Wizard Information Services Pty Ltd v Graham Moore [1992] ACTSC 74 (14 August 1992)

SUPREME COURT OF THE ACT

WIZARD INFORMATION SERVICES PTY LTD v. GRAHAM MOORE
S.C. No. 763 of 1989
Contract

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Master A Hogan

CATCHWORDS

Contract - Corporation a party - Not in existence at time of contract - Personal liability of purported director - No issue of principle.

Counsel for the Plaintiff: G.A. Stretton

Instructing Solicitors: Macphillamy Cummins and

Gibson

Counsel for the Defendant: Self

Instructing Solicitors: Self

HEARING

CANBERRA
14:8:1992

ORDER

The Court orders that:
1. Judgment be entered for the plaintiff in the sum of $32,833.77.

2. I order the defendant to pay the plaintiff's costs.

DECISION

This action purports to be a claim for damages. In reality what the plaintiff seeks is to recover the price of providing computer programming services. The claim arises out of an arrangement made between a director of the plaintiff company and the defendant.

2. Part of the business of the plaintiff company is to provide computer development services.

3. The defendant approached by phone a director of the plaintiff, Mr Schwarz, seeking to hire a contract programmer. He was developing a program that he proposed to market to tax agents, principally to enable them to lodge returns with the Australian Taxation Office by electronic means. The program had been partly written by another programmer, but the defendant needed the services of someone more expert to put the program into final shape, and to finish it quickly. It had been developed in the programming language called Turbo Pascal, and the defendant then contemplated that the programme would continue to use that language, and would be expert in it. The defendant did not put forward a detailed specification of the product that he wanted to produce. He sought an expert programmer with whom he could work at an hourly rate.

4. Mr Schwarz contacted a Mr Townsend, an expert programmer whom he knew, and put to the defendant that the plaintiff could make his services available at a rate of $44 an hour. The defendant agreed.

5. A written contract was drawn up. It is Exhibit "C". It is dated 26 May 1988. It purports to be made between the plaintiff company and "Damad Corporation Pty. Ltd., a duly incorporated company having its registered office at 39 Cloncurry Street Kaleen ACT". It was signed by Mr Schwarz as director of the plaintiff, and the plaintiff's seal was affixed. It purported to be signed "for and on behalf of Damad Corporation Pty. Ltd." The signature was that of the defendant, whose position was described as "director". The first of the terms and conditions read:

"Definition of Purpose:
The work to be carried out by the Contractor is to be
specified by the Client. It incorporates Turbo Pascal
programming associated with systems under development
by the Client. The work will be performed by Mr Peter
Townsend, at an hourly rate of $44.00 per hour for the
period 26th May 1988 until 30th June 1988."

6. It is clear on the evidence, and the defendant does not dispute, that at the time the contract was made there was not a company in existence called Damad Corporation Pty. Ltd.

7. The plaintiff therefore makes its claim against the defendant personally, either as damages pursuant to S.81 of the Companies Act or S.183 of the Corporations Law, or as damages for breach of warranty of authority. Although the Statement of Claim makes no express reference to those bases of the claim, the facts pleaded would support the claim on either basis.

8. The contract also provided for payment for services rendered to be made weekly, with a penalty of 2 percent for each week outstanding. The plaintiff does not seek interest according to that penalty provision, but pursuant to S.53A of the Supreme Court Act.

9. The defence is that the contract was entered into by the defendant on behalf of a company that was in existence, called JEM Investments Pty. Ltd. ("JEM"), which was proposing to change its name to Damad Corporation Pty. Limited ("Damad"). The defence filed does not allege, but in his evidence the defendant claimed, that he had informed Mr Schwarz that he was acting as agent for JEM and that it was proposed to change the name to Damad.

10. Mr Schwarz denied that he had been told any such thing. His evidence was that Damad was the only company mentioned to him up till the signing of the contract and for some time thereafter.

11. There was no dispute about the fact that Mr Townsend provided services between 26 May 1988 and 30 June 1988, nor about the number of hours that he worked.

12. It is also common ground that before 30 June 1988 it became obvious that the project for which Mr Townsend's services were needed would not be completed by that date.

