Supreme Court of WA|2004-08-27|Before: Pullin J

Morgan v Pallister [2004] WASC 188 (27 August 2004)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : MORGAN -v- PALLISTER [2004] WASC 188

Contract - Total failure of consideration - Summary judgment application - Turns on own facts

David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353

Roxborough v Rothmans of Pall Mall (Australia) Ltd (2001) 208 CLR 516

Australian Securities Commission v MacLeod, unreported; FCA; 23 November 1994

Baltic Shipping Co v Dillon (The Ship Mikhail Lermontov) (Ticket Case) [1993] HCA 4; (1993) 176 CLR 344

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221

Young v Jackman (1986) 7 NSWLR 97

1 PULLIN J: This is the plaintiff's application for summary judgment.

2 The plaintiff sues for recovery of $340,000 which, he claims in his statement of claim, was advanced to the defendant by way of loan in the period 25 July 2003 to 5 August 2003. The sum was repayable on demand and despite demand the defendant has refused to repay the amount due. The payments were three in number, consisting of a cheque dated 25 July 2003 for the sum of $200.000, a cheque for $10,000 given to the defendant on or about 1 August 2003, and an internet banking transfer of $130,000 on 5 August 2003.

3 The plaintiff has complied with the formalities for a summary judgment application which are set out in O 14. The defendant admits receiving the money, admits it has not been repaid and admits it was repayable in certain circumstances.

4 The plaintiff carries the burden of persuading the court that the claim is a good one, that there is no defence to it, that leave to defend should not be granted, and that judgment should be given for the plaintiff. The party showing cause against the application assumes an evidentiary burden but the overall legal burden of persuasion remains on the applicant. The power to order summary judgment should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. It is clear however, that the procedure is not confined to cases which are immediately plain and obvious and the fact that a transaction is intricate does not disentitle the plaintiff to relief in a clear case. It was never intended that when the facts are in dispute, an action should be disposed of summarily. If a defendant's affidavit reveals inconsistencies which might in a trial persuade a court not to believe the defendant's evidence, this will not necessarily lead to judgment for the plaintiff. It is not necessary to cite authority for these propositions.

5 In this case there are some disputes about the facts. There is considerable bitterness between the parties and between the instructing solicitors which has at times diverted the parties from the object of the litigation.

6 Some of the disputes about facts in this case are disputes raised to the contradictor's disadvantage, and as a result the disputes are not of the sort which necessarily lead to a dismissal of the application. I will disregard much of the disputation and judge the issue about whether or not the application should succeed by reference to the material presented in the affidavits filed by, or on behalf of, the defendant.

7 I will summarise the defendant's case as it emerges from the affidavits which have been filed by the defendant and her husband. The defendant Mrs Pallister, in her affidavit of 21 May 2004, deposes that the transaction involving the loan was negotiated by her husband. As a result, I refer to the affidavit of Mark James Pallister sworn 3 August 2004, who deposes that he is the husband of the defendant. He accepts that he acted on behalf of his wife in negotiating the transaction. His affidavit deposes that he and his wife were the inventors of technology described in patent applications in respect of a "man overboard alarm system" which was to have widespread commercial application. This is referred to for shorthand purposes as the "Mobilert technology". Mr Pallister says that the defendant owned the Mobilert technology in her capacity as trustee of the Pallister Family Trust, but that both the defendant and Mr Pallister were listed as joint inventors "as required by the Patents Office".

8 Mr Pallister says that in June 2003 he had discussions with a Mr Robert Baita about how to best produce and sell the Mobilert technology. Mr Baita was an employee or partner of a firm of accountants called William Buck.

9 Mr Pallister says that Mr Baita advised him that the best method to use was to sell the Mobilert technology "out of Australia" to an overseas company in which the defendant would hold all of the shares. Mr Pallister said that thereafter the worldwide sales of the Mobilert technology would be "done by the overseas entity, thereby avoiding taxation in Australian for sales made overseas". Mr Pallister says that the plaintiff and a Mr David Barany were present at this meeting. Mr Pallister, the plaintiff, and Mr Barany were involved in another commercial transaction at the time. According to Mr Pallister, Mr Barany said that he would make a telephone call to set up the overseas company and he used his mobile telephone to make a call to someone about that subject. Mr Pallister does not explain why Mr Barany would go to the trouble and expense of doing this but, as I have said, I am here setting out the transaction as deposed to by the defendant and her husband. Mr Pallister says that soon after Mr Barany's telephone call, Mr Barany received a telephone call following which he said that "Mobilert will be incorporated for you". It is not in dispute that company incorporated was called "Mobilert International Ltd".

