New South Wales Supreme Court CITATION : Austrac Rail P/L v Hunter Premium Funding Limited [2001] NSWSC 654 revised - 1/08/2001 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2766/01 HEARING DATE(S) : 30/07/01 JUDGMENT DATE : 30 July 2001 PARTIES : Austrac Rail Pty Limited (Applicant/Plaintiff) Hunter Premium Funding Limited (ACN 085 628 913) (Respondent/Defendant) JUDGMENT OF : Santow J COUNSEL : J T Johnson (Applicant/Plaintiff) R W Tregenza (Respondent/Defendant) SOLICITORS : Watson Mangioni (Applicant/Plaintiff) Steingold Abel Lawyers (Respondent/Defendant) CATCHWORDS : CORPORATIONS — Statutory Demand — Agent for disclosed principal — Ambiguity — Statutory Demand set aside — Indemnity costs awarded. LEGISLATION CITED : Corporations Law s459G Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 CASES CITED : Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 Polaroid Australia Pty Limited v Minicomp Pty Limited (1997) 16 ACLC 529 W & F Lechner Pty Limited v Drummond & Rosen Pty Limited (2001) 38 ACSR 42 DECISION : Statutory Demand set aside with indemnity costs. REVISED — 1 August, 2001 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 2766/01 Austrac Rail Pty Limited Plaintiff Hunter Premium Funding Limited (ACN 085 628 913) Defendant JUDGMENT — ex tempore 30 July 2001 INTRODUCTION 1 This is an application to set aside a statutory demand pursuant to s459G of the Corporations Law. The facts which I briefly state are amplified by the chronology that follows and where necessary in my reasons for concluding that that application succeeds. CHRONOLOGY Date Event 19 July 2000 The Defendant issues Premium Funding Note describing borrower as "Australian Traction Corporation Pty Limited" (Isaacs 1 Exh HP11) 21 July 2000 Austrac Rail Limited signs Loan Agreement No. 126405 describing it as " Borrower's Trading Name: Australian Traction Corp P/L ". The Memorandum of Acceptance on the document is not complete. (Buckland page 16) 1 August 2000 (Def) Defendant grants loan 21 August 2000 Geoffrey Trent Hancock appointed voluntary Administrator of Australian Traction Corporation Pty Limited 31 August 2000 (Def) Defendant receives First Report of Creditors from Administrator for Austrac Operations, Austrac Holdings and ATC 12 September 2000 (Def) Letter by Defendant to Administrator of ATC 13 October 2000 (Def) Proof of Debt dated 13.10.00 by Defendant for loan no. 126405 lodged re Austrac Operations Pty Ltd 8 December 2000 (Def) Isaacs discovers mistake 28 December 2000 Australian Traction Corporation Pty Limited enters into Deed of Company Arrangement. (Buckland Exh AB1) 16 March 2001 (Def) Defendant receives dividend cheque 27 April 2001 Date of execution of s.459E notice by Defendant 1 May 2001 Defendant's letter enclosing s.459E notice issued 5 May 2001 A Buckland says this is when s.459E notice received. 16 May 2001 (Def) Letter France to Brand 21 May 2001 (Def) Reply Brand to France 24 May 2001 Originating Process filed 24 May 2001 Affidavit of Andrew Buckland sworn 11 July 2001 Hadley Paul Isaacs executed first Affidavit 27 July 2001 Hadley Paul Isaacs executed second Affidavit 29 July 2001 Hearing 2 The debt said to arise and the subject of the Respondent/Defendant's Statutory Demand is described in the Schedule to that Demand in these terms: "Moneys owed by the company to the Creditor for funds advanced by the Creditor to the Company pursuant to Loan Agreement number 126405 made between the parties on 21 July 2000." 3 It will be apparent that the loan agreement contains the basis for the Applicant's principal argument. It is reliant also upon the surrounding circumstances insofar as they may resolve any ambiguity. The Applicant contends there is a degree of ambiguity sufficient for that extrinsic evidence properly to be admitted in the construction of the agreement. This evidence is as to whether the Applicant was intended to be liable as borrower, or whether that liability resided exclusively in a disclosed principal, an affiliate company. 4 The document to which I refer starts off with a schedule under which appears "BORROWERS' DETAILS". 5 Immediately below appears the following with the names in question handwritten: "Borrower's Legal Name: AUSTRAL RAIL LIMITED ACN: Industry: RAIL Borrower's Trading Name: AUSTRALIAN TRACTION CORP. P/L" 6 The document contains a "Borrowers' Acknowledgments". The Borrower acknowledges that no binding agreement between it and the Lender arises until the Lender signs the "memorandum of acceptance". That was never signed by the lender. But I am prepared to assume that the loan was advanced. It is true there may be some debate about that matter in terms of the precise figure outstanding, having regard to the fact that the Creditors' Ledger shows a return of premium totalling $83,417.29. The residue of the amount originally lent is shown at $39,546.95 as against an opening balance of $153,667.80. However, that matches the figure in the Loan Agreement after taking into account credit charges. It will be noted that the amount in the Statutory Demand is $40,431.57, not $39,546.95 but the discrepancy, though not explained, is slight. 