Weston Investments Ltd v Selenium Interactive Pty Ltd - [2001] WASC 235

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WESTON INVESTMENTS LTD -v- SELENIUM INTERACTIVE PTY LTD & ORS [2001] WASC 235

CORAM: MASTER BREDMEYER

HEARD: 23 AUGUST 2001

DELIVERED : 3 SEPTEMBER 2001

FILE NO/S: CIV 1575 of 2001

BETWEEN: WESTON INVESTMENTS LTD (ACN 009 206 473)
Plaintiff
AND
SELENIUM INTERACTIVE PTY LTD (ACN 083 656 044)
First Defendant
LEE ANDREW STEPHENS
Second Defendant
ERIK BRENDAN FRANCO
Third Defendant

Catchwords:

Summary judgment - Contract - Loan agreement

Legislation:

Nil

Result:

Application allowed

Category: B

Representation:

Counsel:

Plaintiff:     Mrs W F Buckley
First Defendant             :     No appearance
Second Defendant         :     No appearance
Third Defendant           :     No appearance

Solicitors:

Plaintiff:     Fearis Salter Power Shervington
First Defendant             :     No appearance
Second Defendant         :     No appearance
Third Defendant           :     No appearance

Case(s) referred to in judgment(s):

Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Webster v Lampard (1993) 177 CLR 598

Case(s) also cited:

