v Benchmark Debtor Finance Pty Ltd (ACN 082 607 654)
[2004] FCA 224
•12 MARCH 2004
FEDERAL COURT OF AUSTRALIA
Scottish Pacific Business Finance Pty Ltd (ACN 008 636 388)
v Benchmark Debtor Finance Pty Ltd (ACN 082 607 654) [2004] FCA 224
TORT – intentional interference with contract – elements – knowledge – intention – debt factoring agreement – finance company and wholesaler – competing finance company making debt factoring agreements with companies related to wholesaler – guarantees of subsequent debt factoring agreements given by wholesaler – without consent of its factor – breach of wholesaler’s debt factoring agreement – whether intentionally induced by competing finance company – case turns largely on own facts – application dismissed
Corporations Act 2001
Trade Practices Act 1974 (Cth)Trindade and Cane, The Law of Torts in Australia (3rd Edition) OUP, 1999
Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 cited
SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD (ACN 008 636 388) and CALEJAC PTY LTD (IN LIQUIDATION) (ACN 077 227 733) v BENCHMARK DEBTOR FINANCE PTY LTD (ACN 082 607 654) and PETER DAVID LANGHAM
W 300 OF 2002FRENCH J
12 MARCH 2004
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
W 300 OF 2002
BETWEEN:
SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD
(ACN 008 636 388)
First ApplicantAnd
CALEJAC PTY LTD (IN LIQUIDATION)
(ACN 077 227 733)
Second ApplicantAND:
BENCHMARK DEBTOR FINANCE PTY LTD
(ACN 082 607 654)
First RespondentAnd
PETER DAVID LANGHAM
Second Respondent
JUDGE:
FRENCH J
DATE OF ORDER:
12 MARCH 2004
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1. The application is dismissed.
2. The applicants are to pay the respondents’ costs of the action.
3.Any application to vary the terms of the costs order is to be made on written submission within twenty-eight days.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
W 300 OF 2002
BETWEEN:
SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD
(ACN 008 636 388)
First ApplicantAnd
CALEJAC PTY LTD (IN LIQUIDATION)
(ACN 077 227 733)
Second ApplicantAND:
BENCHMARK DEBTOR FINANCE PTY LTD
(ACN 082 607 654)
First RespondentAnd
PETER DAVID LANGHAM
Second Respondent
JUDGE:
FRENCH J
DATE:
12 MARCH 2004
PLACE:
PERTH
REASONS FOR JUDGMENT
Introduction
Scottish Pacific Business Finance Pty Ltd (SPBF) provides debt factoring facilities to traders. On 29 May 1997, it entered into a debt factoring agreement with Calejac Pty Ltd (Calejac) one of a number of companies owned by Mr Walter Aquino and other members of the Aquino family. Calejac’s business was wholesaling Kappa brand sports clothing through various retail stores. Debts owed to it by the retailers arising out of their purchase of Kappa goods were the debts factored under the agreement.
On 29 June 2000, another debt factoring financier, Benchmark Debt Finance Pty Ltd (Benchmark) entered into a debt factoring agreement with another of the Aquino companies, Robe Di Kappa Pty Ltd (RDK). RDK also supplied Kappa products to outlets which, although not independent of it initially, were intended for acquisition by independent operators. A further agreement was made with another Aquino company, Caja Australia Pty Ltd (Caja) on 5 December 2001.
Calejac was a guarantor of the performance of both RDK and Caja under their respective agreements with Benchmark. Under the terms of its agreement with SPBF, Calejac required the consent of SPBF before providing guarantees to any other party. SPBF itself had a charge over Calejac’s assets securing the performance of the Calejac Factoring Agreement.
The Aquino group eventually collapsed, receivers and managers were appointed to the companies and Calejac was wound up. Both SPBF and Benchmark lost money as a result of the collapse. SPBF had an exposure to Calejac in excess of $1 million at the time.
SPBF has brought proceedings against Benchmark and its managing director, Peter Langham, who is a former State Manager for SPBF. It alleges in substance that Benchmark and Mr Langham intentionally and knowingly interfered in its contractual relations with Calejac by inducing Calejac to breach the Calejac Factoring Agreement. There are associated claims under the Corporations Act 2001, the Trade Practices Act 1974 (Cth) and in equity but they stand or fall with the claim for intentional interference in contractual relations.
For the reasons that follow, I am of the opinion that the principal cause of action was not established and that all the claims therefore fail. The application will be dismissed with costs.
The Factor – Scottish Pacific Business Finance Pty Ltd and Key Officers
SPBF provides finance to businesses by factoring their debts. It was a subsidiary of the Bank of Scotland until May 2000 when it was acquired by St George Bank Ltd.
Clive Isenberg has been the managing director of SPBF since 1987. He is also now the General Manager of Business Customers with St George Bank Ltd. He is a chartered and certified practicing accountant. Between 1993 and 1999 he represented the Asia Pacific Region on the Executive Committee of Factors Chain International, an international association of factoring companies. He was Chairman of its Executive Committee from 1997 until 1999. He was the inaugural Chairman of the Institute of Factors and Discounters of Australia and New Zealand in 1994 and was again Chairman from 2000 to 2002. He has had about seventeen years in the factoring industry in Australia and New Zealand. He is familiar with the practice and protocols observed by factoring businesses around the world.
Peter Langham was appointed State Manager of Western Australia for SPBF in December 1992. He had previously worked for Kellock Ltd, a United Kingdom subsidiary of the Bank of Scotland. He resigned from SPBF in May 1997.
Alan Graham was employed by SPBF from December 1987 until June 2002as State Manager and Business Unit Head for Queensland. He was also State Manager for Western Australia from August 1997 to June 2002. During the latter period he became Queensland State Manager of St George Business Finance Pty Ltd, a subsidiary of St George Bank Ltd. He has had about 22 years experience in the debt factoring industry.
The Factor’s Customer – Calejac Pty Ltd and Related Companies
Calejac is one of a number of companies owned by members of the Aquino family. It was formed on 7 February 1997. Walter Leslie Aquino and his wife, Ann Marie Aquino, are its directors. It is not necessary for present purposes to set out details of the shareholders save to say that one of them was Caljac Enterprises Pty Ltd (CEPL) as trustee for the Aquino Family Trust. CEPL had been incorporated in 1995. Mr and Mrs Aquino were its directors. It carried on business as a wholesaler of sports apparel and footwear until early 1997. Its business was then acquired by Calejac.
Other companies owned by the Aquinos were Our Family Pty Ltd, incorporated on 16 March 1999, RDK, incorporated on 13 March 2000 and Caja, incorporated on 22 November 2001. A chart showing the relationship between the various Aquino companies and the shareholding in those companies is attached to these reasons.
The Competitor and the Former SPBF Officer – Benchmark Debtor Finance Pty Ltd
Benchmark was incorporated on 26 May 1998. It was formed by Mr Langham who is, and was, at all relevant times its Managing Director. It is a finance company and provides funds for finance by way of debt factoring.
The Agreement Between SPBF and Calejac
On 29 May 1997, SPBF agreed to provide a debt factoring facility to Calejac. They made a written agreement of that date. The agreement commenced with an overview. That overview summarised its essential features. It was in the following terms:
‘Under this agreement, we will provide factoring facilities to you. W purchase debts owed to you. Those debts arise from you selling goods or providing services. We specify which debts we will purchase. They are called transferred debts. We normally specify the transferred debts by a general description which includes future debts. How much we pay, and when we pay, depend on whether we have classified the debt as an approved debt or a disapproved debt.
(There followed a diagram)
The arrangement has many features. Three are of particular interest:
.We provide debtor administration. That means we collect the debts in a professional manner, send notices to debtors and provide sales ledger administration. You have access to some of the most experienced people in the field and are relied from the burden of performing these functions.
.We provide regular reports to you, including a monthly aged listing of transferred debts.
.You can receive payment much earlier than would otherwise be possible. For an approved debt, the purchase price is an agreed percentage (generally 80%) of the face value of the debt. We will pay the purchase price an agreed time after the debt arises, but you can call for it to be paid early. You then pay a discount charge. If we collect more than the purchase price from the debtor, that excess is paid to you. The purchase price for a disapproved debt is the amount collected from the debtor.’
The agreement provided for the transfer to SPBF from Calejac of all trading debts owed by Calejac and specified by SPBF. The consideration for the transfer was stated to be $1 (cl 1.1). Calejac was required to give SPBF any details requested in relation to ‘transferred debts’ (cl 2.1). It was required to give SPBF ‘a duplicate of each invoice’ (cl 2.2). The term ‘transferred debt’ was defined in the agreement thus:
‘Transferred debt means a trading debt which you transfer or should transfer to us.’ (cl 49)
The term ‘trading debt’ was also defined:
‘Trading debt means an existing or future right to receive payment for goods sold by you and accepted by the purchaser or an existing or future right to receive payment for services which have been performed by you. Trading debt includes all other rights which you may have in respect of any such transaction and in respect of any goods which are the subject of any such transaction; and interest and costs recoverable from the debtor. However, it does not include a right to payment under a transaction which was not at arm’s length; or which was with an associate of yours. It also does not include sales based on letters of credit (other than standby letters of credit), cash against documents, or any kind of sales for cash. The name or style under which you were trading, and whether the debt actually arose in the course of the business referred to in item 1(d) is irrelevant.’ (cl 49)
‘Invoice’ was also defined:
‘Invoice, in relation to a transferred debt, means the document addressed by you to the debtor which evidences that debt and specifies the goods sold or services performed for which the debtor is to pay and the terms of payment.’ (cl 49)
Calejac was required to endorse each invoice with a notice of transfer in a specified form (cl 3). Clause 4 provided:
‘Approved and Disapproved Debts
Each transferred debt is an approved debt, unless we decide to classify it as a disapproved debt. We have a discretion to classify any transferred debt as a disapproved debt at any time (including during the twenty-four hour period referred to in clause 6.1), and to reclassify it as an approved debt. We do not have to give you notice of any of those decisions.’
The term ‘approved debt’ was defined as:
‘approved debt means a transferred debt which has not been disapproved by us under clause 4.’ (cl 49)
The cognate term ‘disapproved debt’ was defined:
‘disapproved debt means a transferred debt which has been disapproved by us under clause 4.’ (cl 49)
The purchase price for an approved debt was a specified percentage of the balance of the net value of the transferred debt less any allowances, discounts or credits given to the debtor by SPBF. For a ‘disapproved debt’ it was the amount of cleared funds received from the debtor (cl 5.1). The specified percentage payable by SPBF was set out in Item 2 of the Schedule to the agreement. It was 80%. SPBF was entitled to reduce the percentage provided that Calejac could terminate the agreement on notice given within seven days after advice of the decrease. The agreement would end three months later without a decrease (cl 5.2 and Schedule Item 3(c)).