7 Reverting to the significance of the failure by the lender to sign the relevant Loan Agreement, the Lender relies on the proposition that the relevant acknowledgment is a stipulation for the benefit of the Lender. Hence that the Lender is entitled to treat it as waived, in the circumstances, there being no prejudice to the borrower in that course. I shall accept that proposition for present purposes. 8 The Applicant raised for the first time at the hearing the issue of the quantum of the loan and whether the Lender had failed to show it had advanced the full amount of the loan. It relied on evidence given in brief cross-examination of the Lender's creditor's manager, Mr Isaacs, which I permitted. The Respondent objected to this late ground of challenge being so raised. 9 This is always a difficult question. These are on the one hand, quasi interlocutory proceedings, though they do have a final result. In a recent case involving statutory demands I permitted such a late ground in the interests of justice though it did not avail; see W & F Lechner Pty Limited v Drummond & Rosen Pty Limited (2001) 38 ACSR 42 at 52. 10 In the present case, the Defendant/Respondent could quite reasonably say that the late raising of this ground of attack put it to unfair forensic prejudice. I would accept that argument, basing my judgment on what I consider to be in any event the Applicant's best argument. RESOLUTION OF LEGAL ISSUE 11 It should be recognised that the Applicant has only to meet the modest hurdle of a "plausible contention requiring further investigation" (see Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 per McLelland CJ in Eq at 787). 12 Applying that test, is there a plausible contention to the effect that the Applicant may invoke the principle that "Where an agent in making a contract discloses both the existence and the name of a principal on whose behalf the agent purports to make it, the agent is not, as a general rule, liable on the contract to the other contracting party,1 whether there was in fact authority to make it or not.2 1 Railway Cmrs for New South Wales v Orton (1922) 30 CLR 422 at 425; Jenkins v Hutchinson (1849) 13 QB 744;; 116 ER 1448; Paquin Ltd v Beuclerk [1906] AC 148; [1904-7] All ER Rep 729, HL; H J Lyons & Sands Ltd v Houlson [1963] SASR 29 at 31 per Chamberlain J; Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492. The question is one of the agent's intention as to personal liability: Gorman v Norton (1887) 8 LR(NSW) L 479; Cooper v Fisken (1912) 18 ALR 155; 33 ALT 231. An insurance broker is not liable as an insurer for issuing a covering note purporting to be given on behalf of an insurance company: Broit v Bennie S Cohen & Son (NSW) Ltd (1926) 27 SR(NSW) 29. A stockbroker buying shares for a disclosed principal is not liable on the contract: Lane v Martyn (1894) 15 LR(NSW) L 144; Hawkins v Gaden (1925) 37 CLR 183; [1926] ALR 109; Groom v Parkinson (1884) 10 VLR(L) 14; Skinner v Howatson [1916] QWN 32. 2 Lewis v Nicholson (1852) 18 QB 503; 21 LJQB 311; 118 ER 190. He or she may, however, be liable in tort in respect of fraud or the obtaining of money: T D Keegan Ltd v Palmer [1961] 2 Lloyd's Rep 449. As to the liability of an unauthorised agent for breach of warranty of authority see [15-330]." See Halsbury's Laws of Australia [15-320]. 13 Importantly, the statement in Halsbury adds the further qualification that "personal liability may, however, be imposed upon the agent by the express terms of the contract, by the ordinary course of business, or by usage" citing authority. That suggests that the presumption from a disclosed agency, though rebuttable, is that the principal is liable alone, and not the agent, unless the contract expressly provides otherwise. 14 In the manner in which the rule has been stated, the question is frequently begged as to what contractually is needed to actually disclose an intention to impose personal liability upon the agent. Thus in "Bowstead & Reynolds on Agency" (Sweet & Maxwell, 1996), 6th ed at 548 the principle is expressed in these terms: "In the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether named or unnamed, he is not liable to the third party on it. Nor can he sue the third party on it." 15 It will be observed that the question as Bowstead & Reynolds puts it is whether the contract shows that the agent "purports" to act solely on behalf of a disclosed principal and then adds the caveat "in the absence of other indications". The latter suggests an evidentiary onus upon the principal to refute liability. 