T Z Metroof Pty Ltd v Nalinga Steel & Roofing Supplies Pty Ltd
[2001] VSCA 141
•4 September 2001
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted
No.4864 of 2000
| T.Z. METROOF PTY. LTD. | Appellant |
| v | |
| NALINGA STEEL & ROOFING SUPPLIES PTY. LTD. | Respondent |
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JUDGES: | PHILLIPS, CALLAWAY and CHERNOV, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 13 and 14 August 2001 | |
DATE OF JUDGMENT: | 4 September 2001 | |
MEDIUM NEUTRAL CITATION: | [2001] VSCA 141 | |
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Courts – Practice and procedure – Application to amend pleading to raise issue of director’s authority – Application refused – Trial conducted on footing authority not in issue – Parties bound by course of trial – No error in judge’s finding on points in issue – Appeal dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Ms S.L. Marks | Howley Nethercote |
| For the Respondent | Mr. D.J. Williams | Riordan & Partners |
PHILLIPS, J.A.:
I agree with Callaway, J.A.
CALLAWAY, J.A.:
This appeal arises out of a claim and a defence and counterclaim in the County Court. The claim related to a contract under which the appellant supplied the respondent with metal building products for which the appellant was seeking payment. Subject to what follows, it was not contested and it was agreed that payment was owing by the respondent in the sum of $60,181.59. The question was whether and to what extent that debt of the respondent was affected by a cross-claim by the respondent. At trial it was held that the appellant’s claim was altogether extinguished by the cross-claim and it is from that decision that the present appeal is brought.
The defence and counterclaim alleged three agreements for the supply of steel products (paragraphs 7, 8 and 9) and a set off agreement (paragraph 10). The supply agreements were pleaded in reverse chronological order:
·Paragraph 7 alleged that, between 27th November and 18th December 1996, the appellant and the respondent entered into contracts under which the respondent agreed to supply steel products to the appellant. The particulars included an allegation that, to the extent that the contracts were oral, they consisted of conversations between Mr Kevin McGibbon, a director of the respondent, and Mr Andrew Zaf, a director of the appellant. The aggregate price was $51,534.73.
·Paragraph 8 alleged that, between 31st October and 15th November 1996, the appellant and Silverene Pty. Ltd. (“Silverene”) entered into contracts under which the respondent agreed to supply steel products to the appellant. (Presumably that meant that the contracts were made between the appellant and Silverene of the one part and the respondent
of the other part.[1] Silverene was the second defendant by counterclaim. It is in liquidation and the claim against it was not pursued.) The particulars included an allegation that, to the extent that the contracts were oral, they consisted of conversations between Mr McGibbon, again described as a director of the respondent, and Mr Zaf, this time described as a director of Silverene. The aggregate price was $8,028.25.
·Paragraph 9 alleged that, on or about 5th August 1996, the appellant and Mr Zaf entered into an agreement under which the respondent agreed to supply steel products. It was not said to whom they were to be supplied. (By parity of reasoning with paragraph 8, that is presumably an agreement between the appellant and Mr Zaf of the one part and the respondent of the other part.[2]) The particulars included an allegation that, to the extent that the contract was oral, it consisted of a conversation between Mr McGibbon, again described as a director of the respondent, and Mr Zaf. The contract price was $648.
[1]The consequent debt to the respondent was, however, pleaded as due from Silverene.
[2]Again the consequent debt to the respondent was pleaded as due from Mr Zaf.
Paragraph 10 of the defence and counterclaim read:
“10In or about October 1996 the plaintiff and the defendant entered into an agreement (‘the set-off agreement’) under which it was agreed that amounts purchased by the plaintiff, Silverene or Andrew Zaf from the defendant would be set-off against amounts due by the defendant to the plaintiff.
PARTICULARS
The set-off agreement was oral and consisted of a conversation between Andrew Zaf on behalf of the plaintiff, Silverene and himself and Kevin McGibbon on behalf of the defendant; the substance of which was to the effect alleged.”
The plaintiff and the defendant are the appellant and the respondent respectively.
