Attenborough (1908) 1KB 221
Magnussen v Flanagan (1981) 2 NSW LR 926
Commonwealth Bank v Butterell (1994) 35 NSW LR 64
United Australia Limited v Barclays Bank Limited (1941) AC 1 at 11-13 & 34
Wickham Holdings Ltd v Brookhouse Motors Limited (1967) 1 WLR 295 at 299PARTIES: Suncorp Metway Advances Corporation Pty Limited (Plaintiff)
PNS Graphics Australia Limited (Defendant)FILE NUMBER(S): 1315/07 COUNSEL: J White (Plaintiff)
S Gray (Defendant)
JUDGMENT
1 The Plaintiff, Suncorp Metway Advances Corporation Pty Limited (“Suncorp”), carries on the business of purchasing goods and then entering into agreements for the sale, lease, rental and hiring of those goods.
2 Suncorp appointed Laurentide Financial Services Pty Limited (“Laurentide”), its agent, for effecting these transactions on 15 December 2000 (exhibit 1.15).
3 On 28 September 2004 H J Graphics Pty Limited (“HJG”), a company controlled by Harry Eisermann (“Mr Eisermann”) made an asset purchase application to Laurentide (1.49-53) in relation to three printing machines.
4 On 30 September 2004, Laurentide, as agent for Suncorp, entered into an Asset Purchase Agreement with HJG relating to the goods in question, which are described in item 1 of the Asset Purchase Agreement at exhibit 1.54. The purchase price payable in relation to all three machines was $324,500 plus terms, charges, stamp duty, GST and so on, resulting in a total amount payable of $401,264.87. This amount was payable by 60 calendar month instalments commencing on 30 September 2004. Clause 2.4 of the agreement provided that title to the goods remained with Suncorp during the term “pending the exercise of your option to complete the purchase under clause 4”.
5 On 9 May 2006, HJG, with the consent and approval of Suncorp, assigned its interest in the Asset Purchase Agreement to Worldwide Graphics Pty Limited (“WWG”), another company associated with Mr Eisermann.
6 On 6 September 2006 Suncorp terminated the Asset Purchase Agreement by reason of WWG’s default in payment of the instalments required to be paid under the Asset Purchase Agreement. On the face of it, Suncorp thereby became entitled to recover possession of the goods.
7 This case concerns only one of the three items comprising the goods the subject of the Asset Purchase Agreement, namely, one Heidelberg “Speedmaster” 2 Colour printing press. This was described in the evidence as a “straight” machine.
8 After the date on which Suncorp terminated the Asset Purchase Agreement it discovered that, at an earlier date, WWG had purportedly sold the straight machine to the first defendant, PNS Graphics Australia Pty Limited (“PNS”), a company owned and controlled by Mr Kamrul Chowdhury.
9 On 5 December 2006, without knowledge of the Suncorp’s interest in the straight machine, PNS sold it to Offset Services Pty Limited (“Offset”).
10 As a result of the sale by PNS to Offset, Suncorp alleges that PNS converted the straight machine to its own use and has wrongfully deprived Suncorp of possession of the straight machine and as a result, it has suffered loss and damage.
11 By its defence, PNS relies on the provisions of s 28 of the Sale of Goods Act 1923 to resist Suncorp’s claim. S 28 (2) of that Act provides as follows:
- “28 Seller or buyer in possession after sale
(1) …
(3) In this section the term mercantile agent means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods.”(2) Where a person having bought or agreed to buy goods obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for that person of the goods or documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for that person of the goods or documents of title under any sale pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have the same effect as if the person making the delivery or transfer were a mercantile agent intrusted by the owner with the goods or documents of title.
12 Mr Gray appeared for PNS. He explained PNS’ case as follows.
13 First, HJG was a person who had agreed to buy the straight machine from Suncorp. Secondly, HJG had obtained possession of the straight machine from Suncorp. Thirdly, WWG, acting as a mercantile agent for HJG, had sold the straight machine to PNS on 17 July 2005. Fourthly, PNS had received the machine from WWG in good faith and without notice of Suncorp’s rights under the Asset Purchase Agreement. Therefore, s 28 (2) of the Act operated to protect PNS from Suncorp’s claim.