Calejac became entitled to receive the purchase price for an approved debt the day before the recourse date which was ninety days from the end of the month in which the debt arose (cl 6.1, cl 49, Schedule Item 4(f)). There was provision for Calejac to call for early payment of the purchase price subject to conditions not presently relevant (cl 6.1). The purchase price of a disapproved debt was payable seven days after receipt of cleared funds from the debtor (cl 6.2, Schedule Item 6). Where an approved debt was classified as disapproved, SPBF would recover from Calejac any excess of the purchase price paid to Calejac over the amount received from the debtor (cl 6.3). Calejac would be entitled to any excess of the cleared funds received from a disapproved debt over the purchase price paid to it (cl 7).
Under the agreement SPBF had the sole right to collect and enforce payment of transferred debts. Calejac was to do anything SPBF might require to help it collect a transferred debt (cl 10.1). SPBF could institute legal proceedings in relation to a transferred debt and could conduct those proceedings in the name of Calejac (cl 11.1). If by the recourse date SPBF had not collected from the debtor the amount paid for an approved debt, Calejac was to pay the shortfall (cl 12). A disapproved debt could be retransferred by SPBF to Calejac (cl 13). Calejac was required to indemnify SPBF against loss incurred through its failure to perform its obligations under the agreement (cl 14.1). Clauses 15 to 20 of the agreement related to SPBF’s administration charges and other charges. Clauses 21 to 24 concerned the maintenance by SPBF of a control account and mechanisms for payments by both parties.
Clause 25 set out a number of warranties by Calejac in relation to transferred debts. In the relevant parts it provided:
‘25.1In relation to each transferred debt, you warrant each of the following, unless you advise us otherwise in writing when or before the relevant duplicate invoice is delivered to us:
...
(f)the debt has arisen in the ordinary course of your business as described in item 1(d), and results from an actual and bona fide sale of goods, or performance of services, in the ordinary course of that business.
...
(m)you have disclosed in full your trading terms relating to the debt and the contract, and you will not attempt to waive or modify them, or extend the time for payment.
...
(q)the debtor has an established place of business, is not an associate of yours, and has no right which would reduce the net value of the debt.
25.2In relation to each transferred debt, you agree that:
(a)each warranty under clause 25.1 will remain accurate in every respect.
(b)you will immediately give us any information you obtain in relation to the validity of the debt, the creditworthiness of the debtor, any dispute or possible dispute about the debt, the contract, or the goods or services; and anything else that might affect the collection of the debt, or its value to us.
(c)you will perform all obligations imposed on you in respect of the debt, whether the obligations arise by agreement or under any law.
(d)you will inform us immediately of any payment you receive.’
Clause 26 also set out warranties given by Calejac and in the relevant parts provided:
‘26.Your Other Warranties
You also warrant to us each of the following:
...
(b)you will not incur any further financial indebtedness, create any further security interests, or allow any further financial indebtedness or security interests to continue, without obtaining our consent.
(c)you are and will remain solvent, and you do not have, and will not have, any creditors account (except one we approve) which is more than 120 days overdue.
...
(e)you will not do any of the following without our consent:
(i)lend any money or arrange to lend money to anyone, or give a guarantee.
(ii)anything which may make you liable to a third party, except in relation to goods or services supplied to you or work done for you in the ordinary course of your business as described in item 1(d).
...
Calejac was required to keep proper and accurate books of account in accordance with the law and applicable accounting standards. It was required to make an appropriate entry in its records immediately after the sale of a transferred debt (cl 27.1).
Other obligations set out in cl 28 required Calejac to inform SPBF and to keep it informed of various things. Relevantly it provided, in cl 28.3:
‘28.3You must inform us and keep us informed of:
(a)the name and registered address of your entity or any entity in which you or, if you are a corporation, any of your directors or shareholders has a direct or indirect interest, except through a shareholding of less than 5% of the issued shares of a corporation listed by the Australian Stock Exchange Limited.
...
(c)the names of your associated companies, and corporations which become or cease to be your associated companies.’
Clause 28.5 provided:
‘28.5You must immediately tell us in writing:
(a)if a corporation becomes or ceases to be related to you.
(b)if an associate of yours becomes a debtor.
...
(d)if something has happened which may affect your warranties or obligations, or which may give us the right to terminate this agreement under clause 30.2.’
Clauses 29 to 33 concerned variation and termination of the agreement. Clause 30.2 provided for termination of the agreement without notice, thus:
‘30.2However, we may end this agreement either:
.immediately, without notice; or
.at the end of any period we, in our discretion, specify in a notice to you,
if we believe that any of the following has occurred or is the case (whether it is within your control or not and without the necessity for any notice from us):
(a)you fail to pay on time any money due under this agreement;
...
(j)any of the adverse events referred to in the debenture deed as an Event of Default or Potential Event of Default happens.’
The term ‘Debenture Deed’ was defined in cl 49 thus:
‘Debenture Deed means any document under which you, or you and another person, give us a security for the performance of this agreement.’
Calejac’s obligations to SPBF under the agreement were secured by the following documents:
1.A Deed of Charge granted by Calejac to SPBF over all present and future assets, undertaking and property of Calejac. The deed was dated 29 May 1997 and registered at the Australian Securities and Investments Commission on 16 June 1997.
2.A Deed of Guarantee and Indemnity provided to SPBF by Mr Aquino and his wife dated 16 February 1998 by which they guaranteed the payment of all money and due performance of all obligations by Calejac to SPBF.
Clause 7.3 of the Deed of Charge set out Events of Default including:
‘(i)the Mortgagor, the Guarantor, or a Subsidiary of either of them, is insolvent within the meaning of section 95A of the Corporations Law, or is unable to pay its debts as and when they fall due.’
The Conduct Complained Of – The Pleadings
SPBF said in its amended statement of claim that, in or about mid-2000 Mr Aquino entered into negotiations with Mr Langham on behalf of Benchmark with a view to Benchmark providing debt factoring facilities to Calejac or its associated entities (s/c 22). Benchmark said these discussions began in July 1999 but at the time yielded no result (d 38(a)). In any event, according to SPBF, Benchmark agreed on 29 June 2000 to provide a debt factoring facility to the Aquino company, RDK. Like the Calejac agreement with SPBF, the RDK agreement with Benchmark involved the assignment of present and future debts owing to it for goods which it supplied to various outlets (s/c 25). The existence of that agreement was not in dispute (d 41). It was secured by a guarantee given by Mr Aquino and Calejac (s/c 27). That too was undisputed (d 42). Under the agreement Benchmark, like SPBF under the Calejac agreement, took assignments of debts owing by outlets to RDK and paid specified proportions of those debts to RDK from time to time (s/c 28). So much was undisputed (d 43).
SPBF said that at all times Mr Langham knew the pleaded terms of the Calejac Factoring Agreement, the Charge over Calejac’s debts and the Oral Assignment of those debts to SPBF by Mr Aquino on behalf of Calejac. He had negotiated factoring agreements with customers of SPBF including an earlier agreement with another Aquino company, CEPL on 21 September 1996 (CEPL Factoring Agreement). He had had frequent dealings with SPBF’s debt factoring customers and was familiar with its standard contracting terms set out in the CEPL Factoring Agreement and the Calejac Factoring Agreement. These contentions were denied.
SPBF alleged that in the course of negotiations with Mr Aquino which led to the RDK facility, Mr Langham was aware that Calejac owned and operated the business previously carried on by CEPL. He knew that Calejac had entered into its agreement with SPBF to factor debts arising from the business, that it was in the same or substantially the same terms as the CEPL Factoring Agreement, that Calejac remained bound by the terms of its agreement with SPBF and that it had assigned all its debts to SPBF (s/c 23). Benchmark and Mr Langham admitted that they were aware that Calejac operated a distribution business and had a factoring facility with SPBF (d 39). Benchmark allegedly took assignments of debts owing to RDK subject to a prior equitable interest of SPBF. At Mr Aquino’s directions, it was said, that Benchmark advanced moneys payable to RDK, pursuant to the RDK Facility, to another Aquino company called ‘Our Family’.
In or about September 2000 Benchmark informed RDK that the whole of the moneys advanced to RDK under the Facility were immediately due and owing. On 29 May 2001, it issued a demand to RDK that gave notice that time was of the essence in relation to RDK’s obligations to make payment of $15,000 per fortnight to Benchmark in reduction of a debt of $510,000.
SPBF alleged that Benchmark entered into another debt factoring agreement with Caja on 5 December 2001. This was in substance admitted by Benchmark (d 47). Mr Aquino and Calejac again provided guarantees by which they guaranteed the due performance of Caja of its obligations under the Caja Facility (s/c 34). It is common ground that under the Caja Facility, Benchmark took assignments of debts owing to Caja by outlets and paid specified proportions of those debts to or at the direction of Caja (s/c 35).
SPBF said that RDK and Caja were acting as agents for Calejac as Mr Aquino controlled RDK and Caja. They were not parties to its distribution agreement with Kappa. They could only obtain Kappa Goods wholesale from Calejac. All funds paid to RDK and Caja pursuant to their respective Facilities with Benchmark were paid to Our Family rather than RDK and Caja respectively. Neither company had a bank account of its own.
SPBF said that Mr Langham knew that SPBF was unaware of the existence of RDK or Caja or of their facilities with Benchmark. He also knew that SPBF was unaware that Calejac was supplying Kappa Goods to RDK and Caja, that they were acting as agents for Calejac and that Benchmark had made demand for payment to RDK and threatened to wind up Calejac (s/c 38).
SPBF alleged that Calejac breached various terms of its Factoring Agreement with SPBF as follows:
1.Clause 2 – by raising invoices for the supply of Kappa Goods, failing to provide copies of them to SPBF and dealing with the debt thereby created in a manner inconsistent with SPBF’s interest in the goods (s/c 40.3).
2.Clause 25
(i) by selling Kappa Goods to outlets operated by Our Family and by supplying Kappa Goods to RDK and Caja for resale to retail outlets (s/c 40.1 and 40.2);
(ii) by receiving moneys in respect of the supply of Kappa Goods to RDK and Caja (s/c 40.6);
(iii) by failing to tell SPBF of Benchmark’s threat to make demand on Calejac under the RDK Guarantee (s/c 40.7).3. Clause 26 – by entering into the RDK and Caja Guarantees (s/c 40.4).
4.Clause 28 –
(i) by non-disclosure to SPBF of Benchmark’s threat (s/c 40.7);
(ii) by failing to inform SPBF of the incorporation of RDK and Caja which were corporations associated with Calejac (s/c 40.8);
(iii) by failing to disclose to SPBF that it was unable to pay its debts as and when they fell due (s/c 40.5)
(iv) by failing to inform SPBF of the breaches pleaded in pars 40.1 to 40.4 and 40.6 in that all of those matters were breaches of the Calejac Factoring Agreement that gave SPBF the right to terminate under cl 30.2 (s/c 40.9).SPBF alleged that Benchmark and Mr Langham induced Mr Aquino to cause RDK and Caja to enter into their respective Facilities and Guarantees (s/c 41.1). They caused RDK and Caja to factor debts owing by outlets for Kappa products and to enter into the agreements and transactions pleaded. This was done in circumstances where Mr Langham met Mr Aquino and negotiated and offered the RDK and Caja Facilities. He allegedly knew that Mr Aquino could, by reason of the various agreements and transactions referred to and SPBF’s lack of knowledge of them, obtain for the benefit of his companies funds from debtors who had received Kappa Goods from Calejac exceeding funds that SPBF would provide to Calejac at that time. Mr Langham, it was said, knew that the RDK and Caja Facilities allowed Mr Aquino to conceal Calejac’s insolvency or worsening financial position from SPBF and that SPBF would therefore continue to advance money to Calejac under the Factoring Agreement (s/c 41.6).
