Rapid Roofing Pty Ltd v Natalise Pty Ltd
[2007] QCA 94
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- Unreported Judgment
- Appeal Determined - Special Leave Refused (HCA)
- Rapid Roofing Pty Ltd v Natalise Pty Ltd[2007] QCA 94
- Add to List
Rapid Roofing Pty Ltd v Natalise Pty Ltd[2007] QCA 94
Reported at [2007] 2 Qd R 335
Rapid Roofing Pty Ltd v Natalise Pty Ltd[2007] QCA 94
Reported at [2007] 2 Qd R 335
SUPREME COURT OF QUEENSLAND
PARTIES: | RAPID ROOFING PTY LTD ACN 088 568 165 |
FILE NO/S: | DC No 115 of 2002 |
Court of Appeal | |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | |
DELIVERED ON: | 23 March 2007 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 19 February 2007 and 14 March 2007 |
JUDGES: | Williams and Keane JJA and Atkinson J Separate reasons for judgment of each member of the Court, each concurring as to the orders made |
ORDER: | 1. The defendants' appeal should be allowed, and the following orders made: (a) set aside declarations and orders made below; (b) set aside the dismissal of the counterclaim; (c) the contract of sale is avoided from 31 October 2001, and the first plaintiff is to repay to the first defendant the sum of $151,295 and the defendants are to release to the plaintiffs all machinery and property noted in the bills of lading; (d) the first plaintiff is to pay to the second defendant interest on the sum of $151,295 from 31 October 2001 at the rate of seven per cent per annum pursuant to s 47 of the Supreme Court Act 1995 (Qld); (e) set aside the order for costs of the trial, and order instead that the plaintiffs pay 75 per cent of the defendants' costs of the trial 2. The plaintiffs should pay the defendants' costs of the appeal |
CATCHWORDS: | CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - PERFORMANCE - where contract between plaintiffs and defendants provided for discharge of mortgage over plaintiffs' property upon delivery of machinery to the defendants - where plaintiffs failed to deliver machinery on time and failed to insure machinery - whether plaintiffs in breach of contract - whether plaintiffs entitled to discharge of mortgage TORTS - TROVER AND DETINUE - REMEDIES - ACTION FOR CONVERSION - DAMAGES - IN GENERAL - where plaintiffs shipped to defendants personal and partnership property in same container - where defendants refused to return property unless plaintiffs paid port charges - whether plaintiffs entitled to damages for conversion DAMAGES - GENERAL PRINCIPLES - DIFFICULTY OF ASSESSING DAMAGES - where plaintiffs succeeded in claim for damages for detention of personal property - where claim based on loss of profits from sales to particular company - whether plaintiffs established that detention had resulted in loss TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE MISREPRESENTATIONS - CHARACTER OR ATTRIBUTES OF CONDUCT OR REPRESENTATION - RELIANCE, INDUCEMENT AND CAUSATION - where plaintiffs made representation to defendants as to value of partnership machinery prior to defendants entering into contract - whether plaintiffs contravened Trade Practices Act s 52 - whether defendants entitled to damages under Trade Practices Act s 82 - whether defendants entitled to relief under Trade Practices Act s 87 - whether relief could include avoidance of contract - whether the plaintiffs would then be entitled to discharge of mortgage Trade Practices Act 1974 (Cth), s 52, s 82, s 87 Gould v Vaggelas (1985) 157 CLR 215, applied Greenwood v Bennett [1973] QB 195, applied McDonald v Dennys Lascelles Limited (1933) 48 CLR 457, applied National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252, applied Peruvian Guano Co v Dreyfus Brothers [1892] AC 166, applied |
COUNSEL: | N J Thompson for the plaintiffs/respondents J C Faulkner for the defendants/counter claimants/appellants |
SOLICITORS: | Stacks//Gray for the plaintiffs/respondents Ledger Commercial & Property Lawyers for the defendants/counter claimants/appellants |
[1] WILLIAMS JA: I have had the advantage of reading the reasons for judgment of Keane JA and I agree with his analysis of the evidence and the conclusion he has reached. It is only necessary for me to summarise my reasons for concurring in that result.
[2] I will adopt the terminology used by Keane JA in his reasons.
[3] Notwithstanding that the agreement of July 2001 required the first plaintiff to pay expenses associated with the transport of the goods, including port charges and the like, the defendants paid $9,000 on or about 31 October 2001 in respect of port charges associated with two shipping containers. That became a relevant consideration when on 15 November 2001 the defendants told the plaintiffs that they no longer wished the partnership to continue.
[4] Thereafter there were discussions as to what should happen to the goods in the two shipping containers. Relevantly the learned trial judge made the following finding: "Ernestine agreed that there had been an offer by the defendants to return the machines to them on 26 November 2001 but said that a deal was never reached in relation to that. There were matters upon which no agreement could be reached…" One of a number of conditions attached to that offer was that the plaintiffs pay the defendants the $9,000 outlaid for port charges.
[5] Then on 11 February 2002 a written offer was made by the defendants to return the goods; the full terms of that offer are set out in the reasons for judgment of Keane JA. In support of their claim in conversion the plaintiffs alleged in the latest amended statement of claim that by letter from their solicitors dated 13 December 2001 they "made lawful demand" upon the defendants to return the subject chattels. In the defence it was admitted that such a demand was received but it was asserted that it was not lawful. Whether or not because of that admission the fact is that the written demand of 13 December 2001 was not tendered in evidence, and so the court is not aware of its precise terms. In a fax of 9 April 2003 the defendants recorded that they had received no response to the offer of 11 February 2002 and stated that that offer was still open.
[6] The learned trial judge dealt with the offers by the defendants to return the goods as follows:
"… the offer of 26 November 2001 was subject to other terms and conditions, and the offer of 11 February 2002 was too late."
[7] It is not clear why it was held that the offer of 11 February 2002 was "too late". The evidence does not establish that the demand of 13 December 2001 required delivery by any particular date.
[8] But in any event, as was held by the learned trial judge, the plaintiffs were only entitled to regain possession of the goods upon paying to the defendants the amount they had outlaid for port charges. As Keane JA has pointed out the first plaintiff's obligation to pay the port charges accrued before the contract was terminated, and the first plaintiff is obliged to repay the $9,000 as a debt; McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 476-7 (the passage quoted by Keane JA).
[9] I agree with all that has been said by Keane JA with respect to the claim in conversion, and in particular what he has written about the relevance of the reasoning in National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252.
[10] The learned trial judge in dealing with creditability said:
"The second plaintiffs impressed me as witnesses who were spontaneous and credible in their evidence, whereas the evidence of the second defendants and Mrs Willmott seemed to me to have the hallmarks of being too convenient and somewhat rehearsed."
[11] Having only the opportunity of reading the evidence as recorded in the appeal books I find that conclusion a little surprising. The evidence of the defendants does appear to me to accord more with commercial reality, but that is not a sufficient ground on which to overturn the findings of fact made at first instance. In consequence, and this was also the approach taken by Keane JA, basic findings of fact affected by issues of credibility must be accepted for purposes of the appeal.
