Kation Pty Ltd v Lamru Pty Ltd

Was there an agreement in the terms alleged? 4Nortex Pty Limited, as trustee of the Trust, carried on the business of importing and selling manchester products throughout Australia. The Trust was established in May 1985. Originally, the directors of Nortex were Mr Lewis and Mr Graeme Dufty. Kation and Hirmanu Pty Limited, a company controlled by Mr Dufty, held 50 percent each of the units in the Trust. Mr Lamb joined the business as an employee in November 1990. 5In March 1991, Mr Dufty decided to terminate his interests in Nortex. There were discussions between Mr Dufty, Mr Lewis and Mr Lamb concerning that matter and ultimately it was agreed that Mr Lamb, or a company to be incorporated by him (which became Lamru), would acquire 80 percent of the units held by Hirmanu in the Trust (that is, 40 percent of all the units in the Trust) and Kation would acquire the other 20 percent. 6Paragraph 10 of the amended statement of claim pleads the agreement between Mr Lewis and Mr Lamb in these terms: In or about April 1991, it was agreed between Lewis on behalf of himself and Kation and Lamb either on behalf of himself or on behalf of himself and Lamru, yet to be incorporated, that: (a) Lamb either on his own behalf or on behalf of a company controlled by him yet to be incorporated (subsequently Lamru), would acquire from Kation 40% of the units in the Nortex Unit Trust for the total price of $580,000.00; (b) The said 40% of units in the Nortex Trust Unit would be transferred by Hirmanu at the direction of Kation directly to Lamb or his proposed company (subsequently Lamru); (c) Lamb, or his company yet to be incorporated (subsequently Lamru), would pay the said purchase price of $580,000.00 as follows:- (i) $130,000.00 to Hirmanu payable not before 30 June 1993; (ii) $200,000 to Hirmanu payable over 1991/1992; and (iii) the balance of $250,000.00 to Kation; (d) the aforesaid sum of $250,000.00 payable to Kation by Lamb or Lamru, yet to be incorporated, to be repayable out of future profits of the business of the Nortex Unit Trust in a manner to be agreed between Lewis and Lamb. PARTICULARS The agreement was oral. It was reached in a number of conversations between Lewis on behalf of Kation and Lamb either on his own behalf or on behalf of Lamru, yet to be incorporated, in the period March/April 1991. Paragraph 10A pleads that no subsequent agreement was reached concerning the manner in which the sum of $250,000 would be paid out of the profits of Nortex. 7In response to paragraph 10, paragraph 2 of the defence pleads: The defendants deny paragraphs 9 and 10, and say that Lamru acquired its 40% of the units of trust through an agreement between Lamb and Lamru on the one hand and Hirmanu on the other whereby Hirmanu would sell 80% of its 50% share in the unit trust to Lamb or Lamru in consideration of Lamb or Lamru paying to Hirmanu, by various means, a total of $580,000. The sum of $580,000 was later reduced by agreement between lamb [sic] and lamru [sic] and Hirmanu to $490,000, which sum has been paid in full. 8In support of this allegation in the defence, Mr Lamb gives evidence of a conversation he had with Mr Dufty to the following effect: Dufty: OK, so you are proposing to buy out my interest in Nortex and the 40% of Hirmanu's units for a total consideration of $580,000, is that right? Me: Yes, that is correct. I will pay the amount of $580,000 as follows: $150,000 to come from the share of profits for the 1990/91 year, $130,000 in a lump sum for the transfer of 40% of the units, $100,000 in the form of the cash account loan you owe to Peter Lewis which I will take over and $200,000 I will pay to you over the next 2 years out of my cash receipts from Nortex's business. Dufty: I accept. Mr Lamb gives evidence of subsequent disputes with Mr Dufty concerning this agreement, which he says were ultimately resolved. However, he denies that he ever reached an agreement to pay Mr Lewis or Kation an amount of money in respect of the acquisition of the units in the Trust (other than assuming Hirmanu's liability to repay the amount of $100,000). 9Kation filed affidavits from Mr Lewis and Mr Dufty in support of the allegations in paragraph 10 of the amended statement of claim. Those affidavits deposed to a number of conversations concerning the terms on which Mr Lamb would acquire a 40 percent interest in the Trust. Mr Young SC, who appeared for Lamru and Mr Lamb, took objection to the critical paragraphs of those affidavits largely on the basis of form. The conversations deposed to were not given in direct speech. More significantly, the evidence of most of the conversations was given in the form of conclusions. So, for example, paragraph 5 of Mr Lewis's affidavit sworn on 28 October 2002 states: As a result of a series of conversations that I had with Lamb in the period March-April 1991, culminating in about mid to late April 1991, the details of which I do not now recall but the effect of which I do recall, Lamb and I arrived at a consensus to the following effect: ... The paragraph goes on to describe the consensus. 10In response to Mr Young's objections, Mr Johnson, who appeared for Kation, indicated that he did not propose to read the critical paragraphs from Mr Dufty's affidavits. Moreover, Mr Johnson did not seek leave to adduce oral evidence from Mr Dufty concerning those matters. As a consequence, Mr Young indicated that he did not require Mr Dufty for cross-examination. 