Technology Leasing Ltd V Tony Phillips Industries P/L and Anthony Phillips [2010] NSWLC 27

The plaintiff is a corporation providing lease finance to customers to enable the customer to acquire equipment for use in the customer's business. It has its principal place of business in Sydney.

The first defendant is a corporation trading as Intone Projects. The principal business activity of the first defendant is cabinet making and shop fitting which it conducts at Burleigh Heads in Queensland.

The second defendant is a director of the first defendant.

Fresh Telecoms (hereinafter referred to as Fresh) was at all material times, an organisation is in the business of providing telephony services to consumers.

Bower Finance Pty Ltd (hereinafter referred to as Bower) is a corporation in the business of providing business and personal finance broking.

There is no dispute between the parties that the law of New South Wales applies to the agreement to rent which is the subject of these proceedings.

On 10 June 2008, Michael White, a sales representative in the employ of Fresh, went to the business premises of the first defendant. He spoke to the second defendant about the first defendant's telephony needs. He suggested Fresh could lease all equipment needed to meet those requirements for a monthly payment of $495.00. The term of the lease was to be 60 months. Mr. White completed a document headed Fresh Telecoms Order Specifications which reflected these terms. The second defendant accepted the proposal by signing the document. The date of acceptance handwritten on the document is 10 June 2008. The second defendant signed a further document on 10 June 2008 headed Fresh Telecoms Telecommunications Specialists. As was the case with the first document, Mr. White signed this document on behalf of Fresh Telecoms. There is also no dispute that the second defendant could bind the first defendant to the agreement.

As at 10 June 2008, it is not clear from the evidence whether there was any discussion between Mr. White and the second defendant as to how the first defendant would finance purchase of the equipment.

On 10 June 2008 Mr. White approached a representative of the plaintiff and the plaintiff agreed to purchase the equipment from Fresh. That contract has no bearing on the issues to be determined in this case save and except in respect of the question of agency.

On 18 June 2008, Mr. White returned to the business premises of the first defendant. During that meeting and at White's request, the second defendant signed (at various places) a document bearing the following heading technology leasing Pack Contents which are specified as:- Cover and Instructions Direct Debit Service Agreement Application/Agreement Terms and Conditions Privacy Form Direct Debit Request 12. Mr. White witnessed the signature of the second defendant.

The term 'owner' is not defined in the documentation. The first defendant is described as the customer. The second defendant as the guarantor.

By letter dated 25 June 2008, Fresh wrote to the first defendant to confirm (amongst other things) firstly, that Fresh would place an order for all of the equipment with its suppliers; second, the phone system and/or equipment would be delivered to the first defendant's premises and finally that within 90 days of the date of receipt of that correspondence it would install the phone system.

The plaintiff did not deal directly with applicants for lease finance. Whilst it is not clear from the evidence, it seems likely that Michael White forwarded the documentation signed by the second defendant on 10 and 18 June 2008 to Bower Finance. Bower Finance forwarded the documentation to the plaintiff on 20 June 2008. The plaintiff carried out credit checks and other inquiries in respect of the first defendant.

On 3 July 2008 Bower Finance contacted the second defendant. There had been no prior contact between Bower and the second defendant. Later that day Bower transmitted by facsimile a copy of the rental agreement and documents headed Acknowledgement & Authority to Pay and Certificate of Acceptance to the first defendant. The second defendant signed these documents on behalf of the first defendant and returned them to Bower by facsimile.

On or about 4 July 2008 the plaintiff paid to Fresh the sum of $19,839.49 being the purchase price of the equipment.

By letter dated 8 July 2008 the plaintiff wrote to both defendants advising that the application for rental finance had been approved. The plaintiff enclosed a copy of the rental agreement indicating that the offer (to lease) had been accepted by the plaintiff on 3 July 2008.