[12] But even adopting that approach, as Keane JA has demonstrated, there was overwhelming evidence supporting the conclusion that the representations by the male plaintiff about the value of the goods which were to become assets of the partnership were false and misleading. Clearly the major factor inducing the defendants to enter into the partnership was that their outlay of $169,000 was a reasonable investment given the value of the goods. To emphasise that point the male plaintiff represented to the defendants that the goods could be sold for a great deal more than the value put on them for purposes of the partnership agreement.
[13] I agree with Keane JA that the defendants were induced to enter into the contract by misleading and deceptive conduct on the part of the plaintiffs. Whilst it is not possible on the evidence to place a valuation on the goods in the stored containers in about November 2001 to February 2002 the evidence, as analysed by Keane JA, establishes that the value was not as represented.
[14] I have also been influenced in coming to that conclusion by what I regard as the commercial realities of the situation. Accepting the representations of the male plaintiff, the goods in the two containers were valued at considerably more than $338,880, the value ascribed in the agreement of July 2001 to the partnership goods. The evidence of the male plaintiff was that it would usually cost double that amount to buy the machines and the machines could readily be sold so that the parties would definitely get their money back. To the value of the partnership goods in the containers there had to be added the value of the plaintiff's own personal goods, principally the purlin machine, which was in need of repair and a replacement would cost, it would seem, over $100,000. The detention of that machine was found to have deprived the plaintiffs of a profit of $70,000 which at first instance was held to be recoverable. In the circumstances it is not unrealistic to assume, from the plaintiffs' point of view, the purlin machine had a value of about $70,000. It would follow that on the male plaintiff's representations as to value of the partnership goods, together with an allowance of some $70,000 for all the other property of the plaintiffs in the two containers, the total property had a value to the plaintiffs of between $400,000 and $500,000. As at February 2001 the plaintiffs could have regained possession of all of those goods for payment of $9,000 plus a couple of months (at most) storage charges. Accepting the plaintiffs had some difficulties with obtaining cash at that stage, they still had, as their own evidence demonstrates, use of a Visa credit card which was being used to obtain amounts of that size. If the goods were valued at between $400,000 and $500,000, as they were on the plaintiffs' evidence, it is incomprehensible from a commercial point of view they would have left the goods in containers under storage for some five years. That strongly suggests the goods were not as valuable as represented by the plaintiffs.
[15] Once the conclusion is reached that the defendants were induced to enter into the contract by misleading and deceptive conduct on the part of the plaintiffs, the defendants are entitled to relief pursuant to s 87 of the Trade Practices Act 1974. I agree with the reasoning of Keane JA as to the relief to which the defendants are entitled.
[16] It follows that the orders should be as stated by Keane JA.
[17] KEANE JA: In June 2001, the parties agreed to go into business together. Their arrangements were subsequently reduced to writing in July 2001. By November 2001, the parties had fallen out; and the defendants gave notice terminating their agreement on 3 December 2001. A profusion of claims and cross-claims proceeded to litigation.
[18] The learned trial judge held that the plaintiffs had performed their obligations under the agreement, and were, as a result, entitled to the release of securities given by them to the defendants. The plaintiffs were also held to be entitled to recover certain machinery from the defendants as well as damages for its detention. His Honour held that the defendants were not entitled to relief for allegedly misleading conduct on the part of the plaintiffs in relation to the value of machinery contributed by the plaintiffs to the capital of the failed partnership.
[19] The defendants contend that the learned trial judge erred in his conclusions of fact and law relating to these matters. In order to facilitate a discussion of these contentions, it will be necessary to state the uncontroversial facts of the case, the claims and cross-claims of the parties, and the bases for his Honour's decision. I will then turn to a discussion of the issues which arise on appeal.
The factual background
[20] The second plaintiffs were the shareholders and directors of the first plaintiff, and the second defendants were the shareholders and directors of the first defendant. The individual plaintiffs and defendants had been close friends for many years. They had all been residents of the Seychelle Islands, but the second defendants had relocated to the Gold Coast via Guernsey some years ago. The first plaintiff carried on business as a manufacturer and supplier of roofing materials.[1]
[21] In June 2001, while the second plaintiffs were visiting the Gold Coast, they and the second defendants discussed a proposal to set up and conduct a roof tiling business in partnership on the Gold Coast.[2] While there was dispute between the parties as to the terms of these discussions, the learned trial judge found that it was "clear that the capital of the business was to be machinery then employed in the business of the first plaintiff in the Seychelles to be held in equal shares between the two families or their corporate entities".[3]
[22] The parties' relationship was documented by the defendants' solicitors.[4] The documents appear to have been executed on 11 July 2001.[5] The suite of documents included:
(a) a contract of sale between the first plaintiff and the first defendant: the items of machinery to be contributed to the partnership by the first plaintiff, and the value of $338,012.90 to be attributed to them, were detailed in the schedule (which included a figure of $5,758 for "estimated freight and charges"). The contract also provided that:
(i) the first plaintiff must cause all the machinery to be shipped from the Seychelles to Australia and be delivered to Brisbane within three months;
(ii) the first plaintiff "must bare [sic] the cost for the transport" of the machinery from the Seychelles to Brisbane;
(iii) the first plaintiff must insure the machinery for the value of the machinery;
(iv) the first plaintiff "must bare [sic] any other expenses associated with the transport of the goods such as freight duties, stowage fees, arrival charges and port charges …";
(v) the first defendant shall pay to the first plaintiff $169,006.45 in return for which the first defendant will receive one half of the legal and equitable interest in all of the machinery, the remaining one half interest being retained by the first plaintiff;
(vi) time was to be of the essence of the contract;
(vii) the first plaintiff gave a number of warranties in relation to title, quality and fitness for purpose of the machinery;
(viii) the second plaintiffs guaranteed performance by the first plaintiff of its obligations;
(ix) the contract "contains the agreement between the parties", and "any previous negotiations, understandings, agreements, whether written or oral are superseded by this contract";
(b) a mortgage by the second plaintiffs in favour of the first defendant providing for the repayment of $169,006.45 plus interest on 1 February 2002. Interest was to accrue from the date of payment of the sum of $169,006.45 to the first plaintiff at the rate of seven per cent per annum. The second plaintiffs were entitled to have the mortgage discharged when:
"(a)The contract for Sale between [the first plaintiff] (Vendor) and [the first defendant] (Purchaser) AND [the second plaintiffs] (Guarantors) is completed; and
(b)All terms and conditions under the said contract have been completed with no breaches having been committed by the Vendor."
