Supun Samarawickrama v Hoops247 Pty Ltd
[2016] VSC 729
•2 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2016 00079
| SUPUN SAMARAWICKRAMA | Plaintiff |
| v | |
| HOOPS247 PTY LTD (ACN 608 032 383) | First Defendant |
| - and - | |
| ROBB DABB | Second Defendant |
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JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 28 October 2016 |
DATE OF JUDGMENT: | 2 December 2016 |
CASE MAY BE CITED AS: | Supun Samarawickrama v Hoops247 Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2016] VSC 729 |
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CORPORATIONS – Proceedings seeking relief for alleged oppressive conduct under s 232, 233 of Corporations Act 2001 (Cth) – Parties reach settlement at judicial mediation – Defendants bring application for summary judgment to enforce terms by reason of alleged breach – Application refused – Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd (1956) VLR 555 and Seachange Management Pty Ltd & Anor v Pital Business Pty Ltd (2009) 23 VLR 396 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Evans | Alphastream Lawyers |
| For the Defendant | Mr L Magowan | Schembri & Co |
HIS HONOUR:
On 27 September 2016, the second defendant, Mr Dabb, made application by interlocutory process for judgment against the plaintiff, Mr Samarawickrama, for the sum of $16,766.87 together with interest. Mr Dabb also sought an order that Mr Samarawickrama pay the costs of the application on an indemnity basis.
Mr Dabb’s application was supported by an affidavit of his solicitor, Adam Kerr, sworn 27 September 2016. Mr Samarawickrama relied on an affidavit sworn by him on 27 October 2016, which was served on Mr Dabb’s solicitor the evening before the hearing. Counsel for Mr Dabb, Mr Magowan, indicated that he did not seek an adjournment in order to respond to that affidavit.
On 28 October 2016, I dismissed Mr Dabb’s application and I ordered that Mr Dabb pay Mr Samarawickrama’s costs of the application. I also made orders dismissing the principal proceeding as it is now effectively spent.
When I dismissed the application, I indicated that I would provide reasons and these are those reasons.
On 22 April 2016, Mr Samarawickrama made application under various sections of the Corporations Act 2001 (Cth), including ss 232, 233, 247A, 293 and 461(k), for relief in respect of alleged oppressive conduct on the part of Mr Dabb in relation to the affairs of the first defendant, Hoops247 Pty Ltd (‘the company’). Mr Samarawickrama and Mr Dabb were the directors of the company. In essence, Mr Samarawickrama alleged that Mr Dabb had excluded him from participating in the business.
On 17 June 2016, Mr Samarawickrama and Mr Dabb attended a judicial mediation of the proceedings. In the course of the judicial mediation, the parties agreed upon terms to resolve their disputes and executed a deed of settlement (‘the Deed’) which is exhibited to Mr Kerr’s affidavit[1]. The Deed provided that Mr Samarawickrama and the company agreed to pay Mr Dabb $85,000 by several instalments which were to be paid in June, July and August 2016. Upon payment of the final instalment, Mr Dabb was required to sign all the relevant documents and do all things necessary to transfer ownership in the shares he owned in the company to Mr Samarawickrama.
[1]Exhibit “ATK-1”.
Clause 1.1(a) defined a ‘claim’ in the context of the terms as follows:
(a) … means in relation to any person:
A. a Loss, cost, expense or damage; or
B. a claim, demand, notice, action, proceeding or judgment;
incurred by or to or made or recovered by or against the person, howsoever arising and whether present, ascertained, immediate, future or contingent.
Loss is defined in clause 1.1(c) as:
…damages, loss, cost, expense or liability incurred by or awarded or recovered from or against a person or a claim, demand, action, proceeding or judgment against a person, howsoever arising and whether present or future, fixed or unascertained, actual or contingent.
Under the terms of clause 3 of the Deed, upon execution of the Deed, Mr Dabb resigned as a director and secretary of the company and ceased to have any involvement in its management or day to day operations. Other provisions in clause 3.2 provided for a handover of the company to Mr Samarawickrama.
