CATCHWORDS BILLS OF EXCHANGE - Cheques - Damages sought for dishonour of cheque - whether party claiming was a "holder" of the cheque. PRACTICE AND PROCEDURE - Summary judgment. Cheques and Payment Orders Act 1986 (Cth), ss 71, 76, 3(1) "holder" and "possession". Silk Bros Interstate Traders Pty Ltd v Security Pacific National Bank (1989) 16 NSWLR 446. Ferro Corporation (Aust) Pty Ltd v International Pools Aust Pty Ltd (1993) 30 NSWLR 539. Buying Systems (Aust) Pty Ltd v Tien Mah Litho Printing Co (PTE) Ltd (1986) 5 NSWLR 317. GUTHREYS PACIFIC PTY LIMITED v NORTHERN TERRITORY TOURISM & PROMOTIONS & ORS NG 207 of 1995 Sackville J. 29 June, 1995 Sydney IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 207 of 1995 GENERAL DIVISION ) BETWEEN: GUTHREYS PACIFIC PTY LIMITED Applicant AND: NORTHERN TERRITORY TOURISM & PROMOTIONS First Respondent BRIAN DANIEL MOONEY Second Respondent MARK CHRISTOPHER MOONEY Third Respondent NORTHERN TERRITORY TOURISM & PROMOTIONS PTY LIMITED First Cross-Claimant BRIAN DANIEL MOONEY AND MARK CHRISTOPHER MOONEY Second Cross-Claimants GUTHREYS PACIFIC PTY LIMITED First Cross-Respondent TERENCE HAROLD HAYDEN AND VICTORIA HAYDEN Second Cross-Respondents CORAM: SACKVILLE J. DATE: 29 JUNE, 1995 PLACE: SYDNEY MINUTES OF ORDER THE COURT ORDERS THAT: 1. The Notice of Motion filed by the first and second cross-claimants on 2 May 1995 be dismissed with costs. 2. The Notice of Motion filed by the first and second cross-respondents on 1 June 1995 be dismissed with no order as to costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 207 of 1995 GENERAL DIVISION ) BETWEEN: GUTHREYS PACIFIC PTY LIMITED Applicant AND: NORTHERN TERRITORY TOURISM & PROMOTIONS First Respondent BRIAN DANIEL MOONEY Second Respondent MARK CHRISTOPHER MOONEY Third Respondent NORTHERN TERRITORY TOURISM & PROMOTIONS PTY LIMITED First Cross-Claimant BRIAN DANIEL MOONEY AND MARK CHRISTOPHER MOONEY Second Cross-Claimants GUTHREYS PACIFIC PTY LIMITED First Cross-Respondent TERENCE HAROLD HAYDEN AND VICTORIA HAYDEN Second Cross-Respondents CORAM: SACKVILLE J. DATE: 29 JUNE, 1995 PLACE: SYDNEY REASONS FOR JUDGMENT The Proceedings In this matter two notices of motion have been heard together. The first is brought by the three respondents to the principal application, namely, Northern Territory Tourism and Promotions Pty Ltd ("NTTP"), Brian Mooney and Mark Mooney, both of whom are directors of NTTP. NTTP and the Mooneys (as I shall describe them) are the cross-claimants in a cross-claim against the applicant in the principal proceedings, Guthreys Pacific Pty Ltd ("Guthreys") and two other parties ("the Haydens"). The cross-claim seeks liquidated damages in respect of a cheque for $102,000 drawn by Guthreys, in favour of the Mooneys as payees. This cheque was dishonoured on presentation. It also pleads a claim in contract against Guthreys, as well as claiming against the Haydens as guarantors of Guthreys' obligations under an agreement to which I shall refer later. Guthreys has paid the sum of $102,000 into the Supreme Court of New South Wales in separate proceedings between it and NTTP. The terms of the agreement between the parties provide that the money will be held to abide the outcome of the present proceedings. Paragraph 1 of the motion seeks summary judgment, under Federal Court Rules O.20, r.1, against Guthreys on the cross-claim, insofar as it relates to the dishonour of the cheque. Paragraph 3 of the motion seeks summary judgment against the Guthreys and the Haydens. Paragraph 3 of the motion, which is based upon the cross-claimants' claim in contract, was not pressed before me. Paragraph 2 of the motion is not presently relevant. The second notice of motion is brought by Guthreys and the Haydens. It seeks an order staying any summary judgment on the cross-claim that may be obtained by NTTP and the Mooneys. This motion becomes of practical significance only if the first notice succeeds. By consent both motions were heard together. The Transaction On 2 December 1994 a business sale agreement was entered into between NTTP (then known as Australian Bushmans Tours Pty Ltd), as vendor, and Guthreys as purchaser. The Mooneys were also parties to the agreement, as were the Haydens, who were designated as guarantors. The agreement recited that NTTP carried on business as a tour operator and that Guthreys wished to purchase the business name and goodwill of the business. By cl.2.1 NTTP agreed to sell and Guthreys agreed to purchase the whole of the business for the price of $480,000, apportioned as to $100,000 for stock and $380,000 