13. It is common ground that there was an oral arrangement made for services to be provided beyond 30 June 1988. There is a dispute about the terms of that arrangement. There is no dispute about the fact that Mr Townsend and a Miss Thorogood in fact provided services after 30 June 1988, nor about the number of hours that they worked.

14. The plaintiff claims that this second agreement was made between the plaintiff and the defendant, who still purported to act on behalf of Damad. The agreement is alleged to be partly oral and partly to be inferred from the conduct of the parties.

15. The defendant alleges that the second agreement was made between himself as agent of JEM and Peter Townsend, not the plaintiff. He also alleged that the agreement was made orally and on 14 June 1988, that the programming language was to be "P for C", and that the period was to be from 20 June 1988 to 13 August 1988. There were also times specified for completion of parts of the program, by 16 July 1988 and 13 August 1988. He claims further that the project was not completed by those dates, that it was never completed, and that Townsend was negligent in not completing it by the specified dates or at all.

16. The defence filed contains a counterclaim based on that agreement with Townsend and Townsend's breach of it.

17. It is clear that in terms the counterclaim could not possibly succeed against the plaintiff, which on the defendant's own case was not a party to the contract on which it was based, and I therefore formally dismiss the counterclaim.

18. It is obvious that the decision in the case must depend upon the weight that can be placed on the defendant's evidence. He was not represented at the trial. Although he is obviously intelligent and articulate he was at a great disadvantage in not having a clear view of the somewhat complex legal relationships involved in the case, and in not having the skills that are needed to conduct an effective cross-examination. I bear those matters in mind when weighing up the evidence.

19. As part of his evidence in chief Mr Schwarz produced a business card with the name of Damad on it, and Mr Moore's name as manager. He claimed to have been given it by Mr Moore on the first occasion that they met, on 26 May 1988.

20. The defendant tendered in evidence an invoice and proof sheet for the printing of 3 x sets of business cards in the name of Damad, one showing Mr Moore as manager, in the same form as the plaintiff's exhibit, one showing a Mr McKay as consultant, and the third showing Mr Townsend as technical consultant. The invoice was dated 10 June 1988.

21. I think it is unlikely that the defendant had more than one set of cards printed, so that Mr Schwarz's evidence on this point is more probably wrong than accurate. It is consistent with the rest of the evidence that he received the card at some time after the contract was entered into.

22. But his evidence is not that the card was the source of his information that Damad was to be the name to be put on the contract. His diary entry for Monday 23 May, which records some of the initial conversation with Mr Moore, shows that Damad Corp was mentioned on that occasion.

23. Although I think Mr Schwarz was mistaken about when he received the card, I do not think that he was attempting to mislead, or that he made other than an unconscious mistake in his memory about when he received it. I am certainly not led to doubt the rest of his evidence on the basis of that mistake.

24. Some background to the dealings between the parties was proved by documents tendered by the defendant, and was not in dispute.

25. During 1987 there had been discussions between officers of CSIRONET, a division of CSIRO, and the Australian Taxation Office about a pilot project for lodging tax returns in electronic form. Mr Moore, on behalf of a company called JAGS Nominees Pty. Ltd. ("JAGS"), put a proposal to CSIRONET to establish a joint venture, in which JAGS would provide the software and the marketing organisation, and CSIRONET the computer and communication equipment, accounting facilities and the initial funding. The Tax Agents Network was to be called TAGNET. CSIRONET responded positively, and agreed that time was short. In December 1987 the specifications for data input software were received from the Tax Office.

26. On 29 March 1988 Mr Moore and Mr McKay acquired JEM, a company that had been incorporated on 7 January 1987, and were appointed its directors. Its purpose was to be the joint venture vehicle.

27. Shortly thereafter Mr Moore invited Telecom to invest in JEM, subject to a change of name to Concept Pty. Ltd.

28. On 5 April 1988 Mr Moore applied to the Corporate Affairs Commission to reserve the name Concept Pty. Limited. The application was rejected on 6 April 1988.

29. On 11 April 1988 he obtained registration of the business name TAGNET.

30. On 2 May 1988 he applied for, and obtained, from the Corporate Affairs Commission, a reservation of the name DAMAD Corporation Pty. Limited.

