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  •   Notable Unreported Decision

Vella v Scriha

 

[2002] QCA 146

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

KENNETH ALLAN VELLA

(first plaintiff/appellant)

RICHARD CHARLES VELLA

(second plaintiff/appellant)
v
JOSEPH JAMES SCRIHA

(first defendant/respondent)

MARY ANN SCRIHA

(second defendant/respondent)

ANTHONY JOSEPH SCRIHA

(third defendant/respondent)

RITA MARIA SCRIHA

(fourth defendant/respondent)

FILE NO/S:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

DELIVERED ON:

23 April 2002

DELIVERED AT:

Brisbane

HEARING DATE:

6 March 2002

JUDGES:

McMurdo P, Davies JA and Philippides J

Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

ORDER:

  1. That the appeal be allowed, the judgment of the District Court be set aside and, in lieu thereof, judgment be given for the appellants in the sum of $30,066.40.
  2. That the parties be given 14 days from the delivery of this judgment to file and serve any submissions as to costs and, in the absence of any submissions within that time, it is ordered that the respondents pay the appellants’ costs to be assessed.

CATCHWORDS:

DAMAGES – MEASURE AND REMOTENESS OF DAMAGES FOR BREACH OF CONTRACT – REMOTENESS – LOSS OF PROFITS – where loss of opportunity – where the respondents breached their contract by failing to give the appellants an option to purchase their harvester – where loss assessed according to profits made by actual purchaser – where certain reductions made – whether learned trial judge correctly assessed appellants’ loss of opportunity to purchase the harvester and make profits

COUNSEL:

P E Hack SC for appellants

P O Land for respondents

SOLICITORS:

Macrossan & Amiet (Mackay) for appellants

S R Wallace & Wallace (Mackay) for respondents

[1] MCMURDO P:  I agree with the reasons for judgment of Philippides J and with the orders she proposes.

[2] DAVIES JA:  I agree with the reasons for judgment of Philippides J and with the orders she proposes.

PHILIPPIDES J: 

Background

[3] This appeal concerns the assessment of damages in respect of the appellants’ loss of opportunity to acquire a part of the respondents’ business, comprising a harvester, and the consequent loss of opportunity to make profits therefrom.

[4] By an agreement made in April 1995, the appellants purchased from the respondents a sugar cane carting business for $110,000 which had been conducted by the respondents in the Plane Creek Mill area, south of Mackay.  The respondents also conducted a harvesting business, which included two harvesters, one being a Toft 7700 cane harvester.  That business was not sold to the appellants.  However, pursuant to cl 16 of the agreement, the respondents were required to give the appellants a pre-emptive right to acquire the respondents’ harvesting business or any part thereof on such terms and conditions as the respondents were prepared to sell to any other intending purchaser.  Clause 16 specified a timetable for the exercise of the pre-emptive right to purchase.

[5] In conducting the sugar cane carting business, the appellants provided carting services for the respondents’ harvesting contracts.  The respondents’ harvesting contracts were for two groups of farmers.  One group comprised a Mr Galea and two other farmers, Mr Franettovich and Mr Muscat.  The other group comprised Messrs Axiak, Menso, Buchholz and Guy (“the Axiak group”). These harvesting contracts were seasonal, the harvesting season being for the last 6 months of the year.  There was no contractual attachment between a harvester and a group other than on a yearly basis.   

[6] The trial judge found that in late December 1995, the respondents gave notice to the appellants that a Mr Bryant was interested in purchasing the whole of the respondents’ harvesting business for $250,000.  The appellants were given an opportunity to purchase the harvesting business, but were not in a financial position to do so without first selling the recently acquired sugar cane carting business.  By about the end of January 1996, the respondents were advised that the appellants were unable to purchase the harvesting business, because they were unable to sell the carting business.  Mr Bryant thereupon approached the farmers that had favoured the respondents with their harvesting contracts, to ascertain whether they would be prepared to let him take over their harvesting contracts.  Apparently the members of the Axiak group would have been prepared to do so.  In respect of the group comprising Mr Galea, his Honour found that although Mr Galea himself would have been willing to let his contract be taken over, the other two members of that group were not.  On receiving these indications, Mr Bryant did not pursue the purchase of the harvesting business. 

