Local Court of New South Wales CITATION: Costa v El-Turk [2006] NSWLC 51 JURISDICTION: Civil PARTIES: Con Costa Michael El-Turk FILE NUMBER: 7424/05 PLACE OF HEARING: Downing Centre Local Court DATE OF DECISION: 11/28/2006 MAGISTRATE: Magistrate H Dillon CATCHWORDS: Contracts - Undisclosed agency - Whether defendant an undisclosed agent - Whether defendant liable as undisclosed agent - Whether defendant entered contract personally - Estoppel - Res judicata estoppel - Whether plaintiff estopped from maintaining proceedings because judgment entered in same cause of action in another proceedings LEGISLATION CITED: Blair v Curran (1939) 62 CLR 464 Jackson v Goldsmith (1950) 81 CLR 446 Kendall v Hamilton (1879) 4 App. Cas. 504 CASES CITED: Marginson v Ian Potter & Co (1976) 136 CLR 161 at 169 Petersen v Moloney (1951) 84 CLR 91 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Priestly v Fernie (1863) 3 H & C 977; at 514-515. REPRESENTATION: Mr R. Johnson (counsel) instructed by Koutzoumis Solicitors Mr P. De Dassell (counsel) instructed by Avondale Lawyers ORDERS: 1.Verdict for the plaintiff in the sum of $15,008.40 and judgment accordingly. Interest is to be calculated by the Registrar from 30 November 2002 .2.Subject to order 3, the defendant is to pay 80 per cent of the plaintiff's costs of the proceedings in a sum agreed or assessed on the party and party basis. 3. The plaintiff is to pay the defendant's costs of the application to re-open the proceedings in a sum agreed or assessed on the party and party basis. JUDGMENT 1. The plaintiff, Dr Con Costa, a medical practitioner, claims a sum of $15,008.40, unpaid rent he asserts is owed to him by the defendant, Mr Michael El-Turk. His case is that he rented a set of taxi plates, an investment of his, to Mr El-Turk and that Mr El-Turk fell behind in the monthly rents due for nine months, from March to November 2002. 2. Mr Michael El-Turk, is a taxi-driver. In the relevant period he owned and directed a small company called M&N Cabs Pty Ltd. That company is now in liquidation. 3. In June 2002, Dr Costa entered an agreement to rent the taxi plates either to Mr Costa himself or to his company. Dr Costa asserts that at the time the contract was formed he had no knowledge of the existence of M&N Cabs. His case is that his belief was that he was entering the contract with Mr El-Turk personally. Mr El-Turk, on the other hand, claims that it was M&N Cabs that agreed to rent the plates. 4. Mr El-Turk concedes that the rent claimed was not paid. The first issue for resolution, then, is who entered the contract with Dr Costa. 5. This leads us to the second major issue for resolution. Mr El-Turk alleges that the contract was terminated by notice sent to Dr Costa in February 2002 giving 30 days notice. Dr Costa claims never to have received the notice. The question here is whether the contract terminated in March 2002 or November 2002. 6. Finally, at some time after the contract terminated Dr Costa referred the problem of the unpaid rent to a debt-collection agency. As a result, the solicitors acting for Dr Costa filed a statement of liquidate claim at the Balmain Local Court on 29 January 2003 nominating M&N Cabs as the defendant. A judgment was entered in those proceedings against the defendant company. This raises the question whether the plaintiff is estopped from maintaining these proceedings. Who were the parties to the contract? 7. To succeed in this matter, the plaintiff must not only show that there was a contract but must prove that it was entered either with Mr El Turk personally or with him as an undisclosed agent for another party. An undisclosed agent may be sued in his or her own name and held personally liable if the plaintiff is successful. (The agent may, however, join the principal but that is not the case here.) 8. Both Dr Costa and his wife Penny gave evidence that they entered an agreement with Mr El Turk concerning the rental of the taxi plates. It appears to be common ground between the parties that the agreement was oral. Dr and Mrs Costa both assert that they had no knowledge of M&N Cabs when the agreement was made in mid-2000. Indeed, they claim not to have had any knowledge of the company or the fact that proceedings had been brought in Dr Costa's name in the Balmain Local Court against it until it was brought to their attention at the arbitration in April 2005. 9. In support of that evidence, the plaintiff tendered a "Notice of a Taxi-Cab Licence On-Management Arrangement" dated 15 June 2000 in which the parties to the "arrangement" are stated to be Dr C. Costa and Michael El-Turk. They also tendered a letter from the NSW Department of Transport dated 16 June 2000 concerning the "arrangement" addressed to Mr El-Turk. Dr Costa also tendered a series of invoices for the period July 2001 to June 2002 and for the period March to November 2002 addressed to Mr El-Turk. Nowhere in any of those documents does any reference to the M&N Cabs appear. 