HIS HONOUR: In these proceedings, the plaintiff (Toyota) claims orders for the delivery up of a large complex and specialised motor vehicle (the vehicle) and ancillary relief. For the reasons that follow, Toyota has made good its claim for that relief.
[3]
Factual background
Toyota carries on business financing, through various forms of agreement, the acquisition of motor vehicles. On 27 February 2014, Toyota entered into a "Master Fleet Facility Agreement" (MFFA) with the first defendant (Evenflow). The MFFA was intended to govern individual finance contracts that might thereafter be made between Toyota and Evenflow in respect of individual vehicles.
The second defendant (Mr Bray) is the sole director of Evenflow.
On 5 March 2014, Toyota made an operating lease with Evenflow in respect of the vehicle.
On 3 November 2014 Evenflow requested Toyota to terminate the operating lease and instead enter into a terms purchase agreement (TPA) in respect of the vehicle.
Toyota would not do so on the terms proposed by Mr Bray on behalf of Evenflow. It would appear, although it is of no particular significance, that Toyota was concerned at the large amount of the balloon payment proposed, which would be payable by Evenflow at the end of the term of the TPA. Of course, one effect of a larger balloon payment is that monthly payments will be diminished.
There is a dispute as to whether or not at some time before 16 December 2014 Toyota did indicate to Evenflow that it would accept the proposal or some version of it. On the view to which I have come, it is not necessary to resolve that dispute.
Evenflow had nominated a bank account in its name which could be used by Toyota to take payments due under finance agreements. It gave Toyota a direct debit authority. On 18 November 2014, Toyota for some reason sought to debit the nominated account with an amount of $801,235.85. The debit was not successfully processed, and the account was not in fact debited. However, some eight days later on 26 November 2014 Toyota, seeking to correct what it thought had happened, erroneously deposited the same amount into the nominated account. Those operations were performed automatically by Toyota's computer system.
Toyota did not become actually aware of the making of that erroneous payment until 10 December 2014, although on 27 November 2014 (the day after the erroneous payment was made), Toyota's computer system sought to debit the nominated account with the amount of the erroneous payment. That attempted debit did not succeed. It did not succeed because Mr Bray had caused virtually the whole amount of the erroneous payment to be transferred out of the nominated account.
The transfers out were effected on 27 November 2014 by some four individual transfers. One was for $20,000. One was for $400,000. One was for $350,000. One was for $40,000.
When Toyota became actually aware (rather than simply through its computer system) that the erroneous payment had been made, it sought the return of the amount of the erroneous payment.
On 16 December 2014, Toyota entered into a TPA with Evenflow. Mr Daniel Tirado, an in-house lawyer employed by Toyota who swore the affidavit on which it principally relied, said that Toyota's motivation in entering into the TPA was to resolve the dispute as to what product had been offered, and to encourage the defendants to repay the amount of erroneous payment.
On 18 December 2014, Evenflow offered to repay the erroneous payment by eight instalments each of $100,000. One payment was made pursuant to that offer, on 22 December 2014. A day later, on 23 December 2014, the defendants indicated that Evenflow was not in a position to make further payments. Not surprisingly, Toyota was less than pleased by this change of position.
Ultimately, three further payments were made in December 2014. There were two payments each of $100,000 and one payment of $1,235.85. It follows that Evenflow has retained $500,000 of the erroneous deposit.
On 30 December 2014, Toyota (which had commenced proceedings to recover the amount of the erroneous deposit) was successful in obtaining freezing orders.
On 13 January 2015 Toyota gave Evenflow what purported to be a default notice under the provisions of the MFFA. I will return to the terms of that default notice. There was no response to the default notice. Accordingly, on 13 February 2015, Toyota gave what purported to be a termination notice under the MFFA.
Toyota has been unable to recover possession of the vehicle. There have been threats of physical violence should Toyota attempt to do so.
[4]
Relevant provisions of the MFFA
I turn to the relevant provisions of the MFFA. The provision most debated was clause 9, dealing with repudiation. I set out, so far as it is relevant, cl 9.1:
(a) These are the fundamental obligations of a Finance Agreement:
(i) The Customer must pay each amount which it owes under the Finance Agreement on time (or where no due date for payment is specified, within 7 days of notice from TFM requiring payment) and as required by the Finance Agreement.
…
(iii) A Transaction Party must not become Insolvent.
…
(v) the Customer's financial position must not, in the reasonable opinion of TFM, became unsatisfactory.
