Mallory Technologies Pty Ltd v 3D Global Ltd and Anor [2002] NSWSC 1035

New South Wales Supreme Court

CITATION : Mallory Technologies Pty Ltd v 3D Global Ltd and Anor [2002] NSWSC 1035 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4378/02 HEARING DATE(S) : 30 and 31 October, 2002 JUDGMENT DATE : 31 October 2002

Mallory Technologies Pty Ltd (Receiver Appointed) - Plaintiff PARTIES : 3D Global Limited - First Defendant Robert Whitton - Second Defendant JUDGMENT OF : Palmer J

Rena Sofroniou - Plaintiff COUNSEL : M.J. Cohen - First Defendant Michael Dawson - Second Defendant The Argyle Partnership - Plaintiff SOLICITORS : Watson Mangioni - First Defendant Piper Alderman - Second Defendant CATCHWORDS : ESTOPPEL - First Defendant represents that time for payment of instalment due under contract would be extended - Plaintiff relies on representation and does not make immediate payment - First Defendant resiles from representation before extended time for payment expires and appoints receiver. HELD: First Defendant estopped from relying on rights under contract and from appointing receiver - Shears v Commonwealth Bank explained and distinguished. - Commonwealth v Verwayen (1990) 170 CLR 394 CASES CITED : - Shears v The Commonwealth Bank of Australia (unrep. NSWCA, 4 November 1997) - Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 DECISION : Relief as sought by Plaintiff granted.

1 By its Summons filed on 3 September 2002, the Plaintiff seeks a declaration that the First Defendant was estopped from appointing the Second Defendant on 15 August 2002 as Receiver of certain patents owned by the Plaintiff, in purported exercise of a power conferred on the First Defendant by a Deed of Charge dated 26 March 2001. The Summons seeks an order terminating the Second Defendant's appointment and, in addition, damages as against the First and Second Defendants. 2 The Second Defendant, who is the Receiver, appears by Counsel but seeks to take no part in the proceedings except in so far as any orders may be sought against him. Ms Sofroniou of Counsel, who appears for the Plaintiff, informed the Court at the commencement of the trial that damages would not now be sought against the Second Defendant. 3 The facts may be very shortly stated. The Plaintiff purchased certain patents from the First Defendant pursuant to an Agreement for Sale dated 31 October 2000 ("the Patent Sale Agreement"). The purchase price was $950,000, payable by quarterly instalments calculated upon the basis of a certain percentage of quarterly receipts of income derived from sales by the Plaintiff and its subsidiary. The final instalment of the purchase price was payable on 31 December 2003. 4 The payment of the purchase price was secured by the Deed of Charge dated 26 March 2001, whereunder the Plaintiff charged the patents themselves as security. The Charge provided that if the Plaintiff failed to pay any of the purchase price instalments under the Patent Sale Agreement when due then, at the First Defendant's option, without any demand or notice, all of the balance of the purchase price would immediately become payable. 5 A quarterly instalment of the purchase price, in the sum of $18,515.95, was due to be paid by the Plaintiff to the First Defendant on 2 August 2002. 6 The Plaintiff says that in two discussions, one of which occurred on 2 August 2002 between Mr Cusack and Mr Van Brugge representing the Plaintiff and Mr Talbot, the Managing Director of the First Defendant, and the other of which occurred in a telephone conversation between Mr Van Brugge and Mr Talbot on 13 August 2002, Mr Talbot represented on behalf of the First Defendant that the First Defendant would extend the time for payment of the 2 August instalment until 19 August. The Plaintiff says that in reliance on that representation it did not immediately pay the instalment in accordance with a letter of demand which had been sent by the First Defendant to the Plaintiff on 9 August, but made arrangements to pay the money on 15 August. It says that when it endeavoured to make the payment into the First Defendant's bank account, at first it was not provided with the details of that account by Mr Talbot in response to its request, and then it was informed that the Second Defendant had already been appointed as Receiver of the patents. 7 In short, the Plaintiff says that on 13 August the First Defendant represented that it would take no action to enforce the security under the Deed of Charge until after 19 August, and that in reliance on that representation it did not make immediate arrangements to pay the quarterly instalment then due as it could easily have done either from its own cash resources or cash resources readily available to it but rather waited until 15 August, whereby it acted to its detriment so that the First Defendant was estopped from relying on its strict legal rights under the Deed of Charge until the time for payment on 19 August had expired. 8 The principles upon which the Plaintiff relies in asserting an estoppel are well established. For the purposes of this case, those principles are sufficiently elucidated in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, and Commonwealth v Verwayen (1990) 170 CLR 394. Those principles may be summarised thus. 9 Estoppel yields a remedy in order to prevent unconscionable conduct on the part of one who has made a representation to another and then seeks to resile from it after the representee has acted on it to his or her detriment. The representation may be as to a present, past or future state of affairs. In particular, the representation may be as to whether the representor will strictly enforce a right against the representee in accordance with a legal entitlement. If an estoppel is found to arise, the remedy given will be no more than is necessary to avoid the detriment occasioned by the representee's reliance on the representation. 10 In order to establish an estoppel arising from a representation a plaintiff must establish that the representation was clear and unequivocal, that the defendant knew or intended that the plaintiff would act or abstain from acting in reliance upon the representation, that the plaintiff did act or abstain from acting in reliance on the representation, and that the plaintiff's action or inaction will occasion detriment if the representation is departed from. Where the plaintiff's action or inaction is induced by the making of a representation promissory in character, knowledge or intention on the part of the defendant that the plaintiff would act or abstain from acting in reliance on the representation is easily inferred. 11 There is said to be one discordant note in the authorities as to these principles. Mr Cohen of Counsel, who appears for the First Defendant, submits that a representation to be capable of founding an estoppel must constitute an agreement supported by a consideration, which he says is not the case here. In support of that proposition, he relies upon the judgment of the Court of Appeal in Shears v The Commonwealth Bank of Australia (unrep. NSWCA, 4 November 1997). 12 In that case the appellant appealed from the refusal of a judge to set aside a default judgment entered by the bank founded upon the appellant's failure to pay a debt due under a mortgage. The appellant asserted that she had a bona fide defence to the claim. She asserted that a concluded agreement had been made between herself and the bank whereby the bank agreed to accept a certain amount in full satisfaction of the debt, but that the bank had reneged on that agreement. By way of defence to the bank's claim, the appellant claimed specific performance of that agreement and, secondly, that the bank was estopped from denying that such an agreement had been made. 13 The judge at first instance held on the evidence before him that no bona fide or triable cause of action as alleged had been made out. The Court of Appeal dismissed the appeal. In the course of his reasons, with which the other members of the Court agreed, Powell JA said: "…it seems to me that, far from that material revealing a concluded agreement of the type advanced on behalf of the Appellants, it did not constitute a concluded agreement at all, and that, even if it were such an agreement, not being supported by consideration, it was unenforceable.