Tralinks Investments Pty Ltd v Fox Farming Pty Ltd
[2022] WADC 90
•21 OCTOBER 2022
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
CITATION: TRALINKS INVESTMENTS PTY LTD -v- FOX FARMING PTY LTD [2022] WADC 90
CORAM: REGISTRAR KINGSLEY
HEARD: 12 AUGUST 2022
DELIVERED : 21 OCTOBER 2022
FILE NO/S: CIV 1531 of 2022
BETWEEN: TRALINKS INVESTMENTS PTY LTD
Plaintiff
AND
FOX FARMING PTY LTD
First Defendant
SHANNON KYLIE FISHER
Second Defendant
PATRICK CHARLES FOX
Third Defendant
Catchwords:
Practice - Application for summary judgment - No new principles
Legislation:
Nil
Result:
Application dismissed
Representation:
Counsel:
| Plaintiff | : | Mr N J Siegwart |
| First Defendant | : | Mr M I Lenhoff |
| Second Defendant | : | Mr M I Lenhoff |
| Third Defendant | : | Mr M I Lenhoff |
Solicitors:
| Plaintiff | : | Birman & Ride |
| First Defendant | : | Zafra Legal |
| Second Defendant | : | Zafra Legal |
| Third Defendant | : | Zafra Legal |
Cases referred to in decision:
Australia Machinery Engineering (AME) Pty Ltd v Moore Group Holdings Pty Ltd [No 2] [2017] WADC 124
O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71
Oswal v Commonwealth Bank of Australia [2013] WASCA 58
Palaniappan v Westpac Banking Corporation [2016] WASCA 72
Rhodes v De Castro [2022] WASC 214
REGISTRAR KINGSLEY:
By a chamber summons dated 26 May 2022, the plaintiff brought an application for summary judgment. The application is supported by the affidavit of Edward Chitra sworn on 26 May 2022 (E Chitra Affidavit) and the affidavit of Vania Claresta Chitra sworn 2 August 2022 (V Chitra Affidavit). The application is opposed by the defendants and Patrick Charles Fox has filed two affidavits, the first sworn 26 July 2022 (Fox's First Affidavit) and a second affidavit sworn 11 August 2022 (Fox's Second Affidavit).
Preliminary issue - objection to Fox's First Affidavit
Plaintiff's counsel objected to certain paragraphs of Fox's First Affidavit and after hearing argument on each of the objections, the following rulings were made:
1.The objection to pars 17 - 21 were withdrawn at the hearing.
2.Paragraphs 52 and 53 were objected to on the basis of argumentative and impermissible secondary evidence in terms of the lease agreement and the objection was allowed.
3.The objection to pars 54 and 57 were that they were argumentative and irrelevant and the objection was disallowed in both cases.
4.Paragraph 68 was objected on the basis that it was the deponent's subjective understanding of the contractual position and there was insufficient grounding of information and belief of the deponent. The objection was allowed.
5.The first sentence of par 71 was objected to on the basis of the deponent's subjective understanding and insufficient grounding of statements of information and belief. The objection was allowed.
Legal principles - summary judgment
The legal principles applicable to an application for summary judgment have been conveniently summarised by Hill J in Rhodes v De Castro [2022] WASC 214. Those principles are:
1.Summary judgment will only be granted when there is no real question to be tried.
2.The power to order summary judgment should be exercised with great care and in the clearest of cases where there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial.
3.A summary judgment application is not the occasion to resolve which argument is to be accepted and a party should not be denied the opportunity to put their case before the court in the ordinary way.
4.In determining whether there is a real question to be tried, where there is a serious point of law raised by a defendant, the matter should not be determined summarily. Whilst the applicant for a summary judgment bears the legal onus of establishing there is no real question to be tried, after which the evidential burden shifts to the respondent, the respondent does not have to show a defence on the balance of probabilities but that there is an arguable defence.
It is clear that the affidavit in support of an application for summary judgment must verify the essential elements of the cause of action upon which the application is based.
The plaintiff's claim
By way of a lease agreement made in 2014, the plaintiff leased to the first defendant (Fox Farming) plant and equipment for five years. Payments were to be made to the plaintiff (Tralinks) under the terms of the lease and the second defendant (Fox) and the third defendant (Fisher) were guarantors of Fox Farming's obligation.
Under the terms of the lease agreement Fox Farming was to pay $444,195 by 60 monthly instalments of $7,403.25. Payments were to be made 'the first day of each month commencing on 1 January 2015 to and including 1 December 2019'.
The plaintiff pleads that Fox Farming has only paid $355,356, being 48 of the 60 monthly payments.
The plaintiff pleads that Fox Farming is indebted to the plaintiff in the sum of $161,859.79, being:
•unpaid rent - $88,839
•interest - $73,020.79.
Clause 7.6(c) of the lease agreement states:
Notwithstanding any term whether express or implied in this Lease or any rule of law or course of conduct to the contrary, payments will not be subject to any abatement, reduction, set-off, defence, counter-claim or recoupment of any kind whatsoever.