By reason of those matters and their knowledge of the Calejac Factoring Agreement, the Charge, the Oral Assignment, the D & L Licence Agreement and various other matters, Benchmark and Mr Langham were said to have intended to and to have in fact interfered with, procured or facilitated breaches of the Calejac Factoring Agreement (s/c 42). SPBF said it suffered loss and damage by reason of this interference. Had it not been for the breaches committed by Calejac and had Calejac informed it of the matters comprising those breaches, then SPBF would immediately have terminated the Calejac Factoring Agreement. It would have sought to recover money owing to it under that Agreement (c/c 43.1).
SPBF said that in June 2000 the total value of debts assigned to it by Calejac was $639,842. The total amount of advances it made to Calejac in respect of which payment had not been received by respective debtors was about $300,000. SPBF would have been able to recover all or substantially all of this exposure from debtors had it sought to do so following termination of the Calejac Factoring Agreement in June 2000 (s/c 43.3).
Not being aware of the breaches, SPBF said it didn’t terminate the Calejac Factoring Agreement until 11 March 2002, having appointed a receiver to Calejac on 7 March 2002 (s/c 43.3). It said that following termination of the Calejac Factoring Agreement in March 2002, the gross debts totalled $1,684,581 and the exposure was $980.578. Of the Gross Debts $1,193,933 was disapproved by SPBF following its discovery of the breaches of the Calejac Factoring Agreement. The amount recovered by recourse to Calejac’s assets and the appointment of a receiver was $347,913.68 (s/c 43.5.3). SPBF also said it incurred recovery costs of receivership and liquidation including legal and miscellaneous costs totalling $627,554.94 (s/c 43.5.4). SPBF said that on this basis its loss was $1,260,219.20 (s/c 43.6).
The loss and damage suffered by SPBF is put another way. It was said that had Calejac not engaged in conduct in breach of its contract but continued to factor all debts owing to it for the supply of Kappa Goods as required by the Calejac Factoring Agreement, then most of the Benchmark factored debts would have been debts owing by Our Family. SPBF would have disapproved all of the Benchmark factored debts because Our Family was a related entity. So although SPBF would have taken assignments of those debts it would not have made advances to Calejac in relation to them. In that circumstance, Calejac wouldn’t have been able to pay overseas suppliers for the goods the subject of the factored goods. By about October 2000 overseas suppliers would have made demand of Calejac for money owing for Our Family and would have commenced winding up proceedings against it. On becoming aware of such proceedings, SPBF would have terminated the Calejac Factoring Agreement and would have been able to recover all of its then exposure from the debtors (s/c 44).
SPBF alleged various breaches by Mr Aquino of his statutory and fiduciary duties owed to Calejac (s/c 46). Benchmark was said to have been accessorially involved in the contraventions of the Corporations Act by Mr Aquino (s/c 47). On that basis it was said that Benchmark was liable to pay compensation to SPBF under s 1317H of the Corporations Act (s/c 48 and 49).
SPBF also invoked the Trade Practices Act. It alleged the breach of Calejac of various of the warranties contained in the Calejac Factoring Agreement (s/c 51). It is said that if SPBF had known of any of the warranty breaches it would have immediately exercised its right to terminate the Calejac Factoring Agreement (s/c 52). Calejac’s failure to inform SPBF of any of the warranty breaches constituted a continuing representation that none of them had been breached (s/c 53). That representation was false and constituted misleading or deceptive conduct (s/c 54 and 55). SPBF said it suffered loss and damage by reason of the contraventions of the Trade Practices Act (s/c 56). It repeated its earlier assertions as to loss. SPBF then said that Benchmark and Mr Langham were accessorially involved in the contraventions of the Trade Practices Act (s/c 57). The unconscionable conduct provisions of the Trade Practices Act were also invoked against Calejac with accessorial involvement alleged against Benchmark and Mr Langham (s/c 58).
SPBF Standard Practices and Procedures
SPBF’s standard practices and procedures for monitoring of clients’ accounts were described in evidence by its Managing Director, Clive Isenberg. It uses standard documentation in providing debt factoring facilities. This comprises a factoring agreement, a charge, a guarantee and a statutory declaration evidencing oral assignment of the factored debts. Its debt factoring procedures involve the following:
1.Once a client of SPBF has assigned a trade debt to SPBF and that assigned debt is approved for funding, SPBF advances a percentage of the face value of the debt to the client.
2.SPBF collects the whole of the debt from the client’s debtor.
3.SPBF pays the client the difference between the moneys recovered from the debtor and the moneys already advanced to the client by SPBF less agreed fees and charges.
Debts assigned to SPBF may be disapproved by the appropriate officer of SPBF prior to funding pending verification procedures or particular queries in relation to batches of invoices. Debts may also be disapproved by the appropriate officer subsequent to funding in the event of irregularities being discovered or the facility being terminated. In the event of non-payment of any particular assigned debt by a debtor within the recourse period set by the factoring agreement, SPBF may recover the unpaid amount (plus any advances made to the client in respect of that debtor) in full from the client.
As Managing Director of SPBF, Clive Isenberg, saw his primary responsibility as the promotion of the company’s debt factoring business, monitoring the work of its State Managers or State Business Unit Heads as they came to be known, and ensuring that SPBF was profitable and operated in accordance with its Mission Statement. His monitoring of the day-to-day operations of the business involved chairing the monthly meetings of Business Unit Heads in Sydney and participating as a Credit Committee Member at those meetings when applications for existing facilities exceeded credit limits. Among those who attended the Business Unit Head meetings was Alan Graham who had responsibility for Queensland and eventually Western Australia.
Every Business Unit prepared a report for the monthly meetings setting out its most significant five or so claims by dollar value and details of any problem clients for the region. Mr Isenberg would often ask questions about trading patterns and changes in the risk profiles of clients. If an issue arose at a Business Unit Heads meeting concerning a particular client account any concerns would be passed on to the Client Manager with SPBF responsible for that client. Business Unit Heads would convene and chair their own monthly meetings at which each Client Manager would present Client Status Reports for review.
Mr Isenberg himself initially signed off on all new applications for factoring facilities. He changed that practice in 1996 and delegated it to his Business Unit Heads. This reflected growing confidence in their competence. After the change in 1996 it was the Business Unit Heads who were responsible for ensuring compliance with conditions imposed by the Credit Committee.
As appears later in these reasons, from the beginning of 2001 the substantive supervision of client accounts in Western Australia was conducted from the Brisbane office of SPBF. As emerged from the evidence of Mr Alan Graham, the Brisbane-based State Manager for Western Australia, the control systems put in place by SPBF in relation to its exposure to clients under factoring agreements failed to operate adequately in the case of the Calejac account. This may be attributed in some degree to the physical distance between those responsible for supervising and operating the control mechanisms and the location of the client.
The Appointment of Peter Langham
In December 1992, Peter Langham became the State Manager of SPBF for Western Australia. Immediately before his appointment he had been employed by Kellock Ltd in the United Kingdom. He had wanted a change and was introduced to Mr Isenberg by Ben Allan, then the Chairman of both Kellock Ltd and SPBF. Upon offering him the position of State Manager WA, Mr Isenberg had told him that his predecessor had not been bringing in the amount of new business that they wanted and that it would be Mr Langham’s job to change that. Mr Langham was used to developing contacts with accountants as a way of bringing in business in the UK and he adopted that approach in Perth.
As appears from a curriculum vitae, which he prepared in 1992, Mr Langham held a variety of positions in the factoring industry dating back to his appointment as International Factoring Manager for Security Pacific Business Finance Ltd from October 1986 to June 1988 and a number of management positions in Kellock including Regional Manager from January 1989 to December 1990, Senior Manager from January 1991 to November 1991 and National Business Development Manager from November 1991 to November 1992. The last mentioned role involved responsibility for the performance of the regional offices and staff of Kellock in England. There were four such offices, six regional managers and four secretaries. He was required to monitor performance compared to targets and to train and counsel staff where applicable. His curriculum vitae referred to courses he had taken with the Association of British Factors and Discounters.
In his first six months in the job, Mr Langham made contact with partners in a number of accountancy firms in Perth, made presentations to a number of the firms, arranged for press publicity and gave a radio interview. He also approached finance brokers and began establishing contacts with banks and law firms. He identified as a problem the poor reputation of factoring as a method of financing. All these things were set out in a six-monthly report which he prepared dated 16 June 1993.
The Creation of the CEPL Facility – 1996
Mr Langham met Mr Wally Aquino when the Aquino family first started talking to SPBF about factoring. That was about a month before the family, through CEPL, first dealt with SPBF. The Aquinos were in the business of selling Kappa sports apparel as agents. Mr Langham had heard of the label. His recollection of his dealings with Mr Aquino was incomplete. Generally, however, his usual procedure was to have one or two meetings and one or two telephone conversations with a prospective client. After he had enough information he would send a submission to the Sydney office for approval of a proposed facility.
In 1996, Mr Aquino was operating his Kappa agency out of his home in Parkwood. The initial meetings between Mr Langham and Mr Aquino were at the Parkwood house. There were SPBF file records of the original proposal by CEPL which disclosed in some detail Mr Langham’s involvement in its processing. An SPBF proposal form was signed by Mr Aquino on 20 May 1996. Investigation reports relating to the company’s financial standing, debtors and the results of credit bureau inquiries were completed on SPBF standard forms by Mr Langham. Without descending into the detail of his memoranda it is clear that he was very supportive of the proposal which was eventually submitted to SPBF in Sydney.
One of the documents completed by Mr Langham was entitled ‘Scottish Pacific Business Finance Ltd Input Schedule for Factoring Agreement’. It was dated 17 September 1996. It identified the documents for which a completed copy of the Schedule was required. It included a schedule in the form which eventually appeared at the end of the CEPL Factoring Agreement with the details completed by Mr Langham. He was asked about the documents which he requisitioned for the transaction. He agreed that he required a Factoring Agreement, Guarantee and Indemnity, Deed of Postponement and other documentation because he thought they were necessary and desirable for the transaction. He also agreed that a statutory declaration of an oral assignment of the debts was a standard form at the time.