The plaintiff did not inquire or ensure that the equipment had been received by either defendant. However, rental payments were directly debited from the bank account of the first defendant and deposited to the account of the plaintiff on the following dates:- 4/7/08 $495.00; 4/8/08 $495.00; 3/9/08 $495.00; 3/10/08 $495.00; 3/11/08 $495.00; 3/12/08 $495.00; 5/1/09 $495.00. The defendants stopped the direct debit authority some time after the last payment and no other payment was made by the defendants to the plaintiffs pursuant to the rental agreement or otherwise. 20. The equipment was never delivered to the plaintiff or either defendant by Fresh.

The plaintiff commenced proceedings against the first and second defendant by statement of claim filed in Local Court of New South Wales at the Downing Centre, Sydney on 30 July 2009. The plaintiff claims relief in damages against both defendants in the amount of $21,959.13. The plaintiff alleges the first defendant breached the terms of a written rental agreement ('the agreement') the plaintiff entered into with the first defendant between 18 June 2008 and 3 July 2008. Relief was sought against the second defendant on the basis that he had guaranteed the obligations of the first defendant under the agreement.

By notice of defence verified by the affidavit of Anthony Phillips sworn 7 October 2009, both defendants deny most of the claims of the plaintiff and also the relief sought.

By cross claim filed on 23 October 2009 the defendants sought to recover $3,465.00 being money paid by the first defendant to the plaintiff pursuant to the agreement. The defendants allege the plaintiff is in breach of the agreement. The plaintiff denies that claim.

It is not necessary to summarise the facts and circumstances relied upon by the defendants in the cross claim or indeed the plaintiff's defence of the cross claim as each was amended with leave and by consent on the day of trial. The amendment to the cross claim was prompted by the decision of the NSW Supreme Court in The Leasing Centre (Aust) Pty Limited v Rollpress Proplate Group Pty Limited [2010] NSWSC 282 (hereinafter referred to as Rollpress).

The proceedings were transferred from the Local Court at the Downing Centre to Tweed Heads. The hearing commenced at Tweed Heads on 10 August 2010.

The pleadings raise various issues. Ultimately however, there is little dispute as to the findings of fact the court should make. Accordingly, it is not necessary to decide many of the issues raised by the parties.

By notice dated 6 July 2009 the plaintiff terminated the rental agreement alleging the first defendant:- (a) failed to pay rental payments which became due for payment on or after 4 February 2009; (b) failed to return the equipment to the plaintiff. (c) failed to pay all amounts payable to the plaintiff pursuant to that agreement.

The plaintiff says that the second defendant breached his obligations under the guarantee provisions of the rental agreement by failing to make these payments and or return the equipment to the plaintiff.

28. Pursuant to the rental agreement, the plaintiff considers itself entitled to damages for loss of bargain.

The first defendant claims damages against the plaintiff in the amount of $3,465.00 plus interest being the seven rental payments made pursuant to the rental agreement. The first defendant alleges that the plaintiff breached both express and implied terms of the rental agreement by failing to make the equipment available to the first or second defendant such that there has been a total failure of consideration.

Alternatively, the first defendant alleges that the Michael White was the agent of the plaintiff. In that capacity he represented that he would:- (a) arrange the delivery and installation of the equipment at the first defendant's premises; (b) organise rental financing for the equipment through the plaintiff; The second defendant says he relied upon those representations which induced him to execute the rental agreement on behalf of the first defendant and also to guarantee the obligations of the first defendant. 31. The first defendant says the representations bind the plaintiff and amount to conduct which is misleading or deceptive or likely to mislead or deceive contrary to section 52 of the Trade Practices Act 1974 (Cth).

32. The plaintiff and the defendants agree that there was a contract between them however their views differ as to the true nature of the contract and the obligations it created.

33. There is no dispute that the rental agreement is one for the rent or hire of goods. The rental agreement expressly provides for same.

34. There is also no dispute that the plaintiff in the ordinary course of its business, finally approve any application for lease or rent finance or proceed to settlement until the customer has provided an executed copy of the certificate of acceptance and acknowledgement and authority to pay forms. This is made clear from the affidavit of Helena-Portia Hansell sworn 28 July 2010. Ms. Hansell is employed by the plaintiff and holds the position of legal collections officer. At paragraphs 6, 15 and 16 she states:- The plaintiff's operation involves providing rental finance to customers to enable the customer to acquire equipment for use in their businesses. The plaintiff, at the request of the customer, purchases equipment from an equipment supplier. The plaintiff then rents that equipment to the customer over an agreed term at an agreed monthly rental.