10 There is undisputed evidence in the form of an affidavit from Dr Johannes Hohenbuhel, a lawyer carrying on a practice in Austria, that he received a telephone call from Mr Barany, asking him to acquire a company, preferably with the name "Mobilert International Ltd". According to Dr Hohenbuhel he arranged for the incorporation of Mobilert International Ltd in Belize on 6 August 2003. Dr Hohenbuhel deposes in an affidavit, which is not contradicted, that the issued share capital of Mobilert International Ltd comprises 10,000 bearer shares of $US1 each. The certificate for the shares is held by a Panamanian foundation and only one certificate for shares in the company has ever been issued. Dr Hohenbuhel also produces a document revealing that the appointment of the first directors of Mobilert International Ltd resulted in the appointment of Dr Hohenbuhel and Vanot Management Inc of Belize.

11 I now revert to Mr Pallister's account of events as set out in his affidavit of 2 August 2004. It is to be noted that Mobilert International Ltd, according to Dr Hohenbuhel, was incorporated in August 2003, and yet Mr Pallister says that the discussions and the telephone conversations were earlier "in about June". It appears that Mr Pallister is incorrect about the date because elsewhere he indicates that shortly after this meeting he received a telephone call to execute a contract to transfer the Mobilert technology to Mobilert International Ltd, and there is no dispute that this contract is dated 14 August 2003.

12 The contract recording the proposed sale and transfer of the Mobilert technology dated 14 August 2003 is signed by Mr Pallister and the defendant, who are described as vendors, and Mobilert International Ltd as the purchaser. This contract recites the fact that the vendors were the owners of the Mobilert technology and identifies the provisional patent numbers. The purchase price Mobilert International Ltd was to pay was $US100,000. It records the fact that the vendors sold, and the purchasers purchased, the Mobilert technology for the "Purchase Price" and that possession of the Mobilert technology would be given by the vendors and accepted by the purchaser on the settlement date subject to payment in full of the purchase price. Clause 7.2 stated that:

"At settlement the Purchaser will, pay the Purchase Price in full without deduction to Mr David Morgan of 11 Colonial Gardens, Mosman Park, Western Australia at the request and direction of the Vendors hereby given. Crediting of the Purchase Price to the nominated individual referred to above will be in full payment and satisfaction to the Vendors of the consideration due to them for the sale of the Technology to the Purchaser."

13 Clause 11.1 provided that if the purchaser failed to comply with any term in the agreement, and the breach, neglect, or failure continued for 14 days after receipt by the purchaser of a notice specifying the default, the vendors could rescind the sale of the Mobilert technology and at their option, retake and retain the Mobilert technology as their own absolutely.

14 Mr Pallister, in his affidavit, says that the "agreement should have been with my wife in her capacity as trustee for the Pallister Family Trust". This is because Mr Pallister and the defendant say that the Mobilert technology patent rights were owned by the defendant in that capacity. I note that this is contrary to the recitals in the contract.

15 Mr Pallister deposes that, at the time he signed the document, he asked Robert Baita "Robert can you confirm that Vanessa and I are the only shareholders of Mobilert" and that he replied "No, not both of you, Vanessa is the only shareholder". Whether Mr Baita had any authority to speak on behalf of the plaintiff in relation to this transaction I do not know. It appears that Mr Baita was advising the defendant and Mrs Pallister but Mrs Pallister deposes that William Buck was the plaintiff's and Mr Barany's accountant. In any event, this information is relied on by the defendant to explain that from her point of view, she was agreeable to the transfer of the Mobilert technology to Mobilert International Ltd on the basis that she would become the sole owner of the shares in that company.