It was pleaded in paragraph 11 that the debt of the respondent to the appellant had been extinguished by the debts of $51,534.73, $8,028.25 and $648 due to the respondent. They total $60,210.98.
The counterclaim alleged that, at all relevant times, Silverene was a corporation and Mr Zaf was a director both of the appellant and of Silverene. The allegations in paragraphs 7 to 11 were repeated. It was then alleged that the appellant, Silverene and Mr Zaf had failed to pay $51,534.73, being a debt from the appellant; $8,028.25, being a debt from Silverene; and $648, being a debt from Mr Zaf. In the circumstances, the pleading continued, the appellant, Silverene and Mr Zaf were liable in those respective amounts. There was a counterclaim against each of them therefor together with interest pursuant to the Supreme Court Act 1986.
The learned trial judge upheld the defence of set off and ordered that the appellant’s claim be dismissed and the counterclaim struck out. His Honour’s findings are in a short compass.[3] He began by describing the respondent’s dealings with a predecessor of the appellant, the latter’s formation as a joint venture company, the falling out between the joint venturers and the consequences as perceived by Mr McGibbon:
“I accept that for many years going back to the early 1990s the defendant company at which Mr Kevin McGibbon is the Managing Director and companies of which Mr Andrew Zaf was a director did business together usually by the defendant buying steel and roofing supplies from the Zaf companies. I accept that it was agreed between Mr Zaf and Mr McGibbon that the parties enter into a ‘contra deal’. By ‘contra deal’ the parties agreed that whenever the Zaf companies bought goods from the defendant company the amount owing for those goods was to be deducted from any amounts that the defendant company owed the Zaf company and the defendant was to pay the balance at the end of each month or other accounting period. I accept that these purchases by the Zaf companies only took place some four or five times a year and that they involved relatively small amounts whereas the defendant company was in the habit of purchasing large amounts of goods from the Zaf companies. Originally Mr Zaf had conducted business through a company known as T Z Consolidated Industries Pty Ltd and in 1994 that company changed its name to T Z Metal Building Products Australia Pty Ltd.
Apparently in mid 1995 the Zaf family decided to join with a Mr Kanji, who owned a company known as Metroof Pty Ltd, in a joint venture in relation to the sale of building and roofing products in Victoria. Metroof’s operations in Victoria were centred on a factory in Preston and the Zaf family companies were based in Sunshine. Mr McGibbon was made aware through his dealings with a Mr Graham Monahan, a salesman for the Zaf company, that this new entity had come into existence and that someone other than the Zaf family was putting money into it. However as far as Mr McGibbon was concerned there was no change in his dealings with the new entity which was known as T Z Metroof Pty Ltd.
I accept the evidence of Mr Penman, the company secretary of the plaintiff company, that by mid 1996 there had been a falling out between the directors of T Z Metroof Pty Ltd who were or included Mr Kanji, Mr Andrew Zaf and his father Mr Theo Zaf. I accept that Mr McGibbon at the time was unaware of this conflict that had arisen within the plaintiff company. Apparently the land from which the Sunshine business was conducted was owned by the Zaf family through a company known as Silverene Pty Ltd and leased to the plaintiff company and Mr McGibbon conceded that he knew this. I accept that the first that Mr McGibbon knew of any problems with the plaintiff company was when he received a phone call in late July of 1996 from a salesman of the plaintiff who said that ‘they were closing’ but that the plaintiff company would fulfil orders that he (McGibbon) had placed for a 100 tonnes of material at the end of July.
By a letter dated the 30th July 1996 the plaintiff informed the defendant that it had ceased to operate. The letter went on to detail that any outstanding orders would be filled by the Preston operation. Mr McGibbon understood that until that time the Preston operation was part and parcel of T Z Metroof Pty Ltd but the letter of the 30th July 1996 made it clear that a company called Metroof Industries Pty Ltd had taken over the Preston operation and that it would fill orders for the plaintiff company. However Mr McGibbon was aware that a particular product – painted purlins - was not available from Preston. Floor stock that was at Sunshine was available to Mr McGibbon and he went there to buy what he could. Whilst there he spoke to Mr Penman who told him that ‘it will be up and running again’. By ‘it’ Mr McGibbon understood the plaintiff company. This was at the end of the first week of August of that year.”