At a meeting of Business Unit Heads in September 1996, the application for a factoring facility for CEPL was considered and approved by Mr Isenberg. Pursuant to that approval CEPL was granted a Debt Factoring Facility by SPBF under a written agreement entitled ‘Domestic Factoring Agreement’ and dated 21 September 1996. CEPL’s business was described in the Schedule to the agreement as ‘wholesale distributors and agents of sporting goods under the name of Aquino Sporting Goods’. The term of the agreement was twelve months from the commencement date. The purchase percentage was 80%. The terms of the agreement were similar to those of the agreement later entered into with Calejac on 29 May 1997 which agreement is at the centre of these proceedings. In a letter dated 19 September 1996 to Mr Aquino, Mr Langham welcomed him as a ‘most valued’ client to the services of SPBF. The letter enclosed a ‘Client Services and Procedures Manual’. He said it would cover many of the queries that might arise during the course of their relationship. If he wanted further clarification on any matter he should contact the relevant client manager.
After the CEPL agreement was concluded, Mr Langham had little contact with Mr Aquino as a client of SPBF. However he did meet him again while still State Manager at SPBF, in connection with the production of an SPBF promotional newsletter. The newsletter featured Kappa products as a good growth story in which SPBF had been involved. He went to a photo session at Mr Aquino’s house. He did not remember when it was. Subsequently there may have been day to day questions about the CEPL account but they were handled by the Sydney office. He did not recall any other contact.
Mr Langham’s Awareness of SPBF’s Contractual Covenants and Warranties
Mr Langham’s awareness of the details of the contractual arrangements between SPBF and its clients was in issue because of its relevance to the allegation that he and Benchmark intentionally induced Calejac to breach its contractual obligations to SPBF.
As he described his role in the job as State Manager for Western Australia, Mr Langham was not involved in the preparation of the legal documentation associated with particular client facilities. He would put a submission or proposal to the Sydney office and the legal documents would come back to Perth ‘all bundled up with a rubber band or other binding’. He did not go through them. He would take them to the client and say, ‘here are all the legal documents please go through them, these are what you need to sign’. After the documents were signed SPBF’s staff in Sydney would take on the responsibility for dealing with the client in relation to the operation of the facility. Mr Langham said he remembered first reading an SPBF Factoring Agreement in December 1992 when he arrived in Sydney from the United Kingdom. He was shocked at its size and detail compared to the factoring agreements he was used to in the United Kingdom. He said that he did not take much notice of the terms of the SPBF Factoring Agreement and was not familiar with them all. He had been in the business of factoring for a long time and felt he knew the general principles of factoring agreements. He remembered the SPBF Factoring Agreement being changed during the time that he was State Manager. There was discussion about making it into a plain English document. He said that after it was rewritten it was shown to the sales team. He didn’t study it however as in his view it was the client’s responsibility and not his. His role at SPBF was in sales. He said he was never concerned about the express terms and conditions of the legal documentation. He was essentially concerned with getting new business. He was not involved in the supervision of monitoring of client performance subsequently.He also said that when he worked at SPBF he was told by Greg Charlwood, a Scottish Operations Manager on at least one occasion, that it was not his role to be involved in client operations.
During Mr Isenberg’s time as Managing Director of SPBF there has been a standard training program for SPBF staff. Every operations and business development manager employed by SPBF is taken through that program. The program involves an extensive explanation of SPBF’s legal documentation, policies and procedures and includes legal case studies and training exercises. It is generally conducted in SPBF’s Sydney office. A Legal Documents Manual, comprising a seven volume set of SPBF’s Standard Legal Documents accompanied by plain English overviews of each document, has at all times been used as an aid in the training program.
Gregory Clayton, who had been a partner in the law firm Phillips Fox in Melbourne between 1990 and 1998, provided legal services to SPBF during that time. He had given advice on their documents and had provided training to new and existing SPBF employees about the documents and the legal procedures and best practice issues arising from them. He was also responsible for redrafting the documents into Plain English. He conducted training sessions for SPBF staff in the early 1990s, usually once every eighteen months to two years, but from the mid 1990s annually. The reason for the increased frequency was the introduction of the new Plain English agreements. His training covered the covenants and warranties in the factoring agreement and the relationship between the factoring agreement and the charge. His evidence was supported in general terms by that of Brendan Green, the State Manager for New South Wales.
Mr Clayton did not recall Mr Langham being at any of his training conferences. Mr Langham said he had not attended ‘the annual lectures’ referred to by Mr Isenberg. He only remembered meeting Mr Clayton on one occasion. Mr Clayton believed, however, that he was contacted by Mr Langham on several occasions in 1997 about practice and policy issues relevant to the factoring agreements. He did not remember the substance of those conversations save for a discussion about one particular transaction involving Bankwest. He thought his discussion with Mr Langham would have been in 1996 or 1997. As explained by Mr Langham in cross-examination the Bankwest transaction was a scheme under which Bankwest would advance money on account of factored debts to SPBF’s clients and SPBF would give Bankwest a guarantee. Mr Clayton believed that Mr Langham was given copies of some of the draft Bankwest documents but not all of them. He did receive the final documents because they were to be marketed in association with Bankwest. This was quite a complex facility that was worked on for a very lengthy period of time. In this respect Mr Clayton was primarily taking instructions from Mr Isenberg. He said:
‘As I say, Mr Langham was involved to some degree as part of that process because he was very keen to push it forward, and I recall would have preferred – he made it plain to me that he wished we’d hurry up and finish the documentation so he could get on and market it.’
There were some records of training conferences involving Mr Clayton. At one, conducted in Melbourne over two days in February 1999, there was one hour allocated on the morning of the second day for a roundtable discussion on legal issues and Mr Clayton’s role in SPBF. That appears to have been the only portion of the conference relating to legal issues. Another conference conducted over two days in February 2000 in Sydney, was attended by another Phillips Fox partner, Mr Stern, who had one and a half hours allocated to legal pitfalls in the industry including credit notes, rebates and assignments, transport and sub-contractors’ rights, appointment of receivers and proof of delivery and debt. Mr Stern was a partner in the Sydney office of Phillips Fox specialising in insolvency. Mr Clayton said that before Mr Stern presented his paper they both spoke very briefly on a couple of SPBF policy issues.
In an endeavour to further support the proposition that Mr Langham knew of the content of SPBF’s contractual documents, evidence was given by Mr Brendan Green. He is the State Manager for New South Wales for SPBF, a position he has held for ten years. Before that, for ten years he was a Business Development Manager at SPBF. He first met Mr Langham in Sydney in 1992. He was in Sydney to participate in a training program for new Business Development Managers. Mr Green did not remember personally participating in the training. He said there were conferences held in Sydney for Business Development Managers in January or February of each year. It was the responsibility of a Business Development Manager to have the substantial financial documents signed by the clients and to arrange for them to be sent to the clients in the first place. Only a minority of clients would seek independent legal advice. They would examine the documentation themselves and ask questions of the relevant Business Development Manager who might or might not be in a position to assist depending upon the complexity of the issue. Describing the standard training program conducted for staff by SPBF, Mr Clayton said it involved access to SPBF’s manuals for trainees including the Legal Manual which was a compilation of standard legal documents. Trainees were required to read through the manuals with a focus on the Factoring Agreements, the Charge and the Guarantee, as these formed the basis upon which each facility was provided. The standard training involved instruction about SPBF’s facilities and the securities it would take in transactions. Mr Green said that in the second year that Mr Langham was with SPBF he won a Business Development Manager of the Year award, generally awarded to the Manager at SPBF who arranged the most business in the calendar year. To have won that award he must have had contacted clients in a substantial way over the course of the year.
Asked in cross-examination about the way in which legal issues arising in the Western Australian branch would be dealt with, he agreed that it was very likely that prior to 1997 such issues would be referred to Sydney for resolution. The initial point of contact would have been with Mr Langham in Perth. He would not have had the authority to clear those issues, nor to make any changes to the agreements in his own right and would therefore have had to raise the subject with Sydney and obtain their approval.
It was said that Mr Langham had attended a marketing conference for SPBF held in Glenelg in February 1997. A copy of the program showed him scheduled to do a presentation on the Bank Guarantee and on marketing plans in Western Australia. However, he said that, although scheduled to attend and deliver these presentations, he had a problem with his back and was unable to attend. Mr Green thought that Mr Langham had been present at the conference but in the event could not be certain that he was. I accept that in all probability he was not.
In my opinion the evidence called for SPBF does not support an inference that marketing staff obtained detailed knowledge of the warranties and covenants in standard SPBF contracts. Mark Smith who began at SPBF in Perth in April 1999 as an Assistant Client Manager said he had seen and read the factoring agreement as part of his initial training and did not remember all the clauses in it. The only time he would look at the agreement was before appointing a receiver over a client. He would then consult the clauses under which SPBF had the power to make such an appointment. He said there was no extensive training in the legal documents at SPBF. He went to Sydney when he began with the company but spent most of his time with marketing personnel. His evidence in this respect had the ring of truth about it.
In his time as State Manager of SPBF, Mr Langham was essentially a promoter and salesman of its services. It was his job to bring in new business. He was familiar with the nature of factoring and the general nature of the documentation used by SPBF when facilities were provided to its clients. I am not satisfied that he was likely to have been aware of the details of the particular covenants and warranties contained in the Factoring Agreement. The evidence of legal training in relation to the documentation provided to SPBF’s Business Development Managers was relatively sparse. The conference programs indicate an emphasis on marketing rather than extensive discussion of the contents of factoring agreements. Mr Langham was very experienced in the marketing aspects of the industry. In my opinion he is likely also to have been aware of good practice in the industry without necessarily relating to the detail of particular covenants and warranties in factoring agreements and in particular the SPBF standard factoring agreement. He would not have been in the same position as new staff who were required to attend training conferences. I do not think it likely that marketing staff generally would have paid close attention to the covenants and warranties undertaken by their clients in the factoring agreements.
There was evidence of Mr Langham’s involvement in approving the standard facility agreement adopted by Benchmark in 1999 or 2000. When cross-examined about similarities between aspects of that document and the SPBF standard agreement, he claimed a surprising level of ignorance. He was certainly aware of the risk of factoring debts owed to the factor’s client by associated companies and that this would not be permitted under any standard factoring agreement. In my opinion he would also, in general terms, have been aware that the security given by way of guarantee or otherwise by the client company should not be compromised by overlapping security to other parties. This would have reflected his knowledge of good practice in the factoring industry without amounting to an awareness of the terms of particular covenants.
Mr Langham Leaves SPBF
Mr Langham left SPBF in May 1997. Although he could not remember the precise date on which he terminated his employment he accepted 23 May 1997 which was the date set out in a subsequent letter from SPBF’s solicitors, Phillips Fox, and I so find. He left SPBF because he was getting bored and wanted a challenge. Before deciding to leave he had asked Mr Isenberg whether he could work for SPBF in New Zealand. He believed there had been a problem in that country generating sales. But Mr Isenberg told him he should keep on doing the same job in Perth.