[23] The second plaintiffs had earlier inspected a house, at Riverdale Drive on Hope Island, which was priced at $450,000. Mr Ernestine asked Mr St Ange to pay for the first defendant's share of the machinery before delivery so that the second plaintiffs would be able to purchase the house, and Mr St Ange agreed to this request. Accordingly, Mr St Ange paid $150,000 towards the price of the house, plus an additional amount for stamp duty totalling $152,585.04. The purchase was completed on 16 July 2001.[6] It was this advance that was secured by the mortgage referred to above. The Hope Island house was the subject of the mortgage.
[24] It was common ground between the parties that the first plaintiff and the first defendant did become partners for the purpose of the business of roofing and tiling manufacture.[7]
[25] As to how the prices attributed to the machinery were arrived at, Mr Ernestine's evidence was that the prices were reasonable and that "to buy the machines would normally cost double that amount".[8] He said the prices reflected his own expertise and his contacts with Blue Scope Steel.[9] The defendants' evidence was that Mr Ernestine had said that the equipment was not being used in the Seychelles and could be resold immediately in Australia so that the parties would definitely get their investment back.[10]
[26] The machinery the subject of the contract was to be shipped to Australia. The plaintiffs decided to ship a number of other machines, including a purlin machine, to Australia for their own purposes. All of the machinery was sent in two containers. The machinery was not insured.
[27] The bill of lading relating to the machinery the subject of the contract shows the machinery to be worth $17,340.[11] At trial, there was a difference between Mr St Ange and Mr Ernestine as to the reasons for this low value. There was also a dispute between the parties as to the circumstances which led to the machinery being uninsured. The learned trial judge resolved these differences in favour of the plaintiffs.[12]
[28] Another bill of lading was prepared relating to the equipment not the subject of the agreement which the plaintiffs wished to ship to Australia. The two bills of lading with attached invoices were sent by Mr Ernestine to Mr St Ange. The containers were loaded in September 2001, and arrived in Brisbane in October 2001.
[29] The learned trial judge found that the bills of lading forwarded to Mr St Ange and the shipping of the goods to the Port of Brisbane were sufficient to vest possession of the items listed in the bills of lading in Mr St Ange.[13] Mr St Ange arranged for a clearing agent to clear the goods through the Port of Brisbane and transferred $9,000 to the agent's account for that purpose. The defendants thus paid the sum of $9,000 in respect of port charges. A customs clearance was given for the goods on 31 October 2001.[14]
[30] Mr Ernestine arrived in Australia on 14 November 2001. On the following day, Mr St Ange told Mr Ernestine that the defendants no longer wished to proceed with the arrangement.[15] It was common ground that, on 26 November 2001, the defendants offered, subject to conditions, to return the machines to the plaintiffs.[16] The plaintiffs did not accept this proposal.
[31] On 3 December 2001, the defendants' solicitors wrote to the plaintiffs terminating the contract of sale between the first plaintiff and first defendant.
[32] On 13 December 2001, the plaintiffs made demand for the return of the machinery, including the machinery which was not the subject of the partnership agreement. The defendants did not accede to this demand; but, on 11 February 2002, the defendants' solicitors wrote to the plaintiffs' solicitors in the following terms:
"We refer to the above matter and to your request to have the machinery and your client's personal effects contained in the containers being held at the port in Brisbane released to your client. We are instructed to authorise that the above containers be released to your client on the following basis:
a)your client undertakes not to dispose of any of the machinery as it is evidence; and
b)your client under the terms and condition of contract of sale pay for all the port fees that are currently owing and due; and
c)our client's rights in relation to the above machinery are reserved and we advise that our client is not waving [sic] any of their rights in respect to any action against your client; and
d)Your client keep our office informed regularly as to the location of the machinery.
We advise that your client is able to sell the personal effects contained in the containers."
This offer was not taken up by the plaintiffs.
[33] It also appears that, pursuant to an arrangement between the parties, moneys were debited by the first defendant to the second plaintiffs' Visa Card accounts with a bank in the Seychelles. The total balance said to be owing to the second plaintiffs in this regard was $10,290.[17]
The parties' claims
[34] The plaintiffs commenced proceedings on 12 February 2002. They sought a declaration that the first plaintiff had completed its obligations under the contract, and a declaration that the mortgage which secured the second plaintiffs' guarantee of repayment of the moneys advanced by the first defendant for the purchase of the Hope Island house should be released. The plaintiffs later sought orders for the return of the non-partnership chattels and damages for their conversion or detention. They also sought repayment of the $10,290.
[35] The defendants resisted the plaintiffs' claims for declarations on the basis that the plaintiffs had breached the contract of sale by delivering the machines late, shipping them illegally, failing to insure them and by breaching a contractual warranty with respect to the value of the partnership machinery. The defendants also brought a counterclaim for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and breach of fiduciary duty in relation to the representations made as to the fair market value of the partnership machinery the subject of the contract of sale. The defendants sought, inter alia, damages pursuant to s 82 or relief under s 87 of the Trade Practices Act.
The decision at first instance
[36] The learned trial judge preferred the evidence of the witnesses for the plaintiffs to the evidence of the witnesses for the defendants. His Honour found that "for some reason which can only be a matter for speculation, the defendants repented of the June agreement, and had decided not to venture their funds, contrary to the agreement which had been reached".[18] The learned trial judge rejected the defendants' case that the plaintiffs had breached the contract of sale in any respect, and concluded that the first plaintiff had duly performed its obligations under the contract of sale.[19]
[37] His Honour also concluded that the plaintiffs were entitled to possession of the non-partnership machinery in the containers, including a purlin machine, and to damages for the conversion of goods consisting in the defendants' "refusal unconditionally to deliver up [that] machinery to the plaintiffs".[20] His Honour was not specific as to when this conversion was found to have occurred, but it seems that he upheld the case pleaded for the plaintiffs, which was based on the defendants' refusal to comply with the plaintiffs' demand of 13 December 2001. Significantly, his Honour made an order that the plaintiffs should be entitled to delivery of the machinery not subject to the partnership agreement upon the payment to the defendants of the relevant port charges up to 14 November 2001.[21]
[38] As to the quantum of damages recoverable for the detention of the purlin machine, his Honour held that the damages should be assessed on the basis that, because the defendants had not delivered the machinery up to them, the plaintiffs had been unable to profit from the use of that machine to make sales to a company associated with Mr Arthur Taschner. The damages were assessed at $70,000.[22] The learned trial judge also made an order for the repayment of the Visa Card debt of $10,290. His Honour awarded interest upon each of these sums pursuant to s 47 of the Supreme Court Act 1995 (Qld) from 31 December 2001 at the rate of seven per cent per annum.
[39] As to the defendants' counterclaim, his Honour accepted that Mr Ernestine honestly believed that the prices attributable to the items of machinery were very good prices which could easily be recovered after the business had been established and running for a period.[23] His Honour declined to find that the defendants had established that the plaintiffs misrepresented the value of the machinery.