At the hearing of the appeal it seemed likely that Metroof Pty. Ltd. and Metroof Industries Pty. Ltd. were the same company, but that may not be so. In a case a few days later, the Court, differently constituted, was informed that there was a supplier of roofing products in September 1996 called Metroof Pty. Ltd., which had since changed its name to Metroll Victoria Pty. Ltd.[4] Fortunately, nothing turns on the point: the point of substance is that the letter of 30th July 1996 made it clear that one of Mr Kanji’s companies had taken over the Preston operation and that it would fill orders that had been placed with the appellant.
[3]In the three passages quoted below I have made some minor emendations and omitted references to the court book.
[4]The 2001-2002 telephone directory, however, contains an entry reading, “Metroof Industries Pty. Ltd. (now Metroll Victoria Pty. Ltd.)”.
His Honour then made findings as to the agreements pleaded in paragraphs 7, 8 and 9 of the defence and counterclaim, this time in chronological order, and the contra basis that was agreed:
“At about this time Mr Zaf rang and said that he required goods from the defendant and the defendant agreed to supply them on the same contra basis as before with the plaintiff company. An invoice was raised in respect of these goods. Further goods were ordered by Mr Zaf for himself and the Silverene company in October 1996 and again Mr Zaf said that these goods would be the subject of a contra deal in relation to the defendant’s account with T Z Metroof and Mr McGibbon agreed.
In November 1996 Mr Zaf rang Mr McGibbon and requested a statement of what was owed by his company, that is the defendant company, ‘to us’, meaning in Mr McGibbon’s mind the plaintiff and as a result Mr McGibbon had a statement prepared. I accept that Mr Zaf said that he wanted a statement so he could arrange a contra in his office. Orders were placed by Mr Zaf with the defendant company in November and December of 1996 and in all instances Mr Zaf said that their payment was to be the subject of a contra deal.
I accept that during the period August to December of 1996 Mr McGibbon had constant dealings with the accounts staff of the plaintiff company concerning his account with the plaintiff company and that it was never disputed that there was to be a contra deal in respect of the items supplied by the defendant company. Invoices were sent by the defendant to the plaintiff. By January of 1997 the amount that the defendant company owed the plaintiff roughly equalled what the defendant claimed from the plaintiff as a result of the orders placed by Mr Zaf – that is the goods supplied to T Z Metroof, Silverene Pty Ltd and Mr Zaf himself.
On the 31st January 1997 the defendant company following a phone call from Mr Richard Maschuwitz (the plaintiff’s financial officer), provided a statement to the plaintiff company of the defendant’s accounts in respect of this contra deal. The plaintiff company did not accept this and at first sued Mr and Mrs McGibbon but later amended its proceedings so that they were against the defendant company. Following this action McGibbon contacted Mr Penman and Mr Penman advised him that he, that is McGibbon, should see Zaf and ‘get him to fix it’ and as a result of this Mr McGibbon eventually saw Zaf and said to him that as he, that is Zaf, was a director of the plaintiff company and that company was suing him, he (Zaf) should organise the contra deal that had been agreed upon and eventually as a result of this Zaf gave Mr McGibbon two cheques but these were dishonoured. Zaf had said that the cheques (drawn on Silverene P/L) should be paid into the defendant’s account and used to pay the balance owing to the plaintiff. Subsequently Mr McGibbon saw Zaf again and Zaf gave him a letter accepting responsibility for the monies owed to the defendant company on behalf of the plaintiff company.
I accept Mr Penman’s evidence that in January of 1997 when he was advised that Mr McGibbon was alleging that there was a contra agreement in existence by virtue of Mr Zaf, he contacted Zaf and he said and I accept that Zaf told him that ‘this has nothing to do with T Z Metroof, it’s me and I’ll sort it out’. It would appear that Mr Zaf was playing the defendant and the plaintiff off against one another. The defendant company was being used to supply materials to construct a building on a site that was owned by the Zaf family and had nothing to do with the plaintiff and was leading the defendant to believe that the goods were purchased by or on behalf of the plaintiff company. However at all material times Mr Zaf was a director of the plaintiff company and as far as Mr McGibbon is concerned had the authority to enter into these arrangements.
