Melbourne v Relativity Pty Ltd

Issues 13 It is convenient to identify the issues before further considering some factual matters in more detail. In order to have the notice set aside the applicant must demonstrate that he has a counter claim, set-off or cross demand equal to or exceeding the amount of the judgment debt which could not have been set up in the action or proceedings in which the judgment or order founding the debt was obtained. I will, in these reasons, for convenience refer simply to the applicant's claim. There was no issue in these proceedings that the claim the applicant seeks to pursue against Relativity and Mr Bingham could not have been set up in the proceedings giving rise to the order requiring payment of $24,272.50. 14 The applicant's claim is, in most respects, set out in a statement of claim filed on 11 June 1998 in the District Court of New South Wales. They are, in summary: (i) Mr Bingham breached the agreement of 13 May 1993 by failing to pay all monies that had been agreed would be paid. (ii) Relativity or Mr Bingham agreed on or about 24 December 1993 to pay to the applicant the sum of $950,000 and failed to do so. This was pleaded as having arisen from an oral agreement between the applicant and Mr Bingham in December 1993. However in these proceedings the matter proceeded on the footing that to the extent that the agreement was express it was the written agreement dated 4 February 1994. It was contended that the agreement, as amended on 16 December 1994, was breached in that the full amount was not paid. In particular, it had been agreed in December 1994 that the amount of $300,000 would be paid and it was not. It was also alleged that it was agreed the restaurant would be conducted as a joint venture between the applicant and either Relativity or Mr Bingham and that one or both breached an implied term to do all that was necessary to carry the joint venture into effect. (iii) The applicant was the owner and in possession of certain property in the restaurant and Mr Bingham committed a trespass to that property when he effected entry on 13 October 1995. 15 An additional claim was identified in these proceedings. It was that the business conducted by the applicant at the cafe depended upon the continued operation of the restaurant. That business suffered when the restaurant ceased trading. The entry of the restaurant on 13 October 1995 was unlawful, was intended to injure the applicant, and involved a conspiracy between Mr Bingham and Relativity which resulted in the applicant suffering economic loss.

The first cause of action - breach of the 13 May 1993 agreement 16 Whether the applicant has a prima facie claim based on the alleged breach of the 13 May 1993 agreement may be disposed of briefly and on a narrow factual foundation. I presently assume that the agreement was one between the applicant and Mr Bingham personally and obliged Mr Bingham to invest, in total, $140,000. I further assume that any failure on Mr Bingham's part to do so might sustain a cause of action against him notwithstanding that a later agreement was entered into dealing broadly with the same subject matter and that there is no identifiable loss suffered by the applicant as a result of any failure to lend the full amount. 17 Between 30 October 1992 and 29 April 1993 Relativity made payments totalling $48,615.62 to a variety of payees but in relation to the business activities of the applicant. Plainly this amount is the amount of $50,000 referred to in the penultimate paragraph of the letter of 18 May 1993. I earlier indicated that on 18 May 1993 a further sum of $31,900 was paid by Relativity to the applicant in satisfaction of the obligation to pay an additional amount of $90,000. On 17 August 1993 Relativity paid further amounts totalling $58,000. One was a bank cheque for $10,000 to the applicant and another for $48,000 paid to Coachland. In an affidavit sworn in these proceedings Mr Bingham explained why the amounts paid on 17 August 1993 totalled $58,000 rather than $60,000 which had been requested earlier that month by the applicant. It is an explanation that is likely to be accepted even though a recital in the agreement dated 4 February 1994 spoke of sums already advanced as "totalling approximately $60,000". The applicant submitted, in fact, the total of $140,000 was not paid because the $31,900 should not be treated as part of the payment of the residual amount of $90,000 referred to in the letter of 13 May 1993. In my opinion it is highly likely that the reference to the "date of this letter" in the letter itself would, at trial, be viewed as a reference to 13 May 1993. It follows that, in my opinion, any cause of action of the type pleaded in the statement of claim and based on the agreement of 13 May 1993 does not, in my opinion, have any real prospect of success.