11In addition, Mr Johnson indicated that Mr Lewis would not be available for crossexamination due to ill health. Nonetheless, Mr Johnson pressed a number of paragraphs of Mr Lewis's affidavit in which Mr Lewis gave evidence of the terms of the agreement reached between himself, Mr Lamb and Mr Dufty. Having regard to both the form in which the evidence was given and the fact that Mr Lewis was not available for cross-examination, I rejected those paragraphs. The result of Mr Johnson's decision in relation to Mr Dufty's evidence and my rulings was that neither Mr Lewis nor Mr Dufty gave any evidence concerning the conversations by which the agreement pleaded in paragraph 10 of the amended statement of claim was alleged to have been reached. 12Mr Johnson nonetheless submitted that an agreement in the terms alleged could be inferred from three documents. 13The first is a typewritten document dated 28 June 1996, which was Mr Lamb's last day working at Nortex. The document was prepared by Mr Lamb and Mr Lamb handed it to Mr Lewis on that day. The document is headed "Settlement". It contains a table with a number of figures and under that table a number of notes. Note C reads: OTHER COMPONENT OF GOODWILL 600,000 OFFSET AGAINST $200,000 OWING (AFTER ALLOWING FOR GD/ML) Mr Johnson submits that this note is evidence that, at the time the note was prepared, Mr Lamb or Lamru owed Kation $200,000 in connection with Lamru's acquisition of 40 percent of the units in the Trust. In my opinion, there is no merit in that submission. There is nothing to tie the note to any agreement relating to the consideration payable by Lamru in respect of units in the Trust. The note makes no reference to that matter. The amount referred to is $200,000, not the $250,000 alleged in the amended statement of claim to be owing. Mr Lamb said in his affidavit that the reference to the $200,000 had nothing to do with the claim in this proceeding. He described it as "a composite figure that I was prepared to include in an overall settlement with Lewis". Mr Johnson cross-examined Mr Lamb, but never referred him to this document nor questioned him about his explanation of its reference to the $200,000. In those circumstances, I accept Mr Lamb's evidence concerning the note. 14The second document relied on by Mr Johnson is a handwritten document dated 3 June 1997 prepared by Mr Lamb. The relevant part of the document is in these terms: 03/06/97 GD-RL RL-ML Other 100 Upfront Other 70 ] PL ] 300 Other 200 2 years NZ 230 ] PL Profits 150 Upfront Profits 150 12 months Units 130 12/24 Mths Units 130 12/24 580 580 Mr Johnson submits that the reference to "200" is evidence that Mr Lamb accepted that he owed Mr Lewis $200,000, which I should infer was part of the $250,000 claimed by Kation in this proceeding. I do not accept that submission. The evidence given by Mr Lewis (to which no objection was taken) is that the document was prepared by Mr Lamb for the purpose of setting out the terms on which Mr Lamb was prepared to sell his share of the Nortex business to Mr Mark Lewis, Mr Lewis's son. The reference to "200" appears under the heading "GD-RL". It may be inferred that the reference to "GD" is a reference to Mr Dufty and the reference to "RL" is a reference to Mr Lamb. Having regard to the context, it may also be inferred that Mr Lamb was summarising the amount he had paid or was liable to pay to acquire his interest in the business. Moreover, the fact that that amount was under the heading "GD-RL" suggests that it was an amount which was paid or payable to Mr Dufty. It is certainly not evidence that Mr Lamb or Lamru agreed to pay Kation $250,000 or that $200,000 of that amount was still outstanding. 15The third document relied on by Mr Johnson is a document prepared by Mr Lewis for the purpose of a mediation between him and Mr Lamb. It is not clear when that document was prepared. The document consists of two tables which are interest calculations on two amounts. The first table is headed "LAMRU PTY LTD INTEREST ON CURRENT ACCOUNT WITH PETER LEWIS". The first entry in that table (dated 19 June 1991) is an amount of $100,000 and the balance of the table consists of interest calculations on that amount. In his affidavit evidence, Mr Lamb refers to the first entry as evidence that he agreed to take over Mr Dufty's loan account with Mr Lewis as part of the consideration provided by Lamru for the acquisition of 40 percent of the units in the Trust. 16The second table in the document is headed "LAMRU PTY LTD UNIT LOAN EX PETER LEWIS". The first item in that table (dated 19 June 1991) is an amount of $280,000. Mr Johnson submits that that amount is evidence of the loan owed by Lamru to Kation. In my opinion, it is not evidence of the loan at all. The amount is different. The loan is said to be "ex Peter Lewis". It is not said to be a loan owed to Kation. The document was prepared by Mr Lewis for the purpose of calculating interest on amounts Mr Lewis alleged were owing to him. The fact that a claim is made in mediation is not evidence that the claim is correct. Moreover, it was not suggested by Mr Johnson until final submissions that this particular document was evidence of the agreement on which Kation sues. In particular, that suggestion was never put to Mr Lewis in crossexamination. In my opinion, the rule in Browne v Dunn (1893) 6 R 67 precludes Mr Johnson from relying on the evidence now. 17It follows from what I have said that Kation has failed to prove the agreement on which it sues. For that reason alone, its claim must fail.