for good will. A deposit of $48,000 was paid on exchange of contracts. The agreement provided (cl.3.3) that Guthreys should pay the sum of $302,000 on the completion date as follows: (a) a bank cheque for $200,000; and (b) a cheque dated 16 December 1994 for $102,000. Since the completion date was 9 December 1994 it follows that it was contemplated that a post-dated cheque would be handed over by Guthreys on settlement. The balance of the purchase price of $130,000 was to be paid by six equal instalments of $21,667, payable monthly from 9 July 1995. Prior to completion Guthreys was to carry out a due diligence examination to satisfy itself of certain matters specified in the agreement. If a "discrepancy" (as defined) were discovered, and the parties were unable to resolve the discrepancy, Guthreys had the right to rescind and recover the deposit. It appears that completion took place on 9 December 1994. (The affidavit evidence suggested that completion occurred on 16 December 1994 but, as I understood it, the parties accepted that 9 December 1994 was the correct date. However, nothing turns on this.) On completion, Guthreys handed to NTTP's solicitors a cheque for $102,000 drawn on Guthreys' account with the ANZ Bank at North Sydney. The cheque was made payable to the order of B D and M C Mooney and was dated 16 December 1994. It is not entirely clear why the cheque was made payable to the Mooneys, although Mr Brian Mooney gave brief oral evidence, from which it appears that his accountant had suggested that this course should be followed. A bank cheque for $200,000 was also handed over on completion to NTTP's solicitors, apparently also made payable to the order of B D & M C Mooney. A notice of dishonour was in evidence. This showed that the cheque for $102,000 was deposited on 16 December 1994 for the credit of account No. 636054338 at the National Australia Bank, Marrickville. The notice was addressed to "Rikanu Pty Ltd, P O Box 4952 Sydney NSW 2001" and advised that a dishonour fee had been debited to "your account numbered 636054338". No evidence was tendered to explain how Rikanu Pty Ltd ("Rikanu") came to present the cheque, nor was there evidence as to the relationship, if any, between Rikanu and the payees named in the cheque. Rikanu is not a party to the proceedings. The Application The amended application filed by Guthreys claims the following relief: "1. A declaration that the respondent has in trade or commerce contravened Section 52 of the Trade Practices Act; 2. Damages pursuant to Section 82 of the Trade Practices Act; ... 4. A declaration that a cheque dated 16 December 1994 drawn by the applicant in favour of the second respondents was obtained by the second respondents by unlawful means or in breach of faith or in circumstances which amount to fraud and thereby the second respondents have no title to the cheque; 5. Damages for breach of contract and/or collateral contract and/or breach of warranty and/or negligent misstatement; ..." The amended statement of claim alleges a series of representations by NTTP prior to the entry into the agreement. These representations are said to have been misleading and deceptive. Paragraph 10B of the statement of claim is as follows: "On or about 9 December 1994 in reliance and induced by the aforesaid representations the Applicant at the direction of the First Respondent provided to the Second Respondents a cheque for $102,000 dated 16 December 1995 [sic] drawn by the Applicant in favour of the Second Respondents pursuant to the business sale Agreement." The statement of claim also alleges that the Mooneys were knowingly concerned as a party to the representations made by NTTP. Other allegations are made, but it is not necessary to refer to them for the purposes of the present applications. The Cross Claim The cross claim alleges the entry into the agreement and refers to the terms of the agreement. It goes on to allege that on or before 16 December 1994, Guthreys countermanded payment of the cheque. The cross claim proceeds, insofar as relevant: "21.By drawing the cheque, Guthreys undertook: (a) that, on due presentment for payment, the cheque would be paid according to its tenor as drawn; and (b) that if the cheque was dishonoured when duly presented for payment, Guthreys would compensate the holder. Particulars Cheques and Payments Order Act 1986, s71 ("CPOA") 22. At all material times after 9 December 1994, Messrs Mooney were the holders of the cheque. 23. On 16 December 1994, the second cross-applicants duly presented the cheque for payment. 