[7] Soon after, Mr Franettovich and Mr Muscat told Mr Galea that they intended to go their own way by purchasing a harvester.[1]  Mr Galea’s evidence was that the harvester which they intended to purchase was not one of the respondents’ harvesters.  Mr Franettovich and Mr Muscat intended that the harvester they were proposing to buy would be used to harvest Mr Galea’s cane also, if he was agreeable to that.   A difficulty arose, however, in that Mr Galea was only prepared to commit to this arrangement for a 12 month period, as opposed to the 3 year commitment which Mr Franettovich and Mr Muscat were seeking.  As it turned out, the proposal to purchase that harvester did not eventuate because of an inability to obtain finance.

[8] His Honour found that it was in this climate that Mr Galea contacted one of the respondents concerning the possibility of his purchasing the respondents’ Toft  harvester.  Mr Galea’s evidence as to this approach was as follows:

“I told him, ‘Would you be interested … if I purchased the better one of the machines and cut - join my group with the other group …’ and he said, ‘Well, we’ll ask the farmers first’.”

[9] It appears that, after having obtained an agreement in principle from the other farmers, including those in his group, as to its use to harvest their cane, Mr Galea proceeded to purchase the harvester in March 2002. 

[10] Having regard to the manner in which the trial was conducted, his Honour was prepared to assume that the harvester purchased by Mr Galea was used to harvest the cane of the other two in his group, in addition to Mr Galea’s own cane, in both the 1996 and 1997 seasons.  The evidence was also that the harvester was used to harvest the cane of the farmers in the Axiak group for those seasons.

[11] The learned trial judge found that the respondents breached cl 16 by selling the part of the harvesting business comprising the Toft harvester to Mr Galea, without first offering to sell it to the appellants.  There is no appeal against that finding.

[12] The appellants’ case at trial was that, had the offer been made to them in respect of the harvester in accordance with the agreement, they would have purchased it for the price of $120,000 paid by Mr Galea.  Accordingly, they claimed damages for the loss of the opportunity to make profits from conducting part of the harvesting business.

[13] However, the respondents alleged that the appellants’ net balance of assets and liabilities precluded them from complying with the conditions for the exercise of the pre-emptive right to purchase the harvester.  They alleged that the appellants “were not in the financial position to exercise their right of first offer to purchase”.  In response, the appellants pleaded that they would have borrowed funds from their father to acquire the harvester.   As to these matters, the learned trial judge assessed the chance of the appellants purchasing the harvester as being a one-third chance.

[14] An additional issue at trial concerned the assessment of the loss of opportunity to make profits from the harvester.  That issue was whether, had the appellants obtained the harvester, they would have been permitted to harvest the cane grown by Mr Galea.  The respondents alleged that, even if the appellants had purchased the harvester, Mr Galea’s cane would not have been available for harvesting in the 1996 and 1997 seasons.  This issue was determined by the learned trial judge in the respondents’ favour.

[15] As to the remaining farmers in Mr Galea's group, the damages claim proceeded on an assumption that the appellants would not have been given the opportunity to harvest their cane.  In respect of the harvesting contracts of the Axiak group, his Honour found that there was a 90% chance that the appellants would have secured those contracts.

[16]  The learned trial judge, in assessing the appellants’ loss, adopted the report of Mr Vincent, the accountant called by the respondents, which assessed the loss by reference to the amount of cane actually harvested by Mr Galea in the 1996 and 1997 seasons for the relevant farmers, but excluded Mr Galea’s cane from the calculations.  The approach adopted was to take the actual tonnage cut for the relevant farmers, calculate the gross returns and then subtract harvesting costs to produce a loss of earnings figure for the 1996 and 1997 seasons.  After making some adjustments to the expenses to accord with concessions made by Mr Vincent, his Honour arrived at an assessment for the two years of $52,067.  His Honour reduced that figure by 10% to $46,860.30 to reflect his finding that there was a 90% chance of earning $52,067, and further reduced the figure of $46,860 by two-thirds to $15,620.10 to reflect his finding that the appellants had a one-third chance of acquiring the harvester had it been offered to them.  After allowing for interest, his Honour awarded judgment for the appellants in the sum of $19,993.72.

