MyPet Brands Pty Ltd v Beonic Technologies Pty Ltd

Supreme Court of NSW|2016-11-14|Before: Stevenson J

Solicitors: Mills Oakley (Plaintiff/Respondent) S R Legal (Defendant/Applicant) File Number(s): SC 2016/205870

Judgment

On or about 30 April 2015, the plaintiff, MyPet Brands Pty Ltd, borrowed $750,000 from NWC Finance Pty Ltd.
At that time, the only director of MyPet was Mr Clement Yuen.
Mr Yuen signed a Deed of Loan in favour of NWC on behalf of MyPet and also signed a document called "Cheque Directions" directing NWC to pay the proceeds of the loan to the defendant, Beonic Technologies Pty Ltd.
MyPet's obligations to NWC were guaranteed by its holding company, Fernecho Pty Limited.
There is indirect evidence that Fernecho, as guarantor, has repaid the amount owing by MyPet to NWC.
In those circumstances, MyPet has brought these proceedings against Beonic.
By notice of motion Beonic seeks an order that the proceedings be dismissed pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 13.4, alternatively an order that the statement of claim be struck out pursuant to UCPR r 14.28 and alternatively, an order that MyPet provide further particulars.
Beonic also seeks an order that subpoenas issued by MyPet to the Commonwealth Bank of Australia and to NWC be "quashed" or that "access to any produced documents be denied".

Background

A difficulty that MyPet has is that Mr Yuen is no longer a director of MyPet. Indeed he has sworn an affidavit on behalf of Beonic. Evidently, the current sole director of MyPet has no knowledge of the background to this matter and MyPet has no records of the transaction.
Mr Yuen annexed to his affidavit the direction that he, on behalf of MyPet, gave to NWC to pay the loan funds to Beonic and gave this evidence: "Initially, the purpose of the Loan was to obtain funds to enable MyPet to acquire a company also in the pet accessories business called Eastern Distributors Pty Ltd. Subsequent to obtaining the Loan though, I determined that MyPet would use the Loan proceeds to pay the creditors of a company called Ruddocks Pty Ltd…to sustain that company as a potential acquisition of MyPet. At the time of the Loan, MyPet was a fairly new entity and did not operate a bank account, so that it was unable to receive the proceeds of the Loan or pay the proceeds to Ruddocks' creditors. Due to the circumstances referred to in the preceding paragraph, as the sole director of MyPet I directed that the Loan proceeds be paid to the defendant, Beonic…pursuant to the limited authority that the proceeds were to be used only to pay Ruddocks' creditors as directed. At or around the time of the Loan Beonic and Ruddocks had some but not complete identity of shareholders and management. Beonic never had the benefit of the Loan proceeds or any obligation to return or repay the Loan proceeds."
Evidently MyPet's only knowledge of the circumstances in which the $750,000 was paid by NWC to Beonic derives from Mr Yuen's affidavit.
Thus, on 25 October 2016, MyPet's solicitors wrote to Mr Yuen requesting "[d]etails of any bank accounts held at any time by MyPet" and: "Details of the circumstances surrounding the loan by MyPet from NWC…and, in particular, why a direction was given for the loan funds to be paid into an account in the name of Beonic…".

