Dajata P/L v Paoletti & Anor [2009] QDC 98

DISTRICT COURT OF QUEENSLAND CITATION: Dajata P/L v Paoletti & Anor [2009] QDC 98 PARTIES: Dajata Pty Ltd (ACN 085445469) (Applicant/Plaintiff) v Bruno John Paoletti (First Defendant) and Mario Paul Paoletti (Second Defendant) FILE NO: BD 1253 of 2007 DIVISION: Civil Applications PROCEEDING: An application pursuant to UCPR 292 for summary judgment on the plaintiff’s claim and on the defendants’ counterclaim and further and in the alternative pursuant to UCPR 171 for an order that each paragraph of the amended defence and paragraph 1 of the amended counterclaim and certain paragraphs of the relief claimed in the amended counterclaim be struck out and further or in the alternative pursuant to UCPR 379(1) for an order that amendments made to the defence and counterclaim by way of amended defence and counterclaim be disallowed. ORIGINATING COURT: District Court of Queensland DELIVERED ON: 21 April 2009 DELIVERED AT: Gympie HEARING DATE: 27 June 2008 and 16 July 2008 JUDGE: Andrews SC DCJ ORDER: Order that the plaintiff’s application for summary judgment on the claim and on the defendant’s amended counterclaim be dismissed. As to the amended defence order that paragraphs 7.2, 22.3, 22.4, 22.5, 22.7, 22.8, 34.2.6 and the words “are void and/or” in paragraph 34.1 be struck out. Order that the defendants be at liberty to plead again in accordance with the reasons herein. Order that the parties are at liberty to make written submissions as to costs within 21 days of publication of these -- 1 of 27 -- 2 reasons CATCHWORDS: GUARANTEE – creditor’s claim for money for debts guaranteed by the guarantors – where debtor corporation deregistered – whether debtor’s causes of action for damages for breach of contract or for breach of s52 of the Trade Practices Act available to guarantors – where debtor agreed to pay without set-off – whether guarantors may raise debtor’s rights and remedies in defence GUARANTEE – where innocent misrepresentation to guarantors inducing entry into guarantee – where debtor not repaid – whether guarantors may obtain rescission GUARANTEE – TRADE PRACTICES – where misleading and deceptive conduct by creditor induced debtor to accept obligations to pay creditor –where creditor’s conduct in breach of s52 of the Trade Practices Act – where debtor relied on creditor’s conduct – whether guarantor suffered loss by debtor’s reliance on the conduct – whether loss to the debtor can cause loss to the guarantor GUARANTEE – TRADE PRACTICES – DAMAGES – where misleading and deceptive conduct by creditor induced debtor to accept obligations to pay creditor –where creditor’s conduct in breach of s52 of the Trade Practices Act – where debtor relied on creditor’s conduct to accept obligations to pay creditor and engaged creditor to perform services – where creditor subsequently breached contract causing loss to debtor – where debtor company deregistered – where debtor would have arguable claims for damages for breach of contract for negligence and for breach of the Trade Practices Act – whether the guarantor may raise the debtor’s claims for unliquidated damages as a set-off at law or as an equitable set-off – where the debtor agreed to pay without set-off – where debtor’s capacity to indemnify guarantors was diminished by the creditor’s breaches of contract – measure of guarantor’s loss for damages pursuant to Trade Practices Act GUARANTEE – TRADE PRACTICES – where guarantor suffered loss by misleading and deceptive conduct of the creditor in breach of s52 of Trade Practices Act – whether guarantor entitled to orders under s87 of the Trade Practices Act – whether guarantor entitled to order that guarantee void – whether court would exercise a discretion to declare guarantee void SUMMARY JUDGMENT – where difficult legal questions arise – whether they must be resolved – whether defendant may rely upon defences not pleaded -- 2 of 27 -- 3 Abigroup Contractors P/L v Peninsula Balmain P/L [2001] NSWSC cited Ansell Ltd v Coco [2004] QCA 213 cited Covino v Bandag Manufacturing P/L [1983] NSWLR 237 considered Eighth SRJ Pty Ltd v Merity 7 BPR 15,189 cited Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 applied Gould v Vaggelas (1983-1985) 157 CLR 215 applied Blacksheep Productions P/L v Waks [2008] NSWSC applied Indrisie v General Credits Ltd [1985] VR 251 considered Doherty v Murphy [1996] 2 VR 553 cited Jessup v Lawyers Private Mortgages Ltd [2006] QSC 003 followed Langford Concrete P/L v Finlay [1978] 1 NSWLR 14 cited Marks v GIO Holdings (1998) 196 CLR 494 followed Newbigging v Adam (1886) 34 Ch D 582 cited Potts v Miller (1940) 64 CLR cited Webb Distributors (Aust.) Pty Ltd v Victoria (1993) 179 CLR 15 not followed Tenji v Henneberry & Associates [2000]FCA 550 followed Walker v Secretary Department of Social Security [1995] FCA 1136 cited Warwick Entertainment Centre P/L v Alpine Holdings P/L [2005] WASCA 174 cited Chidgey v Wellner & Anor [2006] QDC 400 followed Uniform Civil Procedure Rules 1999 (Qld) r 171, r 292, r 293, r 379(1) Corporations Act 2001 (Qld) s 601AB, s 601AD, s 236(3) Trade Practices Act 1974 (Cwth) s 52, s 82, s 87(2), Property Law Act 1974 (Qld) s 55 COUNSEL: P Walker for the applicant C Francis for the respondents SOLICITORS: Tresscox Lawyers as town agents for Myer Vandenberg for the applicant Quinn & Scattini lawyers for the respondents [1] ANDREWS SC DCJ: The primary application is by the plaintiff pursuant to Uniform Civil Procedure Rules (“UCPR”) r 292 for summary judgment on the plaintiff’s claim and on the defendants’ counterclaim. The plaintiff seeks further or alternative orders pursuant to UCPR r 171 to strike out paragraphs of the amended defence of the first and second defendants and of the amended counterclaim and certain paragraphs of the -- 3 of 27 -- 4 relief claimed in the amended counterclaim and further or alternatively pursuant to UCPR r 379 (1) that amendments made to the defence and counterclaim by way of amended defence and counterclaim dated 24 June 2008 be disallowed. Defences Not Pleaded [2] UCPR r 292 provides: “Summary Judgment for Plaintiff 292(1) A Plaintiff may, at any time after a defendant files a notice of intention to defend, apply to the court under this part for judgment against the defendant. (2) If the court is satisfied that – (a) the defendant has no real prospect of successfully defending all or a part of the plaintiff’s claim; and (b) there is no need for a trial of the claim or the part of the claim; (c) the court may give judgment for the plaintiff against the defendant for all or a part of the plaintiff’s claim and may make any other order the court considers appropriate.” Argument went for two days and the plaintiff was surprised by some of it. The plaintiff complained that the defendants raised arguments which were not obvious from a reading of the amended defence. On an application for summary judgment brought by a plaintiff a defendant is not confined to defences arising on the pleading. UCPR r 292 is not expressed to be confined to defences arising on an existing pleading. The rule is concerned with the prospective outcome at trial. Upon an application for summary judgment the court will bear in mind that the rules provide for amendment to pleadings.1 The nature of the dispute [3] The plaintiff (“creditor”) claims $126,075 for debts guaranteed by the defendants, the Paolettis (“the guarantors”). Watch World Pty Ltd (“the debtor”) had operated two businesses profitably for a number of years until August 2004. The businesses operated from two different shops in the Tuggeranong Hyperdome in the Australian Capital Territory. Mr M Paoletti was a director of the debtor at all material times. Mr B Paoletti was a majority shareholder of the debtor at all material times. [4] The creditor’s directors and the Paolettis agreed for the creditor to provide $100,000.00 for use in one of the businesses and $50,000.00 for use in the other and for the creditor to provide management and consultancy services with a view to improving the businesses for sale. 1 Chidgey v Wellner & Anor [2006] QDC 400 [20] per McGill SC DCJ -- 4 of 27 -- 5 [5] A separate agreement in writing was entered into for each business. The parties to each agreement were the creditor, the debtor in the capacity of obligor and the guarantors as guarantors of the debtor’s obligations. The agreements, each entered into on 29 September 2004, are identical in their wording. Only amounts and percentages differ. Generally speaking, the agreements provided that the creditor would receive monthly instalments in repayment of the loan and separate monthly fees for its management services. Upon sale of a business the creditor would receive a further sum. There was a financial incentive for the creditor if the sale occurred within two years. [6] The creditor’s claim is for money payable pursuant to the agreements. The debtor no longer exists, having been deregistered. The creditor brings the proceeding against the guarantors in their capacity as guarantors of the debtor’s obligations. [7] The guarantors resist the claim alleging that the debtor and the guarantors were each separately induced to enter into the agreements by the creditor’s misrepresentations which were misleading and deceptive conduct and alleging that in performing management services the creditor breached the agreement causing damage to the debtor. [8] The guarantors rely on counterclaims which are personal to themselves and also upon any claims available to debtor. Defences are alleged to have arisen as a result of the misleading and deceptive representations made before the agreements were signed. [9] The guarantors rely also upon events after the signing of the agreements. They allege that the plaintiff breached the contract created by the agreements and allege that the debtor and the guarantors have suffered damage as a result. The guarantors seek to set off any counterclaims which they have or the debtor would