AG-Exports & Anor v EFIC

Export Finance and Insurance Corporation (EFIC) (Defendant) JUDGMENT OF : Master Harrison

Mr A T McInnes QC (Plaintiffs) COUNSEL : Mr M Einfeld QC with Mr DL Williams (Defendant) John McEncroe & Co (Plaintiffs) SOLICITORS : Abbott Tout (Defendant) CATCHWORDS : Summary judgment - standing, breach of contract, deceit LEGISLATION CITED : Supreme Court Rules - Part 13 r 5; Part 15 r 26 CASES CITED : Piwinski v Corporation Trustees of the Diocese of Armidale [1977] 1 NSWLR 266 Gould & Anor v Vaggelas & Ors [1985] 157 CLR 215 DECISION : (1) The plaintiffs' FASC is dismissed; (2) The plaintiffs are to pay the defendant's costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20702/2000 - AG-EXPORTS (AUSTRALIA) PTY LTD & ANOR v EXPORT FINANCE AND INSURANCE COPRPORATION (EFIC)

JUDGMENT (Summary judgment; standing, breach of contract, deceit) 1 MASTER: By notice of motion filed 21 January 2002 the defendant seeks firstly, an order that the further amended statement of claim (FASC) filed 21 December 2001 be struck out pursuant to Part 15 r 26 and/or Part 13 r 5 of the Supreme Court Rules (SCR), or alternatively, the further FASC be dismissed or permanently stayed pursuant to Part 13 r 5 SCR; secondly, an order that the plaintiffs provide further and better particulars of the FASC; thirdly, that the plaintiffs provide further security for the defendant's costs in such sum and in such form as the court deems fit and in the event that the plaintiffs fail to provide further security the proceedings be dismissed or permanently stayed. By amended notice of motion filed 3 May 2002, the plaintiffs seek firstly an order that the defence be struck out or alternately an order that the notice of motion filed 21 January 2002 be struck out; secondly, an order that the defendant file the affidavits ordered by Deputy Registrar Robinson; thirdly, supply the particulars requested by the plaintiffs within seven days; and fourthly, an order that the defendant answer the notice to answer interrogatories served on 18 April 2002 within seven (7) days. The defendant relied on three affidavits of Nicholas John Matkovish sworn 22 January 2002, 25 February 2002 and 22 March 2002. All but the defendant's strike out application pursuant to Part 15 r 26 have been stood over pending this decision. 2 On 4 June 2001 I delivered judgment in relation to a summary judgment application. The defendant's notice of motion was dismissed. The plaintiffs were ordered to file and serve an amended statement of claim within 28 days and were also ordered to provide security for costs in the sum of $48,000.00 in acceptable form. 3 In July 2001 an amended statement of claim was filed. On 21 December 2001 a further amended statement of claim (FASC) was filed. In the previous judgment I've referred to the law on summary judgment and of the facts pleaded in this case. I refer to that judgment but for convenience repeat a brief outline of the facts. The statement of claim alleges that in 1991 the first plaintiff was the exporter of goods to overseas countries mainly in Asia. The second plaintiff was the managing director and principal shareholder in the first plaintiff. The defendant was a credit insurer of goods exported by Australian companies. 4 In 1991 the first plaintiff had a comprehensive shipments policy (the policy) being No 210171/01/83 which insured the first plaintiff against the risk of overseas customers being unable to pay for goods supplied by the first plaintiff. The policy was assigned to the Hong Kong Bank of Australia Limited (HKB) which advanced to the first plaintiff 95% of the value of goods exported as each shipment was made. The second plaintiff guaranteed the first plaintiff's indebtedness to the HKB. It was a term and condition of the policy that the first plaintiff would notify the defendant by posting or delivering by hand a declaration within seven days of the dispatch of a shipment of goods overseas. Clause 10 of the contract contains a provision requiring the plaintiff to notify the defendant of the gross value of goods within seven days of the date of export. 5 In May and June 1991 the first plaintiff was in arrears with the payment of some premiums due under the policy and the defendant, as it was entitled to do, provided that it first gave notice to the first plaintiff, suspended the policy on about 14 June 1991. The defendant, in breach of the policy, did not notify the first defendant that it intended to suspend the policy. Had the defendant notified the plaintiffs that it intended to suspend the policy the first plaintiff would have paid all premiums due. Apparently the policy remained suspended until on or about 23 September 1991. 6 Between 14 June 1991 and 23 September 1991 the first plaintiff alleges it made numerous declarations to the defendant of the dispatch of goods overseas, within seven days of their dispatch, it being unaware that the policy had been suspended. Included in the declarations were a number of shipments to Yoshikawa Chemicals Singapore (Pte) Limited (Yoshikawa) in Singapore. Yoshikawa defaulted in payment in the sum of $565,535. 7 On 27 November 1991 the first plaintiff notified the defendant that Yoshikawa may default in payments on amounts due to it and on 28 January 1992 the first plaintiff made a claim on the defendant in the sum of $565,535, lost to it as a result of the default by Yoshikawa. The defendant paid to the first plaintiff the sum of $41,431.35. The balance of the amount of Yoshikawa's default is claimed. Further damages alleged are that as a result of these actions the first plaintiff was unable to pay its loans and a receiver was appointed. The second plaintiff was called upon as guarantee and was unable to pay and was declared bankrupt. 8 The defendant has confined itself to two arguments, firstly, that neither of the plaintiffs have standing; secondly, the claims for breach of contract and deceit cannot be maintained. The standing arguments were not raised during the previous hearing for summary judgment. The breach of contract and deceit claims have been raised previously and are now revisited in the light of the FASC. As a summary judgment application is considered an interlocutory one, I will consider these arguments.