As part of the approved (sic) process, the broker arranges for the customer to sign a form called a "Certificate of Acceptance" and a form called an "Acknowledgement & Authority to Pay" which are provided to the plaintiff prior to settlement. The plaintiff will not pay the equipment supplier until those forms are received.

When those forms are received, the plaintiff pays the supplier for the equipment thereby becoming owner of the equipment…The leased equipment is supplied directly to the customer by the equipment supplier. 35. The term settlement was described by Barrett J. in Rollpress at [69] as "a concept easily understood as the commencement of the rights and obligations derived from the rental agreement."

36. The rental agreement must be read as a whole. In specific terms it imposes few obligations upon the plaintiff as owner of the goods but many obligations upon the defendants. However, again as stated by his Honour in Rollpress at [76]: Here as I have said, the operative provisions that must be construed impose no obligations on the Owner. They do, however, reflect certain assumptions about the position occupied by the Owner in the context of the parties' relationship. There are, for example, references (direct or indirect) to the Owner retaking or attempting to retake possession of the Equipment the Owner regaining possession of the Equipment the return of the Equipment to the Owner the possibility that the Owner will suffer (and therefore need to be indemnified against) loss or damage to the Equipment or its lawful confiscation the possibility that the owner will suffer (and therefore need to be indemnified against) claims arising out of the use of the Equipment or defects in the Equipment a requirement that the Renter deliver the Equipment to the Owner at the expiration or sooner determination of the agreement the rights of the Owner in the Equipment the insurable interest of the Owner in the Equipment sale or assignment by the Owner of its rights to the Equipment.
37. His Honour went on to say at [77]: There is, in these references, an unmistakable message that the Owner previously had possession of the Equipment (so that the owner can retake or regain possession), that the Equipment was once with the Owner (so that it can be returned to the Owner), that damage to or confiscation of the Equipment (or use of the Equipment or defects in it) will be an occasion of loss to the Owner and that the owner has rights to and an interest in the Equipment which may be made the subject of insurance, sold and assigned.

38. In the present case, the rental agreement contains similar if not identical provisions casting (almost exclusively) obligations upon the defendants. For example:- Ownership of the Equipment 2.1 The equipment is, and will remain, the sole property of the owner: whether or not affixed to realty and shall not become or be made to become part of any real property on which it is placed. The client has no right to purchase the equipment. …

Insurance 7.1 Unless the client has elected to accept the Technorent Protection Plan the client must: a. insure the equipment and keep it insured for its full insurable value or the Recoverable Amount (whichever is the greater) under an all risks insurance policy which names the owner as first loss payee

Risk and Indemnities 8.2 The client indemnifies the owner against all losses, liabilities and expenses incurred by the owner as a result of…

Procedure on Expiry or Termination 12.2 Subject to clause 12.3, if the client does not return the equipment to the owner when required, the owner may at any time retake possession…

These are but examples and are not meant to be an exhaustive comparison of the similarities between rental agreement in the present case and the rental agreement the subject of the proceedings in Rollpress . 39. The unmistakable message referred to by his Honour above is in my view also equally applicable in the present case. In coming to that conclusion I am fortified by clause one of the rental agreement which provides:-