The plaintiff argues that cl 7.6, known as a suspension clause, establishes its entitlement to payment and the evidentiary onus now shifts to the defendants. In support the plaintiff cites Australia Machinery Engineering (AME) Pty Ltd v Moore Group Holdings Pty Ltd[No 2] [2017] WADC 124 (AME). Parry DCJ in AME noted in Oswal v Commonwealth Bank of Australia [2013] WASCA 58 that:
The expression 'without set-off' excludes all form of set-off, no matter what jurisprudential basis might exist for the set-off. Thus it excludes statutory set-off and equitable set-off. It excludes all of the four kinds of equitable set-off that the authors of Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed, 2022) have detected …
The defendants' submissions
The defendants contend that there are three defences to their claim: firstly, a new agreement was created in January 2022 that arose by virtue of correspondence or discussions which involved representations by the plaintiff to which Fox Farming relied upon to its detriment; secondly, the parties agreed for $50,000 to be deducted from the amount payable by Fox Farming to the plaintiff pursuant to an agreement on or around 1 November 2018, and, thirdly, the parties agreed to defer payment of rent and accrued interest for the period between June 2016 to May 2017.
The defendants also contend that the methodology for calculating the interest is flawed and inappropriate for summary judgment.
Fox's First Affidavit details the background to Fox Farming business operations. Prior to Fox Farming, Fox's father operated a seed potato business, Lake Jasper Pty Ltd (Lake Jasper) and PT Clarexindo Makmur Sejahtera (CMS) was a long-time customer of Lake Jasper. CMS was run by Mr 'Tommy' Chitra and Fox deposes that Tommy's children are Edward Chitra and Vania Chitra who are the directors of Tralinks.
Lake Jasper went into receivership in December 2013 and Fox Farming was established in January 2014.
As Fox Farming had no equipment of its own, discussions were held between Fox, Tommy and Fox's father which resulted in Tommy agreeing to loan $400,000 to Fox Farming so that it could purchase Lake Jasper's equipment at auction. Fox attended the auction of Lake Jasper's farming equipment and was the highest bidder.
The lease agreement states that the plaintiff as lessor acquired the equipment and leased it to Fox Farming as lessee. Fox deposes that he did not believe the arrangement was that Fox Farming was only to lease the equipment. Fox confirmed with Tralinks through Vania that when the total rent had been received by the lessor the plant and equipment would become the property of Fox Farming. This was confirmed by Vania in July 2014.
Fox deposes that Fox Farming was required under the lease agreement to make monthly payments starting in January 2015. Fox goes on to say that prior to making the January 2015 payment he was told by Vania and Edward that the plaintiff would issue an invoice for each monthly payment. Fox deposes he received an email from Edward on 22 January 2015 which, in effect, stated that Edward was going to send a tax invoice for January 2015 and it is due for payment at the end of the month. Fox deposes that the plaintiff generally dated its invoices the 15th of the month before the relevant monthly payment was due, regardless of the date it was issued. Fox has compiled a table (par 46, Fox's First Affidavit) showing the date of the invoice and the date that Fox received the invoice. By way of example, invoices for the months of July, August, September, October, November, December 2016 and January 2017 were all received on 3 January 2017.
In the period June 2016 to May 2017, Fox Farming did not make monthly payments. The reason was because of the Waroona-Yarloop fire that occurred in January 2016 which caused significant damage to Fox Farming's farming operations. Fox goes on to depose that in late September 2016 he and his father flew to Jakarta to meet with Tommy and Vania. The impact the fire had on Fox Farming's operations and business cashflow was discussed. Fox deposes he asked Tommy and Vania whether Fox Farming could defer paying the monthly payment for 12 months. Tommy and Vania according to Fox agreed to the request. It was Fox's understanding that interest would not accrue as nothing was mentioned about interest accruing during that period.
As for the $50,000 deduction, Fox deposes that Fox Farming exported significant quantities of seed potato to CMS and that at 30 October 2018 some $411,738.84 was owing by CMS to Fox Farming.
At a meeting on 1 November 2018 between Fox's father, Tommy and Fox in the course of discussions Tommy raised the fact that Fox Farming was behind on monthly payments and it was agreed that an amount of $50,000 would be applied to reduce the amount owing under the lease agreement.
Fox then goes on to depose that an email was sent by Vania in January 2022 with a subject heading 'Lease Agreement ‑ Renewal'. The email refers to a new agreement and there is reference to finishing the total amount before 2024. In a subsequent email sent by Vania on 27 January 2022 Vania enquires whether Fox had any objection or approval of the arrangement so that it can be commenced. Fox responds on 27 January that he has no objection to the new contract.
