New South Wales Supreme Court CITATION : Australian Integrated Finance Pty Ltd v Berry Hardware Store Pty Ltd & Anor [2006] NSWSC 1376 HEARING DATE(S) : 07/12/2006 JUDGMENT DATE : 15 December 2006 JUDGMENT OF : Associate Justice Malpass DECISION : The appeal is allowed. The decision of the Magistrate given on 20 June 2006 is set aside. The plaintiff is entitled to the entry of judgment against the defendants. The amount of the judgment is to be calculated by the parties. The defendants are to pay the costs of the summons. If so entitled, the defendants are to have a certificate under the Suitors' Fund Act 1951 (NSW). CATCHWORDS : Rental by pl of ATM to 1st def pursuant to finance arrangement - performance of agreement by 1st def guaranteed by 2nd def - ATM never operational - issue as to return of goods and refund of monies - finding by Magistrate of mutual termination of agreement - appeal to Supreme Court - matter remited back to Local Court - further judgment of Magistrate - lack of evidentiary support for resuolt reached - onus on def not discharged. LEGISLATION CITED : Suitors' Fund Act 1951 (NSW) Australian Integrated FInance Pty Ltd PARTIES : Berry Hardware Store Pty Ltd Warren John Baines FILE NUMBER(S) : SC 13366/06 COUNSEL : Mr P Mc Dowell (Pl) Mr K Morrissey (Def) SOLICITORS : Simons Ravden Lawyers (Pl) Lindsay Brien Solicitors (Def) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 11/05 LOWER COURT JUDICIAL OFFICER : Dick LCM LOWER COURT DATE OF DECISION : 27/10/2005 LOWER COURT MEDIUM NEUTRAL CITATION : Australian Integrated Finance Pty Ltd v Berry Hardware Store Pty Ltd & Warren John Baines - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE MALPASS 15 December 2006 13366/06 Australian Integrated Finance Pty Ltd v Berry Hardware Store Pty Ltd & Anor JUDGMENT 1 HIS HONOUR: The plaintiff and the first defendant entered into a rental agreement (it was styled "Rental Schedule and Tax Invoice"). It concerned an automatic teller machine (ATM), to be located at the first defendant's hardware store in Shoalhaven Heads. The plaintiff became the owner of the ATM pursuant to a finance arrangement and rented it to the first defendant. 2 The rental agreement required the payment of sixty monthly instalments of $548 (the first instalment payable on 31 December 2002). The second defendant guaranteed performance of the agreement by the first defendant. The rental agreement was made in or about December 2002. 3 This transaction arose out of the activities of a Mr Symons (who has been described as a broker). The second defendant described the presentation as follows [statement 8/7/05, para 2]:- "Mr Symons explained to me with words to the effect, "I represent three companies from the one group", the automatic teller machine supplier, being EMS which subsequently became National ATM Services, a finance company that I later found out to be Australian Integrated Finance Pty Limited who was to pay fore the machine and ATM ADS, an advertiser who was to pay to me advertising space on the machine equal to the amount of the rental. It was represented to me that the advertising fee for the advertisements on the machine would pay the rental such that the machine would cost me nothing and in fact I would be paid a small transaction fee and I have already outlined the benefits to the business above." 4 On 16 December 2002, the ATM was delivered to the store, but it never became operational. Two rental payments were made (on 23 December 2002 and on 31 January 2003). 5 On or about 14 February 2003, a telephone conversation (the conversation) took place between the second defendant and Mr Russell (an employee of the plaintiff). It is common ground that Mr Russell had authority to bind the plaintiff. Following this conversation, the second defendant wrote, what may be described as, a detailed letter setting everything out (it was a letter dated 14 February 2003 from Berry Hardware Store, signed by the second defendant and addressed to Mr Russell). 6 On 17 February 2006, the ATM was collected from the store. On 27 March 2003 a payment of $2096 was credited to the first defendant's bank account. 7 Subsequently, the plaintiff sought to recover money said to be payable pursuant to the agreement (the sum of $26,708.66). Proceedings were commenced in the Local Court. The proceedings were defended and came to a hearing before a Magistrate (Mr Dick LCM). He found for the defendants. He delivered a written judgment (the first judgment). 8 The Amended Notice of Grounds of Defence pleaded, inter alia, the following:- …. "2. The first defendant returned the leased property to the plaintiff or its agent and the plaintiff or its agent refunded to the first defendant the initial payments made by the first defendant. 3. The plaintiff's agent represented to the defendants that the plaintiff had been paid in full and the defendants have no reason to dispute that representation." …. Paragraph 4 thereof advanced a claim of misleading or deceptive conduct. Paragraph 5 thereof advanced a claim of unconscionable conduct. 