The standing of the first plaintiff - AG Exports (Australia) Pty Ltd 9 The defendant submitted that the first plaintiff (the company) has no rights under the policy which gave it rights to sue. 10 Paragraphs 4 and 5 of the FASC plead: 4. In the said year the first plaintiff had a Comprehensive Shipments Policy ("the Policy") being number 210171/01/83 which insured the first plaintiff, inter alia, against the risk of overseas customers being unable to pay for goods supplied by the first plaintiff. 5. The said Policy was assigned to the Hong Kong Bank of Australia Limited ("HKB") which advanced to the first plaintiff ninety five per cent (95%) of the value of goods exported as each shipment was made. 11 The plaintiff tendered a document (Ex 1) addressed to Export Finance and Insurance Corporation and signed by Brian Lawn as director of the plaintiff and dated 28 August 1990. It reads: "We hereby authorise you to receive claims and proof of loss under the abovementioned Policy (as amended from time to time) from the Hong Kong Bank of Australia Limited ("the Bank") and to pay direct to the Bank all monies which may be payable under claims submitted by us or by the Bank and to accept the Bank's receipt in full discharge thereof." 12 This authorisation does not constitute an assignment of the Policy. However, there is evidence that the policy was assigned. The defendant tendered two letters, the first addressed to Hong Kong Bank dated 2 March 1990, which states: "The State Bank of New South Wales hereby assigns, transfers and sets over all its right, title and interest in and to the Policy as owner, excepting FBNs as per attached schedule." 13 The second letter, dated 26 March 1990, is addressed to the defendant, and advises that the State Bank has reassigned its primary interest in the policy to the Hong Kong Bank except so far as there were several outstanding FBNs negotiated prior to the reassignment which remain covered by the policy. 14 It is my view that the first plaintiff correctly pleaded that it had assigned the comprehensive shipments policy. In 1990 the primary interest in the policy had been assigned to the State Bank by the company. In turn the State Bank reassigned its primary interest in the policy to the Hong Kong Bank. That being so, the first plaintiff has no rights under the policy and cannot maintain these proceedings. The first plaintiff's claim for breach of contract and deceit are hopeless and should be dismissed.