Counsel for the plaintiff argues that the orders placed by Zaf with the defendant company in the latter part of 1996 were such that the defendant must have known that it was not dealing with the plaintiff but rather with Zaf personally. However it seems to me that there was nothing inherently improbable about these orders which would have signified that to Mr McGibbon. As far as he was aware Mr Zaf continued to be a director of the plaintiff company as well as Silverene Pty Ltd and it was open to Mr Zaf to direct that payments for the goods ordered be made in this way.”
I shall set out one more paragraph because of its relevance to grounds 3 and 6:
“I am satisfied that Mr McGibbon, as a result of what he was told by Mr Penman and Mr Monahan, servants of the plaintiff company, accepted that the plaintiff company intended to carry on business despite the fact that it was ceasing operations at Sunshine. I accept that at all times prior to litigation being commenced by the plaintiff against the defendant Mr McGibbon was contending that there was a contra deal in place between the defendants and plaintiff. Although Mr McGibbon’s conduct in approaching Mr Zaf after the litigation had commenced for payment of the monies from him is inconsistent with his earlier attitude, I also accept that he only did that at the suggestion of Mr Penman.”
There are six grounds of appeal:
“1.(a)His Honour erred in law and fact as he did not direct himself to the question whether the respondent had actually sold and or delivered to the appellant the goods as alleged or any goods and for this purpose failed to consider [five matters which the learned presiding judge characterized in the course of the hearing as being in the nature of particulars].
2.His Honour erred in law and fact as he did not find whether Mr Zaf as a director of the appellant had either actual or ostensible authority to enter into the transactions for the appellant to result in the set off allowed by his Honour of $60,210.98 to the respondent against the appellant and should have held that there was no evidence before him to establish that Mr Zaf had any such authority.
3.His Honour, having held that Mr McGibbon’s conduct in approaching Mr Zaf after the litigation had commenced for payment of the monies from Mr Zaf is inconsistent with the respondent’s counterclaim or set off, erred in disregarding this conclusion on the basis that Mr McGibbon only did that at the suggestion of Mr Penman.
4.His Honour erred in exercising his discretion against the granting of the appellant’s application to amend its pleadings to plead the operation of s.164(4)(b) of the Corporations Law.
5.There was no or no sufficient evidence upon which his Honour could find the delivery to the appellant of the goods claimed in the counterclaim.
6.His Honour’s conclusion that there was a ‘contra deal’ is inconsistent with his acceptance of the evidence of Mr McGibbon that Mr McGibbon, in late May 1996 obtained payment by two cheques for the aggregate sum of $60,858.98 from Mr Zaf and from Silverene Pty Ltd which were dishonoured and the evidence of a note dated 4.2.98 from Mr Zaf addressed ‘to whom it may concern’ in which Mr Zaf accepted liability for the sums.”
It is convenient to consider grounds 2 and 4 first. When the case was called on for hearing below counsel for the appellant, who did not appear before us, sought leave to amend the defence to counterclaim, which, except for an admission that Mr Zaf was a director of the appellant, then consisted entirely of denials and non-admissions and the identification of paragraphs to which it did not plead because those paragraphs contained no material allegation against it.
Paragraph 13 of the counterclaim was the paragraph alleging that, at all relevant times, Mr Zaf was a director both of the appellant and of Silverene. Counsel sought to substitute the following new paragraph 3 in the defence to counterclaim:
“3.In respect of paragraph 13 of the counterclaim and paragraph 7 of the defence, the plaintiff admits that at all relevant times, Mr A. Zaf was a director of the plaintiff but does not admit any other allegation therein and further states that a director would customarily not have, and Mr A. Zaf as a director of the plaintiff did not have the authority to exercise the powers and/or perform the duties purported to have been exercised by Mr A. Zaf as alleged in paragraph 7 of the defence and paragraph 13 of the counterclaim.