10. As I understand it, the licensee of taxi plates is required to give notice to the Department of Transport of any arrangement in the nature of a sub-lease of taxi-plates. In giving notice, Dr Costa was telling the Department that he had assigned the management of the taxi plates to Mr El-Turk. That letter signed by Mr El-Turk as well as Dr Costa. 11. Mr El-Turk testified that he had at all times when entering the agreement and in subsequent dealings concerning the taxi plates been acting as agent for M&N Cabs. In cross-examination, however, he was asked whether he had sent a letter to Dr Costa notifying him that he was dealing with M&N Cabs. He conceded he had not. He was then asked by counsel for the plaintiff whether he had ever declared to Dr Costa that he was dealing with M&N Cabs. His answer was, "Maybe, I can't remember now, it's been a long time." Transcript 05/04/06 p.18. 12. The two pieces of documentary evidence Mr El-Turk produced in support of his contention were a bank statement for M&N Cabs showing a cheque in the sum of $13,340.80 had been debited from the account and a cheque book stub showing that the cheque had been paid to Dr Costa. It is common ground that Dr Costa was paid that sum for arrears up to March 2002. Mrs Costa, who managed the books for Dr Costa, gave evidence that she had received a cheque from Mr El-Turk in that amount and that the drawer had been Mr El-Turk not M&N Cabs. It seems very likely that she is mistaken about that. 13. This appears to have been the only cheque that was provided to Dr Costa personally. In general, the rent was paid directly into Dr Costa's account. 14. Dr Costa and Mrs Costa were cross-examined about the Balmain Local Court proceedings. While they agreed that the matter had been referred to the debt-collectors they denied having given instructions specifically nominating M&N Cabs as the defendants and any knowledge of the statement of claim. 15. Dr and Mrs Costa appeared to be truthful and reasonably reliable witnesses. They had a friendly, informal relationship with Mr El-Turk in June 2000. It can be inferred that when Dr Costa entered the agreement it made no difference to him whether he was entering with Mr Costa personally or with M&N Cabs, directed by Mr El-Turk. The facts that the notice of the "on-management arrangement" was filled out in the name of Mr El-Turk; that the Department of Transport wrote to Mr El-Turk rather than to M&N Cabs (or to Mr El-Turk of M&N Cabs) and that the invoices were produced in the name of Mr El-Turk all indicate that the testimony they give of having no knowledge of M&N Cabs until well after the event is highly credible. If that evidence is accepted, it shows that Mr El-Turk, if he was acting as an agent of M&N Cabs, did so without disclosing the fact to Dr Costa at the time the contract was formed. 16. Mr El-Turk, on the other hand, was able to produce no contemporaneous records showing or indicating that he had revealed the true principal in the agreement at the time the agreement was made. The cheque butt at best shows that nearly two years after the contract was formed he paid the arrears with an M&N Cabs company cheque. 17. In the course of his evidence, Mr El-Turk appeared to have a poor memory and at times to prevaricate. Asked whether he had declared to Dr Costa in writing or orally that the agreement was being formed with M&N Cabs his best recollection was "maybe". He has an obvious motive to falsely claim that the contract was made between the company and Dr Costa. He may have honestly believed that he was acting on behalf of the company. That may have been his intention. It is, in my view, not only plausible but likely that he was acting as an agent for M&N Cabs. 18. That, however, is insufficient for him to avoid liability. I am satisfied on the balance of probabilities that Mr El-Turk did not reveal to Dr Costa at the time the contract was made (that being the relevant time) that he was acting on behalf of M&N Cabs. As he was managing a significant number of cabs at the time for the company, it seems more likely than not that he was acting for the company rather than for himself when he made the agreement with Dr Costa. As an undisclosed agent for the company and therefore liable to be sued in his own name. When was the contract terminated? 19. The plaintiff's evidence is that Mr El-Turk fell into arrears twice before the contract was terminated in November 2002. It is common ground that in March 2002 arrears of approximately $13,000 were paid. As we saw, they was paid with an M&N Cabs cheque. It is also common ground that Mr Costa (or M&N Cabs) made no further payments but that he did not return the taxi plates to Dr Costa. 20. Mr El-Turk claimed in his written statement that he had attempted to return the plates to Dr Costa in December 2002 and January 2003 but that Dr Costa would not provide the necessary paperwork for him to put them "on hold" with the Roads and Traffic Authority. (He perhaps meant the Department of Transport when he referred to the RTA.) Dr Costa denied this but, in any event, it is agreed that Dr Costa the plates in late 2002 from Mr El-Turk's taxi depot. (In December 2002, Dr Costa entered an on-management agreement with another person in respect of the same plates.) 