BioOne Pty Ltd v Australian Biodiesel Group Ltd

Federal Court of Australia|2008-05-21|Before: Lindgren J

Introduction 1 The applicant, BioOne Pty Ltd (BioOne) sues the respondent, Australian Biodiesel Group Ltd (ABG) arising out of BioOne's purchase of a used biodiesel batch processing plant (Plant) and associated trailer. Apparently the total price, including GST, was $165,000. 2 BioOne complains that it was induced to make the purchase by misrepresentations made by George Arthur Robert Muirhead (Mr Muirhead). 3 BioOne moves for an order under O 11 r 16 of the Federal Court Rules (Cth) (the Rules)striking out certain paragraphs of ABG's defence. Taking into account what counsel for BioOne said on the hearing, BioOne seeks to have the following paragraphs of ABG's defence struck out: Paragraphs 5(a), (c) 6(b), (d) 9(a), (b) 10(b), (d) 12(b), (c) 13(b)(ii) 14(b) - (e) 15(d) 23(a), (e) 24(a)(i) 24(b) 26(b) 4 Order 11 r 16 of the Rules provides: Where a pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or (c) is otherwise an abuse of the process of the Court; the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out. 5 There will be an issue as to whether Mr Muirhead, when making the alleged representations, was representing ABG or another company, Dellbury Pty Ltd (Dellbury). Apparently: · Mr Muirhead was a director of ABG from 3 May 2001 to 13 January 2006 and was chairman of the board of directors of ABG until 22 December 2005; · Mr Muirhead was, from 30 December 1997, a director of Dellbury; and · Mr Muirhead's wife, Stephanie Susan Muirhead, was a director of Dellbury from 20 June 1999 and the secretary of ABG from 9 February 2003 to 13 January 2006. 6 BioOne alleges that Mr Muirhead made representations in the period late September to late October 2005 concerning the capability and capacity of the Plant. Since BioOne was not incorporated until 2 November 2005, they could not have been made to BioOne, although circumstances (not pleaded) following the incorporation of BioOne may show that BioOne has a cause of action because of them. In its defence, ABG pleads that Mr Muirhead dealt with Norman Witherow (Mr Witherow) representing a company called Transport Solutions Pty Ltd (Transport Solutions) prior to the sale of the Plant. 7 In summary, ABG pleads that the negotiations were between Mr Muirhead as representing Dellbury and Mr Witherow as representing Transport Solutions, whereas, according to BioOne, they were between Mr Muirhead as representing ABG and Mr Witherow as representing BioOne.

Summary of the factual background, the evidence and the pleadings 8 On the present strike-out application, BioOne has put certain documents into evidence. It is not obvious to which of the four complaints referred to at [14]ff below this documentary evidence relates. 9 First, there is a copy of an invoice issued by ABG to BioOne in respect of the sale of the Plant. This provides some support for BioOne's contention that Mr Muirhead had been representing ABG, although it is not conclusive. Mr Burchett, counsel for ABG, acknowledged that the invoice presented a piece of evidence that ABG will have to overcome. 10 Another document supporting BioOne's case is a letter on the "letterhead" of ABG dated 26 October 2005 addressed "To whom it may concern", stating: The ABG operated the batch plant from December 2002 - November 2003; during this period the plant produced approximately 500,000 litres of biodiesel. If operated correctly the plant is capable of producing biodiesel meeting the Australian standard. The plant has successfully produced biodiesel using new canola oil, tallow, and used cooking oil. Regards Bevan The letter also bears a handwritten signature which appears to be that of Mr Muirhead. The provision of a letter signed by Mr Muirhead on ABG's letterhead is some evidence that Mr Muirhead had actual or ostensible authority to bind ABG in some respect or other. Again, the evidence is not conclusive and may be displaced by other evidence. 11 Mr Burchett informed me that, according to his instructions, the owner of the Plant was Dellbury. If it was, this might lead one to think that Mr Muirhead had been representing Dellbury in the pre-contract negotiations, as ABG contends. 12 Apparently the purchase price of $165,000 was paid as to $75,000 on 8 November 2005 and as to $90,000 on 17 November 2005. The amount of $75,000 was apparently deposited into ABG's Westpac bank account. However, Mr Burchett informed me that Dellbury's entitlement to that amount of the purchase money was met by a subsequent payment of it by ABG to Dellbury. The amount of $90,000 was apparently deposited into a different Westpac bank account. ABG denies that this account was an account belonging to or under the control of ABG. Mr Burchett informed me that it was an account belonging to Dellbury. 13 Mr Abadee, counsel for BioOne, provided the following helpful "schedule of pleadings": SOC ref Plaintiff's allegation Defence Defence response Ref A Things done on behalf of Dellbury 4 Muirhead made representations 5(c), 6(b), 9(a), 10(b), 15(d) ABG denies Muirhead representations and further say that any representations or conduct by Muirhead was "on behalf of Dellbury" 5 Muirhead's ('Plant') representations was conduct in trade or commerce 12(b), 12(c) ABG denies the representations, say that any representations was conduct by Muirhead "made on behalf of Dellbury" and further says that the sale of the Plant and any representations was "conduct by Dellbury in the course of trade or commerce" 6 In reliance upon the Plant representations, Bio One entered 13(d)(ii) ABG deny the representations and say that: a contract for the sale by ABG of the plant to Bio One. ….. all negotiations were undertaken by and with Muirhead as director of Dellbury. Muirhead made the representations on behalf of and with the authority of ABG 15(d) ABG deny the representations and say that if the applicant relied upon representations, such reliance could only have related to representations by Muirhead on behalf of Dellbury as owner of the plant 8 16 - 17, 19 There was implied in the contract for sale (referred to in par 6) certain implied conditions 23(a), 24(a)(i), ABG denies the allegation because the applicant contracted with Dellbury .. ; not ABG 26(b) B Conduct directed to a third party (Transport Solutions or Westfin); not Bio One