Nil

MASTER BREDMEYER: This is an ex parte application by the plaintiff for summary judgment against the first defendant, Selenium Interactive Pty Ltd ("Selenium"). There was no appearance on behalf of Selenium as its former solicitors recently got off the record. The plaintiff's application for summary judgment against the second and third defendants is adjourned for another date.
The plaintiff's application against Selenium is supported by an affidavit of the plaintiff's director John Stratton, sworn 15 June 2001. Three affidavits were filed in opposition: one by Lee Andrew Stephens, sworn 18 July 2001, another by Erik Brendan Franco, sworn 18 July 2001 and another by Andrew MacArthur, sworn 19 July 2001. Mr Stephens was the Managing Director of Selenium from September 1998 until 22 June 2001. Mr Franco was, and is, the chief finance officer of Selenium. Mr MacArthur, who is based in Hong Kong, is a director of Selenium. He says he is an investment professional of The Pacific Group ("Pacific") which is a management company based in Hong Kong. Pacific is the majority shareholder in Selenium. The relevant part of the statement of claim is as follows:
"5.On or about 18 April 2000, by an agreement partly oral and partly implied Weston agreed to loan to Selenium and Selenium agreed to accept as a loan the sum of $250,000 ('agreement to loan').
Particulars of Oral Parts
The agreement to loan was made at a meeting on 18 April 2000 in Sydney wherein Weston was represented by its director John Stratton ('Stratton') and Selenium was represented by Stephens.
6.In accordance with the agreement to loan on or about 18 April 2000, $350,000 was paid by Weston to Selenium who accepted the same as a loan.
Particulars
(a)Weston effected the payment by instructing its banker to transfer the sum of $350,000 to Selenium's bank in Sydney.
(b)Such payment was effected by telegraphic transfer dated 18 April 2000.
7.It was an implied term of the agreement to loan that the sum advanced would be repaid to Weston by Selenium upon demand by Weston.
Particulars of Implication
(a)This term is implied as it is fair, reasonable, not inconsistent with any express term of the agreement to loan and necessary to give business efficacy to the agreement to loan.
(b)Further, the term is implied as a matter of law.
8.On or about 23 November 2000 and on occasions thereafter Weston demanded repayment of the loan from Selenium.
Particulars of Demands
Weston relies upon the following:
(a)e‑mail from Stratton to Franco, Selenium dated 23 November 2000;
(b)e‑mail from Stratton to Franco, Selenium dated 4 December 2000;
(c)letter Stratton to Stephens dated 18 December 2000; and
(d)letter Weston to Selenium dated 20 December 2000 constituting demands for repayments of the loan.
9.Selenium has failed, alternatively, refused to repay the loan to Weston.
10.Further, Selenium has acknowledged in writing that the loan is a debt due and owing to Weston, but has not withstanding the acknowledgment of debt, failed or alternatively refused to repay the loan to Weston.
Particulars
Weston shall rely upon the following:
(a)email Franco to Stratton dated 23 November 2000;
(b)email Stephens to Stratton dated 5 December 2000; and
(c)email Franco to Stratton dated 20 December 2000
constituting acknowledgment of debt.
11.Further and in the alternative, on or about 18 April 2000 $350,000 ('the Sum') was paid by Weston to Selenium.
12.The Sum is and was money of Weston and by payment Selenium has been enriched by the Sum."
Mr Stratton, in his affidavit, annexes a copy of a heads of agreement dated April 2000 between Media Asia Pacific Ltd, Selenium, Concerto Nominees Ltd of the Isle of Man and the shareholders listed in the schedule who are:
Lee Andrew Stephens
Daniel Stephen Wallis
Paloma Investments Pty Ltd
Markham Associates Pty Ltd
Robert Waddington
Jennifer Ann Waddington
Oregon Investments Pty Ltd
Pinnatus Pty Ltd
This agreement is referred to in the affidavit as the "MAPL Agreement" and I will copy that terminology. I should add that Mr Stratton is a director of Media Australia Pacific Ltd. Concerto Nominees Ltd is a company associated with Mr Yosse Goldberg. Under this agreement the parties proposed to float Media Australia Pacific Ltd ("MAPL") on the Stock Exchange. Prior to 12 April 2000, Concerto was to subscribe $2 million to the capital of Selenium and be issued with shares for that sum. Also, before that date Concerto was to procure the subscription of $2,200,000 worth of capital in MAPL and MAPL was to issue 11,000,000 shares and 22,000,000 options to Concerto and/or its nominees in return. Also, by the same date, Concerto undertook to procure that shareholders' loans are repaid. The "shareholders' loans" refers to loans owed by Selenium to the shareholders (the names of which are set out in the schedule) totalling $350,000.
The MAPL agreement was not implemented. The money was not subscribed and MAPL was not listed on the Stock Exchange. Later, a deed of release was prepared between the same four parties to the MAPL agreement, but it was never signed. In that draft document a recital stated that "Media Australia paid to Selenium the Advance" and, later, "the Advance" is defined to mean the sum of $350,000 paid by Media Asia to Selenium. As this agreement was not signed, I do not consider it of any great significance.
Mr Stratton states in his affidavit:
"4.Shortly after the MAPL Agreement was executed, I was informed by Stephens and Mr Yosse Goldberg (Goldberg of Selenium) that Selenium urgently needed working capital in order for it to meet its commitments under the MAPL Agreement.
5.On or about 18 April 2000, at a meeting in Sydney at which both Stephens and I were present, I agreed on Weston's behalf to advance to Selenium the sum of $350,000 to assist Selenium with its working capital requirements (the loan). The funds the subject of the loan were electronically transferred later that day. Annexed hereto and marked 'JS2' is a true copy of the instructions from Weston to its bankers to transfer the funds in the amount of $350,000 the subject of the loan into Selenium's bank account and a copy of the telegraphic transfer confirming that the funds the subject of the loan were transferred into Selenium's bank account."
This evidence is not in direct speech which detracts from it somewhat. I ask what were the exact words used in the conversation? The letter exhibited is on Western Investments Ltd's letterhead dated 18 April 2000 and it is an instruction to Bankwest to transfer $350,000 to Selenium in Sydney. It is proof that their money came from Weston Investments Ltd.
I mentioned that the draft deed of release was never signed, but on 18 October 2000 MAPL signed a letter of release addressed to Selenium in these terms:
"Media Australia Pacific Ltd (MAPL) hereby releases Selenium Interactive Pty Ltd (Selenium) and its shareholders from all claims and obligations under the Agreement (and its variations) entered into earlier this year for the proposed acquisition of Selenium by MAPL.
MAPL provides this release on the condition that it receives from Selenium (and its shareholders) a reciprocal release whereby MAPL is released from all claims and obligations under the agreement described above."
A similar release letter was given by Selenium to MAPL on 20 October 2000. Neither letter refers to the $350,000, the subject of this action.
Mr Stratton goes on in his affidavit, and I summarise, that it was always his understanding that the money sent was a loan to be repaid and no one connected with Selenium ever stated to him around this time that the money was anything but a loan. He said there was no discussion about interest or when it would be repaid, but it was his understanding at the time that the loan would be repaid when demanded. No officer of Selenium or anyone else connected with Selenium ever stated to him anything to the contrary. That is not particularly convincing evidence because his "understanding" is very subjective. It is not evidence of an oral agreement. I quote further from the affidavit:
"8.During the period May to August 2000 I had several conversations with Stephens and Goldberg of Selenium where I was told words to the effect that:
(a)Selenium intended to complete a transaction with a Hong Kong investment group (the Pacific Group);
(b)the Pacific Group would invest in Selenium and become a shareholder in Selenium.
9.During the course of those various conversations Stephens proposed that if MAPL released Selenium from its obligations under the MAPL Agreement and the proposed transaction with Pacific Group proceeded as anticipated, the loan would then be repaid in full.
10.At this point it was not my understanding that Weston was obliged to procure MAPL to release Selenium in order to have the loan repaid. Selenium was simply trying to use repayment of the loan as leverage to have MAPL release it from any liability under the MAPL Agreement. Again, at this point of time it was my understanding that Weston was not obliged to give Selenium more time to pay. It was my understanding at the time that Weston could have demanded repayment of the loan straight away and that Selenium would have been obliged to repay it there and then. At this time no one connected with Selenium said anything to me that was inconsistent with this understanding."
