Combined Rural Traders v Walsh's Rural & 5 Ors

DECISION : (1) The plaintiff is to file and serve an amended statement of claim within 14 days; (2) The third to sixth defendants' notice of motion filed 10 November 2005 is dismissed; (3) The plaintiff is to pay the costs thrown away by the amendments to the statement of claim; (4) The third to sixth defendants are to pay the plaintiff's costs of the motion.

CATCHWORDS : Dismiss plaintiffs' statement of claim as against 3rd, 4th, 5th and 6th defendants - agency

Civil Procedure Act 2005 (NSW) - s 64 LEGISLATION CITED : Fair Trading Act 1987 (NSW) - s 70(4) Trade Practices Act 1973 (Cth) - ss 75B & 84(4) Uniform Civil Procedure Rules 2005 (NSW) - Parts 13.4(1) & 14.28(1)

Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 Dey v Victorian Railways Commissioners (194) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Insurance Australia Limited v Motor Trader's Association of New South Wales [2006] FCA 323 CASES CITED : Jebeli v Modir and Golyaei [2005] NSWCA 184 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, 93 ALR 385, 2 ACSR 161, 8 ACLC 611 Re Haycraft Gold Reduction and Mining Co [1900] 2 Ch 230 Ronald Wallace Gould and Another v Peter Vaggelas and Others (1984) 157 CLR 215 Wickstead v Browne (1992) 30 NSWLR 1

Combinded Rural TradersPty Limited (Plaintiff)

Walsh's Rural Pty Limited (First Defendant)

Colin Douglas Schiller (Second Defendant)

PARTIES : Jacqueline Margaret Platt Schiller (Third Defendant)

Harold Dean Schiler (Fourth Defendant)

Lorraine Mary Schiller (Fifth Defendant)

Walsh's Seed Pty Limited (Sixth Defendant)

Mr J Simpkins SC (Plaintiff) COUNSEL : Mr N Cotman SC (1st Defendant) Mr J Priestly (3rd-6th Defendants)

Gadens Lawyers SOLICITORS : (Plaintiff) Stone & Partners (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

14170/2004 - COMBINED RURAL TRADERS PTY LIMITED v WALSH'S RURAL PTY LIMITED & 5 ORS

JUDGMENT (Dismiss plaintiff's statement of claim as against 3rd, 4th, 5th and 6th defendants - agency) 1 HER HONOUR: There are two notices of motion before the Court. By notice of motion filed 10 November 2005 the third, fourth, fifth and sixth defendants seek firstly, an order that the plaintiff's claim be dismissed as against them; and secondly, in the alternative, that the plaintiff's claim as against the third, fifth and sixth defendant be dismissed. By notice of motion filed 27 February 2006 the plaintiff seeks that leave be granted to amend its statement of claim pursuant to s 64 of the Civil Procedure Act 2005 (NSW) (CPA). The plaintiff relied on the affidavit of Mayank Gupta dated 27 February 2006. The third to sixth defendants relied on the affidavit of Allan Edward Cowley sworn 8 August 2005. Default judgment has been entered against the first and second defendants. 2 The plaintiff is Combined Rural Traders Pty Limited (Combined Rural). The first defendant is Walsh's Rural Pty Limited (Walsh's Rural). The second defendant is Colin Douglas Schiller. The third defendant is Jacqueline Margaret Platt Schiller. Jacqueline is Colin's wife. The fourth defendant is Harold Dean Schiller. Harold is Colin's father. The fifth defendant is Lorraine Mary Schiller. Lorraine is Colin's mother and married to Harold. The sixth defendant is Walsh's Seeds Pty Limited (Walsh's Seeds). The submissions proceeded upon the pleading in the amended statement of claim (ASC) as this takes the plaintiff's case at its highest. 3 Combined Rural supplied goods to Walsh's Rural pursuant to an agreement. Colin Schiller provided a written guarantee in relation to the performance of the obligations by Walsh's Rural in relation to that agreement. Combined Rural has obtained judgment against the first and second defendants. The judgments remain largely unsatisfied.