16 In Mr Pallister's affidavit of 2 August 2004, he said discussions took place with the plaintiff and Mr Barany in the middle of 2003, and that in the conversations the plaintiff told Mr Pallister that "they" would be interested in purchasing shares in Mobilert International Ltd. The Pallisters' affidavits are unsatisfactorily unclear about when these discussions took place. However, par 26 of Mr Pallister's affidavit of 2 August 2003 says this was "about the time we signed the documents relating to the sale of technology to Mobilert that Morgan lent my wife the sum of $340,000 ..." As shown above, this was on 14 August 2003. That strongly suggests, and I infer, that all of the dealings between the plaintiff and Mr Barany and Mr Pallister on behalf of the defendant concerning the transaction occurred at sometime in July or August 2003. The date of the three cheques provide corroborative evidence of this.

17 In his affidavit of 20 May 2004 Mr Pallister deposes that he told the plaintiff that AD Engineering Pty Ltd had been involved to develop a prototype of the Mobilert technology on the basis of "the existing patents", and that $340,000 was required to make payment to AD Engineering Pty Ltd. Mr Pallister deposes that the plaintiff said words to the effect "How much do you want to sell 50% of your shareholding in Mobilert International Ltd", and Mr Pallister said that he said that the price would be $US650,000. Mr Pallister says that Mr Morgan asked him whether Mr Pallister would consent to "us" (presumably Mr Morgan and Mr Barany) securing a right to participate in the purchase of the shares by providing payment of $AU340,000 to use to pay AD Engineering Pty Ltd so that the development of the prototype could be continued. Mr Pallister said that he used words to the effect that the funds were needed immediately, that $340,000 would be sufficient in the short term, and that "if you advance us those monies (sic) you can have an option as to whether or not you wish to proceed with the purchase of the shares" in "Mobilert International" by paying the total purchase price of $US650,000. Mr Pallister further deposes that he told the plaintiff and Mr Barany that if they were prepared to make the initial payment of $340,000, then once they had thought about the matter and if they decided to proceed with the purchase of the shares, they were to notify him and, upon payment of the balance, the shares would be transferred to the plaintiff. Mr Pallister said that he told them that if they decided not to proceed with the transfer of the shares, then he should be notified and then "we will need some time to refund your investment". He said that if there were to be a refund of the moneys it would not be until the production of the alarm system had begun and sales achieved.

18 It is not in dispute that the $340,000 was paid by the plaintiff to the defendant as pleaded in the statement of claim.

19 Mr Pallister deposes that no payments were made by Mobilert International Ltd pursuant to the 14 August 2003 contract relating to the Mobilert technology. As a result the Mobilert technology was never transferred to Mobilert International Ltd. Mr Pallister also deposes that the contract dated 14 August 2003 "was terminated" as a result of the non-payment by Mobilert International Ltd of the agreed sum. The plaintiff agrees that the contract has been terminated.

20 Mr Pallister says "As a consequence Mobilert [International Ltd] does not have the rights to the technology". Mr Pallister also deposes in his affidavit of 20 May 2003 that on 16 December 2003, prior to these proceedings being instituted, that the defendant's solicitors wrote to the plaintiff's solicitors. This letter indicated that the defendant was prepared to pay the $340,000 upon confirmation by the plaintiff and Mr Barany that they were not proceeding with "a half share in the Mobilert project" and if they provided certain releases, then Mrs Pallister would repay the $340,000.

21 In the other litigation between the defendant and Mr Pallister and other interests associated with Mr Morgan, namely Cadura Investments Ltd & Ors v Rototek Pty Ltd & Ors CIV 2365 of 2003, Mr Pallister swore an affidavit dated 19 December 2003 in proceedings relating to a mareva order. In that affidavit Mr Pallister referred to the patent applications which constitute the Mobilert technology. Paragraph 4(6) of that affidavit reads:

"The patent applications referred to of themselves have no value, and in fact have expired. Those patents were found to infringe on existing patents and as such were unregistrable, and therefore virtually worthless."

22 That completes the outline of the defendant's case. It is clear that the money was paid in relation to a proposed acquisition by the plaintiff of an indirect interest in the Mobilert technology.

23 The plaintiff contends that even if regard is had only to the defendant's account of the transaction, there is no defence to the claim. It is submitted that on the Pallister's own evidence the Mobilert technology, and in particular the patent applications, were "unregistrable" and therefore of no value. That being so, the plaintiff submits that there was a total failure of the consideration which the Pallisters were to give in return for the moneys paid by the plaintiff to the defendant.