[40] The learned trial judge found that the valuation evidence called by each side gave no reliable indication of the true value of the equipment, and, in consequence, concluded that this evidence did not assist a conclusion that Mr Ernestine had misrepresented the value of the partnership machinery.[24] His Honour made no finding as to the true market value of the partnership machinery.
The issues on appeal
[41] In this Court, the defendants contended that:
(a) the plaintiffs breached the contract in failing to deliver the computer until 14 November 2001, and in failing to insure the machinery; and, consequently, the plaintiffs were in breach of contract and not entitled to a discharge of the mortgage over the Hope Island house;
(b) the plaintiffs failed to establish conversion of the non-partnership machinery;
(c) the plaintiffs had failed to establish that any loss had actually been sustained as a result of the detention of the purlin machine;
(d) the learned trial judge erred in concluding that the defendants had failed to establish that they had been induced to acquire the machines at the contract price by misleading and deceptive conduct on Mr Ernestine's part, or breach of fiduciary duty; and
(e) the learned trial judge erred in failing to appreciate that Mr Ernestine's evidence was so riddled with inconsistencies as to be unworthy of belief.
[42] I will now discuss these contentions in turn.
Breach of contract
[43] The only aspects of the breach of contract case agitated by the defendants on appeal concerned the late delivery of a piece of computer equipment and the plaintiffs' failure to insure the equipment. The defendants did not persist with the contentions advanced below relating to other alleged breaches of the contract of sale. These contentions were, it may be noted, devoid of substance since they depended upon a view of the plaintiffs' contractual obligations which was untenable having regard to the actual terms of the contract of sale.
[44] As to the plaintiffs' failure to insure the machinery shipped from the Seychelles to Australia, the learned trial judge accepted Mr Ernestine's evidence that, before the goods were shipped, Mr St Ange told Mr Ernestine that he wanted low prices put on the machinery so that less tax would be payable on the goods, if tax was payable. Mr Ernestine agreed with this suggestion, and said that if low prices were to be adopted for the bills of lading, there was no point insuring the machinery at its true value because those values would be a problem if any claim were to be made on the insurance. Accordingly, so Mr Ernestine said, it was agreed that the machinery would not be insured.
[45] The resolution of this issue in favour of the defendants requires a reversal of the learned trial judge's preference for the evidence of Mr Ernestine over that of Mr St Ange. That is a formidable hurdle in the way of the defendants' contention.[25] While there are, as the defendants argue, aspects of Mr Ernestine's evidence which are unsatisfactory, it must be remembered that his Honour rejected the evidence of Mr St Ange. On this issue, Mr St Ange's evidence is not so clearly supported by independent or uncontroversial evidence as to justify accepting his evidence on this issue contrary to the learned trial judge's view of his credibility.
[46] As to the late delivery of the computer equipment, there was a computer, which the learned trial judge described as "perhaps … crucial"[26] to the automated operation "of at least one of the machines", ie the batten machine, which only arrived in Australia with Mr Ernestine on 14 November 2001. The learned trial judge held that this circumstance was "irrelevant to the question whether the contract was complied with, because the machinery specified in the contract did arrive in Australia within the stipulated period".
[47] The plaintiffs argued in written submissions that the issue as to the late delivery of the computer equipment was not litigated at first instance; but that argument is plainly incorrect. Paragraph 5 of the defence denied delivery of the machinery the subject of the contract of sale by the plaintiffs on the specific basis that the computer did not arrive in Australia until 14 November 2001. Furthermore, the learned trial judge adverted to this issue and determined it. It is necessary for this Court to resolve this issue.
[48] The first plaintiff's obligation in relation to delivery was to "cause all Equipment included under this Contract to … be delivered to Brisbane within 3 months". The machinery described in the contract of sale as the subject of the contract was not confined to the items actually listed in the schedule. It included "connected" equipment. The learned trial judge did not advert to this provision of the contract of sale.
[49] The contract of sale recited the Vendor's wish to "sell 50% ownership to the Purchaser of the items in Schedule 1" and the Purchaser's wish to "purchase 50% ownership of the items in Schedule 1". The term "the Equipment" was defined to "comprise of [sic] all goods, chattels or other things listed and connected with the items listed under Schedule 1".
[50] If the batten machine was inoperable without the computer, then it could be said that the computer had a direct and undeniable connection with the batten machine. It would seem, however, that, without the computer, the batten machine could operate manually as described in Sch 1 to the contract of sale. The description of the batten machine in Sch 1 to the contract of sale included the following: "The machine is semi-automatic manually operated and can be fully operated [sic] but extra electronic equipment is required." The specific description of the batten machine is, in my view, such as to exclude the conclusion that the computer had any necessary "connection" to the semi-automatic machine so identified in the schedule. I would, therefore, reject the defendants' argument on this point.
Conversion of the purlin machine
[51] The defendants challenged the learned trial judge's conclusion that they had refused "unconditionally to deliver up" non-partnership machinery as a basis for the conclusion that the defendants were liable to the plaintiffs in conversion of the non-partnership machinery including the purlin machine. The defendants argued that the terms of the plaintiffs' demand had not been established so as to enable the court to conclude that there had been an unjustifiable detention of the goods. The plaintiffs countered this argument by pointing out that, on the pleadings, the defendants had admitted that the plaintiffs had demanded the return of their goods and put in issue only the unlawfulness of their continued detention. For the sake of argument, the plaintiffs' position may be accepted as correct.
[52] It is well-established that conversion subsists in dealing with goods in a manner intentionally inconsistent with the rights of the true owner.[27] Where a plaintiff has voluntarily given possession of goods to a defendant, there must be an indication from the true owner that it no longer assents to the defendants' continued possession of the goods, and a categorical refusal to accede to the true owner's claim.
[53] There are two difficulties with the learned trial judge's conclusion in relation to conversion which are not resolved by his Honour's credibility findings in favour of the plaintiffs. The first arises from the absence of a finding as to when the defendants categorically refused to accede to the plaintiffs' claim to possession of the non-partnership goods including the purlin machine. The second difficulty relates to the evident inconsistency between his Honour's conclusion that the defendants' continued retention of the non-partnership goods was unjustified and his Honour's declaration that the plaintiffs' entitlement to recover possession of those goods was subject to payment of the port charges incurred to 14 November 2001.
[54] As to the first of these difficulties, his Honour's conclusion in favour of the plaintiffs failed to address the fact that the two containers contained both partnership and non-partnership material. His Honour did not make any finding, either as to whether the defendants had been afforded sufficient opportunity to arrange for the segregation and protection of the partnership machinery, or as to the plaintiffs' willingness and ability to co-operate in the necessary segregation and collection of their non-partnership material. In these circumstances, there was no sufficient basis in his Honour's findings to support the conclusion that the defendants had unlawfully refused the plaintiffs' demand for possession.
