Ze Pty Ltd v ZC Pty Ltd - [2022] WASC 182

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ZE PTY LTD -v- ZC PTY LTD [2022] WASC 182
CORAM:   MASTER SANDERSON
HEARD:   26 APRIL 2022
DELIVERED          :   24 MAY 2022
PUBLISHED           :   24 MAY 2022
FILE NO/S:   CIV 1570 of 2021
BETWEEN:   ZE PTY LTD
First Plaintiff

MJZ
Second Plaintiff

AND

ZC PTY LTD
First Defendant

SA
Second Defendant

BJZ
Third Defendant

Catchwords:

Practice and procedure - Defendants application for summary judgment - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Application dismissed

Representation:

Counsel:

First Plaintiff	:	B Grubb
Second Plaintiff	:	B Grubb
First Defendant	:	DP Butler
Second Defendant	:	DP Butler
Third Defendant	:	DP Butler

Solicitors:

First Plaintiff	:	Tudori Hager Grubb
Second Plaintiff	:	Tudori Hager Grubb
First Defendant	:	Jackson McDonald
Second Defendant	:	Jackson McDonald
Third Defendant	:	Jackson McDonald

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

Nil

MASTER SANDERSON:

This is the defendants' application for summary judgment. The defendants require leave to bring this application as they are well out of time. The statement of claim was lodged on 21 July 2021. The application for an extension of time and for summary judgment was filed on 13 December 2021. In support of their application for an extension of time, the defendants rely on pars 36 to 40 of an affidavit of BJZ sworn 13 December 2021 and an affidavit of Chelsea Lee Quirk affirmed 12 April 2022. In the circumstances of this case, I am not satisfied an extension of time is warranted and I would dismiss the application on that basis.
The defendants seek to explain the delay in bringing this application in two inter-related ways. First they say they have been engaged in taking the necessary procedural steps and attempting to negotiate a settlement. Second they say they changed solicitors and when the new solicitors came to consider the matter they took the view that an application for summary judgment ought be brought. It is to be noted the defendants lodged a defence on 16 December 2021 and amended that defence on 17 December 2021. They took the step of filing the defence because on 14 December 2021, I made a springing order requiring the defendants to file their defence on or before 17 December 2021. I made the springing order because the plaintiffs were concerned about the delay in advancing the proceedings. Given the writ of summons was issued on 25 June 2021 and the statement of claim was lodged some four weeks later (and less than a week after the defendants had entered an appearance) their concern about the delay was justified. There are at least two circumstances when an extension of time is justified.
First, if a defendant can explain why the application was not brought, perhaps because the person who would swear the affidavit in support of the application was indisposed of or some other valid reason, then time will be extended. Second, if the case for summary judgment is compelling and it would not be in the interests of justice to allow the matter to proceed, then the delay can be put to one side. But in this latter case there must be a clear case for the entry of summary judgment. That is not the case here. What appears to have happened is that the defendants changed solicitors and the new solicitors, bringing fresh eyes to the case, determined an application for summary judgment was warranted. But this is not a case where the position of the defendants is so overwhelming that the interests of justice require the extension of time to be granted.
In the circumstances and given the matter was fully argued, I will deal with the merits of the defendants' application. There was no dispute between the parties as to the applicable principles. I need not repeat what has been so often said in so many cases. But I would emphasise two important aspects of a defendant's summary judgment application. First, summary judgment should only be entered in the clearest of cases. Second, the plaintiff's claim is confined to the case pleaded in the statement of claim. It is not to be assumed there are other relevant facts which could be pleaded which might support the plaintiff's cause of action or an alternative cause of action.
Certain facts were not in dispute. The first plaintiff runs a business with respect to the purchase, sale and delivery of cream chargers to the public. It trades under a series of names. Paragraph 1.2 of the statement of claim defines the business of the first plaintiff in all its iterations as the 'Business'. I will adopt that definition. The Business was established and commenced trading in or around March 2020 when the third defendant (who I will refer to as B) was 15 years old. As at the date of this application B was 17 years old.