Clause 5 of the terms provided as follows:
Warranties
5.1Supun and the company agree to enter into this Deed in reliance upon Robert making the following warranties:-
(a)that all debts and liabilities incurred by the company since 12 April 2016 have been incurred in the ordinary course of its business;
(b)that the total debts and liabilities to suppliers of the company and/or the business do not exceed $130,000;
(c)… [not relevant for current purposes].
and Robert agrees to indemnify Supun and the company and agree (sic) to keep Supun and the company indemnified against all and any liabilities or Claims that arise from a breach of any of the foregoing warranties.
Clause 9.1 of the terms provided as follows:
The parties agree to the making of orders by consent as follows:-
(a)the proceeding be adjourned to the closest date after 22 August 2016, with liberty to apply;
(b)upon the payment being made in full that the proceeding be dismissed with no order as to costs;
(c)in the event that any payment due be made in accordance with clause 2.1 is outstanding for more than 2 days after the due date, Robert shall be entitled to make application in the proceeding and obtain judgment against Supun and the company for all amounts remaining to be paid under this Deed, together with penalty interest and the costs of and incidental to obtaining judgment on an indemnity basis. For the purpose of making such application, an affidavit of Robert’s solicitor as to default shall be sufficient evidence of default.
Mr Samarawickrama paid the initial instalment in the amount of $20,000 on 21 June 2016.
On 20 July 2016, Mr Dabb’s solicitors received an email from Mr Samarawickrama’s solicitors which observed that the further payment of $35,000 was due to be paid to Mr Dabb’s on or before 21 July 2016[2]. It also made reference to the provision in respect of the warranty contained in paragraph 5.1(b) and that Mr Dabb agreed to indemnify Mr Samarawickrama and the company from any liabilities or claims that arose from a breach of that term. The email stated that Mr Samarawickrama’s solicitors were instructed that ‘since resuming knowledge of the operations of the company and its business it has become clear that [Mr Dabb] has breached the warranty contained in clause 5.1(b).’ A spreadsheet was attached asserting that the total debts and liabilities were $145,918.69, $15,918.69 above the $130,000 cap warranted by clause 5(1)(b). The email concluded that in those circumstances, Mr Samarawickrama would only be making payment of $19,081.31 to Mr Dabb on or before 21 July 2016 in satisfaction of his payment obligations under clause 2.1(b). That payment was made on 22 July 2016.
[2]Exhibit “ATK-2.”
On the same day, the solicitors for Mr Dabb wrote to Mr Samarawickrama’s solicitors[3], taking issue with the withholding of the full amount of $35,000. By reason of the breach of the relevant warranty, the author of the letter indicated that the indemnity provided by Mr Dabb obliged him to compensate Mr Samarawickrama and that the obligation was to make good any loss suffered by Mr Samarawickrama. It contended that in the absence of payment of the debts by Mr Samarawickrama, no obligation to compensate arose. It was indicated that Mr Samarawickrama had not provided any proof of the existence of debts or payment of those debts for which Mr Dabb would be required to compensate him. A demand was made that Mr Samarawickrama pay the full amount of $35,000.
[3]Exhibit “ATK-4.”
On 23 August 2016, the day after the final balance was due to be paid by Mr Samarawickrama, Mr Dabb’s solicitor, Mr Kerr, received a letter from Mr Samarawickrama’s solicitors which stated:
We confirm that your client has breached the terms of the warranty given under clause 5.1(b) of the Settlement Deed. We attach an up to date spreadsheet showing the total debts and liabilities to suppliers of the company and/or the business (as referred in clause 5.1(b) the Settlement Deed) to be $146,776.87. This is $16,776.87 above the $130,000 warranted cap. … Accordingly, in exchange for the executed Share Transfer form and the Purday (sic) acknowledgement our client will tomorrow have available a bank cheque for $29,141.82 payable to your client[4].
[4]Exhibit “ATK-5.”
On the same day, Mr Kerr received an email with an attachment described in the email as ‘copy outstanding invoices’[5]. Mr Kerr contends that those invoices do not evidence the total debts of the company which were claimed by Mr Samarawickrama and that he has received no evidence at all of payment of any of the alleged debts.
[5]Exhibit “ATK-6.”