[55] As to the second point, the plaintiffs claimed the specific restitution of the chattels "specified in annexure 'B' to the statement of claim". As the learned trial judge noted,[28] there was not, and has never been, an "annexure 'B' to the statement of claim". It is, however, tolerably clear that the claim was for the return of the non-partnership goods. The plaintiffs also sought "damages for conversion of the first plaintiff's chattels" and "alternatively damages for their detention". The order made by the learned trial judge for the return of the first plaintiff's chattels was expressed to be subject to the payment of port charges incurred by the defendants in respect of them. It is not argued by the plaintiffs that it was not open to the learned trial judge to make the order for the specific restitution of the first plaintiff's chattels subject to a condition requiring payment of the port charges foist upon the defendants, in part because the plaintiffs had mixed their own goods with partnership goods and sent them all mixed together to the defendants as bailees, and in part because the plaintiffs failed to meet their clear contractual obligation to meet the port charges in respect of the partnership machinery. The upshot is that his Honour seems to have recognised that the defendants were not obliged to make an unconditional offer of return of the machinery to the plaintiffs. Accordingly, the basis of his Honour's decision that the defendants were liable in conversion for not making an unconditional offer to return the goods is, to say the least, questionable.
[56] At first, in relation to this second point, counsel for the plaintiffs contended that the plaintiffs had, in fact, paid the port charges incurred in respect of the goods by virtue of the defendants' operations on the second plaintiffs' Visa Cards; but that contention is quite inconsistent with the learned trial judge's decision. No basis is shown for concluding that his Honour was in error on this point.
[57] Counsel for the plaintiffs then argued that the defendants were not entitled to insist upon payment of the port charges as a condition of their willingness to deliver the first plaintiff's non-partnership assets up to the plaintiffs. Counsel for the plaintiffs contended that the defendants had no right in the nature of a lien upon the goods which would support the defendants' insistence upon such a condition.
[58] That submission is substantially undermined by the decision of the House of Lords in Peruvian Guano Co v Dreyfus Brothers & Co.[29] In that case, the plaintiffs claimed in the Chancery Division delivery of cargoes in the possession of the defendants. At first instance, it was decreed that the plaintiffs were entitled to succeed and that the defendants were not entitled to reimbursement of expenses incurred by them on account of freight and landing charges. This aspect of the decision was upheld in the Court of Appeal (over the dissent of Bowen LJ) but reversed in the House of Lords. The judgment of Lord Macnaghten on this issue was described by Lord Denning MR in Greenwood v Bennett[30] as a "valuable judgment". Lord Macnaghten said:[31]
"The argument of the learned counsel for the respondents, which was adopted by the majority of the Court of Appeal, may be found stated, in so many words, in several cases at Common Law. In itself the argument is perfectly sound. The appellants, it is said, had no right to this property, it belonged to the respondents. They could not therefore obtain a lien by expending money in connection with it. How then can they claim to be allowed their expenditure? They cannot surely set up their own wrong.
But, although the Courts of Law not unfrequently put forward that argument, they seem to have been in the habit of escaping from its logical consequences by the convenient instrumentality of a jury, more concerned to administer what they thought justice than to maintain the strict rules and rigorous maxims of the Common Law. In cases of trover and in cases of trespass, where there were no circumstances of aggravation, juries were told that they might take into consideration, in mitigation of damages, payments which the plaintiff himself would have had to make if the defendant had not made them. For instance, in Doe v. Hare, 2 C. & M. 145, in an action for trespass for mesne profits tried before Lord Lyndhurst, when Lord Chief Baron, the defendant, who had been wrongfully in occupation of land, was allowed by way of deduction a payment for ground rent which he was obliged to make as occupier. On motion to increase the damages by the amount deducted, the Court refused to disturb the verdict, Baron Bayley saying, 'The defendant only paid what the plaintiff must have paid, and if so the plaintiff is not hurt.' Doe v. Hare was approved and followed in Barber v. Brown, 1 C. B. (N.S.) 121. So in Clarke v. Nicholson, 6 C. & P. 712, and 1 C. M. & R. 724, in an action of trover for goods belonging to the assignees of a bankrupt, wrongfully seized and wrongfully sold by the sheriff, the sheriff was allowed the expenses of sale, because the goods must have been sold by the assignees if not sold by the sheriff. On appeal in the Court of Exchequer, the Lord Chief Baron (Lord Abinger) said, 'We do not lay it down as a matter of law in any case, but we say that the jury are entitled to make these deductions if they think them fair.' Another case which seems to me to throw some light upon this question is the case of Reid v. Fairbanks, 13 C.B. 692. The case was this. An unfinished ship was wrongfully taken out of the possession of the plaintiffs and completed by the defendants. The plaintiffs sued in trover, and claimed in damages the value of the ship as increased by the defendants' expenditure. Mr. Justice Maule said, 'it may be that the wrongdoer who acquires no property in the thing he converts acquires no lien for what he expends upon it, and the owner may bring detinue or trover, but it does not follow that if the owner brings trover he is to recover the full value of the thing in its improved state. The proper measure of damages, as it seems to me, is the amount of the pecuniary loss the plaintiffs have sustained by the conversion of their ship.' Chief Justice Jervis added; 'that is, what she was really worth when the defendants converted her; the plaintiffs had lost the value of the vessel before the defendants began to lay out money upon her.' And, when it was urged that there was no warrant for saying that the plaintiffs' right was limited to the value of the ship only after deducting what the defendants had wrongfully laid out in completing her, the Chief Justice answered, 'In strictness that may be so, but no jury would give such damages, and they would always give what they conceive the plaintiffs justly entitled to.'
Perhaps, however, the most instructive cases are those relating to coal trespass, from Martin v. Porter, which was decided in 1839, to a Scotch case recently before this House. They indicate the current of modern authority, and shew the way in which Courts of Equity dealt with the subject when they were empowered to award damages. The rule of the Court of Equity in cases of coal trespass has lately been adopted in your Lordships' House. The result is that, in these cases at any rate, every Court must now recognise and apply that measure of justice which Courts of Law formerly declined to admit as a matter of law, but left to juries to apply when the equity of the case required it.
Martin v. Porter, 5 M. & W. 351, was an action for trespass for working the plaintiff's coal. It was held there that the proper estimate of damages was the value of the coal when gotten, without deducting the expense of getting it, but allowing the cost of bringing the coal to bank. At the trial Baron Parke pointed out that if the action had been in trover, and the plaintiff had demanded the coal at the pit's mouth or on the canal bank, he would have been allowed the value of it at the place of demand, without making any allowance either for working or for bringing it there. However, the same learned Judge in Wood v. Morewood, 3 Q.B. 440, which was an action of trover for coal, tried at the Summer Assizes in 1841, directed the jury that if the defendant were not guilty of fraud or negligence, but acted fairly and honestly in the full belief that he had a right to do what he did, they might give the fair value of the coals as if the coalfield had been purchased from the plaintiff. The jury in that case acted on the suggestion of the learned Judge; and so the claim, which would have been £10,000 or £11,000 according to the rule in Martin v. Porter, was reduced to £2310. There was no motion for a new trial in that case. But in the following year the rule in Martin v. Porter was twice re-affirmed, in Wild v. Holt, 9 M. & W. 672, and Morgan v. Powell, 3 Q.B. 278, Baron Parke being one of the Court in Wild v. Holt.