The standing of the second plaintiff - Brian John Lawn 15 Mr Lawn was not the insured under the policy. At paragraphs 26 and 27 of the FASC his case is pleaded. They state: "26. The HKB called up the advance it made to the first plaintiff, the first plaintiff was unable to pay its debts and a Receiver was appointed and the First Plaintiff was unable to carry on business. 27. The HKB called up the guarantee given by the Second Plaintiff, and the said Plaintiff was unable to pay the Bank and was declared bankrupt." 16 The second plaintiff's damages are pleaded at paragraph 29. They are loss of income, loss of value of shares in the first plaintiff, loss of assets in bankruptcy proceedings and humiliation, embarrassment, anxiety and worry. In addition the second plaintiff seeks aggravated and exemplary damages. 17 Section 58(1) of the Bankruptcy Act 1966 provides: "(1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee." 18 "Property" is defined in section 5 as: "real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property". 19 In Piwinski v Corporate Trustees of the Diocese of Armidale [1977] 1 NSWLR 266 Waddell J said that the cause of action on which the plaintiff sues became vested in the Official Receiver upon the making of a sequestration order against him, and that cause of action is still vested in the Official Receiver, notwithstanding his discharge from bankruptcy, and the only person who may proceed to recover the relief which the plaintiff seeks is the Official Receiver. 20 The claims for loss of income, loss of value of shares and loss of assets fall within the definition of property and cannot be maintained. Thus these rights in property are vested in the official trustee, not the bankrupt. Those claims are dismissed. However it is conceded that it is at least arguable that the personal injury claims pleaded in paragraph 29(d) of ASC fall outside the definition of "property" and remain on foot.

Claim for breach of contract by first plaintiff - is it statute barred? 21 The defendant submitted that the first plaintiff's cause of action in breach of contract is statute-barred. The second plaintiff was not a party to the contract. The defendant submitted that the plaintiff has since 1992 been aware of their cause of action in breach of contract, and that the alleged fraudulent concealment of the reason for the non-payment by the defendant cannot amount to concealment of a cause of action. The defendant submitted that the elements for breach of contract were simply the existence of a contract and the breach of one of more terms of that contract. Since 1992, the plaintiffs admitted that they have been aware of the defendant's liability to pay under the contract, and the defendants refused to pay. The defendant submitted that the concealed facts were material facts, but as such did not constitute an element of the cause of action so s 55 of the Limitation Act does not apply. Section 55 refers to a cause of action being fraudulently concealed and not merely a material fact. 22 The plaintiffs submitted that the elements for breach of contract were the existence of the policy, an entitlement under that policy, loss and payment, conditional upon notification by way of declaration. The plaintiff submitted that the receipt of the declarations by the plaintiff was a condition precedent to commencing proceedings. Hence if the declarations were not received, the defendants were not liable to make payment under the policy and therefore had not breached the contract. The plaintiff contends that, as it relied upon the representations of the plaintiff in good faith, it did not know it had a cause of action. It is on that basis that the plaintiff asserts that the cause of action was fraudulently concealed. 23 In my prior judgment I stated that if the proposition that the plaintiffs knew they had a cause of action in contract in 1992 is correct, then the action is statute barred. The proceedings were commenced on 21 December 2000. The limitation period is six years with no extension for breach of contract. The statement of claim should have been filed on 28 February 1998. It was filed over two years out of time. To suspend the running of the limitation period, the plaintiff has to put forward an arguable case that the cause of action had been fraudulently concealed. I should add here that although my judgment refers to fraudulent concealment being a cause of action this is not the case. Fraudulent concealment is not a cause of action but merely a reason for postponing the running of time under the limitation period. The plaintiffs' proposition is that time stopped running in 1992 and started running in 2000. This means that the statement of claim would not have been filed out of time. 24 Also in my prior judgment I recorded that it has always been the plaintiffs' case that they did forward the export declarations to the defendants. It is clear from the correspondence that they were in 1992 and have been until 2000 always under the impression that these declarations were never received. Whether or not the defendant received the plaintiffs' declarations as required by the policy is a factual dispute. Factual disputes are matters to be determined at the trial. Fraudulent concealment is not a cause of action. It was my view that the plaintiffs had an arguable cause of action for breach of contract which should have been permitted to go to trial. Since that judgment the FASC has been filed. Critically it is now pleaded that the defendant in breach of contract refused to pay the first plaintiff the money due to it [para 25]. 25 In "Breach of Contract", 2nd ed, (Carter, J.W., (1991) The Law Book Company Limited, Sydney) the learned authors state that in cases where failure to perform is asserted, a breach of contract is established by proof that a party to the contract has "failed to perform a contractual obligation in accordance with the standard of duty applicable to the obligation within the time stipulated for performance of the obligation". Likewise Seddon & Ellinghaus state that an actual breach of contract occurs "when a party fails to perform the contract as promised when performance is due" (1997, "Law of Contract", 7th ed, Butterworths, Sydney). So is the breach of contract characterised as when the payments were not made or when the plaintiffs were aware that the defendant had failed to perform a contractual obligation? As the amended statement of claim specifically pleads that a breach of contract occurred when the defendant refused to pay the money due to the first plaintiff, I have to accept this pleading as being correct. This means that the claim for breach of contract is statute barred. The claim for breach of contract is hopeless and should be dismissed.