…
(vi) The Customer's ability to perform or observe its obligations under each Transaction Document must not, in the reasonable opinion of TFM, become jeopardised or threatened.
…
(b) If a fundamental obligation of a Finance Agreement is not complied with and, if the non-compliance can be remedied but is not remedied within 10 Business Days of notice from TFM requiring its remedy, then on the expiry of that 10 Business Day period:
(i) the Customer will be taken to have repudiated that Finance Agreement and each other Transaction Document; and
...
Clauses 33.4 and 33.5 dealt respectively with Toyota's rights and with certification. I set them out, so far as relevant:
33.4 TFM's rights and their exercise
(a) TFM's rights, powers and remedies are in addition to any of its legal rights, powers and remedies.
…
33.5 Certificates
A certificate or any other document given by or on behalf of TFM about any amount, interest rate or matter relating to a Transaction Document is sufficient evidence of the matter certified or set out in that document unless the contrary is proved.
For the purposes of those clauses, a "Transaction Party" is relevantly Evenflow and Mr Bray. The "Customer" is Evenflow. "TFM" is Toyota.
The expression "Insolvent" is defined. I set out the definition:
Insolvency or Insolvent includes liquidation, receivership or other appointment of a controller, administration of a corporation, arrangement, compromise, scheme, deregistration, amalgamation, reconstruction, winding up, dissolution, assignment for the benefit of creditors, actual or threatened cessation or suspension of business or payments or disposal of assets, bankruptcy, administration arising out of mental illness or incapacity, administration of an insolvent estate, death or anything similar. It also includes making an application, commencing proceedings, proposing or passing a resolution or taking any steps towards any of those events.
[5]
The issues
The issues argued were:
1. the proper construction of cl 9.1(a)(v) - specifically, whether it referred to "financial position" in general or "financial position" specifically relating to the ability to make monthly payments under any individual finance agreement;
2. was the default notice defective because it specified a specific way to remedy the default, rather than leaving the remedy to the discretion of Evenflow?
3. Did Evenflow withdraw or retract any repudiation before 13 February 2015, the date of the (purported) notice of termination?
[6]
The witnesses
The witnesses in the case were principally Mr Tirado and Mr Bray. Mr Tirado was not cross-examined. I accept his evidence.
Mr Bray was cross-examined. On his own admission, he acted with conscious dishonesty in taking advantage of what he knew to be a mistake on Toyota's part, by paying away money to which he knew Evenflow was not entitled.
Although Mr Bray had sought to rationalise his actions by reason of what he said was Toyota's shilly-shallying over the alleged acceptance of the TPA proposal, I do not accept that rationalisation. Mr Bray was clutching at straws in an attempt to justify his dishonesty.
To my mind, the extent of Mr Bray's admitted dishonesty is so substantial that it justifies the conclusion that his evidence should not be accepted unless:
1. it is corroborated by other acceptable evidence (or supported by contemporaneous documents)
2. it accords with the probabilities, viewed objectively; or
1. it is against interest.
I have felt it necessary to make those observations because, for matters of present relevance, I do not accept as plausible or probative Mr Bray's assertions that Evenflow has or at any relevant time had the financial capacity to repay the outstanding $500,000 if required to do so. Thus, to jump ahead for the moment, I do not accept as plausible or probative the affidavit evidence relied upon to suggest that Evenflow had retracted or withdrawn any repudiatory conduct.
The simple fact is that, on Mr Bray's admissions, Evenflow through him knows and always knew that it was required to repay, even in the absence of judgment, the full amount of the erroneous payment. On Mr Bray's own admissions Evenflow has taken and spent money to which, through Mr Bray, it knew it had no claim. It has not repaid the bulk of that money.
The obvious inference is that, at least absent winding-up, Evenflow either cannot or will not repay the balance of $500,000 that is owing.
[7]
First issue
I turn to the first issue. That raises the question of the proper construction of cl 9.1(a)(v). As I have said already, the substantial dispute is whether "financial position" was to be read as meaning Evenflow's financial position generally, or overall; or whether it was limited to its financial position relevant to performance of the financial obligations to pay rent and the like.
Mr Neggo of counsel, who appeared on the hearing for Evenflow, referred to the well-known authorities governing the proper construction of contractual documents. He noted, correctly, that the Court was required to give a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result. He noted, further, that the Court should seek to avoid commercial nonsense or commercial inconvenience: See, generally, Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).