The Grounds of Appeal

[17] The grounds of appeal relied upon by the appellants are that the learned trial judge erred in:

(a)       finding that the appellants only had a one-third chance of acquiring the harvester, if it had been offered to them in accordance with the contract;

(b)        finding that the appellants would have had a 90% chance of securing the harvesting contracts of the Axiak group in both 1996 and 1997;

(c)         excluding the cane harvested from Mr Galea’s property from the calculation of the appellants’ loss.

A cross-appeal by the respondents, also against the findings in (a) and (b), was not pursued in oral argument.

(a) The Finding that the Appellants had a One-Third Chance of Securing the Harvester

[18] It was not in issue that the appellants did not have immediate access to funds in the order of $120,000.  As I have mentioned, the appellants’ case was that they would have borrowed from their father in order to purchase the harvester. 

[19] The evidence called by the appellants did not reveal the net financial position of the appellants’ parents.  The appellants’ father, who was the business head of the family, was not capable of giving evidence at the time of the trial.  The appellants’ mother, Mrs Vella, gave evidence.  His Honour found that “she had no clear understanding about business matters” and “had no idea of the extent of liabilities of the family”.

[20] Mrs Vella gave evidence that, had the question of assistance arisen, she and her husband would have “tried [their] very best to give [the appellants] the money” and that they “would have been able to guarantee the boys”.  Her evidence was that “ … if we didn’t have the money there, we would’ve borrowed it”.  It appears from her evidence that she was uncertain as to whether they had the necessary funds available, as the following reveals:

“At that time, that is, February, March 1996, did you have $120,000 lying spare in a bank account somewhere? -–Well I'm not sure but I’m sure we would have borrowed it from the bank, with Westpac.”

[21] No one from Westpac was called, notwithstanding it was the bank involved in financing the recent purchase of the carting business on the basis of security provided by the appellants’ father, and that bank appears to have been the bank used by the family.

[22] His Honour referred to Mrs Vella’s evidence that she and her husband “would have provided the necessary support to assist the appellants to raise the $120,000”.   Assessing the evidence as best he could, his Honour concluded that there was a high probability that the appellants’ parents had the financial capacity to assist to the extent necessary to purchase the harvester.  His Honour concluded that, “using the method applied to finance the haul out business, and the parents’ desire to treat their children equally, … if finance was provided, it would have been provided by the bank with the [appellants] having the obligation to pay interest”.

[23] Counsel for the appellants submitted that the learned trial judge erred in finding that the appellants would have borrowed from the bank because this was contrary to the appellants’ pleaded case that they would have obtained assistance from their parents and contrary to their evidence and that of  Mrs Vella. 

[24] In my opinion, given the state of the evidence concerning the appellants’ financial situation, his Honour was entitled to have reference to the financial arrangements put in place when the appellants purchased the carting business from the respondents.  That is, that the appellants, having no funds available, had obtained a loan from Westpac, with assistance being provided by their father, but only by way of security in the form of a guarantee.  His Honour was also entitled to take into consideration the fact that Mrs Vella was at some pains to explain that she and her husband were desirous of treating her children equally.  Accordingly, I do not accept that the learned trial judge erred in his finding that if the funds were to have been provided, it would have been through finance obtained from the bank, with the appellants being required to pay interest.

[25] The learned trial judge went on to consider whether it was likely that finance would have been provided.  His Honour observed that the successful sale of the appellants’ carting business would have done little more than repay their obligations to the bank, whilst the purchase of the harvester, without the sale of the carting business, would have broadly doubled their liability to the bank.  His Honour also observed that, at the time any decision to purchase would have been made, it would have been known that the appellants had lost the Galea group’s carting contract for 1996. 