In or around 6 March 2020, B caused the transfer of $200 into the personal bank account of the second plaintiff (who I will refer to as M) for the purpose of purchasing the initial stock for the business being 400 cream chargers. M then purchased the initial stock for the Business from funds in his account. B created a website and registered it in his own name. B set up ordering and payment systems, including through Shopify, Woocommerce and Stripe. B also set up distribution and delivery systems through Tookan and advertised the Business through Facebook and Google Ads. From March 2020 until around 13 July 2020, the Business traded through B's National Australia Bank account. At all relevant times before and after June 2020, B ran and funded the Business and the first plaintiff.
It is the first plaintiff's position that in or around March 2020 there was an agreement between M and B to the effect that:
(i)they would share profits and liabilities in the Business equally;
(ii)B would manage and maintain the website; and
(iii)M would make deliveries, purchases and distribution of stock and sales to the general public.
This agreement is defined as the 'Initial Agreement'. Sometime in or around June 2020, there was an agreement between M and B to the effect that profits would not be distributed from the Business until accounting advice was taken. This is defined as the 'Retention Agreement'.
The defendants denied there was an agreement prior to the incorporation of the first plaintiff between M and B to share equally the profits and liabilities of the Business. However, for the purposes of this application (and only those purposes), they accept the position as pleaded by the plaintiffs. The defendants point out that the plaintiffs do not plead the circumstances in which the Business, which was already trading prior to the incorporation of the first plaintiff, came to be transferred to the first plaintiff. The defendants say it is to be inferred there was an agreement between M and B to the effect that the Business would be transferred to and run through the first plaintiff for tax and asset protection purposes. This the defendants refer to as the 'Ecom Agreement'. The plaintiffs plead, and for the purposes of this application the defendants are prepared to accept, B has evidenced an intention to no longer be bound and has repudiated all of the agreements.
The defendants say the pleadings raise seven separate issues. They are:
1.whether B is entitled, by reason of his age, to repudiate any or all of the agreements with M and/or the first plaintiff;
2.whether B was an 'officer' of the first plaintiff;
3.whether B owed fiduciary duties to the first plaintiff;
4.if B owed fiduciary duties to the first plaintiff, whether he breached those duties;
5.if B breached fiduciary duties owed to the first plaintiff, whether he is liable for the consequences of any breach;
6.whether, on the pleadings, there is a cause of action against the first and second defendants which arises independently of the claims against B; and
7.whether the proceedings are an abuse of process by the plaintiffs.
Dealing with the first issue, the defendants submit in Western Australia a person has full legal capacity when they attain the age of 18 years. Here the agreements were for commercial purposes and not for the provision of the necessities of life. Contracts entered into by a minor may be void or voidable particularly where such transactions convey no material benefit or are prejudicial to the minor. Contracts entered into by a minor which are voidable may be repudiated by the minor. Where it would be more beneficial to the minor that an agreement should be considered void because to do otherwise might expose the minor to damages or a claim for breach of trust in respect of a third person then by reason of the privilege afforded to the minor, the contract might be considered void.
The defendants say B has, by his actions, evinced a clear intention not to be bound by any of the agreements. Accordingly, as he has an absolute right to do, he has repudiated the agreements and they are now void. Further, the defendants say the Ecom Agreement was prejudicial to B and imprudent because by transferring the Business to the first plaintiff without the statutory ability to retain control of the Business via at least joint directorship of the company, he effectively ceded control of the Business to the plaintiffs. It is the defendants' position that may render the Ecom Agreement void ab initio. But the defendants say they do not need to go that far. Even if B's right is a right to repudiate, he has exercised that right and the contracts are now properly at an end.
The defendants raise a second ground on which they say B was entitled to repudiate all of the agreements. They say there is a presumption that by reason of the relationship between M and B as parent and child, M occupied a position of influence over B. It is unnecessary for B to show any particular vulnerability by reason of his age or condition. They then go on to point particular vulnerabilities which they say B had vis-à-vis M. For instance, they point out he was 15 years old, was living with M and otherwise reliant upon him. The defendants say the consequence of this presumption of influence is that M bears the onus of justifying the Ecom Agreement.
So far as this second argument is concerned it does not, in my view, warrant summary judgment in favour of the defendants. While there may be a presumption M had influence over B, it is a rebuttable presumption. It is open to M to lead evidence on this issue and it was not necessary for him to plead material facts on that issue in the statement of claim. This is an issue for trial.