Mr Neggo submitted that the principal commercial interest that Toyota was seeking to protect under the MFFA was the ability of its customers - in this case Evenflow - to meet their monthly or other periodic financial obligations. Thus, he submitted, although "unsatisfactory" should have its ordinary meaning of "not satisfactory" or "inadequate", nonetheless that had to be considered in the context of the financial obligations that Evenflow might undertake in respect of any individual finance agreement.
Mr Neggo submitted that the opinion must have a reasonable foundation or sufficient grounds. However, since there was no complaint that the opinion had been formed unreasonably (or had not been formed at all), it is not necessary to pursue the question of the reasonable basis. (There is a limited exception, to which I shall turn in a moment.)
In my view, there is no reason to read down the words "financial position" so that they should be taken to refer only to the financial position of Evenflow in respect of its ability to meet its monthly rent or equivalent obligations under individual finance agreements. On the contrary, when one looks at the words in their contractual context, it is in my view clear that they should not be so read down.
The starting point is that cl 9.1(a) itself contains several provisions which are relevant to the question of the customer's financial position. By subpara (iii), it is a fundamental obligation that a Transaction Party not become Insolvent. For the purposes of the MFFA, Insolvency clearly refers to the formal processes by which insolvency is recognised or dealt with, including liquidation and the like. Thus, subpara (iii) protects Toyota against one aspect of what might be called an unsatisfactory financial position, or against one all too common consequence of an unsatisfactory financial position.
Again, subpara (vi) deals specifically with Evenflow's ability to perform and observe its obligations under any individual finance agreement. If subpara (v) were to be read in the way that Mr Neggo suggested, it would add little if anything to subpara (vi). On the other hand, if the words are read more generally, as Mr Condon SC for Toyota submitted, then each of the subparagraphs has work to do.
In this context, it should be noted that there are other provisions of the agreement that impose monetary obligations on the customer (in this case, Evenflow). By cl 4.1, Evenflow is required to pay "rent". Under cl 5.7, Evenflow is required to maintain the vehicle in good repair and working order and to pay for inspection, maintenance and repairs. Under cl 6.1, Evenflow is required to register the vehicle and take out compulsory third party insurance. Under cl. 7.2, Evenflow is required to take out specified insurance and to pay the amounts necessary to maintain it. Under cl 7.4, Evenflow is required to repair the vehicle if it is damaged (unless it is a "write off").
Those are all aspects of financial performance which do not specifically come under cl 9.1(a)(vi). They are all aspects of financial performance to which, in general, the question of "financial position" is relevant. Toyota is entitled to take into account, in forming the opinion for which cl 9.1(a)(v) calls, the financial position of Evenflow insofar as it might have an adverse impact on the ability of Evenflow to perform any and indeed all of those various obligations. With the exception of cl 7.4, they are all obligations, the performance of which will necessarily and recurrently incur financial outlays.
In my view, as I have said, looking at the agreement as a whole, there is no warrant for reading down the words "financial position" in the way for which Evenflow contended.
Mr Neggo submitted, as an alternative, that the opinion that Toyota had formed was not based on any consideration of Evenflow's financial position with reference to its obligations under the agreement. He said, I think correctly, that it had been based on the failure to repay the outstanding $500,000.
That submission can only be correct on the narrow construction of the words "financial position". On the natural meaning of those words and in the surrounding circumstances, the failure of Evenflow to repay what was an admitted debt (and it had been admitted because Evenflow had offered to repay the entire amount by eight monthly instalments) gave ample justification for the formation of the cl 9.1(a)(v) opinion.
[8]
Second issue
I turn to the second issue - the alleged defect in the default notice. Mr Neggo relied on the fact that the default notice specifically said what Evenflow might do to rectify the default. I set out (omitting formal parts) the relevant provisions of the default notice:
TAKE NOTICE THAT you have failed to comply with your fundamental obligations under clause 9.1(a)(v) of the Finance Agreement.
You may remedy this default by:
1. paying us $501,235.85 which is presently due and payable to TFM; and
2. complying with your other obligations under the Finance Agreement.
This notice is given in accordance with clause 9.1(b). You must remedy this non-compliance within 10 business days of this notice. If you fail to remedy this non-compliance within 10 business days, you will be taken to have repudiated the Finance Agreement. TFM may then in its absolute discretion accept this repudiation by giving you a notice terminating the Finance Agreement and taking possession of the Vehicle.