[26] It was against this background that His Honour considered that “the bank and/or the [appellants’] father would have been interested in what work was available for the harvester if purchased”.  Unlike the approach taken by Mr Bryant and Mr Galea, the appellants had not canvassed the farmers of the two groups as to whether they would be favoured with their harvesting contracts.  The appellants would therefore have been unable to advise the bank as to the work available for the harvester.

[27] The learned trial judge found that at the time a decision was needed as to whether to purchase the machine:

“… there was an absence of harvesting work and the purchase of the harvester would not have been commercially attractive except perhaps in the longer term.  There was no reason at the time to think that any work was on the horizon for the 1996 season.  Within a few weeks a window of opportunity would have opened when the second harvester was sold, but at the material time, I think it extremely doubtful the [appellants] would have found the financial support needed although they no doubt would have liked to have owned the harvester.”

[28] His Honour then concluded:

“Having regard to the commercial reality of the situation in conjunction with all the other circumstances, I find that the [appellants] really had a one third chance of acquiring the harvester if it had been offered to them in accordance with the contract.”

[29] It was submitted by counsel for the appellants that the learned trial judge erred in considering the availability of harvesting work, when assessing the likelihood of the appellants acquiring the harvester, since that issue was not pleaded and the appellants had no opportunity to meet it.  In addition, it was submitted that, given the finding that there was a high probability that the appellants’ parents had the financial capacity to assist and the evidence of Mrs Vella, which was apparently accepted by the trial judge, that they would have assisted, there was no basis for the discounting of two-thirds.

[30] I do not consider that any error has been demonstrated in respect of any of these matters.  Even though his Honour considered that there was a high probability that the appellants’ parents had the financial capacity to assist in the purchase of the harvester, his Honour was entitled, on the evidence, to find that that assistance would most likely have been in the form of assistance in obtaining finance from the bank, as had previously occurred.  Furthermore, in considering the probability of finance being advanced, his Honour was entitled to have regard to all the evidence before him, including the “commercial reality of the situation”, that is, the evidence concerning what income could have been generated by the harvester if it had been purchased.  Indeed, given the appellants’ failure to produce evidence as to the net financial position of their parents and the findings concerning the income likely to be generated by the harvester, the learned trial judge’s assessment of a one-third chance might be considered to have been generous to the appellants.

(b)The Finding that there was a 90% chance of Securing Harvesting Work

[31] The learned trial judge assessed the appellants’ chance of securing harvesting work from the farmers in the Axiak group as being a 90% chance.  The learned trial judge observed that the farmers in this group:

“… were those who would have been willing to have Mr Bryant cut their cane and had used the [appellants] as haul out contractors in 1995. Obviously they had to find a means of cutting their crop and if the [appellants] had completed the purchase of the other harvester by mid March, and had not towards the end of that month found other gainful work for it, it seems to me the [appellants] would have had a very good chance of obtaining the contract for the 1996 season on the farms of the group of farmers not including Mr Galea.”

[32] In those circumstances, his Honour concluded:

“Although no evidence was given by any farmer in the group, doing the best I can, I find the [appellants] would have had a 90% chance of securing the harvesting contract of those farmers in both 1996 and 1997.”

[33] The appellants contend that, bearing in mind that the respondents did not suggest that any reduction was warranted, the learned trial judge erred in making a reduction of 10%.  Counsel for the appellants submitted that, in the circumstances of this case, where it was expressly pleaded by the respondents that Mr Galea’s cane would not have been available to the appellants for harvesting, but no similar issue was raised in relation to the members of the Axiak group, the appellants were entitled to assume that there was no question of the continuing loyalty of that group.

[34]  In my opinion, this submission proceeds on a misconception as to his Honour’s finding.  His Honour, in finding that the appellants would have had a 90% chance of securing the harvesting contracts, was not concerned solely with the issue of the continuing loyalty of the farmers in question.  His Honour was also assessing the prospects of the appellants being in a position to obtain the harvesting contracts, given such matters as the relevant timeframe for the purchase of the harvester and for the harvesting of the cane.