have had against the creditor. Additionally they allege that the quantum of any amount for which the creditor would be entitled to judgment must be reduced by reason of an amount of stock removed and by reason of payments made to the creditor. There are disputes about why the debtor has been deregistered, about whether the creditor removed or must bear responsibility for the stock which was removed, and about the amount paid to the creditor. [10] The creditor submits that the claims and defences which the debtor would arguably have are matters which even the debtor could not have raised as a set-off . The creditor submits the guarantors cannot raise as counterclaims let alone as matters for set-off the debtor’s claims against the creditor, that if there are real prospects of the guarantors’ successfully counterclaiming for causes of action personal to them their counterclaims cannot be set off against the plaintiff’s claim as they are not matters of defence to the plaintiff’s claim; the plaintiff is entitled to judgment immediately and the guarantors’ counterclaims are matters for trial; the creditor’s judgment should not be stayed pending resolution of the counterclaims. If the creditor fails to obtain judgment summarily, it seeks to make use of the arguments as to the merits of several matters raised in the amended defence and counterclaim and to have them struck out or disallowed. The Written Agreements [11] For brevity I will set out terms from only one of the two agreements. One related to a business which traded under the name “Watch World” (the “Watch World agreement”) and the other related to a business which traded under the name “Canberra Horological -- 5 of 27 -- 6 Centre” (the “Canberra Horological agreement”). So far as is relevant to the disputes, the Watch World agreement provided: “BETWEEN Watch World … (“the Principal”) AND Bruno Paoletti … (“Bruno”) AND Mario Paoletti … (“Mario”) AND Dajata Pty Ltd … (“Dajata”) … 1.3 It is a condition precedent that … Dajata loan the Principal the sum of $100,000.00 (“the Capital Contribution”) … 2. Services 2.1 Dajata will provide to the Principal the services as set out in the Schedule (‘the Services’). … 3. Payment 3.1 In consideration of the Capital Contribution and for Dajata providing the Services to the Principal, the Principal will make the payments to Dajata in accordance with the provisions of this clause. 3.2 The payments will be paid to Dajata monthly in arrears in accordance with the Schedule. … 3.6 Dajata and the Principal agree:- (i) Interest paid on the Capital Contribution shall only accrue and be deemed to have been paid, after the Capital Contribution has been repaid in full; and (ii) Monies received by Dajata pursuant to the remuneration provisions of the Schedule in excess of the Capital Contribution shall be deemed to be interest payable on the Capital Contribution. 4. Termination 4.1 Dajata may terminate this agreement, at any time, by giving three month’s written notice. 4.2 This Agreement will terminate immediately on the occurrence of any one of the following events:- (a) upon the cessation of business of either party to this Agreement (b) Dajata commits any material breach of this Agreement; (c) The Principal sells the Business. 4.3 The Principal may terminate this Agreement by giving notice effective immediately if at any time:- (a) Dajata is or becomes in breach of any of the terms of this Agreement; … (c) Dajata is or becomes continually or significantly absent or neglectful of its duties under this Agreement. -- 6 of 27 -- 7 … 9. Indemnity 9.1 Dajata hereby indemnifies, and agrees to keep indemnified the Principal and its respective officers … against all losses, liabilities, claims and expenses which arise from: (a) any act or omission of Dajata or any other servant, agent or contractor of Dajata in connection with the Services whether at common law, or for breach of statutory duty, or under any other statute of law; … 15. Director’s Guarantee 15.1 Mario and Bruno jointly and severally guarantee to Dajata payment of the remuneration specified in the Schedule. 15.2 As security for the capital contribution the Principal shall grant Dajata a fixed company charge over the Business’ fit out and a floating charge in over the Business’ stock in trade. … SCHEDULE … Remuneration: $3,500 per month for the duration of this agreement. This amount shall comprise of the following:- (a) $1,750.00 exclusive of GST in repayment of the Capital Contribution; and (b) $1,750.00 inclusive of GST in payment for the Services provided by Dajata. If completion of the sale of the Business occurs within 2 years from the date of this agreement Dajata shall receive the greater of the following:- (c) $100,000.00; or (d) 49% of the net proceeds of sale of the Business within seven (7) days of the date of completion of the sale of the Business. … Subject to the above, if the Agreement is otherwise terminated in accordance with Clause 4, Dajata shall receive $100,000.00.” [12] The only material differences in the Canberra Horological agreement are that $50,000.00 dollars appears instead of $100,000.00 at clause 1.3 and in each place in the Schedule and $1,000.00 appears instead of $1,750.00 in each place in the Schedule. [13] The creditor accepted that there is a factual dispute between the creditor and the guarantors as to the extent that the creditor carried out its obligations under the agreements and that there are factual disputes in relation to misrepresentations allegedly made by the creditor. The creditor concedes that the resolution of such disputes is not a matter for summary judgment. The guarantors have adduced evidence as to the existence of facts which would be material at trial to arguable defences. It is in that sense that I find the guarantors have established certain facts. -- 7 of 27 -- 8 [14] The guarantors established that in about August 2004 the creditor’s directors represented to the guarantors that: (a) they had management experience and were capable of running the businesses and building them up; (b) they had a number of years experience providing consultancy services and running businesses of similar size; (c) they would attend the businesses three times per week on average and more frequently at peak periods; (d) they would report about the businesses to the guarantors on a regular basis; (e) they would supervise the staff and operations of the businesses and the banking; (f) they were competent to perform services set out in draft consultancy agreements; (g) they would promote and build up the businesses and the reputation of the debtor with a view to selling the businesses at a profit; [15] The guarantors established that: (a) in reliance on those representations and induced by them they executed two consultancy agreements on 29 September 2004, including the paragraph comprising guarantees by them; (b) in reliance on the representations the debtor executed the consultancy agreements on 29 September 2004 and paid the creditor certain sums. The sums included monthly payments pursuant to the two agreements. The payments were made until about October 2005. Some payments were made in continuing reliance upon the representations. The guarantors have, by adopting their amended pleading2 , sworn to all the payments having been made in reliance upon the representations. It is implausible that the debtor continued to rely upon all the representations after learning in June 2005 that one of its businesses had closed. I find that the guarantors established that debtor relied on the representations until at least June 2005; (c) the creditor did not when making the representations have sufficient management experience to run the businesses and was not capable of running them; (d) the creditor did not then have any or sufficient experience in providing consultancy services or in running businesses of a similar size; (e) the creditor was not then competent to perform the services set out in consultancy agreements; 2 Amended defence paragraph 20.3 -- 8 of 27 -- 9 (f) in so far as the representations were made with respect to future matters the creditor did not have reasonable grounds for making the representations. [16] The guarantors established that after the two agreements were signed the creditor: (a) did not attend on the businesses on average three times per week and more frequently over peak periods; (b) did not provide a report about the businesses to the debtor and the guarantors on a regular basis; (c) did not provide any or any proper supervision of the staff and other operations of the businesses and the banking; (d) did not promote and build up the businesses and the reputation of the debtor; (e) did not inform debtor and the guarantors in a timely way that the businesses were suffering staff and trading difficulties and were not being properly run and in particular did not inform them that the manager and other senior staff had ceased attending at the businesses and the businesses were not being kept open during normal trading hours. [17] Pursuant to clause 15.2 of the two agreements the debtor granted a registered fixed and floating company charge on 29 September 2004 over its assets to an amount of $150,000 and that charge was registered on 8 October 2004. Stock in one of the two shops at the Hyperdome with a value estimated by Mr M Paoletti at approximately $120,000 was noticed by him in about June 2005 to have been removed from the shop. It has not been returned. One of the two shops had closed down and there was nothing left inside it. Because both businesses were behind in rent and one shop was closed so often in normal trading hours the landlord decided to close it. Neither of the creditor’s directors had informed the guarantors of the removal of the stock nor the closure of the shop. Mr B Paoletti verified the amended defence where it pleads at paragraph 32 “By about October 2005 stock of the Businesses, having a value of approximately $120,000, had