On 24 August 2016, Mr Kerr wrote to Mr Samarawickrama’s solicitors[6] and indicated he was instructed that his client would, under protest, accept payment of the $29,148.82, but in doing so, did not accept that Mr Samarawickrama had complied with his obligations under the Deed. He indicated that Mr Dabb would seek to recover the balance of the moneys owed by Mr Samarawickrama pursuant to the Deed.
[6]Exhibit “ATK-7.”
In his interlocutory application, Mr Dabb now seeks judgment for the sum of $16,776.87.
In his affidavit in opposition to Mr Dabb’s application, Mr Samarawickrama deposes that the total debts and liabilities of the company to various parties in connection with Mr Samarawickrama operating its business was $149,041.51. The creditors are identified in the affidavit and exhibited to the affidavit, in some 25 separate exhibits, are copies of the documents that Mr Samarawickrama contends evidences the debts and liabilities as at 17 June 2016, the date of the Deed. As I have said, Mr Magowan elected to proceed with the application rather than adjourn the matter for the purpose of filing an affidavit in response to Mr Samarawickrama’s affidavit. Thus, unless the evidence contained in Mr Samarawickrama’s affidavit was inadmissible, was implausible or for some reason should not be afforded weight, it stood uncontradicted.
Mr Magowan, counsel for Mr Dabb, contended in his submissions, both oral and written, that there is no evidence that the alleged ‘debts and liabilities’ are to ‘suppliers’ as the Deed provides. He contended that the language used in the Deed executed at the mediation was quite deliberate and reflected the fact that the business had been controlled by Mr Dabb for some time and at the time the Deed was entered into and Mr Samarawickrama was effectively re‑entering the business as the sole owner. He contended that by way of example, a debt said to be owing to J Step Dance for $4,080 related to a refund to a customer, ie not a supplier, who had organised for T‑shirts to be printed. In addition, and significantly, it was submitted there was no evidence the alleged ‘debts and liabilities’ had been paid such as to enliven the indemnity, rather, many of the alleged creditors have not been paid.
In addition, he contended that, in relation to the claim from Russell James Carpets for $35,025, the company itself disputes the liability and has raised a counterclaim in the Magistrates’ Court in respect of the claim.
Mr Magowan contended that as a general principle, a right of indemnity cannot be called upon in the circumstances where a cause of action has not accrued until the creditors have been paid; at this point no harm has been suffered. He contended that a cause of action by Mr Samarawickrama against Mr Dabb, which would potentially give rise to a set‑off, would only arise when (a) there were total debts and liabilities to suppliers at the time of the deed that exceeded $130,000 and (b) those debts have been paid.
Because of this, he contended that at this time, no cause of action has accrued (and may never accrue). Mr Magowan submitted that, at common law, referring to Victorian WorkCover Authority v Esso Australia Limited,[7] the payment under the indemnity must be made first before any claim can be made on the party giving the indemnity.
[7](2001) 207 CLR 520 at 528 [16].
In opposing the application, Mr Evans, of Counsel, submitted that the application by interlocutory process is effectively a summary judgment for the enforcement of the terms and should be dismissed on the basis that such a procedure is not apt having regard to the background of this matter, in particular, the controversy about the quantum of the company’s debts. In this regard he referred to the well‑known case of Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd (‘Roberts’).[8] At 564, Smith J observed:
… the agreement may be so enforced notwithstanding the fact that it involves matters extraneous to the action, and notwithstanding that there is a substantial question raised as to the terms or validity or enforceability of the agreement, provided that the Court is clearly satisfied that justice can be done under the summary procedure. At least this is so where all that the Court needs to order for the purpose of enforcing performance upon just terms is a stay of proceedings or a dismissal of the action or some relief claimed in the action.
In deciding whether justice can be done under the summary procedure the Court, of course, needs to consider a variety of matters involving questions of degree. These, I think, must include the extent to which extraneous matters are involved, how substantial are the questions to be determined, to what extent questions of credibility are likely to arise, and whether pleadings and discovery may be desirable.
[8](1956) VLR 555 at 564 and 565.