However, when the same question was raised in equity after Lord Cairns's Act, the view of Parke B. in Wood v. Morewood was preferred and adopted by Malins V.C. in Hilton v. Woods, Law Rep. 4 Eq. 432, and afterwards by Lord Hatherley, when Lord Chancellor, in the well-known case of Jegon v. Vivian, Law Rep. 6 Ch. 742, and it was finally approved in your Lordships' House in Livingstone v. Rawyards Coal Company, 5 App.Cas. 25. In that case, after pointing out that there was no element of wilful trespass or bad faith on the part of the defenders, and that the minerals were not of special value as support to the surface, Lord Cairns expressed himself as follows: 'Of course the value of the coal taken must be the value to the person from whom it was taken, because I do not understand that there is any rule, in this country or in Scotland, that you have a right to follow the article which is taken away, the coal which is severed from the inheritance, into whatever place it may be carried or under whatever circumstances it may come to be disposed of, and to fasten upon any increment of value which from exceptional circumstances may be found to attach to that coal. The question is what may fairly be said to have been the value of the coal to the person from whose property it was taken at the time it was taken.' Those observations, which are in accordance with the principles laid down in Reid v. Fairbanks, seem to me to be of the greatest importance, because I do not understand that they are necessarily confined to the case of coal trespass, and it cannot be denied that the payment of freight in the present case was at least as exceptional a circumstance as the bringing to bank of the coal in the case which Lord Cairns was considering.
I took the liberty of asking Sir Horace Davey, during the argument, if he would contend that if the owner of coal wrongfully severed happened to find it at the pit's mouth, he could recover it in specie, without making any allowance for hewing or bringing it to bank. The learned counsel said he certainly should so contend. Indeed, it was necessary for him to do so in order to support the proposition for which he was arguing. At present I am not satisfied that the learned counsel is right. It certainly would be somewhat strange that the wrongdoer should be entitled to allowances if the wrongful act is completed by sale, but denied those allowances, however just they may be, when the wrongful act is not complete.
In order to account for the supposed distinction between the two cases, the learned counsel argued that it might be that these allowances would be made in an action of trespass or trover, but that they would necessarily be excluded in an action of detinue. I am not sure that this proposition is well founded.
The old writ under a verdict in an action of detinue authorized the sheriff to distrain the goods and chattels of the defendant if he did not return the goods, or pay a sum of money which was the assessed value of the goods. 'This,' Mellish L.J. says in In re Scarth, Law Rep. 10 Ch. 234, 'gave the defendant a choice whether he would give up the goods or pay the money, and drove into equity all who wanted to recover the actual goods.' But I need not point out that equity would not interfere unless the goods were of special value; nor would it, I apprehend, assist the claimant if he refused to do equity by making just allowances. The Common Law Procedure Act 1854 enabled courts of common law to make an order for the return of the goods, if they saw fit to do so. The effect of that provision, as pointed out by Maule, J., in Chilton v. Carrington, 15 C.B. 730, is not to take away the option in all cases, but it enables 'the Court or Judge to make an order for delivery, where it would be unjust to allow the defendant to have the option, and where he can, and in the opinion of the Court or Judge ought to, restore the chattel in specie.' I am not aware of any authority upon the point, but I should doubt whether it was incumbent upon the Court to order the defendant to return the goods in specie where the plaintiff refused to make a fair and just allowance, and so claimed the interposition of the Court, under the Common Law Procedure Act, for the purpose of obtaining an advantage not consistent with the justice of the case.
I do not think that the cases relating to policies of insurance referred to in argument have any bearing upon the present question. They were, with one exception, I think, cases in which persons who had voluntarily expended money in keeping up policies which did not belong to them claimed actively a lien on the moneys secured by the policies.
Nor do I think that any assistance is to be derived from the two cases at Common Law referred to by Sir Horace Davey, Nicholson v. Chapman, 2 H.Bl. 254, and Lempriere v. Pasley, 2 T.R.485.
Those were cases of trover, and the question was whether the plaintiff was bound before he brought his action to tender the amount of expenses claimed by the defendants. Of course he was not.
My Lords, I have dwelt at some length on this part of the case because it appears to me that this question ought to be left entirely open and unprejudiced by anything that has fallen from the Court of Appeal. If the question should ever arise, it will, in my opinion, require much consideration and a fuller argument than has been addressed to your Lordships. I do not think that it can be disposed of in a summary way by saying that the defendants have no lien, and, therefore, are not entitled to any allowance. It will have to be determined whether there is any rule, founded on principle or authority, which compels the Court to enforce, as against a defendant who has acted honestly though mistakenly, extreme legal rights at the instance of a plaintiff who seeks to avail himself of the assistance of the Court for the purpose of obtaining an unjust and unfair advantage." (emphasis added)
[59] Lord Watson, who agreed with Lord Macnaghten as to the decision in the case, was more forthright in favour of the defendants' rights to a lien or charge on goods. Lord Watson said:[32]
"The law of England bearing upon that question does not appear to me to be in a very satisfactory condition, and it would not be an easy task to ascertain and reconcile the principles which are supposed to govern many of the authorities cited in the course of the argument. It has, however, been decided (in my opinion rightly) that a claim such as is preferred by the appellants, will lie, if the facts of the case warrant the conclusion that there was an agreement to the effect that necessary advances were to be repaid. The agreement need not be express. It is sufficient that the respondents should by their conduct, active or passive, have created a reasonable inference that outlays necessary for the landing and safe keeping of the guano were to form a charge upon its proceeds. I am of opinion, with Bowen L.J., that the circumstances of the present case afford sufficient grounds for drawing that inference in favour of the appellants." (emphasis added)
[60] Lord Watson went on to say:[33]
"I agree with Bowen L.J., in thinking that the appellants acted as receivers de facto with the implied assent of the respondents; not as it is now contended in their own wrong, but rightfully, as rightfully as if it had been under the Order of the Court. I agree, moreover, with all the observations of the Lord Justice as to the implied right of the appellants to receive payment of their advances. They were, in my opinion, fairly entitled in the circumstances of the case to rely upon these advances being repaid to them in the event of their defence failing, and of their being called upon to deliver up or account for the cargoes of which they had obtained receipt. If it was the intention of the respondents to insist that notwithstanding the arrangements then made the appellants ought to be treated as wrongdoers, and ought not to have their necessary advances repaid to them, I think it was their bounden duty to say so. If they had said so explicitly on the 30th of April 1880, I hardly think the appellants would have consented to the Order of that date; it would manifestly have been more advantageous for them to consent at once to the appointment of an official receiver in terms of the respondent's motion.