16 I consider that the contention that the Applicant needs to make good, though only to the level of plausibility, is sufficiently made out to that modest level. One starts with the ambiguous statement that appears in the Loan Agreement itself. On the one hand, there is reference to "borrower" with its legal name being Austrac Rail Limited. Yet immediately following is a reference to what is clearly an incorporated entity and not a mere business name, "Australian Traction Corp P/L". The latter is described as "borrower's trading name". Yet one would not expect a trading name to include the reference to "Pty Limited", which implies rather a separate legal entity, not a business name for the first-named. While the signature at the bottom has Austrac Rail Limited that does not advance matters. 17 Bowstead & Reynolds explains that where the terms of a written contract made by an agent makes it sufficiently clear that he contracted personally, extrinsic evidence is not admissible to show that, notwithstanding the terms of the contract, it was the intention of the parties that he should not be personally liable on it. This is "because such evidence would be contradictory to the written contract"; see para 9-037. 18 Here we do not need to have more than the basis for a plausible contention requiring further investigation. That contention is that Austrac Rail Limited contracted on the basis that its principal, Australian Traction Corporation Pty Limited, was alone to be liable. 19 When resort is had to the extrinsic evidence, there are several indications to support that contention. Thus "HPI 1" contains a quotation from the Lender dated 19 July 2000. It is that company which appears under the heading "BORROWER DETAILS". There is no mention of Austrac Rail Pty Limited. There is also a fax from the lender appearing as annexure C to the Mr Buckland's affidavit from the Applicant dated 12 September 2000. It again refers to the funding agreement being for Australian Traction Corp Pty Ltd", with again no reference to Austrac Rail Pty Limited. That these communications emanated from the Lender reinforces the Applicant's contention that the lender understood its borrower to be Australian Traction Corporation Pty Limited. 20 The Respondent relied upon Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 at 795 where the Privy Council through Lord Scarman enunciates the following statement of principle: "It is not the law that, if a principal is liable, his agent cannot be. The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability." 21 It will be clear from the earlier statements of principle that the onus that the Privy Council imposes is not to be assumed as automatically falling upon the alleged agent to establish that he or she acts for another. That must turn upon the terms of any relevant agreement and, where extrinsic evidence is admissible to resolve ambiguity, then upon that evidence insofar as throwing light on its proper interpretation. I do not consider that decision in any event represents the kind of knock out blow needed to dispel all plausibility to the Applicant's contention. CONCLUSION 22 The Plaintiff's application to set aside the Defendant's Statutory Demand succeeds. 23 Costs should follow the event. The only issue is whether they should be indemnity costs. The Applicant relies upon the fair warning it says was given in correspondence; see Annexure E to Mr Buckland's affidavit, letter from the solicitors for the Applicant dated 18 May 2001. It identifies the ground successfully relied upon and foreshadowing an application for indemnity costs. I have warned in Polaroid Australia Pty Limited v Minicomp Pty Limited (1997) 16 ACLC 529 that there is now a consistent trend in judicial decision upholding the substantial majority of applications to set aside statutory Demands, given that there be but the modest threshold of a plausible contention requiring further investigation. I said that the time will come when courts will apply indemnity costs to those who should have appreciated both the ground that succeeded and the high probability of its success. This is such a case and I consider indemnity costs should be paid. ORDERS 24 Orders in terms of paragraph 1 of the Applicant's Originating Process filed 24 May 2001. 25 The Respondent to pay the Applicant's costs on an indemnity basis. ********** Last Modified: 08/02/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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