Second cause of action - breach of the 4 February 1994 agreement as varied on 16 December 1994 18 As with the first cause of action, the resolution of the question whether the applicant has a prima facie claim based on an alleged breach of the 4 February 1994 agreement as varied may be disposed of briefly and on a comparatively narrow factual foundation. Again I will assume that the applicant has a cause of action arising from a failure to advance all loan moneys to Iona. A payment of $100,000 was made by Relativity on 4 February 1994 when the agreement of that date was made. Between 28 February 1994 and 29 December 1994 payments were made totalling $757,795.48. Paragraph 5 of 16 December 1994 agreement contemplated a further advance of $300,000. The clause referred to payments in the sum of $63,455 in November 1994, $50,000 on 1 December 1994, $42,000 at the time of exchange and a further $88,000 by 31 December 1994. These sums total $243,455. These sums were in fact paid though it was common ground that the further amount of $56,545 needed to make up the total of $300,000 referred to in clause 5 was never paid. 19 However it can be seen that paragraph 5 identifies the obligation of Relativity as being to advance the balance "when excess funds are available to Relativity to enable it to make such payments as soon as it is practicable and hopefully by 31 January 1995". An issue emerged in these proceedings whether the financial circumstances of Relativity were such that this provision, which creates a condition precedent to the obligation to lend the residue of the identified funds, was satisfied. 20 Various financial records of Relativity were tendered to demonstrate that no excess funds were available to enable it to make the final payment of $56,545. The bank records of Relativity establish that there were insufficient funds, by a significant margin, to make this final payment from that source. While the balance sheet of Relativity shows that loans well in excess of $56,000 were made during the financial year concluding 30 June 1995, those loans were made from funds that had been borrowed against real estate. Mr Bingham's evidence was that funds were not available in that financial year to lend the total amount referred to in clause 5 of the December 1994 agreement. 21 It is to be recalled that clause 14 of the December 1994 agreement provided a mechanism that enabled Relativity to secure from Iona the costs of borrowing funds if that was done by Relativity to pay all or any of $300,000. However it is clear, in my opinion, that having regard to clause 14, the expression "when excess funds are available to Relativity" in clause 5 is a reference to funds other than borrowed funds. Indeed clause 14 expressly states Relativity was not obliged to borrow funds to satisfy the obligation imposed by clause 5 to lend $300,000. Relativity was not obliged under clause 5 to make payment of the entire $300,000 if the only source for payment of the whole or part of that amount were funds that Relativity borrowed. I am satisfied that it is probable that at no relevant time Relativity had funds, other than funds it might have derived from borrowing, available to make the final payment of $56,545. It follows, in my opinion, that it has not been demonstrated, even arguably, that Relativity breached clause 5 of the agreement of 16 December 1994. Thus the applicant has not established that the second cause of action has any real prospects of succeeding. 22 The contention that Relativity breached an implied term to co-operate as a joint venturer (apart from giving effect to the obligations expressly imposed by the agreement) has, in my opinion, little prospect of succeeding. There is no express terms to that effect and is not likely to be implied: see Australis Media Holdings Pty Ltd v Telstra Corporation Holdings Pty Ltd (1998) 48 NSWLR 104.