Mr Neggo submitted that, on the proper construction of cl 9.1(a)(v), the substance of what remedial action was required was left to the discretion of the customer, and it was the customer that would therefore bear the risk that action taken by it might be inadequate.
Mr Neggo submitted that, in this case, the notice dictated a specific act "as being the only way to remedy the non compliance" (his emphasis).
I do not agree. The notice specifies what Evenflow might - could - do to remedy the default. That is to say, it specified a form of action which Toyota would accept as sufficient to remedy the default. It did not say in terms that Toyota would accept tender of the amount of $501,235.85 and nothing else as adequate to remedy the default. The word "may" in context is clearly permissive.
It was open to Evenflow to follow the suggestion that had been given. But the notice did not leave Evenflow without any alternative. It could have taken other actions to demonstrate that its financial position was satisfactory, and that there was no breach and hence no repudiation. The notice did not prevent it from doing so. Thus, I do not accept this basis on which Mr Neggo sought to uphold his client's second point.
Mr Neggo submitted that the payment on which the notice "insisted" (and I repeat what I have just said, which demonstrates the inaccuracy of the verb "insist") was not one required under the TPA, and thus failure to pay it could not give rise to repudiation. I do not agree. It is not a question of obligation under the terms purchase agreement. The question is: what did Toyota want? The answer is that it wanted Evenflow to achieve a financial position that, in objective terms, was satisfactory.
Toyota specified one way that Evenflow could do this. Its specification was not invalid because the payment was not owing under the TPA. It was in effect the inability to pay the amount specified that grounded the reasonable view that Toyota had formed.
In my view, it would be the same if Evenflow had made default under a third party mortgage, and the mortgagee threatened enforcement action. Toyota could require Evenflow to rectify that default even though it had nothing to do with the terms purchase agreement.
The next point that Mr Neggo took was that the notice required more (by $1,235.85) than the amount then owing. There are it seems to me two answers to this. One is that, in the context of this case, the overstatement is de minimis. The other, and perhaps related, answer is that, for the reasons explained in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, as cited with approval in Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 at [148], the defect in the notice does not render it ineffective.
[9]
Third issue
I turn to the third issue: the asserted withdrawal or retraction of any repudiation. The submission put was that Evenflow had retracted the repudiation because on 30 January 2015 it served an affidavit made by Mr Bray in the freezing order proceedings which, Mr Neggo submitted, "provided... information indicating that Evenflow had sufficient assets to meet any judgment in relation to the erroneous payment". Mr Neggo relied in addition on Evenflow's consent to continuation of the freezing orders in terms acceptable to Toyota.
For the reasons that I have given dealing with Mr Bray's credibility, or lack of it, I do not regard the affidavit as a plausible or probative demonstration of a satisfactory financial position. I note in any event that the accounts attached to the affidavit did not recognise the $500,000 liability to Toyota which Evenflow had admitted (when it undertook to repay), and which in any event Mr Bray well and truly knew, from the day the erroneous payment had been made, represented money that was not his or his company's to deal with.
As to the freezing order, so far from demonstrating a satisfactory financial position, it seems to me to do exactly the opposite. If the financial position were satisfactory, so that it appeared that Evenflow would be in a position to meet any judgment if called upon to do so, then absent a real threat of dissipation of assets, there would be no need for the freezing order.
For those reasons, each of the three issues should be resolved in favour of Toyota and adversely to Evenflow.
[10]
An alternative argument for Toyota
I should note that, in addition to what might be called contractual repudiation (by which I mean, repudiation on the terms specified in the MFFA), Mr Condon relied on repudiation at large under the general law. He submitted that the failure to repay was evidence of repudiation.
Were it necessary to do so, I would not accept that alternative submission. There was no obligation under either the MFFA or the TPA to repay the amount owing, because that amount became owing outside the terms of those two agreements.
[11]
Conclusion and orders
As I have said, I conclude that Toyota has made good its claim to the relief sought.
Accordingly I make orders in accordance with prayers 1 and 2 of the summons.
I order the defendant to pay the plaintiff's costs. I reserve liberty to apply on 24 hours' notice or on such other notice as the Court may allow. I direct that the exhibits be handed out once these reasons have been revised.
I direct that the orders be entered forthwith.
I stand the balance of the summons over to 7 April 2015.
Any amended summons is to be filed and served no later than 23 March 2015.
[12]
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Decision last updated: 16 March 2015