Mr Langham obtained employment with Australian Guarantee Corporation. He said in cross-examination that before he left SPBF he had had an harmonious relationship with its senior officers. He also said he had a good regard for Mr Isenberg. There was no real evidence of any friction at the time of his departure which would have given rise to animosity between himself and those at SPBF. As appears below, he did later make a slighting reference to Mr Isenberg in the context of SPBF allegations that he was using confidential SPBF information for the benefit of AGC. But that does not reflect upon the circumstances of his departure.
Following Mr Langham’s departure a number of SPBF’s clients gave their business to AGC. On 2 April 1998, Phillips Fox, solicitors acting for SPBF, sent a letter to Mr Langham. In the letter they alleged that since leaving SPBF he had:
‘(i) ...on several occasions used confidential information concerning the Company, its clients and method of doing business to the detriment of the Company;
(ii) ...on several occasions approached employees of the Company and sought to induce those employees to leave their employment with the Company; and
(iii) ... sought to solicit the business and custom of clients of the Company, who were clients during his employment with the Company.’
The solicitors alleged that he had breached implied terms in his contract of employment with SPBF. They demanded an undertaking that, inter alia, he would not solicit any SPBF customers who were SPBF customers during his time there.
In an email to Gary Rudder of AGC, dated 3 April 1998, Mr Langham referred to the letter and the fact that Greg Charlwood, another former employee of SPBF, had received a similar letter and was having it handled by Clayton Utz. He said:
‘My personal opinion is that Clive Isenberg deserves all he gets and if some of his dubious actions, such as charging penalties twice, come out through this all the better.’
Mr Langham also prepared a response by way of internal memorandum for AGC about the various SPBF clients that had given their business to AGC. In the memorandum he denied that any SPBF client had been approached by AGC based on any information he had gained at SPBF. For the most part the former SPBF clients, of whom there were sixteen, had approached AGC of their own initiative or in relation to marketing material which did not involve him. According to the memorandum a number of the clients approached AGC because of their dissatisfaction with the services offered by SPBF. Mr Langham denied in cross-examination that he had approached any of the clients or former clients of SPBF. In the end there was no evidence from which it could be inferred that he had made any positive approaches or used confidential information. I draw no such inference against him.
While Mr Langham was still at AGC he was contacted by Mr Walter Aquino. He didn’t know whether this contact was direct to him or to AGC and referred on to him. In the event, he went and saw Mr Aquino and found that he was still factoring with SPBF. This may have been at a time when AGC was promoting its stock and debtor facilities. Mr Aquino had a stock financing facility with Lumbys. He regarded it as expensive. Mr Langham put a proposal to AGC to provide factoring finance to Mr Aquino. But this was declined because, he said, AGC did not like getting involved in the clothing industry. In connection with this proposal Mr Langham accepted that he probably had a meeting with Mr Aquino, gathered some information and prepared a submission. It was approved in the Perth office of AGC but, after going to the Sydney office, was declined.
The Calejac Factoring Agreement
Shortly after Mr Langham departed from SPBF a new factoring agreement was entered into between SPBF and another Aquino company, Calejac which had taken over the sportswear distribution business previously operated by CEPL. This was the agreement made on 29 May 1997, the content of which is outlined earlier in these reasons.
In April 1999, Mark Smith who had a background in the factoring industry in the United Kingdom obtained employment at SPBF in Perth as an Assistant Client Manger. After six months he progressed to the position of Client Manager. One of the clients he was managing was Calejac. His normal dealings with that company involved reviewing invoice approvals after the funding officer had completed verifications. He also reviewed client statistics and conferred with Calejac staff including Mr Walter Aquino. Mr Smith said he rarely visited SPBF clients and on most occasions it was only if a problem arose. He did meet with Mr Aquino on one occasion after receiving credit notes to the value of $120,000. He reported that problem to the SPBF State Manager, Alan Graham, and the overpayment caused by the credits was cleared with invoices. He regarded the Calejac file as a normal one except that the debtors were somewhat slow in paying.
He was asked in cross-examination about his perception of SPBF’s attitude to defaulting clients. During his time at SPBF, between April 1999 and December 2000, he recalled two occasions on which SPBF had appointed receivers in relation to defaulting clients. In his view then and subsequently SPBF would not hesitate to exercise whatever powers it believed it had under an agreement in the event of a default by a client.
Mr Smith left SPBF at the end of 2000. He left SPBF for personal reasons. He said he didn’t feel very satisfied with the position there. Before resigning he had had some discussions with Mr Langham and inquired about a job with Benchmark. Mr Langham had not really chased him. They met up on a social basis because he had approached Mr Langham for a job when he first came to Western Australia. At the end of 2000 Mr Smith was booked for a Christmas vacation in Adelaide. He emailed his resignation to Mr Isenberg and Mr Graham at 9am one morning apparently in December 2000. Mr Graham telephoned him and asked him to leave immediately. He was out of the office by 10am. He then went on holidays for four weeks and started at Benchmark in February 2001.
Benchmark Provides a Factoring Facility to RDK
Mr Langham said that his first meeting with Mr Walter Aquino after leaving AGC, was on 22 July 1999. He had not contacted him at all when he was with AGC as he made it clear before joining AGC and told Gary Rudder the manager of his division that he would not contact any SPBF clients. He could not recall whether he initiated the contact with Mr Aquino on 22 July 1999 but the purpose of the meeting they had on that date was to discuss whether Mr Aquino would change his business from SPBF to Benchmark. After some discussion Mr Langham formed the view that he could not compete with SPBF’s terms without assuming unacceptable risk. They were offering 90% against debtors compared with Benchmark’s 80%. There were other factors which may have influenced him to his view including the fact that SPBF was allowing 120 days for recovery.
Nevertheless on 28 July 1999, Mr Langham sent Mr Aquino a factoring proposal. The proposal involved 80% of approved outstanding invoices being made available daily. There would be a management fee charged on gross invoice value of 0.8%. In his covering letter Mr Langham pointed out that the management fee was only slightly less than that currently charged by SPBF, however there were no mailing charges, search fees or FID on top of that. He also set out in the proposal a number of items entitled ‘Main Differences Between this and Similar Facilities’. The items included:
. no charge for debts over ninety days
. it is not our practice to verify invoices with your customer
. it is not our practice to carry out audits of your books and records
The factoring proposal was not taken up at that time.
Mr Langham sent a promotional email to Mr Aquino in November 1999. This was in the nature of a generic statement about factoring. It observed that more and more business owners were moving away from offering their home as security to fund their growth, preferring to rely on debtors and the flexibility that this could bring.
On 31 May 2000, Mr Langham and Mr Walter Aquino met again. Mr Aquino told Mr Langham that he wanted to factor debts to certain Kappa outlets and that SPBF would not factor those debts. The reason for this as he explained it to Mr Langham was that there were three Kappa stores all of which were owned by a company called Our Family which, in effect, he or his family members controlled. SPBF would not factor debts to associate companies. Mr Aquino told him that if and when a Benchmark facility were first put in place the outlets would not be independently owned but within a very short space of time they would have their ownership transferred to independent operators. He asked Mr Langham whether Benchmark would factor a new entity carrying on the business of selling to those stores on the basis that their ownership would be a short term issue. Mr Langham agreed to look at factoring this new business. He asked Mr Aquino for details of the turnover of the stores to see if they could afford to pay the debts.
Following the meeting Mr Langham recommended to his board that they factor the new entity on the basis of initial advances of 60% against the debt. He understood SPBF wouldn’t factor debts to associate companies and if the new business bought the goods from Kappa and then sold them to the stores the risk for Benchmark would be short term until ownership changed. The only risk was to Benchmark. The board approved the proposal. On the basis of that approval, Mr Langham agreed, in June 2000, to factor debts of RDK. He believed that the money would go straight back to Calejac to pay Calejac. Benchmark put a limit on the facility of $300,000, meaning that they wouldn’t advance more than $300,000 overall. The Benchmark board comprised three directors, Mr Langham, as managing director, Mr I Macliver as chairman, and Mr Dennis Banks. Neither Mr Macliver nor Mr Banks had had previous experience with factoring. Persons employed by Benchmark in 2000 who were experienced in factoring, apart from Mr Langham, were Leanne Pettit and Eileen Windsor. Mr Macliver and others had invested in the business but Mr Langham agreed in cross-examination that he was basically driving its activities.
In his submission to the board Mr Langham pointed out that the original Kappa products distribution business started in Australia in 1995. He referred to it as Kappa Australia. The Aquinos had acquired the distribution rights in Australia and New Zealand for the Kappa range of goods, Kappa being an Italian business half owned by Bennetton. Kappa design and market sports fashionwear primarily in soccer. The submission pointed out that in the five years that Calejac had the rights the business had grown from an annual turnover of $250,000 to $4.5 million. The submission then said:
‘The business is undercapitalised especially as they have to pay for goods before receiving them and their rapid growth. They have funded the business to date by factoring the debts of Calejac with Scottish Pacific and having a very expensive stock facility from Lumbys. Scottish Pacific will not factor the debts to Our Company (sic) (retail stores) as the business is related by mutual shareholders. This means that Calejac has to carry this debt itself by providing stock on consignment.’
The reference to ‘Our Company’ was no doubt intended to be a reference to ‘Our Family’. In setting out the rationale for the business use of debtor finance, Mr Langham said in his submission:
‘As stated the business is undercapitalised. The stocking of the Our Family retail stores has added an additional cash flow burden on Calejac and they would like to factor these stores. Hence they have formed a new company Robe Di Kappa that will buy from Calejac and sell to Our Family.
In addition they are also looking to open up more stores, these will be owned by third parties and would like to factor these later on through Robe Di Kappa.
Scottish Pacific are not willing to factor the debts of sales to Our Family as the businesses are related by common shareholders.
They intend on Robe Di Kappa to buy from Calejac and then sell to Our Family and it is these sales they are asking us to factor. These sales will be seasonal and their demand for funds dependent on their selling seasons.’
Under the heading ‘Recommendation’ Mr Langham continued:
‘Where the debtor is related to the client there could be cause for concern in an attempt to carry out fraud, hence Scottish Pacific’s reluctance to deal with Our Company (sic) retail stores.’
He said he felt comfortable in doing this as they had the guarantee of the supplier and were only advancing 60%. The goods in the store had a mark up of 100% on wholesale price.
Following that meeting Mr Langham wrote to Leone Shaw, Mr Aquino’s finance manager on 31 May 2000. In his letter Mr Langham sought:
1. annual accounts of Kappa Australia to 30 June 1999;
2. any management figures produced since June 1999;
3. an aged debtors listing;
4. an aged creditors listing;
5. the latest Client Status Report from SPBF.
On 2 June 2000, Mr Langham prepared a debtor finance facility offer. It was in similar terms to the facility previously offered with the same list of differences. The security required was as follows:
. Factoring Agreement
.Mortgage debenture over all assets and undertakings of your company. Any other debenture holder to release book debts.
.Guarantees of all executive directors, executive shareholders and related companies.
.Quarterly management accounts.