[35]  In this regard, one relevant factor was his Honour’s observation that all the farmers involved milled at the Plane Creek Mill and that for 1996, the deadline for advising the Mill of the harvesting arrangements had not been met, as required by the policy put in place by the Mill.  There was therefore a risk that the contracts might have been lost.  His Honour was clearly unable to conclude that it was a certainty that these harvesting contracts would have been secured.  I do not consider any error has been shown in the assessment made by the learned trial judge, particularly since none of the members of the Axiak group gave evidence and his Honour was required to proceed inferentially, on the basis of evidence that the group was agreeable to letting their contracts be taken over by Mr Bryant and the evidence that they ultimately gave their contracts to Mr Galea.

(c)The Finding that the Appellants would not have had the Opportunity to cut Mr Galea’s Cane

[36] In relation to the issue of whether there would have been an opportunity to cut Mr Galea’s cane, the learned trial judge made the following finding:

“On the evidence I think Mr Galea’s loyalties were within his group, and I am not satisfied that had the [appellants] acquired the harvester which he ultimately purchased, the [appellants] would have had the opportunity to cut his cane.”

[37] It was submitted that the evidence of Mr Galea did not support his Honour’s conclusion.  A related submission was made that there was no continuing group for Mr Galea to be loyal to, because the evidence concerning Mr Galea’s group was that Mr Franettovich and Mr Muscat took their harvesting elsewhere prior to the commencement of the 1996 harvesting season.  Accordingly, it was said that Mr Galea would have joined the Axiak group because there was no other option for him.

[38] Counsel for the appellants referred to the following extract of Mr Galea’s evidence-in-chief on this topic:

“Well now had the Vellas bought that machine, would you have allowed them to cut your farm with it? – That’s the – the new farm?

Yeah? – Well at that – at that stage while the stone was unturned, I always had my intentions to cut my own cane like, you know, yes.

Well had the Vellas bought the Toft 770? – Yes.

And come to you and said, “Look, we’re going to buy this now and we’re going to operate the” ----? – Mmm.

---- “harvesting”, would you have allowed them to cut your farm? – Well not as far as I know, no.”

[39] In addition, counsel referred to the following extract of Mr Galea’s affidavit, which was tendered at trial:

“I believe that if the Vella’s (sic) had been a person introduced to me by Mr Scriha at the commencement of the 1996 season and I was told that the Vella’s (sic) were buying the Scriha’s harvester I would have agreed to the Vella’s (sic) cutting my cane, the same as I agreed to Mr Bryant.”

[40] Counsel for the appellants also referred to the following evidence by Mr Galea given in cross-examination:

“If the Vellas had been introduced to you by Mr Scriha at the start of the 1996 season and you’d been told that they were buying the harvester that you ended up buying, you would have agreed to them cutting your cane, would you not? – With the whole, yes.

Yes.  The same as you agreed to Mr Bryant? – Yes.”

[41] However, the latter evidence was clarified as follows:

“It was put to you when you were being examined that had Mr Vella been introduced to you at the beginning of the season, would he have – would he have harvested your cane and you said, “Yes, but with the whole group”? – That’s right.

Okay. What – was there some importance to you in relation to the whole group? – Well usually when a thing is going, you keep it rolling. You sort of stick together a bit like, you know, and that’s what we sort of –like that.

HIS HONOUR: It was the fact that the other two farmers pulled out, was made – which encouraged you to get your own harvester, wasn’t it? – That’s right, your Honour.”