At no time did the plaintiff authorise Mr A. Zaf on its behalf to enter into the contracts specified in paragraph 7 of the defence and/or paragraph 13 of the counterclaim. The alleged contracts or any of them were not made for the benefit of the plaintiff. These facts were known to the defendant.
And in any event, Mr A. Zaf did not properly perform his duties to the plaintiff in relation to the matters raised in paragraph 7 of the defence and paragraph 13 of the counterclaim. The plaintiff relies on sections 164(4)(a) and 164(4)(b) of the Corporations Law applicable at all relevant times on the grounds that the defendant had knowledge or ought to have known due to the defendant’s connection or relationship with the plaintiffs [sic] so as not to entitle the defendant to rely on the assumptions contained in section 164.”
In the course of his submissions counsel explained that the references to paragraph 13 should have been references to paragraph 10, but it is not altogether clear that that was so. The proposed new paragraph 3 was to plead to paragraph 13 of the counterclaim. Perhaps counsel meant that paragraph 10 of the defence was intended to be mentioned as well as paragraph 7. Counsel said that the amendment was sought because “the [appellant] says that this matter is a matter within s.164 of the Corporations Law”.[5] The proposed new paragraph alleged that Mr Zaf did not have authority to exercise the powers purportedly exercised by him as alleged in paragraph 7 of the defence and that at no time did the appellant authorize Mr Zaf on its behalf to enter into the contracts specified in that paragraph.
[5]The amendment referred to both paragraphs (a) and (b) of s.164(4), but Ms Marks confirmed that the notice of appeal intentionally referred only to paragraph (b).
Counsel also said:
“The amendment being sought, Your Honour, is reasonably substantial in view of what was before it, but in my submission, Your Honour, it should be allowed because it goes to the nub of the question as to whether Mr Zaf had authority even though he was a director of the company at the time, and that’s accepted, given the circumstances of what happened during the period of about mid 1996 up until the end of 1996.” (Emphasis added.)
Mr Williams, who appeared for the respondent below as well as before us, submitted that what the proposed amendment really did was to change the nub of the case. The judge asked him when the application was made. Counsel replied that notice of it had been given three days earlier and had been the subject of a relatively prompt response to the effect that it would be opposed. The following exchange then took place”
“MR WILLIAMS: Your Honour, up until now the plaintiff’s approach to the contra agreement has been to deny that it was made, therefore until now the question of the contra agreement was a simple question of fact. Either it was reached or it was not.
HIS HONOUR: Yes.
MR WILLIAMS: We plead that there was an agreement and that is denied.
HIS HONOUR: Yes.
MR WILLIAMS: What the plaintiff now seeks to do is to say maybe there was an agreement and maybe there wasn’t but the man you say you agreed with didn’t have authority to deal with you. With respect, that is a completely different question.
HIS HONOUR: Yes.
MR WILLIAMS: And it raises a large number of sub-questions which would need investigation by this court and which my client will be disadvantaged if [it] doesn’t have the opportunity to investigate prior to being sprung with this effectively at trial.”
Counsel then referred to the need for further discovery and interrogation if the amendment were made. He also referred to the requirement that the allegations of knowledge in the proposed new paragraph 3 be particularized.[6] He concluded that, quite apart from the late stage at which the application had been made, the amendment was not in a form that could properly be allowed.
[6]County Court Rules of Procedure in Civil Proceedings 1999, Rule 13.10(3)(b).
Counsel for the appellant submitted that the respondent would not have been taken by surprise by the application to amend, but he did not offer to particularize the pleading or deny Mr Williams’s assertion that until then the appellant’s approach to the contra agreement had been to deny that it was made and that the amendment raised the question of Mr Zaf’s authority for the first time.
Addressing counsel for the appellant, the judge said, “I am not inclined to allow these proposed amendments at this juncture, so do you wish to make any further application?” Counsel for the appellant asked for the matter to be stood down for a short time so that he could seek instructions. No further application was made to amend the pleadings and the trial must be taken to have gone forward on the footing stated by Mr Williams, namely that the issue was whether the contra agreement, and presumably the other agreements, had been made, not whether Mr Zaf had authority to make those agreements on behalf of the appellant.