21. Mr El-Turk claimed in his evidence that he had sent a letter in January 2002 to Dr Costa terminating the contract with 30 days' notice and inviting him to deal with the plates. Dr and Mrs Costa both deny ever having received such a letter and deny any knowledge of any notification by Mr El-Turk that he or M&N Cabs wished to terminate the contract. Mr El-Turk denied in cross-examination that he had fabricated the letter annexed to his written statement and strongly asserted that he had indeed sent it to Dr Costa. 22. On its face it purports to give notice of the termination of the agreement but the letter tendered by Mr El-Turk is a curious document. It reads: I Michael El-Turk address of 306 Forest Rd, Bexley NSW 2207, I wish to notify in writing you that Taxi Plate No 610 on date 1 Feb 2002. I wish to advise one month notice as date 1 March 2002, I wish to terminate the Taxi Plate lease agreement of Taxi 610, I also advised to Mr Con Costa to Contact to Department of Transport to Fax or Mail me a Letter, But I have not received any Fax or Mail from Department of Transport or Mr Con Costa, Reason without this letter I Can't put Taxi 610 on hold at the RTA. 23. English is clearly not Mr El-Turk's native language and no criticism is implied of his difficulties with English syntax and usage. It is curious because at the same time that it purports to give notice that the contract will terminate one month in the future, it asserts that Mr El-Turk had, at some indeterminate time in the past, advised Dr Costa to get in touch with the Department of Transport requesting the Department to fax or mail him a letter, the purpose of which is unstated, but which seems to relate relate to the termination of the lease. 24. As I understand Mr El-Turk's letter, he is saying that he had been asking Dr Costa to notify the Department of Transport that the taxi on-management arrangement had terminated and for a letter to be sent to Mr El-Turk confirming that but that Dr Costa had failed to do so. Mr El-Turk's letter and oral evidence is to the effect that he needed a letter from the Department of Transport so that he could put the taxi "on hold" (whatever that means) with the RTA. 25. The internal inconsistency in Mr El-Turk's letter is self-evident. Dr Costa would had no reason to tell the Department of Transport that the on-management arrangement had terminated before it had done so. It would have been bizarre behaviour if he had. Yet despite the fact that the arrangement would only terminate, according to Mr El-Turk's letter, on 1 March 2002, Mr El-Turk's letter implies that Dr Costa should have anticipated receiving a notice of termination, got in touch with the Department of Transport and requested that it provide a letter he could take to the RTA saying that the arrangement had been terminated. It was never put to Dr Costa that there had been some sort of oral notice given and the letter does not refer to any previous conversation which the letter confirms in writing. 26. Had Mr El-Turk in fact notified Dr Costa that he no longer wanted the taxi plates and wished to terminate the arrangement it defies common sense that Dr Costa would have allowed an asset worth approximately $1500 per month to lie idle in Mr El-Turk's possession before he got around to collecting the plates. I do not accept Mr El-Turk's letter was created in February 2002. I think it is most likely a fabrication created in order to mislead the court. Even if I am wrong on that point, Mr El-Turk had already demonstrated his dilatoriness in paying rent on the plates once by February 2002. If he created the letter in February 2002, he did not ensure that it reached Dr Costa. 27. I find that the contract was terminated in November 2002, not March 2002. All other things being equal, Mr El-Turk would therefore be liable for the outstanding sum. This brings us to the last significant issue. Is the plaintiff estopped from maintaining the proceedings? 28. The defendant's argument is that, by obtaining default judgment against M&N Cabs in the Balmain Local Court, in respect of the outstanding rent claimed in these proceedings the plaintiff is estopped from maintaining this action because it is the same cause of action and a judgment was obtained against M&N Cabs in the Balmain Local Court. 