been removed from the Businesses: 32.1 By the Plaintiffs; 32.2 Alternatively, by others as a result of the Plaintiff failing to properly perform the Services and supervise the operation of the Businesses.” No application was made to cross-examine Mr B Paoletti. [18] The defendants established that after the consultancy agreements were signed: (a) the businesses which previously operated profitably came to operate at a loss and were not being kept open for business during normal trading hours; (b) the Canberra Horological business ceased being carried on about 1 June 2005; -- 9 of 27 -- 10 (c) the debtor sold the Watch World business on about 7 October 2005 for approximately $44,000 which was less than its value. I find that was a selling of the Business within the meaning of clause 4.2(c) of the Watch World agreement; (d) the debtor was unable to continue trading profitably and its business ceased. I find that there was a cessation of its business within the meaning of clause 4.2(a) of each agreement and that this occurred on or before 21 February 2006. Was the creditor a cause of the debtor’s deregistration? [19] The debtor was deregistered on 21 February 2006. Each of the guarantors deposed that but for the creditor’s conduct the debtor would have continued to trade profitably and would not have been deregistered. On this factual issue there is contest. [20] The contest is as to the reason for deregistration. The creditor submitted that I should find that the debtor was deregistered for failure to lodge annual returns. It submitted that the alleged breaches of contract and alleged misrepresentations were not the cause. The creditor relied on an ASIC historical company extract relating to the debtor. The extract reveals that the debtor company was dissolved on 21 February 2006, the reason expressed in the extract being “Section 601AB”.3 The extract also reveals that the last annual return lodged was on 31 January 2003. [21] At material times until the deregistration the Corporations Act at s 601AB provided, so far as seems relevant, as follows: “601AB Deregistration – ASIC initiated Circumstances in which the ASIC may deregister (1) ASIC may decide to deregister a company if: (a) the response to a return of particulars given to the company is at least 6 months late; and (b) the company has not lodged any other documents under this Act in the last 18 months; and (c) ASIC has no reason to believe that the company is carrying on business. (1A) ASIC may also decide to deregister a company if the company’s review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment. … Deregistration procedure (3) If ASIC decides to deregister a company under this section, it must give notice of the proposed deregistration: (a) to the company; and 3 Exhibit B to the Affidavit of Jason Oliver -- 10 of 27 -- 11 … (c) to the company’s directors; and … (e) in the Gazette When 2 months have passed since the Gazette notice, ASIC may deregister the company. … 601AD Effect of deregistration Company ceases to exist (1) A company ceases to exist on deregistration. … (2) On deregistration, all the company’s property vests in ASIC. … This subsection extends to property situated outside this jurisdiction.” [22] The cause of deregistration of the debtor is relevant to the issue of the remedies available to the guarantors. The guarantors swore to two causes for deregistration of the debtor. The first cause alleged was conduct constituting a series of breaches of contract combined with the removal of stock of a value of about $120,000 either by the creditor or as a result of the creditor’s failure to supervise in breach of contract.4 The guarantors also deposed to the truth of their plea that the debtor was deregistered by reason of the misrepresentations that were made to the Paolettis which induced them to execute the two agreements.5 Significantly, the guarantors established that the debtor continued to rely upon the misrepresentations, at least until June 2005.6 [23] By June 2005, one of the two shops was closed and stock to the value of $120,000 had gone missing. By September 2005 the landlord was said to have been about to take action to terminate the lease for non-payment of rent. In October 2005, the sale of the business in the second shop occurred. By that time neither business was being carried on. The process by the ASIC to deregister the debtor began on 15 November 2005 and continued until 20 February 2006. For ASIC to comply with the requirements of s601AB of the Corporations Act, it ought to have given notice of the proposed deregistration to the directors of the debtor and to the debtor. On 15 November 2005 there was no reason to believe that the debtor was carrying on business. [24] The absence of a belief that the company, the debtor, was carrying on business was a pre-condition for any decision by ASIC to deregister the debtor.7 I am unable to conclude that such a pre-condition existed prior to 2005. I am not able to conclude in a summary way that deregistration was caused by the failure to lodge returns for 2003 and 2004. I am unable to exclude the possibility that a cause of deregistration was the creditor’s inadequate management of the two shop businesses which caused the debtor to cease carrying on its business. I am unable to exclude the further possibility that a cause of deregistration was a continuing reliance by the debtor until mid 2005 upon the 4 Amended Defence and Counter-Claim, paragraph 16.6.4, 16.5 and 15 5 Amended Defence and Counter Claim, paragraphs 30 & 27 to 29 and 16.6.4 6 See paragraph 14 herein and fn 2 7 Corporations Act S601AB(1)(c) -- 11 of 27 -- 12 representations made by the plaintiff in 2004 which caused the debtor to allow its business to so deteriorate under the creditor’s management that it was reasonable to wind up the Canberra Horological shop business and to sell the other for less than the value of its stock. The guarantors have established these matters as causes of deregistration. Is the creditor responsible for missing stock valued at $120,000.00? [25] A second factual dispute was as to whether stock of the two shops, having a value of approximately $120,000.00, had been removed and, if it had been, whether it had been removed by the creditor or alternatively, by others as a result of the creditor’s failing to properly supervise the businesses. The guarantors deposed to the removal and to the truth of allegations that it was removed either by the creditor or by others because of lack of proper supervision by the creditor. Two directors of the creditor each deposed that he did not know of any stock having been removed from the businesses and that he did not instruct any person to remove the stock. No application was made to cross examine those directors. As their evidence is consistent with the guarantors’ evidence I accept it as true. [26] The creditor submitted that there were two reasons why this factual dispute could not be resolved against it. The first reason submitted was that there was neither an allegation in the guarantors’ pleading nor in their affidavits that the taking of the stock had been wrongful. Accordingly, at worst for the creditor, the taking may have involved conversion of the goods but the taking may have an explanation which does not involve a wrong by the creditor. I do not accept that a defendant needs to plead or depose that a taking was wrongful before a court can find that the elements of conversion are sufficiently raised for the purposes of a summary judgment application. Evidence that a taking was wrongful would be opinion evidence of a matter of law and would swear an issue for the court. I draw no inference adverse to the guarantors because they failed to swear that if the creditor took the stock it was either wrongful or in the purported exercise of rights under a charge. The second reason submitted was that the guarantors’ evidence is equivocal that the goods were taken by the creditor. The taking by the creditor was one of two alternatives. It was submitted that with the benefit of the affidavit evidence from the creditor’s two directors that they do not know of any stock having been removed and did not instruct any person to remove stock that there was sufficient evidence to resolve the issue in favour of the creditor. [27] The guarantors submitted that by swearing the accuracy of the defence which pleaded that the stock was removed either by the creditor or alternatively by others as a result of the creditor’s failure to properly supervise I should find that the stock was, or could have been, taken by the creditor. Because the creditor had a charge over the debtor’s assets to an amount of $150,000.00, the guarantors submitted that it was more likely that the stock was taken by the creditor. [28] The affidavits of the directors of the creditor do not completely illuminate matters. By deposing that the directors did not know of the removal of the stock and did not instruct any person to remove it the directors leave two questions unanswered. I am left to speculate whether servants or agents of the plaintiff, other than the plaintiff’s directors, may have removed the stock while acting within the scope of their authority from the plaintiff or whether the stock was removed as a result of the plaintiff’s failure to perform agreed services by supervising the staff and attending the businesses as often as was reasonably necessary. -- 12 of 27 -- 13 [29] I respectfully accept that: “… it is only where all the facts are known and/or are established beyond controversy that the court should embark upon determining whether to give summary judgment. Where relevant facts are controverted, or where it appears that facts may exist which would affect a right of action or defence, there should be a trial to determine the facts.”8 I proceed on the basis that the stock was removed without the knowledge of the creditor’s directors by the creditor by its servants or agents acting within