The offer was accepted and on 26 June 2000 Mr Langham sent a letter to Mr Aquino enclosing documents pertaining to the proposed facility. The letter was addressed to Mr Aquino as the managing director of RDK. Mr Langham agreed in cross-examination that the documents would have included a guarantee to be executed by Calejac.
The Factoring Agreement between Benchmark and RDK – 29 June 2000The parties to the RDK agreement were Benchmark and RDK with Walter Aquino and Calejac named as guarantors. The agreement provided for assignment by RDK to Benchmark of debts owing to it at the commencement of the term of the agreement. This was coupled with an agreement to sell to Benchmark all debts arising during the currency of the agreement (cl 1(a)). Payments by Benchmark to the client for each debt sold and purchased were as follows:
(a)An initial payment of 60% of the gross book value of the debt plus a Management Fee of 1% of the gross book value of the debt within two working days of notification in the case of an Approved Debt or upon reapproval of a Disapproved Debt.
(b)A Balance Payment in respect of any debt as soon as Benchmark had received a payment from the client’s customer for such debt whether Approved or Disapproved. The Balance Payment was defined to mean the amount Benchmark received from a customer for a debt less any initial payment and any Management Fee, discounting fee and/or other costs due (cl 3 and cl 23).
There were notification obligations imposed on RDK in cl 8(j) of the agreement as follows:
‘8. Records Information and Disclosure
The Client agrees that the Client will:
...(j)notify us in writing
(i)as soon as the Client becomes aware of any event which affects or may affect the Client’s warranties or our rights of immediate termination;
(ii)of any existing charges or other security over the Client’s assets and not give any new charge, mortgage or other security without first obtaining our written consent;
(iii)immediately when there are any changes in the Client’s directors or company secretary or material changes in the Client’s ownership; a holding by a person, firm or company of 10% or more of the Client’s equity is for this purpose deemed to be material;
(iv)of any company which becomes or ceases to be a related company, ie a company which either the Client Controls or which Controls the Client or which is Controlled by the same person, firm or company which Controls the Client;
(v)of any customer which is the Client’s Associate or an Associate of one of the Client’s directors;
(vi)provide us with details of the terms upon which goods are supplied to the Client and obtain such waivers and variations to such terms as we may require.’
The agreement also provided for warranties by RDK set out in cl 19 which included the following:
‘19 Warranty
The Client and the Guarantor represent and warrant to us and agree with us that:
...(n)the Client has disclosed in full to us the Client’s trading terms relating to the Debt and the relevant agreement in relation to the Debt and you will not attempt to waive or modify them or extend time for payment;
...
(r)the Debtor is not an Associate of the Client and has no right which would reduce the net value of the Debt;
(s)the Client has disclosed to us in writing all existing financial indebtedness, all security interests and all guarantees which the Client has given;
...
(v)the Client has the power to enter into this Agreement perform the obligations under it and will continue to have that power;
(w)the entry into this Agreement and the performance of the obligations by the Client will not breach any other agreement binding on the Client or any other person or breach any law.’
The agreement was secured by a charge over the assets and undertaking of RDK also dated 29 June 2000. The charge referred to Walter Aquino and Calejac as guarantors of the agreement.
The legal documents for the Benchmark factoring facility were prepared by Benchmark’s solicitor, Mr Doyle of Jackson McDonald, acting on Mr Langham’s instructions. Mr Doyle had previously acted for SPBF. Mr Langham denied that he had provided with Mr Doyle with a copy of the SPBF agreement. Mr Langham read and approved the factoring agreement prepared by Mr Doyle. He was referred in cross-examination to various covenants and warranties contained in it. He did not know whether the clauses were similar to those contained in the SPBF factoring agreement. Nor could he say whether they reflected in large measure clauses to be found in all factoring agreements he had worked with in the industry. He said that basically everything in the warranties and guarantees section of the agreement was added by Mr Doyle.
As I observed earlier in these reasons, I do not accept that Mr Langham’s ignorance of the nature of the covenants and warranties used in standard factoring agreements was as quite as pronounced as he claimed in cross-examination. I am not satisfied however that he was aware of the particular condition in the Calejac Factoring Agreement requiring SPBF’s consent before any guarantee was granted by Calejac to any third party.There was no such condition in the RDK agreement. There was, however, a prohibition against RDK giving any new charge, mortgage or other security without first obtaining Benchmark’s consent ((cl 8(j)). There was also a warranty that RDK had disclosed ‘all security interests and all guarantees’ which it had given at the time of entry into the agreement (cl 19(s)).
It was put to Mr Langham in cross-examination that without Calejac’s guarantee he would not have recommended the factoring transaction with RDK. He said he could not say. He was asked:
‘Q. Its the first reason you gave for feeling comfortable for advancing funds to related parties?
A. As typed, yes.’
It was put to him that Calejac was the only entity of any substance in the Aquino corporate group and that it was unthinkable that he would have advanced the funds or entered the facility without getting Calejac’s guarantee. He said he really didn’t know. He agreed it was not standard practice to enter into the kind of transaction he had with companies which had no bank accounts and no known assets. He accepted that it was probably the case that he was so keen to get the Aquino business that he was prepared to take a risk to get them in the door. He also agreed that the risk was very much mitigated by the provision of the Calejac guarantee and the 60% advance. He accepted that he had not seen any sign of financial substance in RDK such as he had seen in Calejac. It was put to Mr Langham also that he was perfectly aware at the time of entering the transaction and requiring the Calejac guarantee that Calejac had undertaken the SPBF facility and had agreed not to give guarantees to other parties. He said he was not. He also denied that his substantial experience in the factoring industry led him to be well aware that Calejac was not permitted under the SPBF facility to provide a guarantee to third parties. Indeed there was no such covenant in the Calejac Factoring Agreement. Calejac’s obligation was not to give a guarantee to a third party without SPBF’s consent. Mr Langham agreed that he thought third parties would acquire the Kappa stores owned by the Aquino group fairly quickly. He did not think there would be any need to draw on the Calejac guarantee under the agreement.
Mr Langham did not tell anyone at SPBF about his dealings with Mr Aquino in relation to the RDK agreement. Nor did he suggest to Mr Aquino that he should inform SPBF about the transactions. He denied however that he deliberately kept the transaction from SPBF’s knowledge because he knew it involved a contravention of the Calejac factoring facility with SPBF.
The evidence does not support any inference that Mr Langham suggested to Mr Aquino that he not disclose the transaction to SPBF. It does not support any inference that he suggested to Mr Aquino that he or Calejac should breach its contractual obligations to SPBF. Nor, in my opinion, does it support any inference that he was aware of or adverted to the possibility that the grant of the factoring facility to RDK could or would somehow involve a breach by Calejac of its contractual obligations to SPBF. I have no doubt that Mr Langham was trying to draw Kappa business away from SPBF as he was perfectly entitled to do. Consistently with my general impression of him as primarily concerned with sales and marketing rather than with the minutiae of legal documentation he would, had he thought of it at all, have regarded the existing arrangements between SPBF and the Aquino family as a matter for them to address.
RDK’s Performance and Discussions About Calejac’s Business – July 2000-December 2001
The initial performance of RDK under the factoring agreement was not auspicious. Benchmark’s exposure to RDK, which was limited under the agreement to $300,000, moved to $500,000 very quickly and evidently without Mr Langham’s knowledge. As appears from Benchmark records the current account for RDK at 1 July 2000 was $11,179.15. Initial Payments of $470,000 under the agreement were made on 3 July 2000 bringing the total account to $481,337.65 after taking into account a discount fee of $154.90. By 31 July 2000 there had been no collections and the current account stood at $485,695.15. Invoices received from Kappa stores at Fremantle and Mt Lawley to 31 July 2000 totalled $817,194.04. These were subsequently disapproved by Benchmark on the basis that its credit limit was exceeded in respect of payments made.
At the time Benchmark did not have in place a system to automatically prevent funding over the limit. Its financier was Bankwest. Under the terms of its facility Bankwest had to approve any deal over $500,000. Benchmark disclosed the RDK position to Bankwest which told Benchmark to ‘exit the deal’. Benchmark had only made two payments to RDK at this time.
Mr Langham came to the view that RDK was repaying Benchmark with Benchmark’s own money. He told Mr Aquino at a meeting on 21 August 2000 that Benchmark was terminating funding. Mr Aquino told him that he could not afford to repay the $500,000 in one go. They agreed he could take until October 2000 to repay it at a monthly rate.
Mr Langham sent Mr Aquino an email dated 6 September 2000 in which he said, inter alia:
‘The facility is a factoring facility where our funds are collected by debtor payments that are expected to be paid within 90 days from end of month of the invoice. This would mean that as no more payments are being made our funds should be collected in full by 30 November. From our discussions it appears that initial payments made by Benchmark against new invoices would be used to repay earlier initial payments. This is in contravention of the agreement. In addition when discussing the future of Robe Di Kappa it was inferred that new stores not closely linked to related parties would be coming on board therefore removing the concentration on one debtor. This does not appear to be happening.
In light of the above I feel comfortable in the facility needing to be repaid.
Having said this, I do appreciate your position and will recommend we accept $50,000 per month. To help my cause could you please make the first payment as soon as possible.’
Mr Aquino replied that he was still looking at ways to repay the facility as soon as possible. He said he would need time to reduce the debt and was going to repay $50,000 per month.
Eileen Windsor is the Western Australian State Sales Manager of Benchmark. She commenced employment with the company on 1 May 2000. She had previously worked for 18 years at AGC. She had never worked for SPBF. Her initial involvement with RDK was in setting out the repayment plan. At that time she was engaged in all aspects of Benchmark’s operation. The company was quite small and Mr Langham was trying to step back a little from dealing directly with the clients. The payment plan initially was much looser than that finally put together when Mark Smith took over that aspect of the work in February 2001.
In November 2000, Mr Langham asked Ms Windsor to see Mr Walter Aquino to discuss a restructure of the RDK finances. At about this time, according to Mr Langham’s statement, he had come to the view, which was plainly correct, that Benchmark had hardly received anything in terms of the proposed repayment of its advances by RDK.
On 9 November 2000, Ms Windsor visited Mr Aquino and Ms Leonie Shaw at Mr Aquino’s factory premises in Canning Vale. She was aware that he was factoring with SPBF but did not know which of his companies were factoring with it and to what degree. Mr Aquino told her that it would be possible for Benchmark to take all of Kappa’s factoring finances away from SPBF. He said he wasn’t happy with SPBF. Ms Windsor could not remember anything specific that he said to fault SPBF. Nor could she recall whether he told her he wanted Benchmark to take all of Kappa’s factoring or whether he asked if he would get a better deal if he gave all their factoring business to Benchmark. Ms Windsor did not know whether Benchmark wanted to do any deal with Mr Aquino at all. She returned to her office after the meeting and prepared a report setting out what had passed at the meeting and her conclusion. She was not very ‘fussed’ about whether Benchmark restructured the Aquino company arrangements.