29. A "cause of action" or "res judicata" estoppel arises where an action has been brought and a determination on the merits made and an attempt it made to re-litigate essentially the same cause of action between the same parties or their privies. See Jackson v Goldsmith (1950) 81 CLR 446 at 466 per Fullagar J; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597 per Gibbs CJ, Mason J and Aicken JJ; Blair v Curran (1939) 62 CLR 464 at 532 per Dixon J. 30. While M&N Cabs and Mr El-Turk are separate legal persons, the cause of action concerns the same subject matter. Where the principal is undisclosed at the time of contracting, the contract is made with the agent, and he is personally liable and entitled on it. 31. Had no proceedings been already taken against M&N Cabs, and had the plaintiff known of the existence of M&N Cabs when he commenced these proceedings (and I accept his evidence that he did not), he would have been entitled to join either Mr El-Turk or M&N Cabs as defendants in the proceedings. The plaintiff, however, must elect as to which he pursues; he was not entitled to sue both. 32. The learned author of Bowstead on Agency (15th ed) puts the rule this way: Where an agent contracts for an undisclosed principal, the third party can, on discovery of the facts, sue either agent or principal. It is, however, well established that if the third party obtains judgment against the agent, he can no longer sue the principal, even though he obtained judgment in ignorance of the fact that the agent had been acting for another, and so of his full rights, and even though the judgment is unsatisfied. FMB Reynolds ibid. p.346. See also Priestly v Fernie (1863) 3 H & C 977; Kendall v Hamilton (1879) 4 App. Cas. 504 at 514-515. 33. The plaintiff's debt collector or solicitor was his agent when the proceedings were commenced in the Balmain Local Court. The solicitors had actual authority to pursue the debt against Mr El-Turk and ostensible authority to bring proceedings against M&N Cabs. No evidence has been provided from the solicitors as to how the company came to be selected as the appropriate defendant but it is easy to infer that they did a company search, found that Mr El Turk was a director of M&N Cabs and proceeded on that basis. Unless they had been specifically instructed that Mr El Turk had not disclosed the fact that he was an agent for the company or that he had entered the contract personally, the solicitors would ordinarily have proceeded against the company. That is what appears to have happened. 34. But for the fact that the judgment against M&N Cabs was set aside, Dr Costa may, in my view, have been bound by the election made on his behalf by the solicitors. The position is not entirely clear. The learned author of Fridman's Law of Agency (5th ed) states that the election must be unequivocal GHL Fridman Fridman's Law of Agency 5th ed, Butterworths, London 1983 p.211.: However, it is essential that both the principal and agent should be personally liable on the contract, that the third party has full actual knowledge of the true facts, that the third party should act within a reasonable time, before the state of accounts between principal and agent is altered and that the third party elects unequivocally, showing that he intends to relieve the agent of liability. This last is a question of fact which involves all the relevant circumstances. 35. There is a reasonable argument here that no unequivocal election was made by the plaintiff and that therefore he would be entitled, once the proceedings against M&N Cabs had been withdrawn, to bring these proceedings against Mr El Turk. 36. In Petersen v Moloney (1951) 84 CLR 91 at 103 [19]., the High Court said: The other matter which has required some consideration is this. The case is clearly one of alternative liability. Either Moloney or Pulbrook might be liable to the plaintiff, but both could not be. In such a case a final election to treat either as liable would preclude the plaintiff from proceeding against the other, and it is a well-settled general principle that, while the commencement of an action against one of two persons alternatively liable does not, the entry of judgment against one of them does, constitute a final and irrevocable election: see Morel Bros. & Co. Ltd. v. Earl of Westmoreland (1903) 1 KB 64; (1904) AC 11. 37. In Marginson v Ian Potter & Co (1976) 136 CLR 161 at 169., Gibbs CJ and Mason J said: But once a third party has sued the agent to judgment he cannot thereafter, without setting aside that judgment , sue the undisclosed principal even if the existence of the principal was now known to the third party at the time when the judgment was obtained. This proposition rests not on the doctrine of election which depends in general upon knowledge of relevant facts but on another principle, namely that when judgment is obtained on a cause of action the cause of action merges in the judgment. Thus the liability of an undisclosed principal merges in a judgment obtained against the agent by the third party. (Emphasis added.) 38. On 27 November 2006, I granted an application by the plaintiff to re-open its case to prove that the judgment had been set aside. In April this year I had set a tight timetable for the making of submissions on the estoppel as I was going on sick leave for some time. I had planned to give judgment by 24 April. As it happened, the submissions did not come in on time and I went on sick leave before I could give judgment. A short time after my return I received notification that the plaintiff sought to re-open its case. The solicitors for the defendant were notified of the application by the court registry but, for various reasons the application could not be heard until 27 November. (I gave my reasons separately for granting the application.) Evidence was then admitted proving that the judgment against M&N Cabs had been set aside on or about 24 July 2006. 