The third and fourth causes of action - legal consequences of entry on 13 October 1995 23 The remainder of the case said to constitute a claim for the purposes of s 40(1)(g) arises from the conduct of Mr Bingham on 13 October 1995 when he entered the restaurant on behalf of Relativity and took from it property in purported exercise of a right of a secured lender arising from default by the borrower, Iona. It is not in issue that Iona had not paid any interest for the funds it had been lent. It is contended by the applicant that, at least prima facie, the entry was unlawful. 24 It was submitted by counsel for the respondents that the entry was lawful and arose from default by Iona under the 16 December 1994 loan agreement. Default occurred, it was submitted, because the terms of the agreement made on 16 December 1994 required payment of interest monthly in arrears. Any failure to pay interest on that basis was a default entitling Relativity to exercise rights of entry subject to notice being given and other conditions identified in clause 17 of that agreement which are not presently relevant. Counsel for the applicant submitted that the 16 December 1994 agreement, properly construed, permitted the borrower to refrain from paying interest on the basis that the interest would be capitalized and form part of the monies advanced and, in those circumstances, the obligation of the borrower was to repay the advance by 31 December 1997. 25 In my opinion, that latter submission is arguably correct having regard to the terms of the agreement of 16 December 1994. Clause 4 states that in the event that interest was not paid monthly in arrears the amount not paid was to be dealt with in a particular way, namely capitalized and treated as part of the "Separate Advance". Clause 2(b) provides that the "Total Advance" (which includes each of the "Separate Advance(s)") was to be repaid by 31 December 1997. On one view, the scheme created by the 16 December 1994 agreement was that the borrower could elect not to pay interest monthly in arrears and that election would result in the interest forming part of the total advance which had to be repaid by the date specified in clause 2(b). On this latter construction of the agreement Iona was not in default when it failed to pay interest which was a condition precedent to any lawful entry on the part of Mr Bingham and Relativity. Counsel for the respondents referred to the judgment of Powell J in Sibard Pty Ltd v AGC (Advances) Ltd (1992) 6 BPR 13,178 in support of the contention that the borrower was in default when interest was not paid monthly in arrears. However the terms of the security document considered by Powell J made plain that any failure to pay interest and its subsequent capitalization did not result in the waiver by the lender of any rights under the security. As to the capitalization of interest see also Re Mangan; Ex parte Andrew (1983) 123 ALR 633, Silkdale Pty Ltd v Long Leys Co Pty Ltd (1995) 7 BPR 14,414 and Metway Leasing Ltd v Arnoya Holdings Pty Ltd; Metway Leasing Ltd v Baystan Pty Ltd, unreported, 26 April 1995, Supreme Court of New South Wales. 26 The trespass pleaded in the District Court statement of claim is that the applicant was the owner of and entitled to possession of the goods which were removed or otherwise dealt with by Mr Bingham on 13 October 1995. In these proceedings the focus of the submissions of both counsel was on whether there was evidence of ownership by the applicant of any of the goods in question. Though the tort concerns interference with possession, see Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 and Gollan v Nugent (1988) 166 CLR 18, it appears to have been assumed that if the applicant owned some or all of the goods which were removed or otherwise interfered with then the conduct of Mr Bingham affected the applicant's possession of them. It might be thought that even if the applicant had the legal title in goods which were used in the restaurant, their use by Iona on premises it leased had the result that the legal possession of the goods was with Iona as occupier of the premises: see National Crime Authority v Flack (1998) 156 ALR 501 especially at 511 per Heerey J. However even if that were so it is at least arguable that the possession by Iona arises from a gratuitous bailment and the applicant, as bailor, had an immediate right to possession and a right to sue in trespass. It is unnecessary in these proceedings to delve into whether that is because a gratuitous bailor's cause of action is founded on its right of possession or additionally to protect the bailee's possession: see Penfolds Wines Pty Ltd v Elliot (supra) at 216-217 per Latham CJ and Dixon J at 224 - 228. This is probably a case where the court hearing the claim would have to assess the damages arising from a trespass to goods as best it could: see e.g. F C Wheeler v Riverside Coal Transport Co Pty Ltd (1964) QdR 113 at 124 per Philp ACJ. 27 The evidence is obscure as to what goods the applicant owned that were affected by the conduct of Mr Bingham on 13 October 1995. The applicant's evidence was that he invested $200,000 of his own money in probably January and February 1995 and that at this stage funds were required to pay tradesmen to finish what was probably the fitout of the restaurant. The quality of the evidence led in proceedings such as these has to be assessed having regard to the nature of the proceedings themselves. As Dixon CJ, McTiernan and Windeyer JJ said in Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350: Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter claim, set off or cross demand. 