the scope of their authority or removed as a result of the creditor’s breach of contract by failing to supervise the staff and attend as often as was reasonably necessary. It may have been removed by the creditor by conversion of the goods, or in breach of contract but it may have been in the exercise of rights under the charge granted in favour of the creditor by the debtor so as to satisfy part of the creditor’s claim for remuneration. What payments were received from the debtor? [30] A third factual dispute is as to the amount received by the creditor from the debtor pursuant to each of the two agreements. The creditor seeks judgment for $126,000.00 and interest. By the statement of claim the creditor pleads payments by it to the debtor of $150,000.009 and six specific payments by the debtor to the creditor totalling $24,000.00.10 The composition of those payments is important for distinguishing them from other payments alleged. They were comprised of two payments of $10,000.00 each and four payments of $1,000.00 each. There is no issue taken with the creditor’s allegation that it paid $150,000.00 to the debtor by way of loan. The claim for $126,000.00 appears to be consistent with the creditor’s giving credit to the debtor for the six specific payments totalling $24,000.00. The statement of claim does not expressly plead this as the basis of the claim. It was submitted by the creditor to be so. [31] The creditor also pleaded 11 due payment in performance of the debtor’s obligations12 under clauses 3.1, 3.2 and the schedule to the Watch World agreement of $1,750.00 per month, “in repayment of the Loan” throughout the duration of the Watch World agreement which, I infer, endured until 7 October 2005. The expression “in repayment of the Loan” is not present in the agreements. The allegation of performance “in repayment of the Loan” appears to be an obtuse allegation that these were payments made in “repayment of Capital Contribution” within the meaning of those words in the schedule to the Watch World agreement. These payments of $1,750.00 per month were not taken into account in calculating the amount claimed by the creditor. These total $21,000.00, if for twelve months payable in arrears.13 [32] The creditor also pleaded due payment of $1,000.00 per month from 29 September 2004 to 1 June 2005 in performance of the debtor’s obligations under clauses 3.1, 3.2 8 Jessup v Lawyers Private Mortgages Ltd [2006] QSC 003 per Chesterman J as his Honour then was at [21]. 9 Statement of claim par 5. 10 Statement of claim pars 13, 14, 17, 18, 19 and 20. 11 Statement of claim par 12 12 Set out at statement of claim par 6 13 As required by clause 3.2 of each agreement -- 13 of 27 -- 14 and the schedule to the Canberra Horological agreement, “in repayment of the Loan”. Again, this appears to be an obtuse allegation that these were payments made in “repayment of Capital Contribution” within the meaning of those words in the schedule to the Canberra Horological agreement. These payments of $1,000.00 per month were not taken into account in calculating the amount claimed by the creditor. They would total up to $8,000.00 over the eight months if paid in arrears. [33] One reason a creditor might include such allegations of due payment in its statement of claim would be to give credit for the payments in calculating the amount of its claim. The creditor did not give such credit. The reason for the creditor’s pleading the due repayment of monthly sums for the Loan is not obvious. The creditor does not plead whether or not the debtor complied with the further obligation imposed upon it pursuant to clauses 3.1, 3.2 and the schedule to each agreement to pay a monthly amount “in payment for the Services provided by Dajata”. The factual dispute relates to the number and amount of payments made by the debtor pursuant to its obligation to make monthly payments under clauses 3.1 and 3.2 and the schedule to each of the two agreements. There is a related dispute of fact or of law as to whether those monthly payments made by the debtor and for which the creditor has given no credit in calculating its claim are to be taken into account when determining what amount, if any, may be due from the guarantors. [34] Mr Mario Paoletti deposed14 to the debtor’s making monthly repayments of Capital Contribution and payments for Services by the creditor from September 2004 to October 2005. The statement of claim effectively alleges15 that under the Watch World agreement there may have been 11 months when payments were made of $1,750.00 per month by way of “repayment of Loan”. With respect to the Canberra Horological agreement, the statement of claim appears to allege that there were about eight payments of $1,000.00 by way of “repayment of Loan”. The evidence of Mr Mario Paoletti, while ambiguous as to the number of payments, does suggest 12 payments pursuant to each agreement. [35] The dispute is not just as to the number of payments in “repayment of Loan”16 or more correctly in “repayment of Capital Contribution”17 . The evidence is that there were other monthly payments “for Services”. The evidence for the defendants differs from the plaintiff’s pleaded case by suggesting that the payments were made and continued to be made until October 2005 pursuant to each agreement. It is odd that payments were made for 12 months pursuant to the Canberra Horological agreement as that business was closed on about 1 June 2005. The closure came to the notice of the Paolettis that month being about 8 to 9 months after the agreements were signed. It seems odd to persist with payments for services provided by the creditor for the Canberra Horological business after learning that it had closed. Yet the statement of claim is consistent to an extent with the evidence of Mr Mario Paoletti as it alleges18 4 monthly payments of $1,000.00 on the first of July, August, September and October 2005 pursuant to the Canberra Horological Agreement. These payments were classified by the creditor differently from monthly payments for “repayment of Loan” as they were alleged to be due pursuant to a different combination of clauses of the 14 Affidavit Mario Paoletti, para 12. 15 By pars 12 and 6. 16 As those words appear in the statement of claim 17 As those words appear in the agreements 18 At pars 17, 18, 19 and 20 of the statement of claim -- 14 of 27 -- 15 agreement.19 Despite the evidence of Mr Mario Paoletti supporting 12 monthly payments, counsel for the guarantors when considering the Canberra Horological agreement submitted that 10 monthly payments were demonstrated on the evidence. As the difference will not affect my decision I will accept the lesser figure suggested by counsel for the guarantors. The guarantors have established that, in addition to the $24,000.00 for which the creditor has given credit, the debtor made payments pursuant to its obligation to make monthly payments. The additional payments pursuant to the Watch World agreement were 12 payments of $1,750.00 for repayment of Capital Contribution and 12 payments of $1,750 for Services. The additional payments pursuant to the Canberra Horological agreement were 10 of $1,000.00 for repayment of Capital Contribution and 10 of $1,000.00 for Services. Those additional monthly payments total $62,000.00. $31,000.00 was in “repayment of Capital Contribution” and $31,000.00 inclusive of GST in “payment for the Services provided by Dajata”. [36] On that basis, the guarantors submitted that payments of $41,000.00 for “Capital Contribution” should have been taken into account in further reduction of Watch World’s debt and their liability under the guarantees. If that submission is correct it would reduce the amount for which judgment might be given by $41,000.00. [37] The creditor submitted as a matter of interpretation of the agreements and particularly clauses 4.2 and the Schedule relating to remuneration that neither the sums paid in “repayment for Services” nor in “payment of Capital Contribution” can be set off against the $100,000.00 payable under the Watch World agreement nor against the $50,000.00 payable under the Canberra Horological agreement. The bases for the submission are that the businesses have each ceased and did thus, by clause 4, “terminate” and the Schedule relating to remuneration provided “if the Agreement is otherwise terminated in accordance with clause 4” the creditor “shall receive $100,000.00” in the case of the Watch World agreement and $50,000.00 in the case of the Canberra Horological agreement and, critically, there is no provision to say that lump sum should be “less any repayments”. Since clause 4.2 (b) provides for termination to occur upon the creditor’s committing a material breach then it was further submitted that the parties agreed to repayment of the lump sums without deduction for damages for breach of contract by the creditor and without deduction for prior payments made by the debtor in “repayment for Services” or in “payment of Capital Contribution”. The creditor submitted that clause 3.6 of the agreements is consistent with that interpretation. The guarantors made no submissions in response to this interpretation or otherwise as to the proper interpretation. However they submitted that all payments should be deducted, perhaps implying that the creditor’s interpretation was incorrect. [38] I understand issues of interpretation of documents to be mixed questions of fact and law. On occasion, if a part is ambiguous, interpretation involves consideration of evidence other than the document to assist in determining the meaning of the ambiguous part. I can determine the application for summary judgment without deciding whether the creditor’s interpretation is correct. I do not decide whether the proper interpretation requires the creditor to give credit for more of the payments made to it. [39] The guarantors submitted that the further payments for “Services” should also have been taken into account at least in reduction of interest in reduction of interest payable 19 Clauses 3.1, 3.2, 3.6 and the schedule as opposed to 3.1, 3.2 and the schedule -- 15 of 27 -- 16 pursuant to the Supreme Court Act. Without the benefit of argument from the creditor on this submission I will make no finding. Resolving difficult legal questions on applications for summary judgment [40] The guarantors submitted that whether or not they can rely upon the cross-claims and defences of the debtor is a difficult area of law and that it is not appropriate to determine the issue on a summary judgment application. That submission does not reflect the current practice, which is that: “If the facts are settled and the respective rights of the parties turn upon questions of law, UCPR 292 and/or 293 would require the court to give judgment in advance of trial, even where the point may be difficult. This conclusion involves a departure from the practice under the former rules as to summary judgment as explained in Theseus Exploration NL v Foyster (1972) 126 CLR 507 and Sunbird Plaza Pty Ltd v Boheto Pty Ltd [1983] 1 Qd R 248. To that extent UCPR 292 and 293 may be said to have wrought change.” 