On or about 23 November 2000 Mr Stratton sent an e‑mail to Erik Franco of Selenium, the relevant part of which reads:
"Could you please advise when you anticipate that your dealings with Hong Kong will be completed and when you can expect payment to Selenium, which will facilitate repayment of our loan.
We would appreciate an indication of how long it may be before we can expect settlement."
An e‑mail reply came back the same day from Mr Franco:
"I have forwarded this e‑mail to Hong Kong. As you are aware Lee and I have every intention of fulfilling our commitment to you.
We have yet to receive any money from HK, however we have not overlooked out commitment to you."
A further e‑mail was sent by Mr Stratton to Mr Stephens on 4 December which received a reply on 5 December in these terms:
"The funds only arrived on Friday. There was a 'mix‑up' with the bank. Do you ever notice that there are only mix‑ups from the payors [sic] end. It took a week to get it.
I believe Erik has already called your office regarding payment."
No payment was received. Further letters seeking payment were sent by Mr Stratton on 18 and 20 December 2000. A solicitors letter of demand was sent on 13 March 2001.
On 20 December 2000 Erik Franco sent an e‑mail to Jan Turnbull of the plaintiff, parts of which read as follows:
"I have spoken to our HK investors regarding the loan from John. Can you also please relay to John I have mentioned this situation to HK on numerous occasions. I have also been briefed by Yosse and the conversations he has had with Yosse.
Please apologise to John for me for not getting back to him.
The message I have been requested to give to John from our HK investors is: they are reviewing the arrangement and to please tell John that the situation is now out of my hands and out of Lee hands.
Further, please also mention to John that in no way am I personally shirking any responsibilities I may have to John.
Due to the change in the ownership structure of Selenium, I have been instructed by our controlling board members that this situation is totally out of the hands of Selenium Australia and the matter should be dealt with directly between John and HK."
Mr Stephens, in his affidavit in opposition, relates the circumstances leading up to the signing of the MAPL agreement. He says that Mr Stratton is a director of MAPL which is now known as Bioprospect Ltd. He says Mr Stratton is also a director of Concerto and is, of course, a director of the plaintiff, Weston Investments Ltd. He said the purpose of the $2.2 million investment in Selenium was to provide capital in order that Selenium could expand its current business and facilitate a backdoor listing on the Stock Exchange of MAPL. He says, at par 9, that the establishment by Selenium of a Melbourne office in April 2000 was part of the MAPL agreement signed between MAPL and Selenium. The public listing was scheduled to take place on 8 June 2000. (I comment that the establishment of a Melbourne office was not a part of the MAPL agreement which is before me.) He says that MAPL wanted Selenium to have a Melbourne office as it thought it would give a better presence than a Sydney office for the purposes of the public float. He said Stratton spoke to him by telephone to the following effect:
"STRATTON: We can get a better market valuation if you have a Melbourne office and a national presence.
STEPHENS: I agree, we will have someone look into it."
Mr Stephens says that because MAPL/Concerto required a Melbourne office for the purposes of the public listing, Selenium established a Melbourne office in or about April 2000. At that time Selenium assumed it would be receiving $2.2 million from MAPL/Concerto pursuant to the MAPL agreement and that that money would be available to cover the costs of establishing a Melbourne office. Selenium leased an office at level 14, 575 Bourke Street and employed five staff to work at the office and paid rent at approximately $3,400 a month. Due to the failure of MAPL/Concerto to provide the $2.2 million pursuant to the MAPL agreement, the Melbourne office was not a success. It did not have the capital to initially support itself. It needed more staff and a dedicated sales campaign to market itself. As there was no further funding, the office could not afford to promote itself at a time which was critical to the establishment of its business.
He says, as at 12 April 2000, the $2.2 million was not paid to Selenium. He says, in par 15, that a couple of days after 12 April he had a conversation to the following effect by telephone with Mr Stratton:
"He said: 'I have had a falling out with my UK partner. I am trying to raise the money in another way to complete the transaction.' I said: 'That's all well and good but because of opening the Melbourne office, we won't be around for the completion of the heads of agreement.' He said: 'Well, I'll give you $350,000 now and we will complete the rest when I get firmed up with the other arrangements.' I said: 'Thank you, that will pay for the Melbourne roll‑out and get me out of a short term bind.' "
At par 25 he said he had a further telephone call from Mr Stratton in August/September 2000, where words were spoken to the following effect:
"He said: 'Son, we'll have to let this deal go for now. I have another vehicle that is not as clean that we could do something with.' I said: 'Well we'll have to look at it when you have the investment ready.' He said: 'What about my $350,000? What arrangements do you want to repay it?' I said: 'We have no money without investment, we could look at giving you an equity position.' He said: 'I'm not interested in that. When and if you do get an investor, I expect you to do the right thing by me. You don't need to repay any interest.' "
At par 26 Mr Stephens said this was the first time that he heard Mr Stratton refer to the $350,000 as a loan. With reference to par 7 of Mr Stratton's affidavit, Mr Stephens denies having any conversation with Mr Stratton in May, whereby it was agreed that the $350,000 was a loan. He states:
"26.I was of the view that once it was clear that the MAPL agreement was not to proceed, [Selenium] would, if it found another investor, pay Mr Stratton the balance of the moneys, once the expenses incurred by the first defendant in association with the establishment of the Melbourne office had been deducted and the MAPL Agreement not proceeding had been deducted.
27.I was of the view that there was no obligation upon [Selenium] to repay the $350,000 to the plaintiff. The $350,000 was not a loan but a part payment of the $2.2 million payable pursuant to the MAPL Agreement. However when the MAPL Agreement did not proceed there was no obligation on the first defendant to refund this money. It was only on the basis of fairness that I had formed the view that if another investor presented itself, that the first defendant would repay to the plaintiff the $350,000 less expenses."
Mr Franco's affidavit in opposition is not so important. The key conversations about what the payment was for were made between Messrs Stratton and Stephens. He does state, however, that the total up‑front cost in establishing the Melbourne office was approximately $42,129.50. At par 12, he states:
"12.Due to the failure of Concerto to provide the $2.2 million as was agreed, the first defendant was unable to fund the development with the Melbourne office. Four staff members have been made redundant and half of the office space has been re‑let. The losses associated with the establishment of the Melbourne office have not been finalised but I estimate at this stage that they are in the vicinity of $200,000."
The power to order summary judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question of law or fact to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99. In a summary judgment application where there are competing versions of evidence, one given by the plaintiff and the other by the defendant. The evidence of the defendant should be accepted for the purposes of the application, unless it is inherently incredible or contradicted by other evidence etc: Webster v Lampard (1993) 177 CLR 598 at 604. In this case I do not consider that the evidence of Mr Stephens, as to the telephone conversation which preceded the payment of the $350,000, is inherently incredible. Indeed, his evidence is in a better form than the plaintiff's evidence. The plaintiff's evidence is largely a summary or a conclusion of what was said. Mr Stephen's version is more akin to direct speech.
Mr Stephen's version, however, is not assisted by the MAPL agreement. Under that agreement Concerto undertook to subscribe $2 million in the capital of Selenium in exchange for shares in Selenium. By another clause, Concerto undertook to procure the subscription of $2.2 million in the capital of MAPL on the allotment of 11 million shares and 22 million options to Concerto and/or its nominees. That clause is not relevant to this $350,000. Concerto did not undertake to procure the subscription of $2.2 million worth of capital from itself and/or its nominees in Selenium. Its obligation to subscribe to the capital of Selenium, in the sum of $2 million was its own sole responsibility. The two clauses should not be slurred together to read as if Concerto had an obligation to procure others, such as the plaintiff, to subscribe to the capital of Selenium.