28 For recent examples of the application of this approach see also Re Phyllis Graves; Ex parte Phyllis Graves v Kevin Seggie [1997] FCA 1154; Andrew Cecil Thorpe v Bristile Ltd [1997] FCA 1369, Re Shaddock; Ex parte Commonwealth Bank of Australia [1998] FCA 355; Re Bruce William Naghten and Irene Margaret Naghten; Bruce William Naghten and Irene Margaret Naghten v Commonwealth Bank of Australia [1998] FCA 635; Fred Boylan v Steven Farthing [1998] FCA 1342. 29 I should note that I rejected the tender by counsel for the applicant of both an affidavit jointly sworn by the applicant and Mr Martin in other proceedings and related material. The affidavit contained a schedule asserting that certain goods were paid for by the applicant or Bad Dog Corporation though the fact of payment asserted in the schedule was not attested to by the deponents to the affidavit. I rejected the tender because I did not consider the mere assertion in the schedule provided a sufficient foundation to prove payment even for present purposes. 30 It is clear from the evidence that in early 1995, the applicant was representing to Mr Bingham that further funds were necessary to reach a point where the restaurant could open for business. Even accepting the paucity of evidence concerning the investment of funds by the applicant in this period, there is nonetheless sufficient material from which can be inferred, for the purposes of proceedings such as these which do not involve a preliminary trial of the claim: see Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135, that the applicant spent his own funds, being part of the sum of $200,000, on at least part of the fitting out of the restaurant and the acquisition of plant and equipment to enable it to commence operating. Arguably the applicant was the presumptive owner and remained in legal possession or had a legal right to possession of the property acquired with his funds. 31 The damage pleaded in the statement of claim was for items "broken damaged and destroyed" and though particulars were not set out, it was pleaded they would be provided. By the time this application was heard, they had not been. It is not entirely clear whether damages are sought for anything other than physical damage to property though the pleadings suggest not. Exemplary damages are not sought: see Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584 and XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1984) 155 CLR 448. The evidence of the physical damage to the property of either the applicant or Iona as a result of the entry by Mr Bingham is limited. Mr Martin stated in an affidavit: Some of the goods (Mr Bingham) removed from the premises including extensive documentation relating to Iona Corporation and other businesses were not recovered and numerous other goods including our expensive stereo, video, lighting and technical equipment were sabotaged or destroyed beyond repair by (Mr Bingham). 32 In addition, there were, in evidence, photographs of the premises before and after the entry. They show, albeit only by way of impression, that there was at least extensive interference with, and probably some damage to, the fixtures, fittings and plant and equipment in the restaurant. While some of the fixtures and fittings and plant and equipment were items one would expect in a restaurant such as fridges and coffee machines, others were items fabricated specifically to give effect to the bad dog design concept. 33 Counsel for the respondents relied on a proposition in Re a Debtor (1983) 3 All ER 545 (at 553 per Warner J and 558 Sir Robert Megarry VC agreeing) that the affidavits filed in support of a contention that the debtor has a counter claim, set off cross demand must disclose a cross demand which is capable of being quantified if it is for an unliquidated amount and the affidavits must quantify it. However the position in Australia is more flexible: see Re Donkin; Ex parte AGC Advances Ltd (1994) 52 FCR 271. In any event, as a matter of fact, in these proceedings an affidavit of the applicant sworn on 6 March 1998 and filed that day quantified the damage to the applicant's property at the restaurant at $200,000. However this affidavit was not read by counsel for the applicant as part of the substantive hearing of the application to set aside the bankruptcy notice. Rather it was indicated that the first affidavit could be treated as "assertions of [the applicant's] case rather than evidence of them". 