24 In my opinion the transaction was one in which the plaintiff paid money to gain the opportunity to acquire shares in Mobilert International Ltd in order to obtain an indirect interest, via that company, in the Mobilert technology. It is clear enough that the plaintiff was not intending to advance $340,000 or contemplating the payment of $US650,000, for a half share in a shelf company with no assets. The company Mobilert International Ltd has no assets. It has no assets because there was no transfer of the Mobilert technology. That is so because no money was ever paid by Mobilert Technology Ltd for the unregistrable and valueless patent applications. The 14 August 2003 contract, which might have effected a transfer of the Mobilert technology, was terminated, which means that the vendors retained the Mobilert technology "as their own". I repeat that the parties are in agreement that this contract has been terminated.

25 The defendant submits that although the shares are held by Dr Hohenbuhel, that the plaintiff and Mr Barany have each a 25 per cent interest in the shares. The defendant says that this appears from par 118 of the plaintiff's affidavit of 11 November 2003, sworn in the Cadura Investments case (CIV 2365 of 2003). However, this paragraph refers to Mobilert International Ltd and then deposes to the fact that shares in another company called "Red Triangle Safety Co Ltd", which is a company involved in the other transaction concerning these parties, were held by David Barany ("a 25% interest") and the plaintiff ("a 25% interest"). Even if the defendant could show that the plaintiff and Mr Barany did have a beneficial interest in the shares in Mobilert International Ltd the plaintiff says that this should not be an impediment to the plaintiff obtaining judgment, because the plaintiff is prepared to take steps to procure the transfer of the shares in Mobilert International Ltd to the defendant. Furthermore, the plaintiff is prepared to procure the resignation of the directors of Mobilert International Ltd so that the defendant may appoint such directors as she pleases.

26 The question therefore arises whether the plaintiff is entitled to judgment. The question is whether, if the defendant could revisit this summary judgment application, if she could demonstrate that the plaintiff and Mr Barany had acquired a beneficial interest in the shares in Mobilert International Ltd? Would that mean that there was no total failure of consideration? The question is hypothetical because it has not been shown that the plaintiff or Mr Barany do hold a beneficial interest in the company, although it is quite clear that there is some close relationship between Mr Barany and the plaintiff and Dr Hohenbuhel. I will assume, for the purposes of the argument, that Dr Hohenbuhel does hold an interest in the shares in Mobilert International Ltd on behalf of the plaintiff and Mr Barany.

27 In my opinion that fact, if established, would not mean that there was not a total failure of consideration. It is clear that the real object of the transaction was to arrange a transfer of the Mobilert technology into a company which would be owned by Mrs Pallister, and that the plaintiff and Mr Barany would then have the right to acquire half of the shares in that company by payment of money. Stated another way, the real purpose of the transaction was that the plaintiff would pay money for the purpose of giving him the right to acquire shares in Mobilert International Ltd in order to acquire an interest in the Mobilert technology. It was not the purpose of the transaction that the plaintiff would purchase shares in a company which had no assets and which did not own the Mobilert technology.

28 In David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 382, in the joint judgment of Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, their Honours said:

"... in the context of failure of consideration, the failure is judged from the perspective of the payer. In Rover International Ltd v Cannon Film Ltd [1989] 1 WLR 912 at 923 Kerr LJ stated:

'The question whether there has been a total failure of consideration is not answered by considering whether there was any consideration sufficient to support a contract or purported contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract.'

29 Although the failure of consideration must be total, the court must examine whether or not the benefit bargained for, rather than any benefit which might have been received in fact, was obtained.

30 In Roxborough v Rothmans of Pall Mall (Australia) Ltd (2001) 208 CLR 516, Gleeson CJ, Gaudron and Hayne JJ, at 525, stated that the concept of failure of consideration embraces payment for a purpose which has failed, as for example where a contemplated state of affairs has disappeared or where a condition has not been fulfilled.

31 In this case, according to the defendant, the plaintiff paid $340,000 to the defendant in consideration for an option to gain an indirect interest in the patent applications constituting the Mobilert technology by the acquisition of shares in Mobilert International Ltd. The defendant's case is that the contract to transfer the technology never came to fruition and was terminated, and that in any event the Mobilert technology patents were of no value and were unregistrable. If the patents were unregistrable and of no value and were never transferred to Mobilert International Ltd, then, in my opinion, there was a total failure of consideration.