In her report Ms Windsor indicated that the Aquinos would want a minimum limit of $1 million if they were to change Calejac from SPBF to Benchmark. They would want the facility to be confidential and they would want to pay a lesser management rate than SPBF was charging. In respect of the RDK position, they were concerned that the facility should not be withdrawn at a later date. If Benchmark did not proceed with the facility to Calejac then Mr Aquino had indicated that RDK would repay what was due to Benchmark over the next ten months. If Benchmark did proceed with a facility for Calejac and thus RDK, invoices for the latter would be paid at 60 days.
Subparagraphs 40.1, 40.2 and 40.6 all alleged breaches of cl 25 of the Calejac Factoring Agreement. Clause 25 set out warranties by Calejac ‘In relation to each transferred debt...’. The term ‘transferred debt’ was defined as ‘a trading debt which you transfer or should transfer to us’ (cl 48). The term ‘trading debt’ was defined and did not include ‘... a right to payment under a transaction which was not at arms length, or which was with an associate of yours’ (cl 48). Clause 25 imposed warranty obligations only in relation to transferred debts. It had nothing to say about transactions between Calejac and its associated companies. Yet each of the breaches of cl 25 pleaded in subpars 40.1, 40.2 and 40.6 related to transactions between Calejac and its associated companies, RDK, Caja and Our Family.
Subparagraph 40.3 alleged a breach of cl 2 on the part of Calejac by ‘raising invoices for the supply of Kappa Goods’, the failure to provide copies to SPBF and dealing with the relevant debts inconsistently with SPBF’s interests. The invoices referred to in cl 2 of the agreement are invoices in relation to transferred debts. Invoices raised against associated companies are not covered by that clause.
It follows from the proper construction of cl 25 that none of subpars 40.1, 40.2, 40.3 or 40.6 of the statement of claim disclosed a breach of cl 25 or cl 2. This point was made in the submissions of counsel for the respondents on the question whether a no-case submission should be entertained at the close of the applicants’ evidence. Counsel for the applicants did not dispute that conclusion and did not rely upon those subparagraphs as disclosing breaches of cls 25 and 2 of the agreement. He endeavoured nevertheless to rely upon those subparagraphs in another way by reference to subpar 40.9 of the statement of claim. That subparagraph alleged a breach of cl 28 of the agreement on the part of Calejac:
‘... by failing to inform the first applicant of any of the matters pleaded in paragraphs 40.1, 40.2, 40.3, 40.4 and 40.6 above, in that all of these matters were breaches of the Calejac Factoring Agreement that gave the first applicant to terminate under clause 30.2.’
Putting to one side the fact that subpars 40.1, 40.2 and 40.6 all asserted contraventions of cl 25 and that subpar 40.3 asserted a contravention of cl 2 and was pleaded on that basis, the question arises whether the conduct alleged would fall within the scope of cl 28 of the agreement. The conduct which it is said should have been notified to SPBF under cl 28 was therefore the sale by Calejac of Kappa goods to various associated companies, the raising of invoices against those companies and the receipt of payments from them. There was no element of cl 28 which related to that conduct. Clause 28.5 imposed an obligation upon Calejac to immediately tell SPBF in writing:
‘28.5(b) If an associate of yours becomes a debtor.’
The term ‘debtor’ was defined in cl 48 of the agreement as ‘... the person who is liable, or who should be liable, to pay a transferred debt’. By definition however, transferred debts did not include rights to payment under transactions with associates. The only way in which it seemed that subpars 40.1, 40.2, 40.3 and 40.6 were relied upon was to support a contention that there had been a breach of cl 28 by failure to notify SPBF of the existence of associated companies. That obligation arose under cl 28.3 which provided:
‘28.3 You must inform us and keep us informed of:
...(c)the names of your associated companies and corporations which become or cease to be your associated companies.’
It would require a torturing of language to extract from subpars 40.1, 40.2, 40.3 and 40.6 conduct which would fit within the scope of cl 28. In my opinion, therefore, the breaches alleged in those subparagraphs were not made out and the conduct alleged in those subparagraphs cannot be relied upon, under subpar 40.9 of the statement of claim, to support a breach of cl 28.
Subpar 40.4 of the amended statement of claim alleged that Calejac breached cl 26 of the Calejac Factoring Agreement by providing guarantees in respect of the RDK and Caja facilities. Clause 26 of the Agreement included, in par (e)(i) a warranty by Calejac that it would not, without SPBF’s consent, ‘lend any money or arrange to lend money to anyone or give a guarantee’. The pleading in subpar 40.4 is strictly inapposite to that provision as it is the provision of a guarantee without the consent of SPBF that would constitute a breach.
Counsel for the respondents argued that the deficiency in the pleading in subpar 40.4 in this respect was reflected in an evidentiary deficiency. There was no evidence of want of consent to the guarantee on the part of SPBF. While Mr Graham said he had known nothing of the facilities, there was no evidence from Mr Thayer, the SPBF officer in Perth, who was dealing with Mr Aquino. Nor was there any evidence from any of the other officers of SPBF who were dealing with the Calejac account, such as the client managers in Brisbane. Mr Aquino who had been present in Court to answer a subpoena was not called by the applicants to negative consent.
In my opinion, express evidence of the absence of SPBF’s consent to the granting of guarantees by Calejac is unnecessary. The guarantees provided were commercially significant to SPBF in the context of its transaction with Calejac. Even allowing for the rather slip-shod way in which SPBF supervised the operation of the Calejac account, I consider it improbable that, if a request for consent had been made, it would not have reached Mr Graham who had overall responsibility for Calejac’s account. I do not consider that the hypothesis is open that consent might have been given by a relatively low level officer in Perth. Given that Mr Graham had no knowledge of the guarantee I am prepared to infer that no prior consent was sought or obtained. Moreover, had a consent been sought, I consider it probable that there would have been some reference to that request in communications between Mr Aquino and Benchmark. In my opinion therefore, the applicants have established that Calejac breached cl 26(e)(i) of the Agreement by giving guarantees to Benchmark. Although want of consent was not pleaded in subpar 40.4, I do not regard that as a fatal flaw in this case. There is no suggestion that the respondents are unfairly prejudiced by treating subpar 40.4 as importing the absence of consent into the breach alleged.
Subparagraph 40.5 of the amended statement of claim alleged a breach of cl 28 on the part of Calejac constituted by its failure to disclose to SPBF, in effect, that it was insolvent. Such a breach could arise by virtue of the obligation under cl 28.5(d) to notify SPBF if something had happened which would give SPBF the right to terminate the agreement under cl 30.2. Clause 30.2(j) specifies, as a ground of termination, the occurrence of ‘any of the adverse events referred to in the Debenture Deed as an Event of Default’. The term ‘Debenture Deed’ was defined in cl 49 in such a way as to extend to the Deed of Charge over Calejac’s assets. That Deed defined ‘Event of Default’ in cl 1.1 by reference to the events specified in cl 7.3 which include insolvency within the meaning of s 95A of the Corporations Law and inability to pay debts as and when they fall due.
There were, however, no substantive submissions specifically directed to this breach. Indeed, the amended statement of claim made no allegation as to the time at which the obligation arose. It might well be thought that if and when it became apparent to SPBF that Calejac could not pay its debts as they fell due, the obligation to notify it of that fact would fall away. While it may be the case that a breach of the kind pleaded did occur, I am not prepared on the state of the evidence to make a finding that it occurred at a time relevant to the applicants’ causes of action. In any event, and consistent with the findings I make below about Mr Langham’s knowledge and intentions, it would be drawing a long bow indeed to infer any intention on his part to induce Calejac to breach its contractual obligation in this way even if it were assumed he knew of the terms of the relevant covenant. That is to say, even if such a breach were found to exist I could not be satisfied that the requisite state of knowledge and intention for the commission of the tort alleged against Mr Langham and Benchmark existed.
Subparagraph 40.7 alleged a breach of cl 28 in that Calejac failed to inform SPBF of Benchmark’s threat to make demand on Calejac pursuant to the RDK guarantee. There was, however, no provision of cl 28 which required Calejac to inform SPBF of a threat of action. The relevant threat was Mr Smith’s letter to RDK of 29 May 2001 giving it notice that time was of the essence on each and every repayment due under the revised repayment schedule. The threat was contained in the statement of Benchmark’s reservation of its rights to exercise its legal remedies. These were specified as including the winding up of Calejac. Strictly speaking, the letter was not in terms directed to Calejac although it could no doubt be construed as being directed to Calejac, inter alia, in substance. No breach by Calejac is made out in the terms alleged in subpar 40.7 of the amended statement of claim.
Subparagraph 40.8 alleged that Calejac failed to inform SPBF of the incorporation of RDK and Caja being companies associated with Calejac. Clause 28.3(a) of the Agreement required Calejac to inform SPBF of the name and address of any entity in which it or its directors or shareholders had a direct or indirect interest. Clause 28.3(c) required notification of ‘the names of your associated companies and corporations which become or cease to be your associated companies’. Clause 28.5(a) required notification in writing if a corporation became or ceased to be related to Calejac. Although it is in essence a negative inference I am prepared to infer, on the balance of probabilities, that Calejac did not take any steps to advise SPBF of the incorporation of either RDK or Caja and that it was thereby in breach of the Calejac Agreement.
The last breach pleaded is that alleged in subpar 40.9. Given the conclusions already reached that the breaches alleged in subpars 40.1, 40.2, 40.3 and 40.6 could not be made out, this subparagraph depended entirely upon the breach alleged in subpar 40.4. That is to say the giving by Calejac of the guarantees in the RDK and Caja transactions without the consent of SPBF.
The applicants have therefore established breaches by Calejac of its obligation to obtain SPBF’s consent before giving guarantees to Benchmark in respect of the RDK and Caja transactions. They have also established breaches by Calejac of its obligation to inform SPBF of the existence of RDK and Caja when they were incorporated. They have not otherwise established any breaches of the contract which were shown to be relevant to these proceedings. In any event, and not surprisingly, it was the giving of the guarantees by Calejac without SPBF’s consent that lay at the centre of the closing submissions by counsel for the applicants.
Contraventions of Statutory Obligations and Provisions and Breaches of Fiduciary Duty by Mr Aquino and Calejac
Mr Aquino was said, in par 46 of the amended statement of claim, to have breached his statutory duties owed to Calejac in contravention of ss 181 and 182 of the Corporations Law and also to have breached his fiduciary duties as a company director. He was said to have done these things ‘in causing the Second Applicant to commit the breaches of the Calejac Factoring Agreement’. The existence of these contraventions and breaches was therefore derived from the pleaded breaches of the Calejac Agreement. Benchmark’s pleaded conduct referred to earlier in the amended statement of claim was said to have constituted aiding, abetting, counselling or procuring the pleaded contraventions or inducing them. Alternatively, it was said to have been directly or indirectly knowingly concerned in a party to the contraventions or to have conspired with Mr Aquino to effect them. By reason of its involvement in the alleged contraventions of the Corporations Act, Benchmark was said to be liable to pay compensation to Calejac under s 1317H.