24. On 16 December 1994, the cheque was dishonoured. Particulars The cheque was returned with the answer ("Refer to Drawer", or, "Payment Stopped"). 25. Further and alternatively to paragraphs 23 and 24, prior to 16 December 1994, Guthreys countermanded payment of the cheque and by reason thereof:- (a) Guthreys expressly or by implication waived the right to presentment; (b) presentment of the cheque for payment was dispensed with by virtue of s59(a) of the CPOA. 26. The cheque was unpaid after its date had arrived. 27. By reason of the matters pleaded in paragraphs 20, 21, 22, 23 and 24, or alternatively 20, 21, 22, 25 and 26, Messrs Mooney are entitled to recover as liquidated damages the sum of $102,000.00 and interest. Particulars Cheques and Payments Order Act 1986, s76 Cheques and Payments Order Act 1986, s71". Although the cross-claim alleges that the cross-claimants presented the cheque for payment, the only evidence of the presentation of the cheque was that to which I have referred. Cheques and Payment Orders Act The liability of the drawer of a cheque is stated by s.71 of the Cheques and Payment Orders Act 1986 ("the Act"). Section 71 provides that, subject to certain exceptions not presently relevant, "the drawer of a cheque, by drawing the cheque, undertakes: (a) that, on due presentment for payment, the cheque will be paid according to its tenor as drawn; and (b) that: (i) if the cheque is dishonoured when duly presented for payment; or ... the drawer will compensate the holder or an indorser who is compelled to pay the cheque." Section 76 provides for the holder of a cheque to recover damages from the drawer of the cheque: "76(1) Subject to subsection (2), where a cheque is dishonoured, the holder may recover as damages from any person liable on the cheque, and an indorser who has been compelled to pay the cheque may recover as damages from the drawer or a prior indorser: (a) if the cheque is dishonoured in Australia: (i) the sum ordered to be paid by the cheque; and (ii)the amount of any interest that, in accordance with the regulations, is payable in respect of that sum.... (3) Damages recoverable under subsection (1) shall be deemed to be liquidated damages." The term "holder" is defined in the act, s.3(1), to mean: "(a)in relation to a cheque payable to order - the payee or an indorsee who is in possession of the cheque as payee or indorsee, as the case may be; and (b) in relation to a cheque payable to bearer - the bearer." The word "possession", in relation to a cheque, means "possession (whether actual or constructive) of the cheque". Sections 39, 40 and 42 deal with the transfer of a cheque by negotiation. "39(1) Every cheque may be transferred by negotiation until it is discharged. ... 40(1) The transfer of a cheque by negotiation is the transfer of the cheque from the holder to another person in such manner as to constitute the other person the holder. (2) A cheque payable to order is transferred by negotiation if: (a) it is indorsed by the holder; and (b) the cheque is delivered so as to complete the contract arising out of the indorsement. ... 42(1) Where the holder of a cheque payable to order, without indorsing the cheque, delivers the cheque, for value, to another person in order to transfer the cheque by negotiation, the other person, by virtue of the delivery: (a) receives the title that the holder had in the cheque; and (b) acquires the right to have the holder indorse the cheque to the other person." "Delivery", in relation to a cheque, means "the transfer of possession of the cheque from one person to another". Evidence as to the Holder of the Cheque Mr De Buse, who appeared for Guthreys, raised a number of issues in opposition to the application for summary judgment. However, I need consider only one for the purposes of this application. Mr De Buse pointed out that the action provided for in s.76(1) of the Act is available to the "holder" of a cheque. As has been seen, where the cheque is payable to order, the holder means (s.3(1)): "the payee or an indorsee who is in possession of the cheque as payee or indorsee as the case may be". (Emphasis supplied.) Mr De Buse submitted, and Mr Brereton (who appeared for the cross-claimants) did not dispute, that the words "who is in possession of the cheque" qualified the word "payee" as well as the word "indorsee". Mr De Buse contended that the evidence put forward by the cross-claimants had not established that any of them were the holders of the cheque for the purposes of s.76(1) of the Act. Thus the foundation for the application for summary judgment had