The law 4 The third to sixth defendants rely on Parts 13.4(1) and 14.28(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Part 13.4(1) provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are if the proceedings are frivolous or vexatious, or no reasonable cause of action is disclosed, or the proceedings are an abuse of the process of the court. 5 Part 14.28(1) of the UCPR provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. The court may receive evidence on the hearing of an application for an order under Rule 14.28(1). 6 If the third to sixth defendants are successful and the pleading is found to disclose no reasonable cause of action, then the application to file of the ASC will be refused. 7 A summary order which prevents a party from pursuing a claim according to the ordinary course of procedure ought to be made only in a very clear case where there is no real question to be tried because the claim is clearly untenable - see Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. 8 Combined Rural Traders referred to Wickstead v Browne (1992) 30 NSWLR 1 at 11, where the Court of Appeal (per Handley and Cripps JJA) stated: "The principles upon which a court should act in determining an application under Supreme Court Rules Pt 13, r 5 [as it then was] are well-established. A convenient summary is to be found in the well-known decision in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. Barwick CJ said (at 128-129): "The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and it is not to be used except in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion ... the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, ... to exercise its powers of summary dismissal - is clearly demonstrated." The respondent submitted that the appellants had failed to adduce any evidence or any admissible evidence on a number of issues and that the appeals should therefore be dismissed. Again it seems to us that those submissions misconceived the nature of the court's jurisdiction to dismiss summarily a plaintiff's action. By launching such an application a defendant undertakes the burden of establishing that there is no triable issue. On such an application the defendant bears the onus of proof and where the facts are peculiarly within the defendant's knowledge the plaintiff's action should not be dismissed because of gaps in the case if the necessary evidence might be obtained as a result of discovery or interrogatories." 9 Combined Rural submitted that this is the situation in this case. What occurred between the directors of Walsh's Rural and Walsh's Seed is peculiarly within the defendants' knowledge. Interrogatories and discovery have not yet taken place.

The pleadings 10 As previously stated, Combined Rural sold goods to Walsh's Rural. Colin Schiller provided a written guarantee in respect of payment for goods supplied to Combined Rural pursuant that agreement. Jacqueline Schiller, Harold Schiller and Lorraine Schiller are the wife, father and mother of Colin Schiller respectively. Walsh's Seeds is a company of which Colin Schiller was a director. The directors of Walsh's Rural are Colin Schiller and John Hughes. The directors of Walsh's Seed are Colin Schiller, Harold Schiller and Lorraine Schiller. Harold and Lorraine Schiller own 2/3's of the shareholding in Walsh's Seed. The other 1/3 of shares is owned by Ozchem. 11 The director of Ozchem is Colin Schiller. The shareholders of Ozchem are Colin Schiller and his wife Jacqueline Schiller. Ozchem owns land at Ruthland Street known as "the skating rink land". The common link between Walsh's Rural, Ozchem and Walsh's Seeds is Colin Schiller. It is alleged that Colin Schiller was acting for Jacqueline Schiller, Harold Schiller, Lorraine Schiller and Walsh's Seeds as agent in making representations which were wider than those contained in the written guarantee. Combined Rural asserted that those representations had the effect of guaranteeing Walsh's Rural's debt. 12 The Schillers and Walsh's Seeds submitted that the proposed ASC pleads agency as a bare assertion without pleading any material facts. Further the Schillers and Walsh's Seeds submitted that the pleading in the ASC does not support a claim for damages. 13 Combined Rural Traders needs to establish: firstly, conduct on the part of the defendants; secondly, conduct that is misleading or deceptive; thirdly that there was reliance on the conduct and fourthly, loss or damage caused by the conduct - see Ronald Wallace Gould and Another v Peter Vaggelas and Others (1984) 157 CLR 215, Jebeli v Modir and Golyaei [2005] NSWCA 184.