At p 565 Smith J observed:
… though the fact that the agreement expressly stipulates that it shall be made a rule of Court, or that it shall be enforced by order in the action, is still, I think, an important consideration in determining whether the summary procedure should be adopted, the Court is not bound to give effect to such an agreement. It has a discretion as to whether it will do so, which appears to be wide enough to enable it to give effect to any matter of such a nature as would afford a defence in an action for specific performance. …
Mr Evans also referred to the Victorian Court of Appeal decision in Seachange Management Pty Ltd & Anor v Pital Business Pty Ltd (‘Seachange’),[9] a case which involved the power of summary enforcement of a compromise. The parties had been involved in a joint venture and partnership and fell into dispute. One party was required to pay $4.3 million to the other in return for which the other party agreed to give up its interests in the partnership and sub-partnership and provide several warranties. Like here, it involved the surrender of an interest in a business to the person obliged to make a payment in exchange for which warranties of a similar type here were provided. One critical warranty provided that a party had the full legal and beneficial rights to the assets it was purporting to transfer. The default clause provided that if the settlement sum was not paid by the date stipulated then the party who was to receive such payment could institute proceedings and enter judgment against the other for such part of the settlement sum which remained unpaid together with interest. The party required to make the payment undertook under the terms not to oppose judgment being entered for the outstanding sum.
[9][2009] VSCA 139; (2009) 23 VLR 396.
In the Court of Appeal, unlike below, it was argued by the party required to make the payment that the Deed was of such complexity and provided for matters quite extraneous to the original proceedings, such that the exercise of the Roberts jurisdiction was not attracted. In addition, it was argued in the alternative that the party required to make a payment might have had defences of equitable set off and other relief under the Trade Practices Act. The judge at first instance stated that the matter did not require oral evidence to be heard and that the issues were legal and suitable to be dealt with in a summary way. The trial judge then made reference to the passages in Roberts which are extracted above.
In Seachange, Maxwell P and Nettle JJA held that although the power of summary enforcement of a compromise was discretionary and wider than once was the case, it was not to be invoked unless the court was clearly satisfied that justice could be done; and whether justice could be done was a question of degree. Consistently with the equitable origins of the summary enforcement power, it was necessary to weigh among other competing considerations the extent to which enforcement would involve extraneous matters, how substantial the questions to be determined as a precursor to enforcement might be, and procedural considerations like the desirability of pleadings and discovery and substantial cross‑examination.
In Seachange, the Court made reference to Roberts v Gippsland Agricultural in this regard. At first instance, the appellant had resisted the application on two bases. At paragraph 16, the Court of Appeal observed:
First, they contended that the Deed was of such complexity, and provided for matters so extraneous to the original proceeding, as to put the application beyond the ambit of the Roberts jurisdiction. In the alternative, [the appellant] argued that it had – or might have – defences of set-off, equitable set-off and relief pursuant to ss 82 and 87 of the Trade Practices Act 1974 (Cth), arising out of an alleged breach by [the respondent] of its warranties of title.
At paragraphs 33 to 39, the authorities dealing with the issue of enforcement of terms in summary enforcement proceedings were surveyed. At paragraph 40 the Court of Appeal stated:
In summary, therefore, the net effect of the authorities to this point seems to be that, although the power summarily to enforce a compromise is discretionary and is wider now than once was the case, it is not to be invoked unless the court is clearly satisfied that justice can be done; and whether justice can be done is a question of degree. Consistently with the equitable origins of the power, one must weigh among other competing considerations the extent to which enforcement would involve extraneous matters, how substantial the questions to be determined as a precursor to enforcement may be, and procedural considerations like the desirability of pleadings and discovery and substantial cross‑examination.
[emphasis added]
In my view, the matter is not apt for resolution by an application for summary judgment in the proceedings and Mr Dabb will be required to agitate the matter in separate proceedings issued by him in the Magistrates’ Court. In particular, there needs to be agitation by evidence of the level of debts which the company is exposed. Here, Mr Samarawickrama has deposed that the debts are of a certain amount in excess of the warranted figure and while Mr Magowan made forceful submissions about that evidence, I do not consider he displaced or discredited such evidence by demonstrating that it was implausible, did not warrant further investigation or ought not to be accepted. It was not contradicted by evidence from Mr Dabb despite the opportunity to do so. In my view, the issue of the level of indebtedness should only be determined after there has been appropriate discovery and the opportunity of both parties to cross-examine the relevant witnesses. For that reason the application was dismissed with costs.
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