The pleading

MyPet's pleading is brief, and is, omitting formalities, in the following terms: "3. On or about 30 April 2015, the Plaintiff entered into an agreement with NWC…whereby NWC agreed to loan funds to the Plaintiff on terms (the NWC Loan). 4. On or about 4 May 2015 and pursuant to the NWC Loan, NWC advanced $750,000 (Monies), but the said sum was paid to the Defendant. 5. In the premises, the Monies received and/or retained by the Defendant represent monies had and received by the Defendant by which it has been unjustly enriched at the expense of the Plaintiff and which it would be unjust and inequitable for it to retain. 6. Further or in the alternative, the Plaintiff has demanded the return of the Monies together with any profits derived therefrom but the Defendant has failed and refused to return the same or any part thereof and has thereby converted them to its own use. Particulars Letter from the Plaintiff's solicitors to the Defendant dated 17 June 2016. 7. By reason of the Defendant's aforesaid conversion, the Plaintiff has suffered loss and damage. Particulars The Monies together with any profits derived therefrom. 8. Further or in the alternative, the Monies were received by the Defendant by way of a loan from the Plaintiff repayable on demand. 9. The Plaintiff has demanded repayment of the Monies, but the Defendant has failed and refused to return the same or any part thereof. Particulars The particulars to paragraph 6 are repeated. 10. By reason of the Defendant's aforesaid breach of contract, the Plaintiff has suffered loss and damage." [Emphasis in original]
Mr Rosenblatt, who appeared for Beonic, informed me that there was no dispute that the $750,000 had been paid into Beonic's bank account.
Mr Rosenblatt submitted, however, that par 5 of the statement of claim was deficient in that it does not set out on what basis MyPet contends that Beonic has been "unjustly enriched" by that payment such that it would be "unjust and inequitable" for it to retain the funds.
Mr Rosenblatt pointed out that he had, on behalf of Beonic, sought particulars as to why MyPet contended that Beonic had been "unjustly enriched" and that the then solicitors for MyPet had responded that that request was "not a proper request for particulars".
In argument before me, Mr Cheshire SC, who appeared for MyPet, was somewhat more forthcoming and submitted that it was implicit from the material in Mr Yuen's affidavit that Beonic accepted that it had given no consideration for the payment and that this provided a sufficient basis for the plea in par 5.
Whether or not this is so, it is not appropriate that MyPet articulate this aspect of its claim in this form. In effect, MyPet has adopted the procedure permitted by UCPR r 14.12(1) to plead a common money count. Any further pleading by my MyPet should plead the facts on which it relies in full, as if Beonic had served a notice under UCPR r 14.12(2). The pleading will need to make clear why the mere fact, if it is a fact, that Beonic gave no consideration for the $750,000 payment, gives rise to an entitlement to recovery.
Paragraphs 6 and 7 of the statement of claim allege that Beonic has "converted" the $750,000 and is liable to pay damages for conversion.
Mr Cheshire accepted that this claim is not sustainable. Money as a currency is a fungible and cannot be the subject matter of an action in conversion (for example, R P Balkin and J L R Davis, Law of Torts, (5th ed 2013, LexisNexis Butterworths) at [4.17]).
Paragraphs 6 and 7 should therefore be struck out.
Paragraph 8 of the statement of claim alleges, in the alternative, that the $750,000 was received by Beonic "by way of a loan".
Once again, Mr Rosenblatt had sought particulars of that allegation and, again, was informed by the solicitors then acting for MyPet that his request was "not a proper request for particulars".
In argument, Mr Cheshire submitted that the appropriate particularisation of that allegation was that the loan, and the obligation of repayment, was to be implied from the fact that Beonic had given no consideration for it.
If that is to be My Pet's case, it should be pleaded in full.
Finally, par 10 of the statement of claim alleges that "by reason of [Beonic's] aforesaid breach of contract" (presumably intended to be a reference to the loan alleged in par 8) MyPet had suffered loss and damage.
It emerges from the indirect evidence referred to at [5] that the loss and damage MyPet claims is not by reason of any ongoing obligation it has to repay the loan to NWC, but because of its contingent liability to pay Fernecho the sum that Fernecho, as guarantor, has paid to NWC on MyPet's behalf. That should be made clear.

Disposition

In these circumstances, I do not propose to accede to Beonic's application to dismiss the proceedings but am persuaded that the statement of claim is deficient and has a tendency to cause prejudice to Beonic. It should be struck out, but on the basis that MyPet have leave to file a properly pleaded and particularised statement of claim (which does not repeat the claim in conversion).

The subpoenas

MyPet has issued a subpoena to NWC seeking, amongst other things, all correspondence with MyPet and Mr Yuen, and a subpoena to Beonic's bank, the CBA, seeking production of Beonic's bank statements for the relevant period.
I was informed that although both subpoenas have been served, neither NWC or the CBA has yet produced any documents; evidently because they are aware of Beonic's contention that the subpoena should be set aside.
I accept Mr Rosenblatt's submission that the subpoenas should be set aside as premature.
Practice Note SC Eq 11 provides that, in this division, an order for disclosure of documents will not be made until the parties have served their evidence unless there are exceptional circumstances necessitating disclosure.
Parties are not able to sidestep the operation of that Practice Note by serving a notice to produce (for example, The Owners - Strata Plan 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502 at [23] - [24]).
Nor, in my opinion, should they be able to sidestep the spirit of the Practice Note by prematurely issuing subpoenas.
It is true, as Mr Cheshire pointed out, that Practice Note SC Eq 11 is directed, in terms, to production of documents by the parties themselves, whereas subpoenas seek production of documents from third parties.
However, in my opinion, the considerations that have caused the Court to adopt Practice Note SC Eq 11 can also inform the exercise of the Court's discretion to set aside subpoenas issued before the service of evidence.
A party should not commence proceedings unless it is in possession of all evidence necessary to establish the allegations in its statement of claim and should not commence proceedings in the hope that evidence critical to the establishment of its cause of action will be discoverable by the other side or obtained by subpoena from third parties.
As Mr Rosenblatt pointed out, McDougall J has expressed an opinion to this effect in New Price Retail Services v David Hannah; Australian Pharmaceutical Industries v David Hannah [2012] NSWSC 422. Black J saw "considerable force" in McDougall J's reasoning in In the matter of North Coast Transit Pty Limited [2013] NSWSC 1912 at [56]. I agree.
I am not prepared to permit MyPet, at this stage of the proceedings, before pleadings are closed and before it has adduced evidence, to subpoena third parties in the hope that documents might be produced that assist its case. In any event, the subpoena to the CBA could only be relevant to a "change of position" defence that Mr Yuen's affidavit suggests Beonic will rely on in its case.
I propose to order that the subpoenas be set aside.
I invite the parties to confer and agree on the orders that are needed to give effect to these reasons.
Those orders should include an order that the defendant's amended notice of motion filed in Court on 14 November 2016 be otherwise dismissed.
I will hear submissions from the parties as to the costs of that notice of motion and, if the parties agree, will deal with the question of costs on the papers.

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: 21 November 2016

Uniform Civil Procedure Rules 2005(NSW)r 13.4, alternatively

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