not been laid. Mr Brereton contended that Rikanu held the cheque simply as agent for the Mooneys, who were therefore the holders of the cheque. It is true that, for the purposes of the law of bills of exchange, when an agent has actual possession of a bill on behalf of his or her principal, the principal has constructive possession of the bill: Silk Bros Interstate Traders Pty Ltd v Security Pacific National Bank (1989) 16 NSWLR 446 (NSW CA), at 450-451, per Meagher J.A. But the evidence on this application did not establish, or even address, the nature of the relationship between the Mooneys and Rikanu, much less whether Rikanu was merely an agent in actual possession of the cheque on behalf of the Mooneys. As I have noted, there was no evidence explaining the circumstances in which Rikanu obtained the cheque for the purposes of requesting the National Australia Bank to present it for collection. The evidence is consistent with the Mooneys having delivered the cheque to Rikanu, in the sense of having transferred possession of the cheque to Rikanu prior to 16 December 1994. Indeed, having regard to the fact that Rikanu presented the cheque for collection through its bank, the inference to be drawn, in the absence of other evidence, is that possession of the cheque had been transferred to it prior to 16 December 1994. Mr Brereton also contended that, as the cheque was payable to order and had not been indorsed, it had not been "transferred by negotiation" within s.40(2) of the Act. However, the original cheque was not tendered on behalf of the cross-claimants. The copy of the cheque adduced in evidence did not include a copy of the back of the cheque, the place where an indorsement is normally to be found. The documentary evidence therefore did not establish whether or not the cheque had been indorsed by the Mooneys as payees, and Mr Brian Mooney gave no evidence on the point. The evidence is therefore consistent with the cheque having been indorsed to Rikanu by the Mooneys. Even on the assumption that the cheque was not indorsed, Rikanu still would have acquired title to it, provided the cheque was delivered by the Mooneys to Rikanu for value, in order to transfer the cheque by negotiation: s.42(1). Again the evidence was silent as to whether Rikanu had provided value to the Mooneys for the cheque. However, the fact that Rikanu presented the cheque for collection is consistent with it having providedvalue to the Mooneys for the cheque. Again, in the absence of contrary evidence, the inference to be drawn is that Rikanu did provide value for the cheque. Finally, Mr Brereton argued that the circumstance that Mr Brian Mooney annexed to his affidavit a copy of the cheque, together with the notice of dishonour, was evidence that, after presentment of the cheque, the original cheque had come into his possession as payee. He contended that I should infer that the cheque had been in Mr Mooney's possession as payee on 2 May 1995, the date the cross-claim was filed in these proceedings. Mr Mooney's affidavit was sworn on 3 May 1995. There was, however, no explanation in Mr Mooney's affidavit or his oral evidence as to the whereabouts of the original cheque on either 2 May 1995 or 3 May 1995. Nor was there any account or explanation of the dealings, if any, between Rikanu and Mr Mooney relating to the cheque after it had been dishonoured on presentment. The fact that Mr Mooney, on 3 May 1995, annexed a copy of the front of the cheque is quite consistent with Rikanu having retained "possession" of the original cheque, as that term is used in the Act, at the date of filing of the cross-claim and, for that matter, thereafter. It was, after all, Rikanu that had presented the cheque for payment into its account and received the notice of dishonour. Although Mr Brereton did not tender the verified lists of documents filed on behalf of NTTP and the Mooneys, he drew attention in argument to the fact that NTTP's list, which was verified on 14 June 1995 by Mr Brian Mooney, included the cheque drawn by Guthreys. Of course the inclusion of a document in a list verified on 14 June 1995 does not establish that the party claiming possession of the document at that date was also in possession of the document on an earlier date. But there was no explanation in the evidence or submissions as to how the cheque, which was said to have been in Mr Mooney's possession on 2 May 1995, had come into the possession of NTTP on 14 June 1995. This tends to confirm that caution should be exercised before drawing the inferences Mr Brereton urged on me from the