1.1 The owner has acquired the equipment, or will acquire it, at the request of the client so that the owner can enter into this agreement; 1.2 The client must obtain delivery of the equipment and is responsible for all costs of delivery, installation and set-up. If requested by the owner, the client must execute an acknowledgement of delivery in a form acceptable to the owner; 1.3 The owner is not responsible for any delay in, or for any damage or loss arising as a result of, the delivery, installation or set-up of the equipment. 40. The rental agreement signature page provides that this page and the terms and conditions of which the above form part constitute the entire Rental Agreement. The signature also provides the following:- In consideration of the total monthly payments shown above, Technology Leasing agrees to rent to the Customer, and the Customer agrees to rent from Technology Leasing, the Equipment described above for the Agreed Term. 41. Upon payment of the purchase price by the plaintiff to Fresh, the plaintiff obtained the right to possess the equipment. Pursuant to the rental agreement the plaintiff was entitled to give possession to the defendants for a specified period of time in return for payment of rent by the defendants. In TRM Copy Centres (UK) Limited v Lanwell Services Limited [2009] UKHL 35 the concept of rent or hire was described at [23] in the following terms: "The essence of hire is that the hirer acquires the use and possession of the goods from the provider in return for a rent, whether payable in cash or in kind".

42. Clause 2.1 of the rental agreement expressly provides that the defendants had no right to purchase the equipment. This was varied by the Acknowledgement and Authority to Pay form which indicates the plaintiff has granted to the defendant an option to purchase the equipment for a certain price at the end of the rental term. This is not in my view sufficient to create a hire purchase arrangement as between the plaintiff and the defendants. Rather, as described by Barrett J. in Rollpress, the rental agreement in the present case concerns an ordinary bailment. His Honour went on (at [94]) to cite with approval the following passage from The Province of the Law of Tort:- "The salient feature of bailment is, … the element of possession. Bailment is not the only one of the modes of transferring possession, but while the bailment last it connotes possession.
43. The plaintiff never obtained possession of the equipment. The rental agreement expressly provides that the plaintiff agrees to rent the equipment to the defendants. Never having obtained possession, no bailment or hire can be created. In the absence of possession, the plaintiff could not give or create any right to possession of the equipment in the defendants.

44. Having come to that factual conclusion, I am bound to follow the reasoning of Barrett J. in Rollpress expressed at [99] in the following terms:- I am accordingly satisfied that there was, through the promise to rent contained in the recital, an express contractual obligation upon TLC to give possession of the truck to Rollpress .
45. In Rollpress the rental agreement provided that it was the obligation of the Rollpress (the hiree) to obtain delivery of the equipment (truck). A similar provision is found in clause 1.2 of the rental agreement in the present case. The plaintiff submits that the two clauses are distinguishable because use of the word must in the present case creates a positive obligation upon the defendant to obtain delivery of the equipment. That positive obligation was not created by the wording of the term in Rollpress.

I do not accept this submission. In my view, the rental agreement in Rollpress created a positive obligation upon the hiree to obtain delivery. The wording of the clause did not cast that obligation in discretionary terms. As in the present case, the whole purpose of the agreement from the defendant's point of view was to obtain delivery of the equipment. The absence of the word must could not be construed as suggesting that a party seeking to have the benefit of the equipment the subject of the agreement could simply choose whether or not to arrange (or attempt to arrange) delivery.

In any event given the status of Fresh, no matter what endeavours were made by the defendants, delivery of the items could never have been realised.

The plaintiff is not relieved of its obligation to first obtain possession of the equipment by the defendant's failure to obtain delivery. Delivery of the items depended upon the cooperation of a number of entities. The question which arises and which cannot be answered by the plaintiff on the evidence is what more could the defendants have done to obtain delivery.

The plaintiff also asserts that the defendants are guilty of delay in failing to take any steps to obtain delivery. In my view, the evidence does not support that conclusion. The correspondence received by the first defendant from Fresh dated 25 June 2008 indicates that installation of the phone system may take up to 90 days from the date of receipt of that letter. As occurred in this case, the equipment was not installed notwithstanding rental payments were being debited from the first defendant's bank account to the credit of the plaintiff. The letter from Fresh envisaged this situation and offered a credit of those payments should a delay occur. But that was an arrangement between Fresh and the first defendant. That did not involve the plaintiff.

Furthermore, the second defendant raised the issue of delay in delivery of the equipment with Michael White. Ultimately he was told by White that Fresh had gone "broke" and that the equipment would not be delivered.