The representations 14 There are four representations pleaded. The first representation is set out in the ASC at [24]: "On 4 February 2003 and on 16 February 2003, Colin Schiller on behalf of Walsh's Seeds represented that: (a) Walsh's Seeds or its nominee would acquire the Shares; (b) Walsh's Rural's business operations would be split into 2, namely the business operations at Toowoomba on the one part and the business operations at Dalby on the other; (c) The Toowoomba business operations would be taken over by Walsh's Seeds; and (d) The restructuring would enable the indebtedness to Plaintiff to be discharged and Walsh's Rural business operations (including those taken over by Walsh's Seeds) to be adequately funded (First Representation)." - see also [ASC 25]. 15 The second representation pleaded is that on 4 February 2003 and 16 February 2003 Colin Schiller on behalf of Walsh's Seeds represented that Walsh's Seed would pay or cause to be paid $12,000 to Combined Rural in reduction of the debt owing by Walsh's Rural to Combined Rural [ASC 25] - see also [ASC 35]. 16 The third representation pleaded is that in May 2003 Colin Schiller made representations on behalf of Walsh's Seeds and Mr and Mrs Schiller that firstly, Walsh's Seeds or in the alternative Mr and Mrs Schiller or their nominee would acquire the shares; secondly, Walsh's Rural business operations would be split into two, namely the business operations at Toowoomba on the one part and the business operations at Dalby on the other; thirdly, the Toowoomba business operations would be taken over by Walsh's Seeds; fourthly, Mrs and Mrs Schiller would inject capital into Walsh's Rural; and fifthly, the restructuring would enable the indebtedness to Combined Rural to be discharged and Walsh's Rural business operations (including those taken over by Walsh's Seeds) to be adequately funded [ASC 39]. 17 The fourth representation pleaded is that on 23 May 2003 Colin Schiller in his own capacity and on behalf of Jacqueline Schiller represented that Colin Schiller and Jacqueline Schiller would apply the proceeds of the sale of the property known as 879-879A Ruthven Street, Toowoomba, Queensland (the skating rink land) towards Walsh's Rural's capital [ASC 54]. 18 These four representations are alleged to have been misleading and deceptive and in breach of the Trade Practices Act (TPA) and equivalent sections of the New South Wales and Queensland State legislation. 19 Harold Schiller and Lorraine Schiller are alleged to have accessorial liability for May 2003 representation (the third representation). The February representations, the first May representations, and the second May representations were alleged to have been made by Colin Schiller but made "on behalf of" others. Conduct is within the scope of a person's actual authority; within the scope of a person's apparent authority; at the direction of a person; with the consent of a person; or with the agreement of a person is conduct attributable to the person conferring the authority - see s 84(4) TPA and s 70(4) FTA. 20 Accessorial liability exists where the person has firstly, aided, abetted, counselled or procured the contravention; secondly, induced the contravention; thirdly, been knowingly concerned with the contravention; and fourthly, conspired with others to effect the contravention - s 75B TPA. It is pleaded that insofar as the first and second representations were as to future matters Colin Schiller and Walsh's Seeds did not have reasonable grounds for making the representations [ASC 28 & 29].