Deceit 26 For the reasons given earlier the first plaintiff cannot maintain its action for deceit. The second plaintiff can only maintain a claim for deceit in relation to damages for personal injury. The defendant submitted that the elements for the tort of deceit are firstly, a representation was made; secondly, that representation was false; thirdly, the representor knew the representation was false; fourthly the plaintiff must have been induced to act in a way which caused damage. The defendant submitted that these elements have not been properly pleaded. 27 Bullen & Leake & Jacob's Precedents of Pleadings (13th ed) sets out the facts that must be established in order to sustain the common law action of deceit. These facts must be pleaded and proved. They are: "(1) there must be a representation of fact made by words or by conduct and mere silence is not enough; (2) the representation must be made with knowledge that it is false, ie., it must be wilfully false or at least made in the absence of any genuine belief that it is true;

(3) the representation must be made with the intention that it should be acted upon by the plaintiff, or by a class of persons which will include the plaintiff, in the manner which resulted in damage to him; (4) it must be proved that the plaintiff acted upon the false statements and (5) it must be proved that the plaintiff has sustained damage by so doing. …" 28 In Gould & Anor v Vaggelas & Ors [1985] 157 CLR 215 Dawson J at 265 stated: "… Deceit is, of course, a tort derived from an action on the case. Damage is, therefore, the gist of the action. The measure of damages is different from the measure of damages for breach of contract. The object of an award of damages in tort is to place the plaintiff in the position he would have been in if the tort had not been committed. Thus where damages are claimed, as the result of a purchase induced by a fraudulent misrepresentation, the amount recoverable is prima facie to be measured by the difference between the price paid and the actual value of the thing purchased at the time of the purchase. …" 29 The plaintiff pleaded deceit in paragraphs 18-22 of the FASC: "18. The defendant refused to pay the balance of the claim and falsely represented to the plaintiffs that it did not receive all the declarations for shipments dispatched to Yoshikawa. 19. The representations were false and untrue. 20. The defendants at the time when they made the said representation knew them to be false and untrue or made them recklessly not caring whether they were false or untrue. 21. The representation was made with the intention that the first plaintiff would not pursue the claim for payment of the amounts due. 22. By means of the representation the first plaintiff by its servants and agents was induced not to proceed to recover the money due. PARTICULARS (a) The defendant falsely claimed that it had not received the declarations when in fact, the officers of the defendant well knew that the declarations had been received; (b) Alternatively the defendant acted with reckless indifference as to whether the representation was true or false; (c) In fact the defendant had suspended the policy, but in breach of the terms of the policy, had not notified the plaintiff; (d) The responsible officers of the defendant had been influenced in their dealing with the first plaintiff's claim, on a false rumour circulating within the defendant's office, that the plaintiffs were habitual selective insurers of shipments; (e) As a result of the representation the first plaintiff did not proceed against the defendant for breach of contract to recover the monies due." 30 The representation made is pleaded. The defendant's knowledge that the representation was false is also pleaded. Even if it was pleaded that the damage suffered was the personal injuries particularised in paragraph 29(d) FASC, it is difficult to see how the second plaintiff can recover damages because the first plaintiff did not take action for breach of contract. It was the company that acted to its detriment, not the second plaintiff. In any event the object of awarding damages would be to put the company in the position it would have been had the tort not been committed. 31 For these reasons, it is my view that the plaintiffs' claims are hopeless. The FASC should be dismissed. 32 Costs are discretionary. Costs follow the event. The plaintiffs are to pay the defendants costs. 33 The orders I make are:

(2) The plaintiffs are to pay the defendant's costs of the motion.

(3) Costs of the proceedings are reserved. Liberty to restore on seven (7) days notice. **********

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