Asset Purchase Agreement
14 Mr White appeared for Suncorp. His first submission was that HJG was not a person which had bought or agreed to buy goods from Suncorp and therefore PNS could not bring itself within the operation of s 28 (2).
15 Mr White submitted that HJG had not bound itself by the Asset Purchase Agreement to buy the straight machine because it only had an option to buy the straight machine and Suncorp was only bound to sell the straight machine if the option was exercised. He relied on clause 4 of the Asset Purchase Agreement as follows:
“4 Complete of Purchase of Goods
4.2 You have the right to exercise your option to purchase the Goods and to terminate this Agreement on giving written notice to us of your intention to do so at any time during the currency of this Agreement provided you are not then in default under this Agreement. Such right shall be exercised by you paying to us, or as we direct:4.1 Provided you have paid all instalments when due and you are not otherwise in default in the performance of your obligations under this Agreement, except a default which we have waived, you may, by payment of the final instalment, but not before then except as provided in clause 4.2, exercise an option to acquire all our right, title and interest in and to the Goods which shall then pass to you without any representation of warranty whatsoever except as to title.
(a) all arrears of instalments and all other amounts accrued due under the provisions of this Agreement;
(c) an amount equal to interest on all sums specified in paragraphs (a) and (b) of this clause 4.2 at the Overdue Rate. Such interest shall be calculated on daily rests from the date on which such payments become due until the date payment is received.(b) all instalments and any other amounts which would have been payable but for such termination during the unexpired period of the Term but discounted to present day value at the Discount Rate to reflect early receipt; and
Upon such payment, all our right, title and interest in and to the Goods shall pass to you without any representation or warranty whatsoever, except as to title.”
16 Counsel for Suncorp also relied on clause 6.6 of the Asset Purchase Agreement as follows:
“6.6 You acknowledge that until completion of the purchase of the Goods by the exercise of your option under clauses 4.1 or 4.2, the Goods shall remain our property and you shall have no property right in them but shall be a bailee of them only and shall use them subject to the Terms of this Agreement.”
17 In response, counsel for PNS submitted that, in reality, HJG was under a legal obligation to purchase the straight machine because HJG was legally obliged to make payment of all of the instalments under the Asset Purchase Agreement, including payment of the final instalment. In truth, HJG had no entitlement to return the straight machine to Suncorp. Nothing in the Agreement gave HJG such a right and indeed, clause 9.13 militated against any suggestion that HJG had the “option” of disclaiming property in the straight machine. Clause 9.13 is as follows:
“9.13 This Agreement constitutes the entire agreement between you and us in respect of the Goods and shall not be amended, altered or changed except by written agreement signed by all parties affected by the change.”
18 In support of his submissions, counsel for PNS referred to Helby v Matthews (1895) AC 471 and Lee v Butler (1893) 2QB 318.
19 Although each of the two cases was decided on its own facts, what Lord Herschell said in Helby v Matthews at 475 is useful to bear in mind, namely, it is necessary to look at the substance of the transaction. In my opinion, approaching the matter this way, the nature of the transaction between Suncorp and HJG was one in which HJG agreed to purchase the straight machine. HJG had no entitlement to return the machine to Suncorp during the term of the Asset Purchase Agreement. It was legally obliged to make payment of each and every instalment, including the last one; indeed, its failure to do so would amount to a breach of the Asset Purchase Agreement giving rise, for example, to an entitlement on the part of Suncorp to claim damages. In my opinion, the characterisation of the final payment in clause 4.1 as giving rise to the exercise of an option to acquire all of Suncorp’s title in the straight machine was no more than a legal fiction, probably created for tax purposes as alluded to by counsel for Suncorp in his final address.
20 In reaching this conclusion, I have not ignored clause 4.2. This clearly provides for the exercise of a separate and real option on the part of HJG to acquire title to the straight machine at an earlier point in time. Bearing in mind that the Asset Purchase Agreement sets out the whole of its terms, I have also taken into account that there is no provision in the Asset Purchase Agreement which entitles HJG to disclaim its title to the straight machine upon payment of the final instalment.
Mercantile Agent
21 The Court having found that HJG agreed to buy the straight machine and obtained possession of it, the next question for determination is whether WWG, in entering into a transaction with PNS on 17 July 2005, was a mercantile agent acting for HJG. In considering the question, it is necessary to provide some background details.