39. No final judgment has been entered against M&N Cabs and therefore no final and irrevocable election has been made to proceed against it rather than Mr El-Turk. 40. Had the judgment entered in Balmain remained undisturbed, Mr El-Turk's liability would have merged with that of M&N Cabs and be a complete defence to the current action. Once the judgment was set aside, however, it became, in my opinion, open to Dr Costa to seek a judgment against Mr El-Turk personally. He has made that election and, in my view, succeeded in discharging his onus of proof. Verdict and judgment 41. There will be a verdict for the plaintiff in the sum of $15,008.40 and judgment accordingly. Interest is to be calculated by the Registrar from 30 November 2002. Costs 42. In relation to the question of costs the plaintiff argues that the usual rule that costs follow the event ought be followed except in relation to the costs of the application to re-open which he concedes ought be paid to the defendant. 43. The defendant, on the other hand, says that had judgment been entered in April this year there would necessarily have been a verdict for the defendant on the basis of the estoppel or merger issue and that he would have been able to claim his costs against the plaintiff. He argues that there is a significant unfairness, not in the decision of the court itself, but arising from the fact that, due to delay in concluding the proceedings the plaintiff was able to have the judgment against M&N Cabs set aside, thus opening up the possibility of defeating the defence raised by the defendant. Moreover, the defendant says that there was a lengthy and unexplained delay in taking action to set aside the default judgment against M&N Cabs and that, as a result, the defendant is prejudiced because it ran its case based on a particular understanding of the circumstances only to find that the plaintiff, with the court's approval, had shifted the grounds on which the case was run after the closure of the evidence. For these reasons he says that the ordinary rule ought be displaced and that the plaintiff be ordered to pay the defendant's costs of the proceedings. 44. In the course of the application to re-open the evidence, counsel for the plaintiff said that any prejudice caused to the defendant could be cured by an order for costs. I think that submission is correct. 45. It is unusual for a party to be given leave to re-open so long after the evidence in a trial has concluded. It was open to the plaintiff to seek to have the M&N judgment set aside well before the trial or even during the course of the evidence during the trial. Had he done so the case may have taken a different course. Nevertheless, while the estoppel argument ultimately was the only pillar of Mr El-Turk's defence left standing after the conclusion of the evidence in April, he had vigorously defended the case on three bases: that he had had no contract with Dr Costa, that he had tried to return the plates to Dr Costa who had failed to mitigate his damages and, lastly, that a judgment had been entered against M&N Cabs. The plaintiff had to deal with each of those matters at the trial and was successful in April in relation to two of them. 46. The judgment obtained against M&N Cabs was useless to the plaintiff because the company was in liquidation and it was, in all the circumstances, reasonable to seek to have it set aside. Leaving that procedure so late was, however, prejudicial to some degree to Mr El-Turk who then lost the major defence on which he had placed so much store in the running of his case. By leaving the attempt to set aside the default judgment so late the plaintiff allowed the defendant to expend his effort in that direction uselessly. While, as I said in my reasons for granting the application to re-open that the court is bound to follow the dictates of justice, it seems to me that the same principle applies in relation to the question of costs. Some allowance ought be made for the fact that the plaintiff allowed the defendant to run in his case in a particular way and for the fact the plaintiff split his case. On the other hand, the reason the problem arose in the first place was that Mr El-Turk did not notify Dr Costa of the fact that he was an agent of M&N Cabs. The allowance, therefore, ought not be a large one. Orders 47. Subject to the following order, the defendant is to pay 80 per cent of the plaintiff's costs of the proceedings in a sum agreed or assessed on the party and party basis. 48. The plaintiff is to pay the defendant's costs of the application to re-open the proceedings in a sum agreed or assessed on the party and party basis. Hugh Dillon Magistrate 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.