Subsequently, on Fox's understanding, there was a new agreement that Fox Farming had until December 2023 to pay the balance under the lease agreement. He took steps to begin a March 2022 planting including borrowing funds from Export Finance Australia. Fox deposes that Fox Farming would not have invested so heavily in the March 2022 potato crop if he knew that the plaintiff would demand a payment of all monies owing under the lease agreement pursuant to the notice of default.
Fox deposes that an activity statement showing payments made by CMS to Fox Farming shows a payment on 9 November 2018 of $59,556.52. Fox is unsure what this payment relates to. However, Fox believes that the payment of $59,556.52 related to the agreement with Tommy regarding the plaintiff. The receipt statement has the reference 'Deduct against Tralinks' which Fox deposes he believes is likely a reference to the agreement made only a few days earlier when he and Tommy met on 1 November 2018.
The issues raised
The principal issue raised by the defendant is that the debt claimed by Tralinks is not due and payable and that Fox Farming is not bound by any suspension clause in the lease agreement.
The defendants submit that there was a new agreement created in January 2022, that the parties agreed for $50,000 to be deducted from the amount payable by Fox Farming to Tralinks, that there was a deferred payment of rent and accrued interest for a period of 12 months between June 2016 to May 2017, and finally, the methodology of calculating the interest is flawed.
Discussion
The evidence is that in January 2022, Tralinks appears to consider engaging a lawyer to revisit and review the lease agreement with a view to include certain terms and once the new agreement is finalised it will be signed. Vania sends an email to Fox enquiring whether he had any objections or approval to the arrangement so that the agreement could be commenced. Fox submits that a reasonable interpretation of that exchange is that a new agreement would commence upon Fox Farming confirming it approved the proposal. This supports a Masters v Cameron fourth category where the parties are content to be bound immediately by the terms which they had agreed upon whilst expecting to make a further contract in substitution to the first contract containing, by consent, additional terms. Thus, Fox replying to Vania that he has no objection to the new contract was sufficient to give rise to the new agreement. Thus, Fox argues the substitution of a new contract for the old contract has the effect of distinguishing a cause of action under the original contract. In this case it is arguable that by entering into the new lease agreement in January 2022, Fox Farming's obligations to pay rent under the lease agreement were discharged and replaced with the terms of the new lease agreement.
Fox goes on to argue that it is arguable Fox Farming relied on the representations made by Vania. Fox Farming relied on those representations to accept an offer to borrow $50,000 from Export Finance Australia and make a significant investment in the March 2022 potato crop. In my opinion this conclusion is reasonable having regard to Fox's evidence that Fox Farming had experienced financial difficulty and any further debt could jeopardise its solvency and cashflow requirements (Fox First Affidavit, pars 86 - 87).
Fox submits that there is competing evidence between Fox and Vania as to the $50,000 reduction. Fox deposes that by 30 October 2018 CMS was indebted to Fox Farming in the sum of $411,738.84. In an activity statement from 1 November 2018 to 8 August 2022 there is the sum of $59,556.52 applied in reduction of the debt of $411,738.84. There is no documentary evidence to support a reduction of Fox Farming's liabilities in the sum of $50,000. Even Fox cannot explain how the sum of $59,556.52 is derived. That being the case, I am of the opinion that there is no arguable issue in relation to the sum of $50,000.
The suspension clause
The authorities are settled in that a suspension clause is enforceable. The purpose of the clause is to prevent the holding up of payments whilst disputed cross‑claims are litigated.
Fox argues that O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71 (O'Brien) illustrates a point of distinction. In O'Brien the guarantors asserted that because of the bank's conduct no default that would have entitled the bank to make demand for repayment had occurred. Alternatively, the guarantors asserted the bank was estopped from relying on any event of default and accordingly, the loan facility was not then due and payable. The essence of O'Brien is that if there is an arguable defence that there was no sum due and payable at the date demand was made of the borrower, then there is no right/liability upon which the suspension clause can operate.
O'Brien was cited approvingly in Palaniappan v Westpac Banking Corporation [2016] WASCA 72 where the court commented that a guarantor would not be required to 'pay now and litigate later' where it alleges that the creditor was estopped from asserting that the debt was payable or from making a demand for payment.
Conclusion
This is the plaintiff's application for summary judgment. All the defendants need show is that there is an arguable defence. On the evidence before me it is arguable that in January 2022 by reason of the correspondence between the parties and underlying discussions that a new lease agreement came into being. That being the case there is no debt currently due and payable under the lease agreement.
The issues raised by Fox in relation to the methodology of calculating interest and the agreement to defer payment of rent and accrued interest between June 2016 and May 2017 would, all things otherwise being equal, not have prevented judgment being entered but would be an issue on an assessment of damages.
However, for the reasons given above, I am of the opinion that the plaintiff's application ought to be dismissed.
The second defendant - Ms Fisher
There is no evidence from Ms Fisher, and Fox does not purport to speak on behalf of Ms Fisher.
I will hear counsel on the progress of the action against Ms Fisher.
Costs
I will hear counsel on the issue of costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
FN
Associate
21 OCTOBER 2022
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