22 Mr Chowdhury, a director of PNS, gave evidence that he had been buying and selling printing equipment for 25 years. In doing so, he has known Michael Spinazzola for about the last nine years, during which time PNS has purchased a number of printing machines from Mr Spinazzola’s company which trades as Press Power Printing Equipment.
23 Mr Spinazzola introduced Mr Chowdhury to Mr Eisermann in 2002. They met again at Mr Spinazzola’s factory at Tullamarine in July 2004.
24 In February 2005 Mr Spinazzola asked Mr Chowdhury to come to the factory at Tullamarine to have a discussion with Mr Eisermann. During the discussion Mr Eisermann said he had imported two printing machines from Germany, one of which was referred to as the five colour machine. The machines had not been paid for and Mr Eisermann needed financial assistance to have the machines released from customs. Mr Eisermann represented that the two machines could be sold easily and so he asked Mr Chowdhury to acquire a half interest in both of them for $220,000. Mr Eisermann promised a handsome profit would be the result from the on-sale of both machines.
25 Mr Chowdhury agreed to the proposal and gave Mr Eisermann a cheque for $220,000 payable to HJG.
26 Subsequently, Mr Eisermann told Mr Chowdhury there were problems on-selling the five colour machine. Those problems continued for many months, one reason being that the five colour machine needed to be fixed up before it could be sold.
27 On 18 July 2005 Mr Spinnazola phoned Mr Chowdhury and told him that the problem in relation to the five colour machine had been solved and he should go to Mr Spinnazola’s factory to discuss the matter with Mr Eisermann. So Mr Chowdhury went to the factory and they had the discussion. Mr Eisermann told Mr Chowdhury that he was stuck with another machine at Speedex in Melbourne: in reality, this was the straight machine which HJG had agreed to purchase from Suncorp under the Asset Purchase Agreement. Mr Eisermann told Mr Chowdhury that he did not have enough money to pay Mr Chowhury his half share for the five colour machine, but offered to sell him the straight machine. The text of their discussion is set out in paragraph 32 of exhibit 1. In summary, Mr Chowhury agreed to accept the straight machine for a price of $170,000 plus GST as a set off of what he was owed, plus Mr Eisermann agreed to give him a cheque for $82,000 in the first week of December for the balance.
28 Mr Eisermann then drove Mr Chowdhury to the Speedex factory to inspect the straight machine where Speedex were using it until they received delivery of a perfecting machine which they had ordered from HJG – the straight machine appears to have been delivered to Speedex in error.
29 Mr Chowhury and Mr Eisermann then drove back to Mr Spinnazola’s factory and had a conversation during the journey in which Mr Chowdhury told Mr Eisermann that he wanted Mr Eisermann to give him two invoices setting out the arrangements between PNS and HJG.
30 Later that day Mr Eisermann came to Mr Chowdhury’s factory and gave him an invoice for the straight machine. The invoice is at exhibit 1.96 and as can be seen, is on the letterhead of WWG. Mr Chowdhury queried that and was told that WWG owned the straight machine. At the same time, Mr Chowdhury gave Mr Eisermann a contract for the purchase of the straight machine and asked him to fill in that information. The document is at exhibit 1.97 and shows that WWG was the seller of the straight machine to PNS.
31 Mr Chowdhury then handed a tax invoice to Mr Eisermann, which is at exhibit 1.98, purporting to set off against the purchase price for the straight machine, the amount of money owing to PNS representing its share in the five colour machine. The tax invoice discloses an amount owing to PNS, after set-off, of $82,000.
32 As mentioned, PNS seeks to establish that in the transaction which occurred on 18 July 2005 WWG was acting as a mercantile agent on behalf of HJG. In support of its claim in this regard, PNS relies on the evidence in Mr Chowdhury’s affidavit. In that respect, there is no evidence which establishes that WWG was, in fact, the lawful owner of the straight machine. Under the Asset Purchase Agreement, Suncorp was still the owner, with HJG having agreed to buy it on payment of the final instalment under the Asset Purchase Agreement. Thus it would seem that, to the extent that WWG was acting in the transaction, it was acting either in its own right or as Mr Eisermann’s agent. Either way, WWG was participating in a fraud on Suncorp.