20 Guarantors’ reliance on the debtor’s rights and remedies [41] The right of a person at general law to bring proceedings on behalf of a company is abolished.21 There is no suggestion that the conditions for an exception22 to the general rule have arisen in the case of the guarantors. The guarantors’ allegations of breach by the creditor of the agreements would be a basis for a cause of action by the debtor for damages for breach of contract. So too, allegations of the debtor’s reliance upon the creditor’s misleading and deceptive conduct would be a basis for the debtor’s cause of action for relief under the TPA. I accept the creditor’s submission that the guarantors cannot bring such proceedings on behalf of the debtor. The next issue is whether the guarantors may rely upon the claims which the debtor may have raised as matters which reduce the debtor’s liability to the creditor under the agreements and thus reduce the guarantor’s liability to the creditor pursuant to the guarantees. Guarantors’ capacity to set off debtor’s claims against the creditor [42] The matters pleaded by the guarantors would support arguable causes of action which the debtor may have relied upon against the creditor. The claims would include damages for negligent misrepresentation, damages for misleading and deceptive conduct and damages for breach of contract. A feature of each such claim for damages is that it would be for unliquidated damages. [43] Insofar as the guarantors have pleaded matters which would support a claim by the debtor for unliquidated damages the claim for unliquidated damages cannot be the subject of a legal set-off. If a set-off at law exists in Queensland23 the debtor’s claim for unliquidated damages cannot be raised by the guarantors as a matter capable of reducing the guarantors’ liability under the guarantee. There can be a set-off at law 20 Jessup op cit [22] per Chesterman J as his Honour then was. 21 Corporations Act 2001s 236(3) 22 Corporations Act 2001 Part 2F.1A 23 See the doubts expressed in Walker v Secretary Department of Social Security [1995] FCA 1136 per Cooper J at par 17 and Spender J agreeing at par 1. -- 16 of 27 -- 17 only between liquidated demands and a counter-claim sounding in damages cannot be pleaded as a defence to a liquidated demand. 24 [44] The creditor submitted that the debtor would not have been able to set off its claims for two reasons peculiar to the facts of this case. Firstly, the agreements provide for payment of the lump sums for which the creditor brings this proceeding even if termination occurs because the creditor commits a material breach of the agreements. The creditor and debtor contemplated payment of the lump sums notwithstanding that the debtor would have a cause of action for damages for breach of contract. Secondly, the debtor agreed with the creditor by the terms of a charge25 executed in compliance with clause 15.2 of the agreements that to pay “the amount owing26 in full without set off or counterclaim”. [45] I accept the second of those submissions. The debtor agreed that it must pay the lump sums in full notwithstanding that it may have a set-off. That must include an equitable set-off capable of extinguishing or reducing its indebtedness. The debtor might, if not deregistered, have pursued its claims against the creditor, but they could not be raised by the debtor as a basis for postponing payment of the lump sums owed to the creditor by the debtor for so long as the charge bound the debtor. There is no application to set aside the charge. As to the first of the submissions, I do not interpret the agreement to pay the lump sums upon termination for material breach as if it were an agreement to pay without set-off. [46] The creditor submitted that where a guarantor has guaranteed payment of some identifiable amount, as distinct from, for example a guarantee of payment “of all moneys which are now or may in the future be payable”27 the guarantor may not plead a set-off, legal or equitable, belonging to the debtor against a claim by the creditor. The guarantors have guaranteed payment of identifiable lump sums upon termination of the agreements. I accept the submission, with one qualification, following the appellate court authorities cited in support.28 The qualification relates to the hypothesis where a debtor has an equitable set-off impeaching the creditor’s title to its claim against the debtor. I need not determine this to determine the application for summary judgment nor the applications with respect to the guarantor’s pleading because the debtor has agreed by the charge to pay the amount owing without set-off. There are authorities on the question of whether a guarantor may rely upon a debtor’s equitable set-off which appear contrary to the creditor’s submission. 29 The interesting question30 of whether the debtor, despite deregistration and insolvency, must be joined as a party if the guarantor seeks to rely upon the debtor’s set-off need not be decided by me as the debtor has agreed to pay without set-off. [47] The guarantors submitted that there is sufficient nexus between the debtor’s cross- claim and the creditor’s claim to amount to an equitable set-off. If that were so, the 24 Blacksheep Productions P/L v Waks [2008] NSWSC 488 per Young CJ in Eq at [19] 25 At clause 22 of the charge MP1 annexed to the affidavit of MP Paoletti filed 25 June 2009 26 Defined in the charge at clause 39 so widely as to include the sums for which the creditor brings this proceeding 27 For example the clause in Langford Concrete P/L v Finlay [1978] 1 NSWLR 14 at 16 28 Indrisie v General Credits Ltd [1985] VR 251, Covino v Bandag Manufacturing P/L [1983] NSWLR 237. 29 Covino op.cit at 238 per Hutley JA and Doherty v Murphy [1996] 2 VR 553 30 Ansell Ltd v Coco [2004] QCA 213 [23] – [27] and [39] -- 17 of 27 -- 18 debtor’s agreement to pay without set-off makes it unnecessary to decide whether there is a real prospect that the court’s discretion31 to allow a set-off would be exercised. [48] I accept that the guarantors cannot personally raise as defences to the creditor’s claim any set-offs or cross-claims which the debtor arguably would have been able to maintain against the creditor including equitable set-offs. [49] The issue of the missing stock worth $120,000.00 requires special consideration. If the circumstances of its absence are as a result of the creditor’s breach of contract, conversion or on some other basis giving the debtor an arguable cross-claim or set-off the cross-claim or set-off could not be raised by the guarantors for reasons I have set out above. However, the creditor would not submit that the sum was to be ignored if the evidence revealed that the creditor had satisfied some of the debt by taking the stock. I make no finding of law on this discrete point. On the basis that the creditor may have taken stock to satisfy the debt, the guarantors have established a prospect of successfully defending the claim to the extent of $120,000.00. Misrepresentations to the guarantors [50] The guarantors have established the matters at paragraphs [13] to [17] herein. They have established arguable claims that they entered into the guarantees in reliance upon representations that were misleading or deceptive or were likely to mislead or deceive within the meaning of s52 of the Trade Practices Act 1974 (Cwth) (“the TPA”). [51] The amended defence and counterclaim was filed after the creditor’s application for summary judgment was filed and shortly before the first hearing day of the application. It changed the guarantors’ case substantially. That explains why so much of the creditor’s first written argument was devised to persuade the court that the guarantors were unable to set off defences and claims which the debtor might have raised and why the creditor included no written argument exclusively concerned with whether the guarantors could set off claims based upon their own reliance upon misleading and deceptive conduct. The guarantors have since established that they personally relied upon the alleged misrepresentations until they signed the two agreements as guarantors on 29 September 2004 and that the debtor relied upon the same representations in signing the two agreements and in subsequently making payments pursuant to the agreements for about ten months. Equitable Rescission [52] The guarantors submitted that misrepresentation by a creditor to a guarantor may lead to discharge of a guarantee in equity. I accept that submission as generally correct though it needs numerous qualifications. Here there is no plea of fraudulent misrepresentation made against the plaintiff. The case concerns innocent and material misrepresentations. While rescission of a contract induced by an innocent material misrepresentation is available as an equitable remedy it is generally necessary that there “be a giving back and taking back on both sides, including the giving back and taking back of the obligations which the contract has created, as well as giving back and taking back the advantages.” 