Agency 21 The third to sixth defendants submitted that the material facts in relation to agency are not pleaded to support the assertions that the second defendant had authority to and therefore was acting on behalf of the third defendant, let alone the fourth to sixth defendant. As the defendants rightly point out, the agency must be constituted either by actual authority conferred by the alleged principal on the agent, or by conduct of the principal that rationally permits the plaintiff to proceed on the basis that the alleged agent has been authorised by the principal to act on the principal's behalf in relation to the relevant matter. 22 According to the third to sixth defendants the absence of any pleading as to how the agency was constituted is embarrassing because neither the origins of nor the scope of the agency is known. Hence, it is not known whether the transaction pleaded is or is not within the scope of the actual or implied authority. 23 Agency is pleaded in paragraph [23] in respect of Walsh's Seeds, paragraph [38] in respect of Harold Schiller and Lorraine Schiller and paragraph [53] in respect of Jacqueline Schiller. It is pleaded that at all material times, Colin Schiller was a director of Walsh's Seeds and authorised to act on Walsh's Seeds behalf [ASC 23]. In about May 2003 Colin Schiller was authorised to and did act on behalf of Mr and Mrs Schiller in respect of communications with Combined Rural regarding a proposed acquisition of the shares by them and a proposed injection by them of capital into Walsh's Rural for the purposes of facilitating an acquisition by Walsh's Seeds of the Toowoomba business [ASC 38]. Colin Schiller was authorised to and did act on behalf of Jacqueline Schiller in communications with Combined Rural in respect of the manner of application of the net proceeds of sale of the property she and Colin Schiller jointly owed at 879-879A Ruthven Street, Toowoomba [ASC 53] 24 The third to sixth defendants referred to Ford's Principles of Corporations Law 9th ed at [13.080] where the learned authors state that "In any company, whether public or proprietary, with several directors a director acting individually had no usual authority to bind a company: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205; 93 ALR 385 at 425; 2 ACSR 161 at 201; 8 ACLC 611; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 303; (1990) 3 ACSR 649 at 672; 9 ACLC 324 on appeal [1992] 2 VR 279 at 361; (1991) 6 ACSR 464 at 476; 10 ACLC 253. See also Re Haycraft Gold Reduction and Mining Co [1900] 2 Ch 230." Ostensible or apparent authority has not been specifically pleaded. 25 The third to sixth defendants further submitted that the fact that a person is a director of a company does not as a matter of law, without anything further result in the conclusion that the person's act is the act of the company or an act for the company. 26 In Northside Developments at 205 Dawson J stated: "Nor does an ordinary, individual director of a company have any ostensible authority to bind the company. A managing director may have wide powers, actual or ostensible. In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd it was held that a person who had assumed the powers of a managing director of a property company with the company's approval had apparent authority to engage architects on the company's behalf, this being within the ordinary ambit of the authority of a managing director of a company of that kind. And even ordinary directors may have quite significant functions entrusted to them by the company, although usually these are of a more or less formal nature, such as affixing the company seal to documents which the company requires to be executed: see Lennard's Carrying Company Ltd v Asiatic Petroleum Co Ltd, at 715. But the position of director does not carry with it any ostensible authority to act on behalf of the company. Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it." 27 In Brick and Pipe at 303 Ormiston J stated: "…The fact that the general law denies that directors can determine any matter except by way of a meeting imposes no restriction on a company's powers, only a restriction on the powers of those who are appointed directors of the company. As Dawson J. restated recently, "Directors can only act collectively as a board and the function of an individual director is to participate in decisions of the board": Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146, at p. 205; 64 ALJR 427, at p. 452. It would be remarkable if this well-recognised rule should have been abolished by s68, for it is fundamental to an understanding of the manner in which directors are obliged to act." 28 And McGarvie, Marks and Beach JJ at 361 stated: "It may be accepted, as was explained by Dawson J. in Northside, that persons merely holding the office of director are not thereby authorised to commit the company to contracts. At p. 245, Dawson J. observed that an ordinary individual director of a company does not have ostensible authority to bind the company. However, the decision of the learned judge rested on his finding that Goldberg was more than an ordinary director. By virtue of his control of Arnsberg which owned all the shares in Brick and Pipe, Goldberg assumed the role of managing director with the acquiescence of the members of the board of directors who regarded him as the "owner" of Brick and Pipe." 29 It is my view that Combined Rural Traders has properly pleaded "agency". What was said between the directors of Walsh's Seeds and Ozchem about whether or not Colin Schiller has authority to act as their agent are facts which is peculiarly within their knowledge. It may be that Colin Schiller as in Brick and Pipe assumed the role of managing director. This depends on the factual circumstances which are matters ascertained at trial.

What do the representations mean? 30 The third defendant's complaint is that even on Combined Rural Traders' own pleading of the representations there is no stated time in which performance had to take place. Combined Rural Traders submitted that because the representations were made as to future matter that did not eventuate, it bears the onus of proving reasonable grounds. 31 Prior to the introduction of s51A TPA an applicant could not successfully plead misleading and deceptive conduct, thereby invoking s52, solely by asserting a representation as to a future matter and then asserting that matter did not eventuate. The effect of s51A however is to deem a representation as to a future matter misleading unless the party making the representation has reasonable grounds for making it. Subsection (2) effectively places upon the respondent the burden of proving reasonable grounds existed for making the representation. Failure to adduce such evidence will result in the representation being deemed misleading and as such a breach of s52 TPA (see Insurance Australia Limited v Motor Trader's Association of New South Wales [2006] FCA 323). In my view it is arguable that representations were made as to a future matter.

Damages 32 Combined Rural Traders claim that Walsh's Rural has insufficient capital to pay the debt owing to it in its capacity as a creditor of Walsh's Rural and that that amount of money has not been repaid by Colin Schiller. As I understand it, Combined Rural Traders continued to supply goods to Walsh's Rural and it is alleged because of the various representations made by Colin Schiller. Thus, the alleged representations induced Combed Rural Traders to a course of conduct that caused loss. 33 Costs are discretionary. Costs usually follow the events. The third to sixth defendants are to pay the plaintiff's costs of the motion. The plaintiff is to pay the costs thrown away by the amendments to the statement of claim.

(1) The plaintiff is to file and serve an amended statement of claim within 14 days.

(2) The third to sixth defendants' notice of motion filed 10 November 2005 is dismissed.

(3) The plaintiff is to pay the costs thrown away by the amendments to the statement of claim.

(4) The third to sixth defendants are to pay the plaintiff's costs of the motion. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.