9 The second defendant gave the following evidence at the hearing [statement 8/7/05, para 9]:- "On or about 14 February 2003 I had a telephone conversation with a Mr Ian Russell of the plaintiff. In that discussion I outlined to him the history given above and that at the end of the conversation he said to me words to the effect, "Well if that's the case that you didn't get the machine up and running and you are returning it don't worry you won't have to make any payments. Can you just send me a detailed letter setting everything out and you won't have to worry anymore". On 14 February 2003 I sent a detailed letter to Mr Russell. Annexed hereto and marked with the letter "F" is a copy of my letter dated 14 February 2003 to him." 10 Although the second defendant was cross-examined, he was not questioned concerning this evidence. Mr Russell was not called to give evidence. There is no dispute that this evidence records what was relevantly said between Mr Russell and the second defendant on that occasion. 11 There was an issue as to whether or not the ATM was ever received by the plaintiff. This was an issue that does not seem to have been determined by the Magistrate in the first judgment. There was an issue as to who refunded the monies to the first defendant. Whilst the Magistrate observed that the evidence showed that a person other than the plaintiff refunded the monies, he took the view that it was open to the Court to find that an agent of the plaintiff had refunded the payments. 12 He found that there was a mutual termination of the agreement (the termination issue). He described it as being a termination by agreement. This finding led him to the deciding of the case in favour of the defendants. 13 An appeal was brought in this Court. It was heard by Associate Justice Harrison. She upheld the appeal and set aside the decision of the Magistrate. The matter was remitted back to the Local Court for determination according to law. 14 In her judgment, Her Honour observed as follows:- "19 The plaintiff submitted that "termination" was not properly pleaded in the amended defence. It is my view that paragraphs 2 and 3 of the amended summons are sufficient to plead termination. Neither party was caught by surprise at trial. However, the Magistrate's decision in relation to termination is based upon the activities of the plaintiff's agent. As there was no evidence that the plaintiff authorised National ATM Services to act on its behalf it cannot be said to be the plaintiff's agent. That being so, the appeal is upheld. The decision of his Honour Magistrate D Dick dated 27 October 2005 is set aside. The matter is remitted to the Local Court for determination according to law." 15 It would seem that the reference to paragraphs 2 and 3 of the Amended Summons was erroneous and intended to be a reference to paragraphs 2 and 3 as set forth in the Amended Defence filed by the defendants. 16 Paragraph 19 appears to set forth the entire expression of reasoning process, which led her Honour to uphold the appeal. There was dispute between the parties as to what was decided by her and as to the effect thereof. There was conjecture as to why the matter was remitted back to the Local Court. I shall return to these matters in due course. 17 Before proceeding further, I should mention the stance which has been taken by the plaintiff throughout the course of this litigation. It has argued alternative positions. Firstly, it has said that the conversation did not give rise to a binding agreement. Secondly, it has said that if a binding agreement did come into being, that it contained certain conditions (including a condition that the ATM be returned to the plaintiff). Thirdly, it is said that the conditions were not performed. 18 There is disagreement and conjecture as to what aspects of the plaintiff's case were dealt with by Her Honour. Again, I shall return to these matters in due course. 19 The proceedings came back before the Magistrate. It may be that the Magistrate was somewhat confused as to why the matter had been remitted back to him and it may be that he did not understand precisely why the appeal had been successful. The stance that has been taken by the plaintiff was that Her Honour had effectively disposed of the termination issue (inter alia, any binding agreement had not been performed because the ATM had not been returned to the plaintiff or its agent). 20 The Magistrate received further submissions from the parties. He delivered a further written judgment (the second judgment). He found once more in favour of the defendants. 21 In the second judgment, he observed that, in relation to the return of goods, the Local Court found that goods were returned to National ATM Services and not the plaintiff. 