34 The relevant question, for present purposes, is not whether the affidavits filed on behalf of the applicant have expressly quantified the unliquidated damages sought but rather whether the applicant can demonstrate, on all the material before the court, that the claim is a bona fide and substantial one and there are reasonable prospects of him recovering damages equal to or exceeding the amount upon which the bankruptcy notice is founded. An analogous situation arose in relation to the determination of a creditor's petition in Re Schmidt; Ex parte Anglewood Pty Ltd (1967) 13 FLR 111. The debtor, albeit in resisting the making of a sequestration order, sought to establish that he had a claim for damages against the petitioning creditor which would either extinguish or reduce the amount of his original debt. One aspect of the debtor's claim was for damages for wrongful removal of his property. The Federal Court of Bankruptcy was confronted with a question of how it should deal with the claim. Gibbs J said at 115-116: The question immediately arises whether I should proceed to determine the existence and extent of the debtor's alleged claim. … Where, however, the debtor claims to be entitled to unliquidated damages in tort against the petitioning creditor the position seems to me to be different. As a general rule this Court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is sufficient validity in the debtor's claims to justify dismissal or adjournment of the petition. I agree in general with what was said in Re Player (1962) 19 ABC 227 in relation to this question. Considerable evidence directed to this issue has been given before me and it seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed. If I am satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the judgment debt, I should not make a sequestration order. If, however, it appears that the debtor has a claim which is less than the amount of the petitioning creditor's judgment debt, the proper course would seem to me to be require the debtor, if he desires to avoid a sequestration order, to pay the difference between the amount of the judgment debt and the amount which seems probable to me that he will recover in the proceedings against the petitioning creditor. 35 These matters were also referred to by Beaumont J in Vee H Aviation Pty Ltd v BP Australia Ltd (1995) 58 FCR 73 at 76 in the context of proceedings under the Corporations Law to set aside a statutory demand. The proper approach, in my opinion, in proceedings concerning a bankruptcy notice was that identified by Sackville J in Re Phyllis Graves (supra): The creditor submitted that there was nothing to justify finding that the debtor's claim is for an amount greater than the judgment debt. As I have explained, it is not necessary to show that the debtor will succeed in recovering a greater amount than that due to the creditor. It is enough that, if the claim for breach of duty were made out, there is a fair chance that the damages would exceed the amount of the judgment debt. I have already dealt with this question in relation to the affidavit filed on 29 October 1996. It is now necessary to consider the totality of the evidence on this issue. The evidence of loss adduced on behalf of the debtor is far from complete, even allowing for the later affidavits. However, it is necessary to bear in mind the nature of these proceedings and the difficulties facing a debtor of very limited means in establishing the quantum of loss flowing from a solicitor's alleged breach of duty in the conduct of litigation. 36 It must be said, however, that the applicant in these proceedings does not face all the difficulties of the applicant in that matter. I will return to consider the material advanced by the applicant and the amount the applicant might recover in the action in trespass shortly. 37 In final submissions counsel for the applicant adverted to two additional causes of action not presently raised in the proceedings in the District Court. The factual and legal foundation of each was not detailed though they were based, in part, on evidence given by Mr Bingham about the purpose of the entry to the restaurant on 13 October 1995. His evidence was: So that you knew when you attended at the premises of the Gap Tavern on 13 October 1995 that the result of your actions, if you were allowed to continue them, would be that the business would cease to operate?---Not at all. My purposes were to enforce a charge held by my company over certain assets. The outcome of my enforcement of that charge could have gone a number of ways including agreement to pay the unpaid moneys that caused the charge to be exercised. 38 As I apprehend the submission of counsel for the applicant, it was that this evidence might found a conclusion that the entry was effected to harm the applicant or, unlawfully, to induce the repayment of the funds that had been lent. If so, Mr Bingham and Relativity, it was submitted, had conspired to injure the applicant by unlawful means and Mr Bingham had "damaged his client's interests by unlawful means". 39 Even assuming the various elements of the tort of conspiracy were made out, apart from the agreement, the applicant has, in my opinion, little likelihood of establishing the existence of an agreement to found the action. While the better view is that a corporation can be a co-conspirator: see Egan v Barrier Branch of Amalgamated Miners' Association (1917) 17 SR NSW 243, R v Blamires Transport Services Ltd [1964] 1 QB 278; Belmont Finance Corp Ltd v Williams Furniture Ltd [1979] Ch 250, it is extremely doubtful that a conspiracy can arise between the sole controller of a company and the company: see R v McDonnell [1966] 1 QB 233, Attorney General's Reference (No 2 of 1982) [1984] QB 624. That was the case here as Mr Bingham was, on the evidence, in effective control of Relativity. 