I am comfortably satisfied that it is made out on the evidence that the second defendant did not contact the plaintiff and advise that the equipment had not been delivered. He assumed, wrongly, that the rental agreement with the plaintiff was at an end because of the collapse of Fresh. It was not until his bookkeeper alerted him that direct debits from the first defendant's bank account continued that he contacted representatives of the plaintiffs.

In determining the submission that the defendant is in some way disentitled or estopped from repudiating the agreement because of delay, I must also consider the conduct of the plaintiff. During cross examination, Ms. Hansell on behalf of the plaintiff gave evidence that the plaintiff had entered into about 60 rental agreements with third parties where the equipment the subject of those agreements was to be provided by Fresh. In my view, the following inferences may be drawn from this evidence. Firstly, Fresh was not the agent of the plaintiff. I will address this aspect in more detail shortly. Second, the plaintiff and Fresh regularly engaged in related business transactions involving third parties to their mutual benefit. Third, Fresh was aware of the plaintiff's requirements before lease finance would be provided to a third party. Fourth, the plaintiff must then have been aware at least in late 2008 that Fresh was experiencing difficulties meeting its obligations to supply equipment to third parties. Nevertheless, the plaintiff did not inquire whether its customers had obtained delivery or for that matter, inquire of Fresh whether delivery had been made. Rather, it was content to accept direct debit payments from customers on the assumption that the equipment it had paid for and of which it was the owner had been delivered.

Against that factual background, the submission by the plaintiff that the defendants are estopped from repudiating or terminating the rental agreement must fail. The other aspect to that submission must also fail. That is by signing the acknowledgement and authority to pay the defendants misrepresented the situation then existing to the plaintiff namely that the defendants had or were in the process of obtaining delivery. That document contains two options. The first acknowledging delivery is struck out. The other, which applies, provides that the client (the first defendant) has arranged with the supplier (Fresh) named below for the delivery of the equipment as provided in the Rental Agreement.

At that time the second defendant had done all he could to arrange delivery of the equipment. The evidence does not support the conclusion that the second defendant was aware that delivery was never going to take place. To the contrary, the second defendant expected delivery on the basis of the assurance of Michael White until White subsequently told him that Fresh had gone broke. The second defendant was aware that there may be a delay of up to 90 days from about 25 June 2008 before delivery was effected by Fresh. For the reasons set out elsewhere, I am satisfied that an inference that the plaintiff was aware of the possibility of delay in delivery is capable of being drawn on the evidence before me.

No other provision in the rental agreement such as what is to occur if the equipment is destroyed, lost or stolen or the requirement to deliver up the equipment under certain circumstances impinges upon the plaintiff's obligation to be in a position to rent the equipment. Each provision is concerned with a particular event and is contingent upon the plaintiff first obtaining possession so as to be able to rent the equipment to the defendant.

The defendants assert that Fresh was at all material times the general agent of the plaintiff. During submissions, this assertion was extended to include Bower but the defendants sought to limit the scope of the asserted agency to delivery of the goods. The defendants must prove on the balance of probabilities a legal relationship between the plaintiff and either Fresh and Bower or both sufficient to create agency. The legal relationship must be express and the terms must be identified. Further, the defendants must establish whether or not the agent acted within the scope of his or her ostensible authority.

As a matter of general principal, once established, an agent has implied actual authority to do whatever is necessary for, or incidental to the effective execution of his express authority: Bayley v Wilkins (1849) 7 CB 886. Once established, the principal is thereafter stopped from disputing the existence of the agency: Pole v Leask (1860) 28 Beav 562.

However, a mere allegation of agency does not cast any onus upon the plaintiff to rebut the assertion unless and until enough evidence has been proved to warrant a reasonable and just conclusion against that person, in the absence of explanation or contradiction: Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57.

In Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 Lord Upjohn stated: "It is argued that in having possession of the finance company's forms and the ability to settle and fill in all these essential figures he showed that he was acting in the transaction generally as the agent of the finance company. But I do not myself think that this is a realistic approach. A motor dealer must have, if he is to be successful, one or more finance companies willing to enter into the ordinary bona fide hire-purchase agreements with purchasers, many of whom cannot pay the cash price. They must, therefore, supply him with forms and tell him as a matter of common sense the terms upon which they are prepared to do business….but I cannot see that this makes him an agent of the finance company…..I cannot see how, in fact, it is possible to spell out of this transaction that in these circumstances the dealer is in anyway a general agent of the finance company. He is a principal acting on his own behalf in selling his own car, in taking at a price another car in part exchange, and in submitting the hire-purchase forms to the finance company he is submitting them as proposals on behalf of the would-be hire-purchaser".

In Con-Stan Industries of Australia v Norwich Winterthur Insurance (Aust) Pty Ltd (1985) 160 CLR 226 a case involving a failure by an insurance broker failing to pass on insurance premiums, the High Court held at 234, "There will be rare circumstances in which a broker may also be an agent of an insurer, but the courts will not readily infer such a relationship…"

In the present case, there is no cogent evidence to support the contention that either express or implied agency arrangements existed between the plaintiff, Fresh and or Bower or from which to infer the existence of an arrangement of this type.

Having reached this conclusion, any representation whether or not misleading, deceptive or likely to mislead or deceive made by Michael White is not a representation attributable to the plaintiff. The action framed in the amended cross claim as being in the alternative and alleging breach of the Trade Practices Act fails for this reason.

The defendants contend that there has been a total failure of consideration. A payment made for a consideration which has wholly failed is prima facie recoverable by an action for restitution: Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673. However, a payment can be recovered only if there has been a total failure of consideration. Proportionate recovery of the payment is not allowed: Cheshire and Fiford's Law of Contract, 7th Aust. Ed. Butterworths 1997 at 846. In Baltic Shipping Co v Dillon (1993) 176 CLR 344, the plaintiff sought to recover the whole of the fare she had paid for a 14 day holiday cruise after the cruise ship sank on the 9th day of the voyage. The High Court rejected the claim as consideration had not wholly failed because the shipping company had provided eight complete days which the passenger had accepted and enjoyed.

Failure of consideration occurs in relation to a contract whenever a payment has been made to another party in advance of a contractual performance which fails to eventuate: Cheshire and Fiford's Law of Contract, 7th Aust. Ed. Butterworths 1997 at 847. Failure of the consideration for which the money was paid is the factor which makes retention of the payment an unjust enrichment: Foran v Wight (1989) 168 CLR 385 at 438. In Rover International Ltd v Cannon Film Ltd (No 3) [1989] 1 WLR 912, Kerr LJ said at 923, "…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."

In the present case, the defendants did not receive the benefit (or any part of the benefit) it expected to flow from the contract with the plaintiff. As was the case in Rollpress, the bargain between the parties was for possession of the equipment. As set out elsewhere, as the plaintiff did not obtain possession of the equipment and could not give possession of the equipment to the defendants. The plaintiff wholly failed to perform its primary obligation under the rental agreement namely to give possession of the equipment to the defendants. I am satisfied that there has been a total failure of consideration. Not only is that a total answer to plaintiff's claim, it also means that the defendants are entitled to restitution of the seven rental payments it made to the plaintiff because those payments were made for nothing.

Judgement for the first and second defendants on the statement of claim.

Judgement for the first defendant/cross claimant on the amended First Statement of Cross Claim in the amount of $3,465.00 together with interest pursuant to the Civil Procedure Act 2005 and Uniform Civil Procedure Rules of: a. $495.00 from 4 July 2008 to the date of judgement; b. $495.00 from 4 August 2008 to the date of judgement; c. $495.00 from 3 September 2008 to the date of judgement; d. $495.00 from 3 October 2008 to the date of judgement; e. $495.00 from 3 November 2008 to the date of judgement; f. $495.00 from 3 December 2008 to the date of judgement; g. $495.00 from 5 January 2009 to the date of judgement.

Interest on the above amount to be calculated by the parties and failing agreement to be calculated by the Registrar.

The plaintiff is to pay the costs of the first and second defendants of the proceedings.

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