32 Counsel for the defendant contended that at a trial there would be a counterclaim by Mrs Pallister, who would sue the plaintiff for payment of the balance of $US650,000, because the plaintiff has acquired the contemplated interest in the shares in Mobilert International Ltd. Even if it could be proved at trial that the plaintiff has acquired a beneficial interest in the shares, it is my opinion that such a counterclaim would have no prospect of success at all. The defendant could not succeed in a claim that the plaintiff must pay $US650,000 for shares in a company with no assets, when the bargain was one to acquire shares in a company which owned the Mobilert technology.

33 The defendant has quite frankly said that she resists repaying the $340,000 because she is concerned that it may later be contended by unknown third parties that Mobilert International Ltd did gain some rights to the Mobilert technology and has already transferred those rights to those parties. This is a somewhat surprising concern, given Mr Pallister's statement that the patent applications "have no value", "have expired", that they "infringe on existing patents" and that they are unregistrable. To overcome this concern, the plaintiff is prepared to procure and proffer to the court an undertaking from Mobilert International Ltd to the effect that it accepts that the 14 August 2003 contract has been terminated and that it will not institute or cause to be instituted or join in any proceedings making a claim that the contract was effective to pass any right or title in relation to the Mobilert technology.

34 In addition, the plaintiff is prepared to procure Dr Hohenbuhel to transfer to the defendant all shares in Mobilert International Ltd and to procure the present directors' resignation of Mobilert International Ltd. The plaintiff would do this on condition that the defendant pays the cost of incorporation of Mobilert International Ltd. If the defendant gains control of Mobilert International Ltd, and if both the Pallisters, the defendant, Mr Barany, and Mobilert International Ltd agree that the contract of 14 August 2003 has come to an end, it is impossible to conceive how a third party could successfully claim any enforceable rights to the Mobilert technology via rights granted by Mobilert International Ltd.

35 On the evidence presented on behalf of the defendant, in view of the plaintiff's willingness to arrange for the shares in Mobilert International Ltd to be transferred to the defendant, in view of the plaintiff's willingness to procure an undertaking from Mobilert International Ltd and from Mr Barany recording their acceptance that the 14 August 2003 contract has been terminated and that they make no claim to the Mobilert technology, and in view of the plaintiff's willingness to give a similar undertaking, I am satisfied that the defendant has no defence to the plaintiff's claim and that the plaintiff's claim should succeed.

36 I therefore grant summary judgment in favour of the plaintiff. Judgment will be in terms that:

(a) the plaintiff filing an undertaking by Mobilert International Ltd in a form agreed by the parties or approved by the Court;

(b) the plaintiff filing the undertakings of Mr Barany and himself in a form agreed by the parties or approved by the Court;

(d) the plaintiff procuring the resignation of the present directors of Mobilert International Ltd and the appointment of nominees of the defendant,

there should be judgment for the plaintiff in the sum of $340,000.

37 The condition that the plaintiff do procure Dr Hohenbuhel to transfer to the defendant the shares in Mobilert International Ltd is subject to the defendant paying the cost of the incorporation of that company and failing payment by the defendant of that sum, then the condition requiring the plaintiff to cause Dr Hohenbuhel to transfer to the defendant the shares in Mobilert International Ltd will cease to be a pre-condition to judgment. Similarly, the condition that the present directors resign may require the defendant to nominate new directors to be appointed. If so, and if the defendant does not cooperate in this regard, then this condition will also cease to be a precondition to judgment. I direct the plaintiff's solicitors to prepare a minute of the proposed judgment which should record the conditions and undertakings referred to above. The minute should be sent to the defendant's solicitors and I would expect the defendant's solicitors and the plaintiff's solicitors to confer if there is any difference of opinion about the content of the minute.

38 I will hear further submissions from the parties about whether the plaintiff is entitled to judgment also for interest under s 32 of the Supreme Court Act. The parties are directed to confer about that subject.

Morgan v Pallister [2004] WASC 188

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (58 paragraphs)

Morgan v Pallister [2004] WASC 188 (27 August 2004)

Parties

Cases Cited (6)