31. On 23 May 1988 he approached Mr Schwarz, and the contract was signed on 26 May 1988.

32. On 30 May 1988 CSIRONET wrote to him, as manager of JAGS, with a more detailed proposal for the joint venture, which was to be part of a Heads of Agreement to respond to the opportunity for lodging tax returns for the 1987/1988 tax year. The proposal was therefore open for 60 days.

33. All of this evidence is quite consistent with the claim by the defendant that the corporate vehicle for the joint venture was to be JEM, and that he did in fact intend to change the name of JEM to DAMAD.

34. But that is not really the issue. What matters is whether he told Mr Schwarz anything about it.

35. Although the form from the Corporate Affairs Commission (Exhibit 6) states that the name DAMAD had also been reserved in the States and the Northern Territory, Mr Moore's evidence is that the searches from the other States took some time to come back, and the process was not complete until July.

36. That would explain the entry on the form that the name had been reserved "for a further period of two months from 18 July 1988."

37. It would also be consistent with a decision by Mr Moore in the meantime to proceed on the basis that he would be able to change the name as he wanted, but that he could attend to the formalities later when all the searches were complete.

38. Another piece of evidence that is consistent with that conclusion is that a business cheque account was opened with Civic Advance Bank, No. 9926408. Page 1 of the bank statements (Exhibit 16) shows the name of the account as being DAMAD Corporation Pty. Ltd., and sets out 3 transactions on 10, 15 and 30 June 1988. On 30 June the account was overdrawn in the sum of $9,852.25.

39. Page 2 of the same account, which brings forward that same debit as the opening balance, is headed in the name of JEM Investments Pty. Ltd. It lists an overdraft facility fee of $280.00, leaving a debit balance on 30 July 1988 of $10,132.25.

40. It seems that when he opened that bank account the defendant was sufficiently sure that the name DAMAD would become available to give it to his banker. I doubt that the bank would have opened the account in the name of DAMAD if the defendant had produced to it the certificate of incorporation of JEM.

41. The defendant claims that when he spoke to Mr Schwarz he produced to him both that certificate of incorporation and the application for the name Concept.

42. He claimed in evidence that he told Mr Schwarz that he was having difficulty in getting Concept as a name for the company, but that he was confident that DAMAD would ultimately be the company's name.

43. His evidence proceeded:

"David Schwarz said to me, in the spirit of
collaboration, "We don't like JEM Investments as such a
name -" And I am quoting what he said, "- we'll put
Damad on the contract." At all times, David Schwarz
knew that he was dealing with a company; at all times,
he knew he was dealing with JEM Investments. That's
the full information that I intend to give on purely
the company format."

44. Mr Schwarz denied that any such conversation took place. His evidence is that Mr Moore first contacted him by phone on 23 May 1988. After speaking to Mr Townsend he rang him on 25 May and obtained agreement. He then prepared the written contract. He then first met Mr Moore personally on 26 May at CSIRO, when the contract was signed.

45. Mr Moore's evidence is that he rang Mr Schwarz on 23 May 1988, and that Schwarz came to his office that day, that they talked for about an hour and that during that conversation Mr Schwarz was shown the certificate of incorporation and the application for the name Concept.

46. It is obvious that when Mr Schwarz met Mr Moore on 26 May 1988 the contract had already been typed up with the name DAMAD on it.

47. I think it is inherently improbable that Mr Schwarz would have made the suggestion put forward by Mr Moore.

48. I also think it unlikely that on 23 May he needed to meet Mr Moore for any such discussion as Mr Moore gave evidence about. He had received all the information he needed on the phone. He only needed then to find out which appropriate programmer was available. He did not need to know anything about the program itself.

49. The most remarkable item of evidence is that the term of the contract was expressed to be till 30 June. Mr Moore claims that he had made arrangements to conduct a seminar with a number of tax agents in Adelaide on 13, 14 and 15 June, and that he would not need anyone after 15 June.

50. His evidence is that he said to Mr Schwarz, "I only want him till the 15th". He claims that Mr Schwarz replied that the contract provided for termination on 21 days notice, as it does. He claims Mr Schwarz continued, "If you terminate it from today, that gives you till the 15th. If the project runs over, you can then extend it the next few days." He claims he then said, "Well, I only want it till the 15th because that is a cut off point for this level of development."