Is the claim statute barred? 18Even if Kation had succeeded in establishing an agreement in the terms alleged, in my opinion, the claim to recover $250,000 under that agreement was statute barred at the time this proceeding was commenced. 19Section 14 of the Limitation Act 1969 (NSW) provides that an action on a cause of action in contract "is not maintainable if brought after the expiration of the limitation period of six years running from the date on which the cause of action first accrues to the plaintiff ...". 20Section 54 of the Act relevantly provides: (1) Where, after a limitation period fixed by or under this Act for a cause of action commences to run but before the expiration of the limitation period, a person against whom (either solely or with other persons) the cause of action lies confirms the cause of action, the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period for an action on the cause of action by a person having the benefit of the confirmation against a person bound by the confirmation. (2) For the purposes of this section: (a) a person confirms a cause of action if, but only if, the person: (i) acknowledges, to a person having (either solely or with other persons) the cause of action, the right or title of the person to whom the acknowledgment is made, or (ii) ..., ... (3) ... (4) An acknowledgment for the purposes of this section must be in writing and signed by the maker. ... 21Kation submitted that the limitation period in respect of the claim for $250,000 had not expired at the time the proceedings commenced for two reasons. First, it submitted that the cause of action did not accrue until the date the final profit distribution was made, which was after 30 June 1997, or alternatively on demand, which was not made until 19 July 1996. On either view, the proceedings were commenced within six years of those dates. 22Secondly, Kation submitted that Lamru acknowledged that it was indebted to Kation in respect of the loan by the document entitled "Settlement" dated 28 June 1996 and the document dated 3 June 1997 that Mr Lamb prepared in connection with the proposal to sell his interest in Nortex to Mr Mark Lewis and that consequently it is entitled to the benefit of s 54 of the Limitation Act. 23In my opinion, neither of these submissions has any merit. 24An agreement that a certain amount will be repaid out of the future profits of a business in a manner to be agreed must, in the absence of further agreement, be interpreted as an agreement that the amount would be paid as and when those profits were distributed. It cannot be interpreted, as Mr Johnson submitted, as an agreement that the money could be repaid at any time while the business earned profits, since it would not be known whether profits would be earned in the future or not. 25Paragraph 17 of the amended statement of claim, which is admitted, pleads (in part) that the following amounts were distributed to Lamru from the profits of the business of the Trust for the financial years ended 1991 to 1993: 1990/91 $96,605.00 1991/92 $207,876.00 1992/93 $441,608.00 The profits in the first two years alone were sufficient to repay the loan of $250,000. In the absence of some further agreement, on Kation's case, the loan was repayable in those years. On that basis, the 6 year limitation period for recovery of the $250,000 had clearly expired by the time this proceeding was commenced. 26In my opinion, neither the document dated 28 June 1996 nor the document dated 3 June 1997 amounts to an acknowledgement by Mr Lamb or Lamru that one or other of them owed Kation the sum of $200,000, let alone the sum of $250,000. 27As I have said, the document dated 28 June 1996 was prepared as a settlement proposal. Also as I have said, Mr Lamb gives evidence, which I accept, that the reference to the $200,000 was a reference to a composite amount that Mr Lamb was prepared to agree to as owing by him in respect of various claims made by Mr Lewis. In those circumstances, the note cannot be treated as an acknowledgement by Mr Lamb or Lamru that either of them owed Kation the sum of $200,000 in respect of the claim pleaded by Kation. 28The same is true of the document dated 3 June 1997. That document sets out an offer that Mr Lamb made to Mr Mark Lewis. As I have said, the document is not an acknowledgement that Mr Lamb or Lamru owed Kation the sum of $200,000. It is equally consistent with the document that the amount has been paid. Moreover, the document suggests that the amount was paid or was payable to Mr Dufty. Lastly, the document could not be regarded as an acknowledgement to the person who has the cause of action (that is, Kation). Rather, it was a statement to Mr Mark Lewis in connection with a proposal that Mr Lamb sell his interest in Nortex to him. 29In addition to these matters neither the document dated 28 June 1996 nor the one dated 3 June 1997 was signed by Lamru or Mr Lamb as required by s 54(4) of the Limitation Act. 30A document is normally "signed" by a person if the person affixes his or her name or mark to the document for the purpose of adopting or authenticating the document: see Geo Thompson (Australia) Pty Ltd v Vittadello [1978] VR 199 at 218 per Menhennitt J. In the case of a corporation, it includes the signature of a person who has authority to sign the document on the corporation's behalf, which Mr Lamb undoubtedly did in the case of Lamru: s 127 of the Corporations Act 2001 (Cth). 