Contraventions of the Trade Practices Act on the part of the Calejac were erected on a similar foundation. This was said to support claims of misleading or deceptive conduct and unconscionable conduct. Counsel for the applicants was unable to point to any basis upon which he could succeed in the statutory causes of action if he failed on the tortious claim. Indeed, the only justification he offered for running the additional causes of action was that there might be a different causation test in respect of them.
In my opinion, if the tort of interference with contractual relations alleged against the respondents does not succeed, then neither do the parasitic causes of action raised in the statement of claim. This is because they all depend upon the accessorial involvement of Benchmark and Mr Langham in the conduct said to constitute the relevant contraventions or breaches and it is that accessorial involvement which lies at the heart of the intentional tort alleged against them.
Whether Mr Langham and Benchmark Intentionally Procured or Facilitated the Breaches by Calejac of the Calejac Factoring Agreement
In addressing this question it must be borne in mind that the only relevant breaches by Calejac were its failure to inform SPBF of the guarantees it had given in the RDK and Caja agreements and its failure to inform SPBF of the incorporation of RDK and Caja as associated companies.
The way the case was pleaded in par 41 of the amended statement of claim was somewhat diffuse. It is convenient to set out pars 41 and 42 of the amended statement of claim in their entirety:
‘41 The first respondent and second respondent induced Mr Aquino to:
41.1cause RDK and Caja to enter into:
4.1.1the RDK Facility;
4.1.2the Caja Facility;
4.1.3the RDK Guarantee;
4.1.4the Caja Guarantee;
41.2cause RDK and Caja to factor debts owing by Outlets (including those owned or controlled by Our Family) for Kappa products;
41.3cause RDK and Caja to enter into the agreements and transactions pleaded in 41.1.1 to 41.1.4;
in circumstances where:
41.4the second respondent met with Mr Aquino and discussed, negotiated and offered the RDK Facility and Caja Facility;
41.5the second respondent knew that Mr Aquino could, by reason of the agreements and transactions referred to in paragraphs 41.1.1 to 41.1.4 and the first applicant’s lack of knowledge of those matters, obtain for the benefit of the group of companies controlled by Mr Aquino funds from debtors who had received Kappa Goods from the second applicant, exceeding the funds that the first applicant would provide to the second applicant at that time; and
41.6the second respondent knew that the RDK Facility and Caja Facility allowed Mr Aquino to conceal the second applicant’s insolvency or worsening financial position from the first applicant and that the first applicant would therefore continue to advance money to the second applicant pursuant to the Calejac Factoring Agreement.
42By reason of:
42.1the first and second respondents’ conduct pleaded in paragraph 41 above;
42.2the first and second respondent’s (sic) knowledge of:
42.2.1the Calejac Factoring Agreement;
42.2.2the Charge;
42.2.3the Oral Assignment;
42.2.4the D&L Licence Agreement;
42.2.5the matters pleaded at paragraphs 21 and 23,
the first respondent and the second respondent intended to and did in fact interfere with, procure or facilitate the breaches of the Calejac Factoring Agreement pleaded in paragraph 40 (‘the Interference’).’
Paragraph 41 alleged no conduct which constituted procuring or facilitating Calejac to do anything. The allegations in that paragraph are all concerned with conduct by Benchmark and Mr Langham inducing Mr Aquino to cause RDK and Caja to enter into various agreements. There was no allegation that Benchmark or Mr Langham required or encouraged Mr Aquino, or through him, Calejac to do anything in contravention of Calejac’s agreement with SPBF. The operative allegation of tortious conduct was found in par 42. This combined the conduct alleged in par 41 with the knowledge attributed to Benchmark and Mr Langham of the Calejac Factoring Agreement and associated agreements to support an assertion, evidently by way of inference, that Benchmark and Mr Langham intended to and did in fact interfere with, procure or facilitate the breaches of the Calejac Factoring Agreement pleaded in par 40.
The tort of intentional interference with a contract may be committed in three ways:
1. Persuading a party to breach the contract.
2. By direct action preventing a party from performing the contract.
3. By indirectly procuring the breach of the contract – generally by an unlawful act.
See Trindade and Cane, The Law of Torts in Australia, (3rd Edition) OUP, 1999 pp 213-215. The present case involves an allegation of tortious conduct in the first category.
In Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26. The appellants were the holders of debentures issued by Linter Textile Corporation Ltd. The debentures were issued pursuant to an indenture entered into between Linter Textiles and a trustee for the debenture holders. The indenture prohibited Linter Textiles from giving further guarantees. However, following the issue of the debentures to the appellants, Linter Textiles gave guarantees in favour of the respondents. These were by way of security for advances made by the respondents to companies associated with Linter Textiles. The appellants instituted proceedings against the promoters of the debenture issue. Prior to the hearing they sought leave to amend their pleadings by adding a cause of action against the respondents for tortiously procuring Linter Textiles’ breach of the indenture. The application to amend was rejected at first instance on the basis that the cause of action required an allegation that the respondents had acted with the intention of inducing a breach of contract and with knowledge that such a breach would result. The Full Court dismissed the appeal against that decision. In so doing it held that, in order to establish the commission of the tort of interfering with contractual rights, it must be shown that the alleged tortfeasor had an intention to interfere with those rights. It added obiter that knowledge of the contract might be sufficient for the purpose of grounding the necessary intention to interfere with contractual rights although the precise term breached was not known. Lindgren J (Lockhart and Tamberlin JJ agreeing) said after referring to a number of authorities (at 43):
‘In my opinion, the authorities establish conclusively that the gravamen of the tort is intention. Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have “sufficient knowledge of the contract” is a requirement he have sufficient knowledge to ground an intention to interfere with contractual rights.
Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the “actual” or “subjective” state of mind of the alleged tortfeasor. ...
Although an alleged tortfeasor must have “a fairly good idea” that the contract benefits another in the relevant respect, knowledge of the contract may be sufficient for the purpose of grounding the necessary intention to interfere with contractual rights although the precise term breached is not known:...’
His Honour referred to authority in support of the last proposition.
In my opinion, there was nothing about the nature of the agreements which Benchmark made with RDK and Caja nor any conduct on the part of Mr Langham which could amount to the commission of the tort in respect of the failure by Calejac to inform SPBF of the existence of RDK and Caja. There is simply no basis for a finding adverse to the respondents in respect of that breach.
The question that remains is whether or not Benchmark and Mr Langham committed the tort in respect of the failure by Calejac to obtain SPBF’s consent to the guarantees which it gave in respect of the RDK and Caja agreements. In connection with this aspect of the case, it is useful to summarise the findings of fact already made in relation to the knowledge and conduct of Benchmark and Mr Langham. They are as follows:
1.Mr Langham was very experienced in marketing aspects of the factoring industry and aware of good practice in the industry without necessarily being aware of the detail of particular covenants and warranties in factoring agreements or specifically in the SPBF standard factoring agreement.
2.He was aware of the risk of factoring debts owed by associated companies and that this would not be permitted under any standard factoring agreement.
3.He was aware in general terms that a security given by way of guarantee or otherwise by the client company should not be compromised by overlapping security to other parties without the knowledge of the factor.
4.He endeavoured to persuade Mr Aquino to bring his business over to Benchmark from SPBF.
5.Mr Aquino approached Mr Langham in May 2000 seeking a factoring facility from Benchmark for a new company, RDK, selling to outlets, initially not independently owned but within a short space of time to have their ownership transferred to independent operators. Mr Langham and Benchmark provided a factoring facility for RDK.
6.Calejac provided a guarantee which very much mitigated the risk associated with the provision of the factoring facility to RDK.
7.Neither Mr Langham nor Benchmark told anyone at SPBF about the RDK agreement.
8.Neither Mr Langham nor Benchmark suggested to Mr Aquino that he should inform SPBF about the transactions. Nor did he suggest to Mr Aquino that he not disclose the transaction to SPBF.
9.Mr Langham did not suggest to Mr Aquino that he or Calejac should breach any contractual obligations to SPBF.
10.Mr Aquino approached Mr Langham and Benchmark with the proposal that a new factoring facility be established for Caja in respect of non-Kappa goods sold through Kappa outlets.
11.Mr Langham recommended that Benchmark enter into the facility with a view to ensuring the continuance of an income flow for the Aquino companies in the event that they lost the Kappa licence and so that the repayment schedule which had been agreed in respect of RDK could be discharged.
12.Neither Benchmark nor Mr Langham took any steps to avoid SPBF finding out about RDK or Caja or the arrangements between them.
13.The information relating to the grant of the guarantees was available on the public record by reason of the registration of the charges which disclosed their existence.
In the Allstate’s case it was alleged that the grant of additional guarantees by Linter Textiles was inconsistent with the terms of the indenture under which its debentures were issued. In the present case, the grant of guarantees by Calejac did not of itself constitute a breach of its agreement with SPBF. It was the grant of the guarantees without first obtaining SPBF’s consent which constituted the relevant breaches. The obtaining of that consent was a matter between Calejac and SPBF. Even if it were thought to be improbable that such consent would be given, that improbability would not, in my opinion, convert Benchmark’s conduct and that of Mr Langham in securing a guarantee from Calejac into a knowing and intentional interference with Calejac’s contract with SPBF. Having regard to the findings already made out, in my opinion, the tortious cause of action cannot be made out against Mr Langham or Benchmark.
Conclusion
In my opinion, the claim for intentional interference with the Calejac Factoring Agreement is not made out. For the reasons already adumbrated, the other causes of action also fail.
I do not propose to consider questions of causation and loss in the light of these findings. Such questions are necessarily hypothetical, having regard to the findings I have made. They could rest upon a variety of hypothetical findings contrary to those which I have made which would otherwise logically be open on the case advanced by the applicants. It would be necessary, on the hypothesis that there was an intention to induce the particular breaches which I have found, to consider the possible responses of SPBF to a prior approach by Calejac to consent to the granting of the guarantee to RDK and subsequently to Caja. Given that SPBF was fully secured over Calejac there would be no direct prejudice to it. At best it might have alerted SPBF to the possibility that the group was facing financial difficulties. Against this, there is the reasonable argument, in the light of Mr Graham’s evidence, that SPBF was to a degree the author of its own misfortune in failing to adequately monitor and control its exposure to Calejac. It was its perception of that failure on the part of Mr Graham that led to his dismissal. But these are matters which do not need to be canvassed for the resolution of this case. In my opinion the application should be dismissed with costs.
I certify that the preceding one hundred and seventy four (174) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate:
Dated: 12 March 2004
Counsel for the Applicants: Mr NW McKerracher QC with Mr TO Coyle Solicitor for the Applicants: Phillips Fox Counsel for the Respondents: Mr WS Martin QC and Mr DK Cooper Solicitor for the Respondents: Price Sierakowski Dates of Hearing: 7-11 and 14 July 2003 Date of Judgment: 12 March 2004
0
1
0