Mr Williams cross-examined Mr Penman as to the director with day-to-day responsibility for the appellant’s operations in Melbourne, namely Mr Zaf; but those questions went to the likelihood of an agreement having been made with the appellant, as opposed to Mr Zaf personally, as counsel for the appellant would later contend.[7] The judge referred to Mr Zaf’s ostensible authority more than once in his reasons, not only in the passages I have set out but also in another paragraph. Much more than counsel’s questions, that has caused me hesitation, but in the end I do not think it matters. Counsel for the appellant had conceded that the amendment he sought was substantial in view of what had gone before[8] and that amendment was refused. I accept Mr Williams’s assurance that it was understood thereafter that Mr Zaf’s authority, as such, was not in issue.
[7]At [8] above.
[8]At [14] above.
In the circumstances I have described earlier, I can detect no error in his Honour’s refusal to allow the amendment at the stage it was sought. As I have said, no further application to amend was made. Counsel elected, or led Mr Williams reasonably to believe that he had elected, to go to trial denying that the agreements had been made but no longer pursuing the question of Mr Zaf’s authority. It is therefore unnecessary to consider whether there was evidence to establish such authority or whether the judge was right in concluding, as he apparently did, that Mr McGibbon was entitled to assume that Mr Zaf did have authority to make a contra agreement. (I say “a contra agreement”, because, as we have seen from his Honour’s reasons,[9] the agreement sustained by the evidence was different as to its timing from the agreement pleaded in paragraph 10 of the defence and counterclaim.) For these reasons, both grounds 2 and 4 fail.
[9]At [8] above.
The main contention advanced under cover of grounds 1 and 5 was that his Honour did not direct himself to the question whether the appellant, as opposed to Mr Zaf and his companies, actually received all the goods the subject of the contra agreement. (The relevant goods are those the subject of paragraphs 7 and 8, but not 9, of the defence and counterclaim.) That contention cannot be upheld because it presupposes that the corresponding debts totalling $59,562.98 were dependent on delivery of the goods to the appellant. Although it has other deficiences, the pleading makes it clear that that was not so. The agreement alleged in paragraph 10 was that amounts purchased by the appellant, Silverene or Mr Zaf from the respondent, sc. the amounts owing in respect of those purchases, would be set off against amounts due by the respondent to the appellant. His Honour was entitled to find that goods with an aggregate purchase price of $60,210.98 were so purchased irrespective of whether they were delivered to the appellant. The words “agreed to supply steel products to the plaintiff” in paragraphs 7 and 8 do not require such delivery.[10]
[10]The subsidiary contentions that were advanced need not be considered. They relate to the particulars” of ground 1 and fall away in the light of the conclusions that I have expressed on these grounds and grounds 2 and 4.
It will be recalled from the passages quoted from his Honour’s reasons that Mr McGibbon endeavoured to settle the dispute by obtaining payment from Mr Zaf. It was well open to his Honour to take the view that that was simply a practical endeavour on Mr McGibbon’s part, throwing no doubt on the existence of the contra agreement. The note from Mr Zaf dated 4th February 1998, referred to in ground 6, takes the matter no further. In it Mr Zaf said that, being a director of the appellant, he confirmed that the respondent had supplied goods to the value of $60,210.98 in full payment of its account with the appellant and that he took full responsibility for “the dispersion of the goods supplied in lieu of payment” of that account. Neither that ground nor ground 3 can be upheld.
Ms Marks argued the appellant’s case with skill and raised a real doubt in my mind as to whether Mr Zaf did have actual or ostensible authority to order goods from the respondent on the footing that the purchase price would be set off against amounts due to the appellant, but two points need to be borne in mind. The first is that the evidence may have been different if authority had been in issue. As readers of Professor C.S. Lewis know, no one is ever told what would have been. The second is that it is an essential feature of our system of justice that the issues between the parties are ordinarily settled at the trial and appellate courts should not intervene in such a way as to reduce the trial to a preliminary skirmish.[11]
[11]Compare Coulton v. Holcombe (1986) 162 C.L.R. 1 at 7.
For these reasons I would dismiss the appeal.
CHERNOV, J.A.:
I also agree with Callaway, J.A.
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