33 As the definition of mercantile agent in s 28 (3) set out earlier discloses, a mercantile agent is someone who has authority to sell goods in the ordinary course of that person’s business as a mercantile agent.
34 First of all, I am satisfied that WWG had no authority whatsoever to sell the straight machine. As I said, it was participating in a fraud on Suncorp either in its own right or as Mr Eisermann’s agent.
35 Secondly, there is no evidence of WWG conducting the business of a mercantile agent. At its highest, there is evidence that, for the financial year ending 30 June 2005, WWG sold a substantial number of machines in both Australia and overseas. That does not establish a mercantile agency, simply prima facie evidence that WWG sold a lot of machines. It goes no higher than that.
36 Thirdly, there is no evidence before the Court of what WWG’s customary course of business was. In a not dissimilar context, it was held in Associated Midland Corporation v Sanderson Motors Pty Limited (1983) 3 NSW LR 395 at 400 that whether a mercantile agent acts within the “ordinary course of business of a mercantile agent” requires consideration of whether, having regard to the particular commercial area in which the mercantile agent operates, he acts within business hours, at a proper place of business and in other respects, in the ordinary way in which a mercantile agent would act, so there is nothing to lead a purchaser to suppose that anything wrong is being done. See also Oppenheimer v Attenborough (1908) 1KB 221 and Magnussen v Flanagan (1981) 2 NSW LR 926. I see no reason why similar matters ought not be taken into account in determining what is the customary course of business of a mercantile agent in the context of s 28 (3) of the Act. In this respect, there is absolutely no evidence to shed any light on the matter.
37 Accordingly, PNS has failed to make out its defence.
Damages
38 Suncorp’s claim for damages as pleaded in the Amended Statement of Claim was for an amount of $225,000 which it maintained was the value of the straight machine at the date of its conversion by PNS. During final addresses, counsel for Suncorp sought to put Suncorp’s claim on the basis of seeking restitutionary relief as an alternative to damages for conversion. This was because counsel for PNS submitted that any damages assessed with reference to the value of the goods at the time of conversion should take into account payments made under the Asset Purchase Agreement by HJG up to that time.
39 It was recognised in Commonwealth Bank v Butterell (1994) 35 NSW LR 64 that a person who has an action in conversion may waive the tort and instead sue on a common money count adopting the sale through which the person who had no title to sell the goods did so. It does not matter if that person is in fact a thief or a blackmailer because the law implies a promise: United Australia Limited v Barclays Bank Limited (1941) AC 1 at 11-13 & 34.
40 Suncorp therefore submits that it has the choice of pursuing a common money count for $187,000 being the payment made by Offset Printing to PNS, or alternatively, it can recover damages for conversion.
41 In my opinion, the alternative claim for restitution made by counsel for Suncorp at the heel of the hunt was made too late in the day and should not be allowed because it still has not been pleaded.
42 Counsel for PNS submitted that the correct approach in assessing damages for conversion was that laid down by Lord Denning MR in Wickham Holdings Ltd v Brookhouse Motors Limited (1967) 1 WLR 295 where at 299 his Lordship said:
“The hirer of a motor car, who has got it on hire purchase, wrongfully sells it to someone else. The hiring is thereupon automatically determined. The finance company claims the return of the car and damages for detention or, alternatively, damages for conversion. In such a case the finance company in my opinion is not entitled to the full value of the car. The finance company is only entitled to what it has lost by the wrongfu8l act of the defendants. I am well aware, of course, that prima facie in conversion the measure of damages is the value of the goods at the date of the conversion. But that does not apply where the plaintiff, immediately prior to the conversion, has only a limited interest in the goods …”
43 I accept that this is the correct approach.
44 In his submissions, counsel for PNS calculated that the plaintiff’s true loss was about $150,000, after taking into account payments made by HJG under the Asset Purchase Agreement.
45 In his supplementary submissions, counsel for Suncorp accepted that if the claim for restitutionary relief was not granted, that an award of damages in the amount of $150,000 was correct.
46 That being so, the Court’s orders are:
2. Direct that the exhibits be returned.1. Verdict for the Plaintiff against the 1st Defendant in the amount of $150,000.
47 The plaintiff is entitled to interest under the Civil Procedure Act 2005.
48 Costs should follow the event on the usual basis but I will hear the parties if they wish to make submissions to the contrary.
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