22 The second judgment contained the following [at para 6]:- "The plaintiff submits that the goods were returned to Mr Brear of National ATM Services who in turn made a refund of monies paid. The plaintiff argues that the actions of Mr Brear are not acts of the plaintiff and can have no bearing upon the legal relationship between the plaintiff and defendants. It is not a finding of this Court that the mutual termination was made between National ATM Services and the defendants. As the plaintiff merely financed purchase of the goods it seems logical that the goods be returned to National ATM Services and not to the plaintiff. This in fact occurred three days after Mr Baines spoke to Mr Russell on the telephone." 23 The judgment also contains the following:- "7 Mr Russell did not make a witness statement and was not called at the hearing to contradict Mr Baines' evidence. There was no evidence or explanation as to why Mr Russell was not available to give evidence. The defendants submit that a Jones v Dunkel inference should be drawn against the plaintiff. Mr Baines was not cross examined on the issue of termination. There was no assertion by the plaintiff that Mr Baines' letter was never received. There was no communication by the plaintiff to the defendant disputing the contents of Mr Baines' letter. 8 Mr Baines' version of the terms of the termination agreement should be accepted in its entirety. Mr Baines was not the subject of any adverse finding as to his credit or reliability in either this Court or the Supreme Court. In fact, Her Honour made a positive finding that Mr Baines was a witness of credit. 9 This Court finds that Mr Russell mutually terminated the agreement on behalf of the plaintiff and Mr Baines on behalf of both defendants. The legal consequences amount to a discharge of outstanding obligations under the original agreement. 10 The plaintiff sought to raise other matters but in view of the finding of mutual termination, it is not necessary to canvass those issues." 24 The plaintiff was unhappy with that result and has filed a Summons in this Court on 13 July 2006. It purports to bring an appeal against the decision of the Magistrate. It contains twenty-one grounds of appeal. 25 An appeal as of right lies to this Court where there has been a material error in point of law that justifies the disturbing of the decision of the Magistrate. The onus is borne by the plaintiff. 26 These proceedings have already had a long and unsatisfactory history in the Courts. The costs are now grossly disproportionate to the amount in issue. The Court has been told that both the plaintiff and the defendants could be described as innocent parties. The Court may be deciding which of the parties should suffer a loss generated by the conduct of others. 27 This appeal throws up a multitude of problems. They are problems which are not easy of resolution by a judge other than Associate Justice Harrison (she was approached to hear the appeal but was said to be unavailable). 28 In seeking to address the problems, a good starting point is paragraph 19 of the judgment of Her Honour. Whilst others may not agree with Her Honour's view that the termination issue was properly pleaded, fortunately that view has not been challenged and this question can be put aside. However, that does not mean that initial focus should not be placed on the nature of what has been referred to herein as the termination issue and what was seen by the Magistrate as a mutual termination or termination by agreement. It does not seem to be a question that has been the subject of any real analysis. 29 During submissions in this appeal, a consensus appears to have emerged as to the nature thereof. It was clearly not a termination pursuant to the agreement. It came to be accepted in this appeal as one in the nature of a further agreement (the discharge agreement), which operated to discharge the agreement. The defendants had to demonstrate both the existence of such an agreement and the performance thereof. 30 What was done by Her Honour, and the reasoning process relied on to reach that result, has to be gleaned largely from the following [passage from para19 of her judgment]:- "… However, the Magistrate's decision in relation to termination is based upon the activities of the plaintiff's agent. As there was no evidence that the plaintiff authorised National ATM Services to act on its behalf it cannot be said to be the plaintiff's agent. …" 31 If paragraphs 2 and 3 of the Amended Defence are to be given a literal construction, the finding of Her Honour would bring about a failure of what is pleaded in paragraph 2. There seems to be no dispute that there was no evidence to support what was pleaded in paragraph 3. 32 It is a matter for conjecture as to whether or not Her Honour, inferentially, dealt with other matters argued by the plaintiff. The application of what she has said is somewhat unclear. On one view, her observations may be seen to have been fully directed to the question of performance of the alleged discharge agreement. If that be so, it may be said that her decision disposed of the matter and that the referral back to the Magistrate was otiose. 