I am, therefore, of opinion that the judgments of the Vice Chancellor, and of the Appeal Court upon this part of the case ought to be reversed, and that your Lordships ought to declare that the appellants are entitled to receive payment, out of the proceeds of the eleven cargoes of guano in question, of all sums disbursed by them on account of freight and landing charges which have not been already repaid to them or credited to them in account with the Peruvian Government." (emphasis added)
[61] Lord Fitzgerald, the other member of the House of Lords on this occasion, adopted "the reasoning of Lord Justice Bowen, and the judgment of my noble and learned friend [Lord Watson]"; and went on to "rejoice at being able to concur in the order now proposed, which is in my judgment in accordance with law and right".
[62] These passages highlight the injustice of the contention advanced on behalf of the plaintiffs, and suggest that the court is entitled to regard the defendants' entitlement to the reimbursement of port charges as a lawful condition, in the nature of a lien or charge, upon their obligation to deliver the goods to the plaintiffs. If the port charges had not been paid, the plaintiffs could not have obtained possession of their goods at all. Acceptance of the suggestion in the passages set out above is coherent with other aspects of the law bearing on this subject. For example, it is clear that, where a plaintiff seeks specific restitution of goods pursuant to s 12 of the Common Law Practice Act 1867 (Qld) or its successors, the plaintiff must be prepared to make allowances for expenses reasonably incurred in respect of the goods by the party in possession as a condition of relief.[34] And at common law, as the researches of Lord Macnaghten demonstrated, a judgment in detinue afforded the defendants the option of returning the goods or paying their value which would be calculated so as to reflect just allowances.
[63] For all these reasons, I consider that the plaintiffs' claim for conversion by reason of the defendants' unlawful detention of the non-partnership machinery should have been dismissed.
Damages for unlawful detention
[64] In my respectful opinion, the learned trial judge had no sound basis for his quantification of the damages recoverable by the plaintiff for detention of the purlin machine.
[65] On this issue, the learned trial judge concluded:[35]
"On the subject of damages, evidence was given by one Arthur Willhelm Taschner, the Managing Director of a company called Industrial Engineering Corporation Pty Ltd, which I take to be a South African company, since that is where Mr Taschner lives. The company had built some low cost steel framed housing in the Seychelles, and they were approached to supply about 200 of these in connection with a steel frame factory in Madagascar, I gather for housing workers to be employed in the factory. The witness knew Ernestine because he visited the Seychelles quite frequently to do with other contracts, and he asked the first plaintiff to supply the cold rolled steel requirements for the housing and, in due course, for the factory. On 20 August, 2001, he wrote to the first plaintiff asking that it ensure that it had at least 200 tonnes of the cold rolled steel in stock, stating that 'with supply and shipment delays, it is felt that you should place this material on order now'.
Some time after writing that letter, the witness received a telephone call from Ernestine to the effect that that [sic] there were problems, including the fact that the purlin machine, which would be used for the job, was being held up in Australia. At the same time, some difficulty had occurred with the people in Madagascar who apparently could not at that time see their way clear to placing a firm order, and the project then simply died. Counsel asked the witness what the prospects were of a contract arising out of the discussions, if the first plaintiff had been able to supply the steel, and he eventually put it at a 60% chance. However he went on to say that even if the Madagascar order did not proceed, his company would still have paid for the material if the plaintiff had got it in and cut it and sought payment. He said the product was a commonplace item used in 26 different contracts they had done in Mahe in the Seychelles alone, and was made from zincalum which was far superior to a similar material made in South Africa, so that they would not have been unduly concerned by the fact that the Madagascar contract did not happen. He said it is a standard material, it comes in a certain length, and it is cut and used on roofs to support metal or tiles, etc. The general purport of the witness' evidence, is that even with the loss of the Madagascar contract, his company would have purchased the material from the plaintiff.
It was put to the plaintiffs that they had had an opportunity to complete their arrangements with Taschner, if they had retaken possession of the machinery when offered to them in February, 2002. The terms of that offer are set out earlier in these reasons. The offer was not taken up, but the plaintiffs' evidence is that the offer was too late, because they had had to cancel the arrangement with Taschner in early January, and nothing to the contrary was established by the defendants. The purlin machine had been transported to Australia to be repaired, and then to be returned to the Seychelles to meet Taschner's order. Ernestine also agreed in cross-examination that an offer had been made to return the machines to the plaintiffs on 26 November, 2001, but as part of a deal which was never agreed between the parties. The terms of that proposal have also been set out earlier in these reasons.
Exhibit 24 makes it clear that the raw material, that is, the steel sheeting, would be paid for by Industrial Engineering Corporation, and that the first plaintiff was to process approximately 207 tonnes of cold rolled steel for the purpose of the project. Ernestine said that in addition to the letter, there were discussions with Taschner to the effect that Rapid would be paid $US1,000 per tonne to do the work. Industrial Engineering was also to be responsible for the delivery of the goods to the Seychelles where they would be transported by Rapid to the factory. There was some small cost associated with that, being largely the cost of fuel for the truck that would be used. Ernestine said that the contract was for purlins, which are made into steel frames, and also corrugated roofing. Power costs were estimated at about $100 per month, or about $800 in total. Apart from that, costs would be negligible.
In cross-examination, Ernestine said that he expected to generate about 1.8 million Seychelles rupees from the contract, based on the exchange rate between the rupee and the dollar, of 5 rupees to 1 US dollar. He agreed that the cost alleged in the pleading for the performance of the contract, viz 754,871 rupees is not correct. It probably would be correct if he were going to provide the material, but in fact the arrangement was that Industrial Engineering Corporation would pay for the material. Exhibit 31 shows that the exchange rate between the Australian Dollar and Seychelles rupees as at 31 October 2001 was 1 dollar to 2.8171 Rupees. No detail of the calculation of the expected profit was given in evidence, except that it was apparently based upon the tonnage of steel to be processed, and the exchange rate between the rupee and the US dollar at the time. Nor was any such detail extracted in
cross-examination. However it seems likely that it is a sum that exceeds the jurisdiction of the court.
The purlin machine was in the second container, which, substantially, contained only the property of the plaintiffs. There was no basis upon which the defendants could justify refusing to authorise the release of the contents of that container to the plaintiffs, apart from one item already referred to, subject to the plaintiffs' reimbursing the defendants for port charges, or some of them, paid by them in respect of that container. As to that, however, the offer of 26 November, 2001 was subject to other terms and conditions, and the offer of 11 February 2002 was too late. The plaintiffs were, of course, obliged to mitigate any damage flowing from a conversion of the purlin machine by the defendants, but the defendants have not established that the plaintiffs failed to take reasonable steps in that regard. There is no evidence as to when the purlin machine could have been repaired and returned to the Seychelles, if the defendants had released it to the plaintiffs in a timely fashion. Nor is there any evidence of the availability of a substitute machine to the plaintiff, or the price that would need to be paid for one. The burden is, however on the defendants to prove that a failure on the part of the plaintiffs to mitigate was unreasonable, and that burden has not been discharged, there being no evidence from which such a conclusion would be a reasonable inference.