evidence adduced in the proceedings. Moreover, it must be remembered that the cross-claimants are seeking to have inferences drawn in their favour on matters of which they have knowledge and on which they could have given evidence: see Commercial Union Assurance Co. of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 (NSWCA), at 418-419 per Handley J.A. (aff'd (1993) 176 CLR 332); R v Beserick (1993) 30 NSWLR 510 (NSWCA), at 532. In my opinion, the evidence adduced on the application does not establish that either NTPP or the Mooneys was the holder of the cheque at the date the cross-claim was instituted. I therefore cannot conclude that there is no fairly arguable defence open to Guthreys in relation to the claim based upon the dishonour of the cheque. Other Issues The other arguments advanced by Mr De Buse included a contention that summary judgment should not be granted in respect of a claim based on a dishonoured cheque where the drawer claims that the drawing of the cheque was induced by the payee's misleading and deceptive conduct. For this proposition Mr De Buse relied on the decision of Rolfe J. in Ferro Corporation (Aust) Pty Ltd v International Pools Aust. Pty Ltd (1993) 30 NSWLR 539. In that case his Honour distinguished a line of cases establishing that the law does not permit a cross-claim or set-off for an unliquidated amount as a defence to an action on a bill of exchange: Buying Systems (Aust) Pty Ltd v Tien Mah Litho Printing Co (PTE) Ltd (1986) 5 NSWLR 317. He did so on the ground that the cross-claim before him invoked s.87 of the Trade Practices Act 1974 (Cth) as a source of authority to set aside the bill of exchange or to treat it as a nullity. The present case is different from Ferro Corporation, because no relief is presently sought in the amended statement of claim that the cheque be set aside or treated as a nullity (although Mr De Buse foreshadowed an intention to apply to amend the pleadings, if it became necessary to do so). Mr Brereton resisted the foreshadowed amendment on the ground, inter alia, that Guthreys had affirmed the agreement. Because of the conclusion I have reached on the other aspects of the application I need not resolve these issues. Adjournment? In written submissions filed (in accordance with my directions) after the conclusion of evidence and oral argument, Mr Brereton sought an adjournment should I not accept his arguments on the question of the holder of the cheque. He said that the adjournment was sought in order to tender the original cheque and to adduce evidence as to the possession of the cheque when the proceedings were instituted. No reason was given by Mr Brereton as to why this evidence was not adduced in the course of the hearing, which took place on the date scheduled, despite the Court having a very heavy workload on that day. In my opinion it is important that a party bringing an application for summary judgment adduce at the outset the evidence necessary to make out the elements of the claim. It does not assist the orderly disposition of litigation for such an application to be reopened to permit fresh evidence, which is not suggested to have been unavailable at the date of the hearing, to be presented. The cross-claimants will have an opportunity, of course, to adduce additional evidence at the final hearing. I do not think that an adjournment of the hearing of the motion for summary judgment for the purpose of receiving further evidence is warranted. Mr Brereton also sought in his written submissions an adjournment to press the claim for summary judgment raised in paragraph 3 of the notice of motion. This claim was not pressed at the hearing and would raise completely new issues. An adjournment for this purpose is quite inappropriate. It follows that I decline to grant any adjournment of the motion for summary judgment. Conclusion The cross-claimants' application for summary judgment should be dismissed with costs. Since it is unnecessary to consider a stay, the motion for the stay of any summary judgment should also be dismissed. There should be no order for costs on the motion for a stay. I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Dated: 29 June, 1995 Heard: 21 June, 1995 Place: Sydney Decision: 29 June, 1995 Appearances: Mr B. De Buse, instructed by Grinstons, Solicitors, appeared for the Applicant/First Cross-Respondent and the Second Cross-Respondents. Mr P. Brereton, instructed by G.H. Healey & Co, Solicitors, appeared for the First Respondent/First Cross-Claimant and for the Second and Third Respondents/Second Cross-Claimants.