51. I also find it difficult to accept that a business man of the type that I perceive Mr Schwarz to be would in those circumstances have left unaltered the term of the contract. To give notice of termination contemporaneously with signing a contract which could be simply altered to show the true position is unlikely.

52. Then it is common ground that Mr Townsend began to do work, and that he attended the seminar in Adelaide on 13, 14 and 15 June.

53. He recorded the hours worked, and gave details to the plaintiff's company. The plaintiff then rendered regular accounts to the defendant, but it paid Mr Townsend promptly, whether payment had been received from the defendant or not.

54. The defendant claims that at the end of that seminar Mr Townsend told him that the software had been so badly written and structured that it would be necessary to rewrite it. He promised to complete work needed for the "S" type of return by the close of business on 16 July, and for the "A" and "B" returns by close of business on 13 August. He claims on this basis that thereafter his contract with the plaintiff had terminated, and he had entered into a new contract with Mr Townsend.

55. Mr Townsend's evidence does not agree with that version. At the hearing Mr Moore did not appreciate how useful it would have been for him to have put that picture to Mr Townsend in cross-examination, and so it was not denied in terms, but the version given by Mr Townsend is not really consistent with the defendant's claims of what happened.

56. Mr Townsend continued to do work. He continued to notify his times to the plaintiff. The plaintiff continued to send accounts to the defendant.

57. Towards the end of June it was obvious that the project needed to be speeded up. Townsend suggested that some one else help with the work. Miss Thorogood was approached by the plaintiff. She did work. The plaintiff rendered accounts for her services at the same rate. Work continued to the week ended 14 September 1988.

58. Mr Townsend did give evidence that the defendant approached him on one occasion and asked him to work directly for him instead of through the plaintiff, but that he refused. He never received any money directly from the defendant. He swore that never at any time did he agree to work directly for the defendant.

59. Mr Townsend is a completely independent witness. He was paid by the plaintiff promptly for all the work he did. He has no interest in the outcome of this litigation. There was nothing in any of the evidence, his demeanour or the circumstances to raise any doubt in my mind about his veracity. I accept his evidence in preference to that of Mr Moore.

60. Mr Schwarz's evidence is that about 23 June he spoke to the defendant, who confirmed to him that he wanted Mr Townsend to continue beyond 30 June 1988 on the same terms and conditions.

61. By that time the defendant had made only two payments, both by his personal cheques. He claimed to have had trouble operating DAMAD's account at the bank. Yet Exhibit "16" shows that there was an account in the name of DAMAD at the bank, against which withdrawals of $1,000 and $8,850 had been made on 10 and 15 June respectively.

62. The defendant did eventually make payments to the plaintiff in respect of work done by Mr Townsend after 30 June. He attempted to explain this by claiming that Mr Townsend had told him he was just using the plaintiff for invoicing and bookkeeping purposes. This proposition was not put to Mr Townsend either so he did not have an opportunity to agree with it or deny it in terms, but it is inconsistent with his evidence, which I accept, that he never entered into any contract with the defendant directly. The proposition is also inherently improbable, and I do not accept it.

63. The whole course of conduct is consistent with the evidence of Mr Schwarz and Mr Townsend. I find that I have no confidence in Mr Moore's veracity.

64. I do not therefore accept the defendant's evidence that he told Mr Schwarz that he was contracting on behalf of JEM, the name of which was to be changed to DAMAD. So far as Mr Schwarz knew DAMAD was the company he was contracting with, both at the time of the signing of the original contract and at the time of its oral extension at the end of June. I do not believe that the defendant gave notice of termination on the date that he signed the contract, and I do not believe that he entered into any contract with Mr Townsend in respect of the work that was done after 15 June.

65. There will therefore be judgment for the plaintiff in the plaintiff's claim and judgment for the plaintiff on the defendant's counterclaim.

66. The value of the work done less payments made was $19,760. Interest calculated in accordance with the Practice Direction to 24 June 1992 is shown in the schedule filed to be $12,667.77. Interest at 15 percent from 25 June 1992 to 14 August 1992 is $406.00.

67. I therefore direct the entry of judgment for the plaintiff in the sum of $32,833.77. I order the defendant to pay the plaintiff's costs.