40 As to the contention that an action in tort arose because Mr Bingham has intentionally damaged the applicant's interests by unlawful means, I would have thought that no such action would lie having regard to the judgment of the High Court in Northern Territory v Mengel (1995) 185 CLR 307. 41 Having regard to matters discussed to this point, the only cause of action that, in my opinion, has any prospect at all of securing for the applicant a judgment for an amount equal to or exceeding the amount claimed in the bankruptcy notice, is the alleged trespass. I have already referred to the evidence advanced by the applicant on this issue of the amount the applicant might secure. 42 This is probably a situation where that aspect of the claim can fairly be described as a borderline one. It is borderline in the sense that evidence concerning what property might have been owned by the applicant, and more importantly the damage that might have been done to it and the losses he may have sustained as a result of the entry, might arguably, with a fair measure of benevolence, be taken as establishing that the damages the applicant might recover equalled or exceeded the amount claimed in the bankruptcy notice. In such a case the question of the bona fides of the claim can assume greater importance. 43 In a passage from the judgment of the High Court in Ebert v The Union Trustee Company of Australia Ltd (supra) immediately preceding the passage quoted earlier in these reasons, the Court said: In Re Duncan; Ex parte Modlin (1917) 17 S.R.(N.S.W.) 152, 34 W.N. 49 Street J. said that the debtor need not satisfy the Court that there are reasonable grounds for believing that he will establish his cross action, but only that he has a bona fide claim which he is fairly entitled to litigate. This perhaps is expressed too favourably to the debtor. In Re A Debtor (1958) 1 Ch. 81 Roxburgh J said: 'But not every demand will suffice. A demand made in bad faith would not be good enough. The debtor must satisfy the Court that he has a genuine demand. … But in my opinion a demand must be more than bona fide: the Court must be satisfied that it has a reasonable probability of success' ((1958) 1 Ch., at p. 99). 44 In Re Bruce William Naghten (supra) Foster J was confronted, in an application to set aside a bankruptcy notice, with a claim (said to satisfy s 40(1)(g)) that was made late and which his Honour viewed as not made bona fide. His Honour accordingly concluded that the claim "lack(ed) the necessary bona fides required for it to qualify as a means of setting aside the bankruptcy notice pursuant to s 40(1)(g)". Bona fides is put in issue in these proceedings. Counsel for the respondents submitted the claim for trespass is not genuine. He referred to the fact that the statement of claim was filed in June 1998 after the application in this Court to set the bankruptcy notice aside. I should add, parenthetically, that it may be more accurate to describe it as an application for an order that the bankruptcy notice is spent: see Re Phyllis Graves (supra) though that is not the language of s 41(7) and rule 13 of the Bankruptcy Rules. Counsel for the respondents also pointed to the fact that the particulars of damage that the statement of claim filed in June 1998 declared would be provided, never have been. 45 In addition to these matters, the affidavits filed in these proceedings prior to the hearing have never squarely addressed, beyond mere assertion, the question of what were the actual goods owned by the applicant. Indeed, the damage to them was not addressed in the affidavits beyond the most general assertion in the paragraph of Mr Martin's affidavit referred to earlier. 46 In my opinion the proceedings filed in the District Court are no more than a strategic move in a range of what is probably now quite acrimonious litigation, which I need not detail, that has involved the applicant and Mr Bingham and persons and corporations with which they are associated. 47 It is a move that was made by the applicant merely to lay a foundation to resist the consequences of the service of the bankruptcy notice. Not only were the District Court proceedings commenced in the way pointed to by counsel for the respondents but no real attempt was made prior to the hearing of this application to establish that all or any aspects of the claim, at least as it related to the trespass, would establish, prima facie, an amount the applicant might secure equal to or exceeding the amount claimed in the bankruptcy notice. The claim, including the cause of action in trespass, is not, in my opinion, a bona fide one. It is thus not a claim that should move the Court to set aside the bankruptcy notice or declare that it is spent. 48 I dismiss the application with costs. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.