[42]  The finding that Mr Galea wished to remain loyal to his group was one which was consistent with Mr Galea’s evidence, particularly bearing in mind the re-examination referred to above.  Whilst it is true that at one point Mr Franettovich and Mr Muscat  decided to go their own way by purchasing a harvester, they were looking at doing this in the context of it being used by the whole of their group, including Mr Galea.  Similarly, when Mr Galea inquired about the possibility of his purchasing the respondents’ harvester, he did so in the context of it being used by all the farmers, that is, by all the other members of his group, as well as the Axiak group.  It was open to the learned trial judge to consider that Mr Galea was seeking to remain loyal to his group by pursuing an avenue that would keep his group in tact.

[43] However, counsel for the appellants’ principal submission in respect of this ground of appeal was that the trial judge erred in failing to assess the degree of probability of Mr Galea’s cane being available for harvesting by the appellants and that his Honour approached the matter on the footing that it was for the appellants to show that the event would have actually occurred.

[44] In my opinion, this submission has merit.  What was called for was a consideration of the probability of Mr Galea being able to remain loyal to his group. Of relevance was the question of whether Mr Galea would have been able to harvest his cane without purchasing the respondents’ harvester and whether he was likely to have done so. The matter is touched upon in paragraph 21 of Mr Galea’s affidavit, where Mr Galea said:

“I believe that I told Mr Scriha’s solicitor that I was not going to get my Mifsud farm cane cut by a contractor in 1996 and 1997 but this is only if I had a harvester to do this, which I would not have had unless I had the Scriha’s (sic) harvester and the farms that went with this harvester. I would certainly not have bought the Scriha’s (sic) harvester by itself without the farms to be harvested, or another harvester without the harvesting contracts.”

[45] It thus appears that the key factor in Mr Galea’s decision to purchase a harvester, instead of having his cane cut by a contractor, was his ability to secure the respondents’ harvesting  contracts, presumably because the purchase would not otherwise have been financially viable.  If those contracts were able to be secured, the fact that the respondents’ harvester may not have been available for purchase, because it had already been purchased by the appellants, seems unlikely to have presented an obstacle to Mr Galea, since there was evidence that a suitable alternative had been located by the others in his group.

[46] In my opinion, the learned trial judge’s finding that there was a 90% chance of the appellants’ securing the Axiak group’s contracts becomes critical.  Given that finding and Mr Galea’s affidavit evidence, his Honour should, in my opinion, have considered and assessed the probability of Mr Galea not purchasing a harvester, notwithstanding Mr Galea’s desire to remain loyal to his group, and to have assessed the probability of the appellants’ thereby obtaining his harvesting contract.  Since Mr Galea would most likely not have secured the Axiak group’s harvesting contracts (which would probably have gone to the appellants), it follows from his evidence, that there was a high probability that he would not have purchased a harvester and that he would have allowed the appellants to harvest his cane. 

[47] In those circumstances, I consider that the learned trial judge erred in excluding Mr Galea’s cane from the assessment of damages.  I do not consider that any greater reduction than the 10% allowed for in respect of the Axiak group is warranted.

[48] The parties agree that if the Galea cane were to be included in the relevant calculations, the total net earnings for the 1996 and 1997 seasons would have been $78,297.92.  Applying a 10% discount reduces this figure to $70,468.13.  A further two-thirds reduction results in a figure of $23,489.38.  Allowing interest at 8% for 3.5 years, as the learned trial judge did, yields $6,577.02 interest, and would result in a judgment of $30,066.40.

[49] In the circumstances, I would allow the appeal, set aside the judgment of the District Court and, in lieu thereof, give judgment for the appellants in the sum of $30,066.40.

[50] I would give the parties 14 days from the delivery of this judgment to file and serve any submissions as to costs and, in the absence of any submissions within that time, I would order that the respondents pay the appellants’ costs to be assessed.

Footnotes

[1] As a consequence the respondents lost the harvesting contracts and the appellants lost the carting contracts for those farmers.

Close

Editorial Notes

  • Published Case Name:

    Vella & Anor v Scriha & Ors

  • Shortened Case Name:

    Vella v Scriha

  • MNC:

    [2002] QCA 146

  • Court:

    QCA

  • Judge(s):

    McMurdo P, Davies JA, Philippides J

  • Date:

    23 Apr 2002

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status