The plaintiffs point out the defendants' case is that the agreements were contracts that were binding until repudiated. Contracts with minors which are binding until repudiated bind both parties at the outset. Protection resides only in the ability of the minor to repudiate before or within a reasonable time after achieving majority. Meanwhile, prior to repudiation, property passes to or from the parties to the contract and often cannot be recovered after repudiation. A third party purchaser will acquire title possibly even after repudiation. Any performance completed before repudiation is valid and possibly obligations due but unperformed at the time of repudiation must still be performed.
Based upon that statement of principle, the defendants accept the agreements to transfer the Business to the first plaintiff all took place either prior to or as at the time of the first plaintiff's incorporation and before any repudiation by B. All property title and/or goodwill in the Business had already passed to the first plaintiff prior to any repudiation. Furthermore, B received valuable consideration in respect of his 50% shareholding in the first plaintiff. The property in the Business then held by the first plaintiff cannot now be recovered and it lawfully vests with the first plaintiff. B's purported repudiation of the agreements is consequently irrelevant.
The plaintiffs also say there has been an affirmation of the contracts by B. They say contractual agreements may subsequently be affirmed by a minor. In circumstances of affirmation, the contract is neither void nor voidable. In order for a minor to affirm any contractual agreement, a positive step must be taken. In par 8.4 of his written submissions, counsel for the plaintiffs sets out six grounds which he says amount to affirmation. Without detailing these grounds, it is sufficient for me to illustrate the plaintiffs' position by saying they refer to B's application for and acceptance of his 50% shareholding in the first plaintiff.
There are a number of other grounds upon which the plaintiffs say it is not open to B to now claim the contracts have been repudiated. But having outlined what might be regarded as the plaintiffs' primary argument, it is unnecessary for me to consider the other issues raised by the plaintiffs in detail. It is clear from the way the case is pleaded and the law in this area that the plaintiffs' position is arguable. There is no warrant for the entry of summary judgment on this issue.
The second of the defendants' issues raises the question as to whether or not B was an 'officer' of the first plaintiff. The defendants say pursuant to s 201B of the Corporations Act 2001 (Cth) (Corporations Act), B was not and is not a person qualified to be a director of a corporation by reason of being under the age of 18 years.
The defendants note the plaintiffs plead B was an 'officer' of the first plaintiff as defined in s 9 of the Corporations Act but there does not appear to be in the Corporations Act any age requirement for an officer of a corporation. Both parties then undertook an examination of the legislative history in relation to corporations and the definition of 'officer'. It is unnecessary for me to rehearse what each party has to say. As the plaintiffs submit, B acknowledges he 'ran and funded the Business'. He therefore had the ability to drastically affect the financial standing of the first plaintiff without any agreement from M. The legislative history of the term 'officer' is somewhat tortured. In my view, the plaintiffs' position is arguable and there is no warrant for the grant of summary judgment.
Having reached the conclusion there are triable issues on each of these two main questions, it is unnecessary for me to examine the other issues raised by the defendants in any detail. Each of the remaining five issues is tied up to a greater or lesser extent in the two primary issues. Therefore, it is appropriate that the application for summary judgment be dismissed and the matter go to trial.
The defendants also sought to strike out certain paragraphs of the plaintiffs' statement of claim. This was very much a fallback position and really ran in tandem with the summary judgment application. There is nothing in the statement of claim which would cause the defendants any embarrassment. They have been able to plead to it and their pleading has joined issue on the major issues dividing the parties. Accordingly, the application to strike out the statement of claim will be dismissed.
On publication of these reasons, the parties should confer as to the appropriate orders. Generally speaking, when an application for summary judgment is dismissed, the order as to costs is that costs be in the cause. That seems to me to be appropriate in this case. If any party wishes to make submissions as to costs they should file short written submissions within seven days of the publication of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AH
Associate to Master Sanderson
24 MAY 2022