32 The guarantors referred, in support of their 31 Blacksheep op.cit [24] 32 Newbigging v Adam (1886) 34 Ch D 582 at 595 per Bowen LJ -- 18 of 27 -- 19 submission, to O’Donovan, Modern Contract of Guarantee, 4th ed at [4.400] to [4.500]. Nothing there suggests that where a creditor has lent money to a principal debtor and the money remains outstanding that a court exercising its equitable jurisdiction would rescind the guarantee for innocent misrepresentation. The guarantors do not offer to repay the creditor as a condition for rescission. I find no real prospect that the equitable remedy of rescission is available to the guarantors. Guarantors’ personal rights to TPA orders to avoid or vary the guarantee or to damages [53] The guarantors also claimed remedies under the TPA. They submitted, in effect, that as persons who had relied upon misleading and deceptive conduct to enter into the guarantees, they were persons who had suffered or are likely to suffer loss or damage by conduct of the creditor that was engaged in, in contravention of Part V of the TPA and accordingly were entitled to seek orders pursuant to s 87(2) of the TPA. The guarantors relied upon s 87(2)(a) to submit that they are entitled to an order declaring the guarantee void ab initio or alternatively pursuant to s87(2)(b) to an order varying the guarantee or alternatively pursuant to s 87(2)(ba) to an order refusing to enforce the guarantee or alternatively pursuant to ss 82 and 87(2)(d) to an order for the payment to them of loss and damage. They submitted that this relief was available to them in their own personal right. I infer that the reference to their “personal right” is intended to distinguish the guarantors’ causes of action or defences from their pleaded claims for relief based upon the debtor’s causes of action and defences. [54] The creditor argued that on the facts of this case the guarantors in their personal right could not obtain any of those orders for relief in reliance upon s 87(2) of the TPA and particularly could not have the guarantees declared void. The submissions on this point were almost entirely oral though some were by reference to written submissions delivered for the second day and designed for the different purpose of seeking to strike out parts of the guarantors’ amended pleading. There was no reply and answer to reveal the creditor’s case about discretionary factors for refusing relief to the guarantors. I hope to do the submissions justice in paraphrasing them in the following paragraphs. [55] The creditor submitted that the guarantors’ right to seek relief under s 87(2) of the TPA was dependent upon the guarantors’ having suffered, or being likely to have suffered some loss as a result of the creditor’s breaches of s 52 of the TPA. The submission is consistent with the words of s 87(1) of the TPA setting out the preconditions for an order under s 82 of the TPA and consistent with authority.33 I accept the submission. The creditor submitted that the guarantors had suffered no loss nor were they likely to as a result of the breaches of s 52 of the TPA which were conceded for the limited purposes of the application. [56] The creditor submitted that the guarantors’ TPA claim34 was misconceived in pleading the loss alleged to have been caused to them (and to the debtor) by misleading representations. Essentially, the creditor submitted that the guarantors wrongly claimed the debtor’s loss from the creditor’s breach of contract and wrongly alleged that the loss was caused by breach of section 52 of the TPA. The creditor also submitted that 33 Marks v GIO Holdings (1998) 196 CLR 494 per McHugh Hayne and Callinan JJ at [35], [45],[47],[54] and [55] 34 Set out in the amended defence at paragraphs 17 to 26 and incorporating paragraph 16 -- 19 of 27 -- 20 the proper party to complain of loss caused by breach of contract was the debtor because the guarantors were not parties to the agreements other than in their capacity as guarantors. [57] The guarantor’s pleading was difficult to follow. Loss and damage to the debtor and to the guarantors based upon a TPA claim is alleged in the defendants’ pleading at paragraph 26. It is alleged to be caused by “conduct pleaded in paragraphs 17 to 25 of this Defence” (notwithstanding that of the nine paragraphs only numbers 18 and 19 allege any conduct) that conduct being the oral representations by the creditor35 and the execution of the agreements by the debtor and the guarantors and the debtor’s payment of money to the creditor pursuant to the agreements. Particulars of the loss and damage are alleged to be “set out in paragraph 16 of this Defence”. Notably, paragraph 26 has alleged that the conduct causing loss is at one place and particulars of loss are at another. More confusion arises when looking to the “particulars of loss and damage” in paragraph 16 because the particular do more than describe particulars of loss. They also describe other conduct as another of cause of loss, alleging “loss and damage to date…as a consequence of the Plaintiff’s conduct” where that “conduct” cannot mean the conduct alleged at paragraphs 18 and 19 but can only mean “conduct pleaded in paragraph 15 of this defence”. More confusion arises by the reference to paragraph 15 as it pleads more than conduct. It pleads also the legal consequences of the conduct being conduct breach of agreements. [58] No facts are pleaded to show how the misleading and deceptive representations made in or about August 2004 caused the subsequent conduct which breaches the contractual obligations owed to Watch World. Nor are facts pleaded to show how the representations caused subsequent removal of stock. Nor are facts pleaded to show how the breaches of agreements and removal of the debtor’s stock caused loss to the guarantors. The guarantors did not address the causal links in their submissions. They have pleaded 36 that in reliance upon the misleading conduct in August 2004 they executed the agreements including the guarantees and that the debtor executed the agreements and paid money to the creditor. Other than signing agreements the guarantors do not plead any acts done by them in reliance upon the representations. The particulars of loss and damage pleaded37 have an obvious causal link to the alleged conduct alleged to be breaches of agreements and to removal of stock but no obvious link to the guarantors’ execution of the agreements. [59] These criticisms aside, within the debtor’s pleading are allegations that the creditor’s mismanagement conduct after the agreements were signed caused loss to the debtor (as well as breaching the terms of the agreements), that the loss to the debtor was also caused by the prior representations and that the guarantors suffered loss as a result of the creditor’s mismanagement conduct and prior representations. While the pleading failed to reveal how one thing caused another the evidence established has filled in the missing links. It is not correct to regard the guarantor’s pleading as alleging the mismanagement conduct only to support a claim for damages for breach of contract by the creditor or more dubiously by the guarantors personally. [60] The creditor submitted that the proper measure of the guarantors’ loss resulting from their execution of the guarantees in reliance on misleading and deceptive conduct was 35 Set out herein at [14] 36 At paragraph 20 of the amended defence 37 At paragraph 16 of the amended defence -- 20 of 27 -- 21 not calculable by reference to the loss which was caused by later breaches by the plaintiff of its contracts with Watch World. The proper measure was submitted to be the detriment the guarantors’ suffered by executing the guarantee which was to be calculated by subtracting the value of an indemnity from the debtor from the amount the guarantors have to pay pursuant to the guarantees. In assessing a guarantor’s loss caused by a creditor’s misrepresentations such a method can be appropriate.38 It is appropriate in this case. The creditor submitted that the guarantors suffered no detriment by signing the guarantees because, upon signing, they received a valuable right to be indemnified by the debtor if the guarantors were made to honour the guarantee. Inherent in the submission was a premise that the value of such a right against the debtor to indemnity was equivalent to the value of the guarantors’ contingent liability to honour the guarantee. If the debtor was debt free until it received the $150,000.00 loan from the creditor it would have been able to indemnify the guarantors to the extent of $150,000.00 as soon as it received the loan. That hypothesis is not established by but is consistent with evidence that the businesses had operated profitably until the creditor became involved and is consistent with the admission that the creditor duly paid $150,000.00 to the debtor in performance of the agreements. I proceed as if the guarantors have established that at the date that they executed the agreements the debtor was able to pay its debts and able to repay so much of the $150,000.00 as it then received from the creditor and, consequently was able to indemnify the guarantors if the creditor had called upon them to honour the guarantee. [61] The creditor submitted that the guarantors’ loss, if any, was to be calculated in this way at the date they executed the guarantee. At that date39 the debtor had the capacity to fully indemnify the guarantors if the creditor had called upon the guarantors to honour their guarantees. Whether the loss be calculated at this or at some later date, the creditor submitted that in calculating the value of the guarantors’ right to an indemnity from the debtor the court should ignore