4 Muirhead made Plant Representations 6(b) - (d), 7, 5(a), 9(b) Any representations made by Muirhead were made to Transport Solutions. Witherow and Mair inspected the Plant on behalf of Transport Solutions 5 Making the Plant Representations was conduct in trade or commerce 10(d) Any representations made by Muirhead were made to Transport Solutions (or Westfin). 6 In reliance upon the Plant representations, Bio One entered a contract of sale by ABG of the plant to Bio One. 13(b)(ii) ABG denies Bio One relied on Plant representations and say that such representations could only have been made to Transport Solutions or Westfin. C Ostensible authority of agent

7(b) By reason of the appointments (referred to in 7(a) which appointments were essentially admitted: see par 14(a) of Defence) Muirhead had the implied authority to enter transactions with strangers to ABG with respect to property in ABG's possession 14(b) ABG denies the allegations and believes them to be untrue because the mere appointment as director does not of necessity imply authority to enter into transactions in respect of property in ABG's possession 7(c) Muirhead was equipped by ABG with access to generating tax invoices from ABG's MYOB software to send to strangers to the company for the purpose of such transactions 14(c) ABG says that Muirhead may have been able to access invoice creating software but denies he was equipped with such access .. for the purpose of entering into transactions in respect of property in ABG's possession 7(d) Muirhead was equipped by ABG with access to ABG's letterhead to send to strangers for the purpose of such transactions 14(d) ABG says that Muirhead may have been able to access the letterhead but denies that he was equipped with such access for the purpose of entering into transactions in respect of property in ABG's possession 7(e) Muirhead was equipped by ABG with access to its facsimile facility(ies) to send to agents or officers of Bio One tax invoices and other correspondence 14(e) ABG say that Muirhead may have been able to access fax facilities but denies that he was equipped with such access to send tax invoices and other correspondence to agents or officers of Bio One. D Sale of Goods actions

16 In the premises (ie pars 6, 12-14) there was implied in the contract for sale a condition that the plant be reasonably fit for the purpose of establishing a business of producing fuel from tallow 23(e) ABG says that (in addition to previous denials about the existence of a contract and other matters) the contract included an express provisions on the invoice that the Plant was sold 'as is where is' and that there were no express or implied warranties. 17 In the premises (pars 6, 12 - 15), there was implied in the contract for sale a condition that the plant be of merchantable quality. 24(b) ABG denies the term is implied and says that, in any event, the contract included an express provision on the invoice that the Plant was sold 'as is where is' and that there were no express or implied warranties.

Consideration 14 I turn now to the four complaints (A, B, C and D above) made by BioOne in relation to the statement of claim.

A - Things done on behalf of Dellbury 15 BioOne submits that the defence that Mr Muirhead was representing Dellbury is doomed to fail. Although the present evidence suggests that Mr Muirhead was representing ABG, it must be recalled that the present motion is not one for summary judgment. It is a motion for striking out parts of a pleading under O 11 r 16 set out at [4] above. 16 BioOne also submits that the relevant paragraphs of the defence plead conclusions. In respect of this submission, BioOne relies on O 11 r 2(a) of the Rules which provides: Subject to these Rules - (a) a pleading of a party shall contain, and contain only, a statement in a summary form of the material facts on which the party relies, but not the evidence by which those facts are to be proved; Mr Abadee accepts, however, that if ABG had simply denied in its defence that Mr Muirhead lacked actual or ostensible authority to make the representations on behalf of ABG, BioOne could have had no complaint about the pleading. He accepts that it is only by reason of the fact that ABG's defence has gone further by stating that Mr Muirhead was acting on behalf of Dellbury when he allegedly made the representations that there should be a striking out. BioOne's contention is that although ABG need not have pleaded on whose behalf Mr Muirhead made the representations, the defence is defective for having done so in the form of a conclusory statement without giving further facts to support that statement. 17 While I agree with Mr Abadee that a statement in the defence that Mr Muirhead was acting on behalf of Dellbury is a conclusory statement, in my opinion this does not matter, because the statement is a gratuitous and superfluous supply of information not necessary to the defence. There is a difference in the present respect between a statement of claim and a defence. While the Rules require a statement of claim to plead the material facts on which an applicant relies, the Rules allow a defence simply to deny an allegation of fact made in the statement of claim (see O 11 r 13 and O 11 r 18). The relevant paragraphs of the defence should not be struck out because they go further than a mere denial.