33 On another view, she may have had in mind a question of agency only and contemplated that other questions remained to be determined by the Magistrate. 34 As may be shown from what has been earlier said in this judgment, the Magistrate did take up again the question of return of goods. He may be said to have clarified his position as to the returnee (he expressed that they were not returned to the plaintiff). It is unclear as to whether he appreciated that the findings made by Her Honour related to the relationship between the plaintiff and National ATM Services. He appears to have resolved the proceedings before him in favour of the defendants on the basis of an erroneous observation that the plaintiff was merely the financier (and therefore it seemed logical that the ATM be returned to National ATM Services and not the plaintiff). In so doing, he reached a result that lacked evidentiary support. 35 Certain further observations also need to be made. Although the Magistrate came to the view that there was a termination agreement, he seems to have either failed to address, or even appreciate, that he was confronted with two relevant questions. Firstly, he had to determine the precise relevant terms of that agreement. Secondly, he had to determine whether or not those relevant terms had been performed by the first defendant. 36 Whilst it is clear that there has been further error on the part of the Magistrate and that the decision in his second judgment should be disturbed, the problem of what should next be done remains. None of the parties are desirous of a further remittal to the Local Court. 37 There is no dispute as to certain matters (that the conversation took place, that Mr Russell received the detailed latter, that the ATM was collected a few days after the forwarding of that letter and that a refund of monies was made). It has been found that the ATM was collected and that the refund was made by National ATM Services (and not the plaintiff). It also has been found that National ATM Services was not an agent of the plaintiff. 38 The defendants had the onus to demonstrate both that there was a binding discharge agreement and that there was performance of the discharge agreement. In my view, that onus has not been discharged. 39 In dealing with that question of onus, I took the view that it could be resolved without determining all of the many issues raised by the plaintiff in its grounds of appeal (including those that appear under the headings "Offer", "Acceptance", "Consideration" and "Accord and Satisfaction"). I have assumed for present purposes that there was a binding discharge agreement. Findings have been made which are binding on the Court in this appeal. Those findings can only lead to one result (that the defendants have not performed the discharge agreement). 40 On any view, performance of the discharge agreement required the return of the ATM. In my view, what was contemplated by any agreement was a return of it to the plaintiff. On the findings, this did not happen. 41 This may produce a result which is indeed unfortunate for the defendants. Be that as it may, the findings make that result inevitable. 42 In his written submissions, counsel for the defendants has raised two other matters. One was estoppel by representation. The other was unconscionable conduct. Neither of these matters were raised in either hearing before the Magistrate. If they had been raised in the lower Court, the plaintiff may have led evidence to deal with each of them. In my view, the defendants should not be allowed to agitate these matters at this late stage in the appeal. 43 The defendant did raise a different defence of unconscionable conduct in the Amended Defence. It is common ground that such defence has not been dealt with in any of the previous hearings. As I understand the position taken by the defendants, they do not wish to have the matter remitted back to the Magistrate to have it determined. 44 During this appeal, little has been said on behalf of the defendants in respect of this alleged defence. In my view, what is propounded therein is untenable. Leaving aside any consideration of questions of law, it is factually unsustainable (it is founded on allegations that the ATM was both collected by the plaintiff and has been retained by it). 45 For completeness, I should mention that all other defences raised in the Amended Defence have been dealt with in the course of the earlier hearings. 46 In the circumstances, the appeal is allowed. The decision of the Magistrate given on 20 June 2006 is set aside. The plaintiff is entitled to the entry of judgment against the defendants. The amount of the judgment is to be calculated by the parties. The defendants are to pay the costs of the summons. If so entitled, the defendants are to have a certificate under the Suitors' Fund Act 1951 (NSW). ********** 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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