matters which caused a deterioration in the value of the indemnity if those causes were unrelated to the guarantors’ claims against the creditor for relief under the TPA. I accept that to be a correct approach.40 For the reasons which follow I find that the guarantors have established that the causes of the deterioration in value of their right to an indemnity are related to their claim for relief under the TPA. [62] The creditor submitted that as the debtor could have fully indemnified the guarantors when the $150,000.00 was supplied the guarantors suffered no loss as a result of misleading and deceptive conduct. If the businesses owned by the debtor subsequently traded unprofitably because of conduct of the creditor in breach of contract, the creditor submitted that cause was conduct after the guarantors had become bound by their guarantees and was unrelated to the misleading and deceptive representations. The fact that the debtor has been deregistered was submitted by the creditor to have been caused by the debtor’s failure to lodge annual returns for reasons unrelated to the creditor’s conduct. It would follow that the worthlessness of the guarantors’ right to seek indemnity from the debtor at the present time was not caused by the creditor’s misleading and deceptive conduct. I have found against the creditor on this factual matter.41 I found that the guarantors established42 that a cause of deregistration was a 38 Gould v Vaggelas (1983-1985) 157 CLR, 215 at 246.8 per Wilson J and at 254.5-.8 per Brennan J 39 About 29 September 2004 40 Gould v Vaggelas op.cit at 242.9 per Wilson J citing Potts v Miller (1940) 64 CLR per Dixon J at 297-299 and per Wilson J at 246.8. 41 See [24] herein 42 In the sense described at [12] herein. -- 21 of 27 -- 22 continuing reliance by the debtor until mid 2005 upon the representations made by the creditor in 2004 which caused the debtor to allow its business to so deteriorate that it was reasonable to cease carrying it on. That continuing reliance was not expressly pleaded but is consistent with paragraphs 20.3 and 21 of the amended defence which have been sworn to and may yet be pleaded. [63] The creditor submitted that the guarantors could not rely on loss and damage caused to the debtor by conduct which was a breach of contract. The creditor’s submission was on two bases. One was temporal, the other based on the different bases for assessing damages for breach of contract and breach of s52 of the TPA. The agreements were signed on 29 September 2004 in reliance on conduct pleaded to have occurred in about August 2004 before the agreements were signed. Implied is a submission that the misleading conduct of about August 2004 caused nothing after 29 September 2004. That is inconsistent with the TPA case pleaded by the guarantors at paragraphs 20.3 and 21 of their amended defence and the allegations and evidence that the debtor made payments to the creditor until as late as October 2005 in reliance on the misleading and deceptive conduct. I reject the submission that on the basis of the dates of the alleged conduct in breach of contract that conduct could not cause loss to the guarantors. The debtor continued to rely upon the misleading and deceptive conduct for between six and thirteen months after hearing it. I note the guarantors do not plead their own continuing reliance. [64] I accept the creditor’s submissions that the bases for assessing damages for breach of contract and breach of s52 of the TPA are fundamentally different. There was an allied submission that loss and damage caused by breach of the agreements by the creditor creates a cause of action for the debtor for breach of contract but not for the guarantors for breach of contract. The guarantors submitted they were parties to the contract and not simply in the capacity as guarantors but did not support this with argument. Further, by conceding that if the court rules that the guarantors cannot rely upon any set-off by the debtor that paragraphs 10.3.4 and 16 should be deleted, the guarantors remove the only parts of their pleading which allege damage to them for breach of contract. As I so rule, I will order that the striking out of those parts in accordance with the concession. I need not decide whether the guarantors are parties to the contract as they do not allege damage to them from its breach. [65] The representations complained of were about the quality of the creditor’s management experience and that the creditor had reasonable grounds for saying in 2004 that it would attend the businesses frequently to supervise staff. Breaches of contract allegedly occurred afterwards. The creditor submits the allegations of breach of contract are irrelevant and should not be allowed to prolong the trial. While the legal consequence that conduct by the creditor may have been a breach of contract has limited relevance to assessing damages for breach of s52 of the TPA the conduct which was a breach may be relevant to issues in the TPA claim. If the representations of about August 2004 to the debtor were a cause of the debtor’s deteriorating capacity to indemnify the guarantors, for example because the debtor continued to permit the creditor’s mismanagement in continuing reliance upon the representations then the mismanagement would be a matter relevant to causation of loss. The legal consequence that the mismanagement alleged would be a breach of the agreements is irrelevant to the guarantor’s TPA case as it is presently pleaded. [66] Deteriorating solvency caused to debtor is not to be ignored because it may also have been caused by breach of contractual duties owed to the debtor. While the assessment -- 22 of 27 -- 23 of damage for breach of contract is an issue irrelevant to the assessment of loss in the TPA claim it does not render irrelevant the evidence that a solvent debtor became incapable of indemnifying the guarantors nor evidence that this was caused by the creditor’s mismanagement. [67] The guarantors have not pleaded that they continued after signing the agreements as guarantors to rely upon the allegedly misleading conduct of the creditor but they pleaded and established that the debtor did. The guarantors may suffer actionable loss as a result of a breach of section 52 of the TPA caused by the debtor’s reliance upon the creditor’s misleading and deceptive conduct.43 That reliance arguably caused the value of the debtor’s capacity to indemnify the guarantors to be worth less until it became worthless. [68] It follows that the guarantors have established facts to create an arguable case that they suffered loss as a result of the alleged misleading and deceptive conduct of the creditor. It follows that this court has a discretion to consider making orders under section 87(2)(a) of the TPA including an order declaring the guarantee void ab initio or alternatively under section 87(2)(b) varying the guarantee or alternatively pursuant to section 87(2)(ba) to an order refusing to enforce the guarantee. Is the discretion to declare the guarantees void ab initio capable of being exercised? [69] The creditor submitted that the discretion to declare the guarantee void would not be exercised relying on the decision of the High Court in Webb Distributors (Aust.) Pty Ltd v Victoria 44 and followed in Eighth SRJ Pty Ltd v Merity45 . It submitted in reliance upon those decisions that section 87(2)(a)does not confer a power to declare a contract void which was valid at its inception. There is no argument here that the agreements were invalid at their inception. The creditor submitted that I am bound by the High Court’s decision. The creditor however directed my attention to statements to the contrary in the more recent Tenji v Henneberry & Associates46 . In that case French J noted that section 87 of the TPA has been amended since Webb, that the relevant statements in Webb were obiter and that they had been overtaken47 . The other members of the court agreed48 and the contract in that case was declared void ab initio pursuant to section 87(2) of the TPA. Tenji has been followed in this respect in the Supreme Court of New South Wales49 and cited with approval in the Court of Appeal in Western Australia.50 Confronted by obiter dictum of the High Court as to the interpretation of section 87 prior to relevant amendments to the TPA in conflict with the ratio decidendi of the Full Court of the Federal Court relating to the relevant parts of the legislation in its current form I respectfully adopt the approach taken in Tenji. 