I consider that the plaintiff's version that the arrangement was a loan is assisted by the correspondence in November and December already referred to. In that correspondence, on two occasions Mr Stratton referred to the money as a loan. He requested repayment of the loan. The replies do not mention the word "loan" expressly but neither is there any dissent in them from that characterisation of the payment. I would have expected that if the $350,000 was an investment in Selenium that this matter would be asserted in a replying letter and that some reference would be made to the issue of shares. I also note that there is no reference in the correspondence answering Mr Stratton's correspondence that the money would be repaid, less a deduction for the costs of establishing the Melbourne office of Selenium.
Although not part of the original loan arrangement of April 2000, I consider it arguable that it was later agreed that the money need not be repaid until another investor, the Pacific Group, came along to inject funds in Selenium. I consider that condition has now been met. I here refer to the e‑mail of 4 December, quoted above, that the funds had arrived on Friday. In the context of these letters this is a reference to funds for Selenium being sent from the new investor in Hong Kong. It was never agreed by the plaintiff that the $350,000 would be repaid, less a sum for establishing the Melbourne office of Selenium.
I am satisfied to the requisite high standard of proof required for a summary judgment that the plaintiff has made out its case against Selenium, that this payment of $350,000 was a loan. I can readily imply that it should be repaid on demand. As subsequently agreed it was to be repaid after an investor, the Pacific Group, injected some funds into the company. This has happened. Demand has been made and I propose to enter summary judgment for the plaintiff against Selenium for this sum.