31In the case of contracts for the sale or other disposition of land, the requirement, which is now imposed by s 54A(1) of the Conveyancing Act 1919, that there be some memorandum or note of the agreement in writing "signed by the party to be charged" has been interpreted as being satisfied where the person's name has been included on the document and the person or his or her agent has expressly or implicitly represented that the name can be treated as a signature. For example, in Leeman v Stocks [1951] Ch 941, Roxburgh J found that a contract had been signed by the vendor where an auctioneer had simply inserted the vendor's name in the contract and given it to the purchaser to sign. In reaching that conclusion, his Honour said (at 949): ... when the auctioneer obtained the purchaser's signature, neither the purchaser nor the auctioneer, acting on behalf of the vendor, ever intended any other signature to be added. It was the intention of both the purchaser and the vendor's agent, the auctioneer, that this should be the final written record of the contract. However, the principle applied by Roxburgh J has no application "to any document which is not in some way or other recognizable as a note or memorandum of a concluded agreement": Pirie v Saunders (1961) 104 CLR 149 at 154. The basis of the principle appears to be that where a party intends a document which includes his or her name to be the final memorandum of the contract binding the vendor and the purchaser, he or she cannot escape from the contract by claiming that it was not signed. 32A similar principle has been applied to cases under s 54 of the Limitation Act. For example, in McGuren v Simpson [2004] NSWSC 35, Harrison M held that the defendant had acknowledged a preexisting liability to account to the plaintiff for money she had received when she sent an email which said "Yes, I spent the money and I shouldn't have". The defendant's name appeared in the "From" field of the email. Harrison M concluded that that was sufficient to be a signature for the purposes of s 54. In reaching that conclusion, her Honour said (at [22]): As [the defendant's] name appears in the email and she expressly acknowledges in the email as an authenticated expression of a prior agreement, the email is recognisable as a note of a concluded agreement 33Whether the principle in Leeman v Stocks can be applied in those terms to cases under s 54 of the Limitation Act is open to some doubt. The claim in McGuren did not depend on characterising the email as a note of a concluded agreement. Rather, it depended on whether the defendant had confirmed the cause of action. In my opinion, it would be preferable to focus on the (objective) purpose for which a person's name is added to the document. If a person inserts his or her name on a document which is an acknowledgement of the type contemplated by s 54(2) of the Limitation Act and if the name was inserted for the (objective) purpose of adopting the acknowledgement, then in my opinion it can be said that the document was signed by the person for the purposes of s 54(4). That is because, by including his or her name, the person intended to adopt the document, which is the very purpose for which a signature is required. 34However, even accepting that principle, neither of the documents relied on by Kation was signed by Mr Lamb or Lamru. Lamru's and Mr Lamb's names appear on the document dated 28 June 1996. However, it is clear that those names are simply headings to columns which identify amounts payable to or by them. There is nothing to suggest that the names were included for the purpose of acknowledging Kation's right or title to any of the amounts shown on the schedule. Rather, the names were included for the purpose of explaining a proposal that Mr Lamb was willing to accept in order to reach a settlement with Mr Lewis. 35Lamru's name does not appear on the document dated 3 June 1997 at all. Mr Lamb's initials do appear on the document. But again, the initials form part of the heading to two columns. There is no basis for thinking that they were included for the purpose of acknowledging the claim that Kation makes in these proceedings. As I have said, the columns appear simply to identify the amounts that Mr Lamb claims he has paid or incurred to acquire the interest in Nortex that he was proposing to sell to Mr Mark Lewis.

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. Decision last updated: 18 April 2012