43 Applying the reasoning in Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 at [534] per French J as his Honour then was 44 (1993) 179 CLR 15 at 37 per Mason CJ, Deane, Dawson and Toohey JJ approving Brennan J and Deane J as members of the Federal Court in Trade Practices Commission v Milreis Pty Ltd (1997) 29 FLR 144 45 7 BPR 15,189 and BC970110 per Young J as his Honour then was in the Equity division of the Supreme Court of NSW 46 [2000]FCA 550 47 By the width of the operation attributed to s 87 in Marks v GIO (1998) 196 CLR 494 48 At [29] per Whitlam J and [56] per Carr J 49 Abigroup Contractors P/L v Peninsula Balmain P/L [2001] NSWSC at [109] to [111] per Barrett J 50 Warwick Entertainment Centre P/L v Alpine Holdings P/L [2005] WASCA 174 at [69] per Steytler P with McClure and Pullin JJA agreeing -- 23 of 27 -- 24 [70] I find that the power to rescind the agreements ab initio is available pursuant to section 87(2) of the TPA. [71] The creditor submitted that, if the power exists to declare the agreements void there are reasons why the guarantors could not persuade a court that the discretion should be exercised. One was that the guarantors became aware of management problems in February 2005 but took no steps to call for the return of the $150,000.00 and rescission of their guarantee and allowed the agreements to be performed. If the guarantors knew of facts justifying their right to rescind while they failed to exercise the right and while they permitted the creditor to perform its part of the agreements it would be relevant to a court’s consideration of whether to declare the guarantees void. The guarantors submitted that they were active in attempting unsuccessfully to locate the creditor’s directors, in travelling personally to Canberra in about June 2005, in dealing with the landlord after finding the first shop was closed for business and stock was missing and in selling the second shop to obtain $44,000 to avoid more loss. The submission implies that the guarantors’ case will be that they and the debtor behaved reasonably and that their own and the debtor’s failure to seek rescission in return for repayment to the creditor should not disentitle them from a declaration that the guarantees are void or should be varied. Facts relevant to the exercise of the discretion to avoid or amend the guarantees include the guarantors’ conduct from the time they knew that the creditor’s conduct was misleading. They have raised sufficient evidence to show that these facts are not sufficiently settled or known. [72] The guarantors have established that the plaintiff received stock of Watch World to the value of $120,000.00, a sum of $41,000.00 for “Capital Contribution” and a further $41,000.00 for “Services”. They have established that the debtor’s continuing reliance on the creditor’s misleading and deceptive conduct until at least June 2005 while the creditor was breaching the agreements were causes for the debtor’s inability to indemnify the guarantors. The guarantors submitted the payments for “Services” should be considered by the court if exercising the discretion under section 8751 of the TPA to vary the guarantee. I find that these payments of a further $41,000.00 for “Services” are relevant to a consideration of whether and how to vary a guarantee by reducing the amount of the guarantors’ indebtedness. I find that the payments of $41,000.00 for “Capital Contribution” are also relevant to this potential relief. These payments, like the receipt by the creditor of the benefit of $120,000.00 would be proper matters for a court to consider in the exercise of the discretion. The creditor did not submit to the contrary. The uncredited payments and benefit create a real prospect that TPA relief may include varying the guarantee to extinguish the liability of the guarantors. [73] There is a need for a trial of this matter to determine the guarantors’ entitlement to their various claims for relief pursuant to s 87 of the TPA. Indemnity [74] The guarantors also rely upon clause 9.1 of the agreements. That clause provides: “9.1D Dajarta hereby indemnifies, and agrees to keep indemnified the Principal (Watch World) and its respective officers, 51 Presumably s 87(2)(b) -- 24 of 27 -- 25 servants, employees and agents, against all losses, liabilities, claims and expenses which arise from: (a) any act or omission of Dajarta or any other servant, agent or contractor of Dajarta in connection with the Services whether at common law, or for breach of statutory duty, or under any other statute of law…” Though that clause was a term of contracts between the creditor and the debtor and though the guarantors, arguably, are not parties to those contracts they submit that the clause is relevant to them on two bases. Firstly, they submit that they relied upon it. I infer that submission is the basis of a claim that they are entitled to relief under the TPA or at common law because clause 9.1 amounts to misleading and deceptive conduct or is a misrepresentation. If I have correctly understood that submission it is unpersuasive. The guarantors did not make submissions suggesting how clause 9.1 is misleading nor how their reliance upon it caused them loss. On the contrary, their second submission on clause 9.1 is that it is effective as a promise made for their benefit and enforceable by them based on s55 of the Property Law Act 1974. Subsection (1) of that section relevantly provides: “(1) A promisor who, for valuable consideration moving from the promisee, promises to do or refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.” [75] The guarantors have not pleaded reliance upon s55 of the Property Law Act nor identified the words or conduct amounting to their “acceptance” within the meaning of subsection 55(1). Similarly, there has been no plea nor submission about whether acceptance occurred within a reasonable time. Nor has there been a submission as to how each of the guarantors is encompassed by the description in clause 9.1 “Its officers, servants, employees and agents”. Mario Paoletti deposed that he was a director, secretary and shareholder of the debtor while Bruno Paoletti did not depose to any relationship with the debtor though his signature appears in the agreements over the words “Director/Secretary”. Despite these shortcomings it appears that facts may exist which would affect a right to an indemnity by each of the guarantors. The creditor submitted that the debtor was “controlled by”52 the guarantors. I proceed on the basis that the guarantors can establish that the creditor’s promises in clause 9.1 of each agreement are made for the benefit of each of the guarantors and are enforceable by them. [76] The guarantors made the submission that the clause created a complete defence. They made no submissions to explain how. The creditor made no submissions because it submitted the basis of the plea was unclear. I make no findings as to whether, if a case were properly pleaded and proved, it would be a complete defence nor as to the quantum of any amount that might be claimed pursuant to this clause. I am not satisfied that the guarantors have no real prospect of using the clause to support a claim by them for their benefit. The pleading does not assist in understanding the benefit to 52 Plaintiff’s outline of submissions par 37. -- 25 of 27 -- 26 the guarantors. One must speculate as to what the case may be. There is no allegation of what losses or liabilities have arisen, nor an allegation of the act or omission from which the losses arose, nor of the identity of the person who acted or failed to act. The indemnity is not a matter upon which I base the refusal of the application for summary judgment. Strike out application [77] The creditor brought, in the alternative, an application pursuant to UCPR 171 for an order that each paragraph of the amended defence and paragraph 1 of the amended counterclaim and certain paragraphs of the relief claimed in the amended counterclaim be struck out. [78] I rule that the guarantors cannot rely upon any set-off which might have been available to the debtor. The guarantors, while submitting that ruling to be wrong, concede53 that upon that ruling paragraphs 5.3, 10.2,10.3 and its parts, 15, 16.1 to 16.6.6 inclusive, 16.6.8, 16.7, 34.2.1 and 34.2.2 of the amended defence should be struck out. [79] The plaintiff submits that par 7.2 of the pleading is inconsistent with the evidence of Mario Paoletti54 .This is disputed. I accept that the pleaded basis for the guarantor’s inability to admit the allegation is inconsistent with the evidence. The guarantors can plead to the truth, falsity or otherwise of the allegation. The paragraph should be struck out with liberty to plead again in accordance with this reasoning. [80] I reject the complaint about paragraph 12.1 of the amended defence. Without an oral explanation by counsel for the creditor, the basis for claiming $126,000.00 is not obvious from the statement of claim. [81] As to paragraph 16.6.7 the guarantors made contradictory submissions conceding that it should be deleted if the guarantors cannot set off the debtor’s claims but submitting that it is a particular of their personal claim. Having found that a guarantor may personally be caused loss by misleading and deceptive conduct relied upon by a debtor being the loss resulting from the debtor’s reduced capacity to indemnify a creditor I do not order that it be struck out as it presumably will form part of a case based upon the guarantors’ own causes of action. [82] As to paragraphs 22.3, 22.4, 22.5, 22.7 and 22.8 there was no submission from the guarantors. I accept the creditor’s written submissions. Where there is an allegation that representations made in August 2004 as to future matters were false it is not material in pleading how they were false to plead that they did not come true. These should be struck out. [83] I refuse the application to strike out paragraphs 26, 28, 29 and 30. The creditor’s submissions were premised on facts inconsistent with those established. It is possible that the debtor’s continuing reliance upon the representations was a cause of it’s inability to indemnify the guarantors. [84] Consistently with the creditor’s concession, I refuse the application to strike out paragraphs 32.1, 32.2, 33 and 34.2.3 because they are consistent with facts established in favour of the guarantors. 53 In written submissions 16.07.08 54 Filed 25.06.08 -- 26 of 27 -- 27 [85] I refuse to strike out paragraph 34.1. I accept that the agreements and guarantees are not void and only an order can make them so. Accordingly I order that the words “are void and/or” be struck out of paragraph 34.1. [86] Consistently with my reasons I do not determine whether paragraphs 34.2.4 should be struck out. [87] I do not accept that paragraph 34.2.5 is necessarily irrelevant. Its relevance was not revealed in submissions but may be revealed if the guarantors plead other matters to show how it is relevant. Until this occurs, I order that it be struck out. [88] Paragraph 34.2.6 is not adequately pleaded for the reasons herein. It should be struck out. [89] The application for summary judgment is dismissed. The debtor is at liberty to plead again in accordance with these reasons. [90] The parties are at liberty within 21 days of the publication of these reasons to make submissions to me in writing as to costs. -- 27 of 27 --