B - Conduct directed to a third party (Transport Solutions or Westfin), not BioOne 18 The complaint in relation to the defence's reference to any representations that were made by Mr Muirhead having been made to Transport Solutions or Westfin, being entities other than BioOne, is in a similar position. 19 There are allegations in the statement of claim that representations were made by Mr Muirhead to Mr Witherow, Robert Meagher, Colin Grant and Sandy Dunshea. The defence refers to "Robert Mair". It states, inter alia, that Mr Witherow contacted Mr Muirhead on behalf of Transport Solutions, that Mr Mair was a director of Transport Solutions, that Mr Mair and Mr Witherow inspected the plant on behalf of Transport Solutions and that any representations made by Mr Muirhead in relation to the Plant were made on behalf of Dellbury to Transport Solutions. The defence also states that Mr Grant and Mr Dunshea inspected the plant on behalf of Westfin Mortgages Pty Ltd (Westfin) and that any representations made by Mr Muirhead in relation to the Plant to Mr Grant or Mr Dunshea or to both of them were made on behalf of Dellbury to Transport Solutions or to Westfin. 20 Again, Mr Abadee accepts that a simple denial of the allegations in the statement of claim would not have given rise to complaint. The defence has gone further. I do not think that it falls foul of O 11 r 2(a) and O 11 r 16 by not going yet further and supplying further information.

C - Ostensible authority of agent 21 BioOne raises a different kind of objection to para 14 of the defence. That paragraph responds to para 7 of the statement of claim. Paragraph 7 of the statement of claim pleads various facts said to give rise to implied authority from ABG in favour of Mr Muirhead. The part of para 14 of the defence to which objection is taken is as follows: 14. In relation to paragraph 7 of the statement of claim, the respondent: (a) … (b) denies the allegations in subparagraph (b) and believes the allegations are untrue because the mere appointment as director does not of necessity imply authority to enter into transactions in respect of property in the respondent's possession; (c) says that, in relation to the allegations in subparagraph (c), George Muirhead may have been able to access invoice creating software but denies that he was equipped with such access to generate tax invoices to strangers for the purpose of entering into transactions in respect of property in the respondent's possession; (d) says that, in relation to the allegations in subparagraph (d), George Muirhead may have been able to access the respondent's letterhead but denies that he was equipped with such access for the purpose of entering to transactions in respect of property in the respondent's possession; (e) says that, in relation to the allegations in subparagraph (e), George Muirhead may have been able to access facsimile facilities but denies that he was equipped with such access to send tax invoices and other correspondence to agents or officers of the applicant; (f) … 22 Subparagraph 14(b) asserts that it is not true to say, as the statement of claim says, that by reason of Mr Muirhead's being a founding director and, for a time, chairman of directors of ABG, Mr Muirhead had implied authority to enter into transactions with strangers to ABG. The holding of the office of director or chairman of directors does not, without more, carry authority to bind the company. 23 In relation to sub-paras (c), (d) and (e) of para 14, I see no objection to them as a matter of pleading.

D - Sale of Goods actions 24 The final class of complaint made relates to paras 23(a), 23(e), 24(a)(i), 24(b) and 26(b) of the defence, which respond to allegations in the statement of claim that there was implied in the contract for sale of the Plant conditions as to fitness for purpose and that the Plant be of merchantable quality. The defence, in response to claims of breach of these implied conditions, states that the seller of the Plant was Dellbury and not ABG. Reliance is also placed on certain terms alleged to form part of the express terms of the contract for sale. The alleged express terms are as follows: Sale of used Biodiesel Batch Processing Plant as is where is. … no warranty expressed on [sic] implied 25 The words "as is where is" appear to relate to the condition and location of the Plant. The alleged express terms are unobjectionable as a matter of a pleading. Whether they will prove effective, in the circumstances, to exclude the implied conditions is another matter.

Conclusion 26 The motion should be dismissed with costs. 27 The motion has related only to a pleading issue. Still, O 11 r 1B(1) and Form 15B should not be overlooked. I note that any certification in accordance with Form 15B that proved to have been given wrongly would have serious consequences, such as a costs order against the legal practitioner. 28 The facts relating to authority promise to be complex. Before the parties incur the substantial expense that will be associated with the filing of affidavit evidence, and discovery, if any, I will propose to the parties the holding of a case management conference for the purpose of enabling elucidation of the issues. It may be that this will lead to the making of a direction that affidavit evidence be filed by ABG directed to its lack of authority defence before any further steps are taken or further costs incurred. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 21 May 2008 Counsel for the Applicant: Mr A J Abadee

Solicitors for the Respondent: Home Wilkinson Lowry

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Before

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Judgment (13 paragraphs)

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