There remain doubts about whether a contract would have come to fruition out of the arrangements with Industrial Engineering, and what the position may have been in the event that the order was filled, but without contractual obligation on the part of that company. In the circumstances, and giving credit to the evidence of Mr Taschner, I would award the plaintiffs the sum of $70,000 by way of damages for conversion of the purlin machine by the defendants." (emphasis added)
[66] It must be said that his Honour's finding, that the purlin machine had been "transported to Australia to be repaired, and then to be returned to the Seychelles to meet Taschner's order", was contrary to Mr Ernestine's evidence, which was to the effect that the machine might have been sold or used in Australia as well as returned to the Seychelles.
[67] It is clear that the plaintiffs never accepted Mr Taschner's offer of 20 August 2001 so as to enable Mr Taschner to pursue the Madagascar contract. It is apparent from his Honour's findings that there can be no suggestion that the plaintiffs actually made any attempt to arrange a sale of purlins to Mr Taschner's company at any time.
[68] It is also not clear from his Honour's findings why February 2002 was "too late" to pursue sales to Mr Taschner. And, of course, if the defendants were truly entitled to refuse to release the purlin machine to the plaintiffs "subject to the plaintiffs' reimbursing the defendants for port charges", it does not matter that they also insisted on other conditions in November 2001 upon which they were not entitled to insist unless the plaintiffs offered to pay the port charges. There is no suggestion that the plaintiffs made any such offer.
[69] Finally on this point, I note that, in a further written submission made on behalf of the plaintiffs, the point was made that the defendants had terminated the contract of sale which imposed on the first plaintiff the obligation to pay port charges. Accordingly, so it was argued, the first defendant was limited to a claim for damages in respect of the first plaintiff's breach of contract in this regard. That submission must be rejected. The first plaintiff's obligation to pay the port charges to the first defendant accrued before the defendants terminated the contract. The defendants had themselves paid the port charges before they terminated the contract. The first plaintiff's obligation to repay that sum was, therefore, a debt owed by the first plaintiff to the first defendant. In these circumstances, the defendants were not limited to a claim for damages. That this is the correct view of the relationship between those parties is confirmed by the classic statement of Dixon J in McDonald v Dennys Lascelles Limited[36] where his Honour said:
"From this it follows that after 24th January 1930, subject to the vendors' agreement to forbear between a date about 18th March 1930, when the conditions stipulated for their forbearance were complied with, and 24th January 1931, the instalment might have been recovered from the sub-purchasers as a liquidated demand. Did the subsequent discharge of the second contract relieve the sub-purchasers of this liability? When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected."
[70] The plaintiffs face a second difficulty in attempting to support the assessment of damages in reliance upon the loss of profit on sales to Mr Taschner's company. There was no evidence that the defendants were ever informed by the plaintiffs that the purlin machine was required by the plaintiffs for the purpose of a profitable contract with Mr Taschner's company. Indeed, there is no suggestion that the plaintiffs put the defendants on notice at all as to the purpose for which the purlin machine was required at the time of the plaintiffs' demand for the return of the goods. In these circumstances, the plaintiffs failed to establish a basis on which they could be awarded damages for the profits foregone in fulfilling any orders from Mr Taschner.
[71] In National Australia Bank Ltd v Nemur Varity Pty Ltd,[37] Callaway JA, with whom Phillips JA agreed, said:
"I agree with Batt JA that, putting statute and equity to one side, the duties of a bank to its customer with respect to cheques and telegraphic transfers lie in contract and not in tort. The relationship is too complex, and affected by settled commercial expectations, to be subverted by negligence. I also agree with his Honour that the measure of damages for consequential loss in conversion is not reasonable foreseeability. Liability in conversion is strict: like liability for breach of contract, which is also strict (Of course a contract may oblige a party to exercise reasonable care but, if the party does not do so, it is liable because it has broken its promise, not because of moral fault and not because of breach of any duty of care imposed by the law on a person who disregards the interests of his or her neighbours.), it lies at the opposite end of the spectrum from deceit and is quite unlike negligence. The ordinary measure is the value of the chattel and consequential damages require some knowledge (or express notice) on the part of the defendant of facts whereby additional loss of the relevant kind is likely (I use 'likely' in the same way as Lord Reid in C Czarnikow Ltd v Koufos [1969] 1 AC 350 at 385F.) to result. To put the point another way, the consequential loss must be of a kind that should have been within the contemplation of the defendant as a likely consequence having regard to the defendant's knowledge (or express notice) of the facts. There is, to that extent, a closer analogy with damages for breach of contract than with damages for negligence (One difference is that the knowledge or notice is at the time of the conversion.). The dicta in France v Gaudet ((1871) LR 6 QB 199 at 205) were well founded (It will be apparent, however, that I do not take them literally, as Batt JA does at [69]. That is why I have endeavoured to express the test in my own words.)."
[72] Batt JA, in the course of an exhaustive review of the authorities, said:[38]
"Further, conversion is a tort of strict liability (Liability is strict in the sense that a person may commit a conversion without any fault on his or her part. In Caxton Publishing Lord Porter said at 202 that conversion 'consists in an act intentionally done inconsistent with the owner's right, though the doer may not know of or intend to challenge the property or possession of the true owner'. In Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 at 970 - 1 Diplock LJ (as his Lordship then was) said that the liability was strict in that 'the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part … The duty is absolute; he acts at his peril.' Of course a converter may not be without fault: he or she may be a thief, for example.) and, as such, is to be found at the lower or less culpable end of what Lord Steyn in Smith New Court (At 279.) called 'the sliding scale from strict liability to intentional wrongdoing'. Negligence of course is to be found midway along the sliding scale, for it requires fault in the sense of the failure to measure up to the standard of reasonable care. His Lordship (in whose judgment on the measure of damages three other members of the House of Lords agreed) was of the view that there was a justification for differentiating between the extent of liability for civil wrongs depending where in that sliding scale the particular civil wrong fitted it. It might, therefore, be said that a more stringent test of remoteness, satisfied only by express notice or special knowledge, is required for conversion than for negligence."
[73] Having further considered that suggestion, Batt JA concluded:[39]
"Thus, some more stringent test of remoteness than reasonable foreseeability is required for the strict liability tort of conversion. The obvious candidate seems to me that stated in France v Gaudet, namely, express notice or special knowledge."
[74] The claim for damages for detention of the purlin machine was based on the special profitability of the Taschner arrangements. The defendants were given no notice of these arrangements. The plaintiffs did not suggest that the purlin machine could have generated profits in the ordinary course of their business, the loss of which was compensable. For these reasons, the learned trial judge's assessment of damages cannot be sustained.
The counterclaim
[75] In relation to the counterclaim, his Honour accepted the evidence of Mr Ernestine, which his Honour summarised as follows:[40]
"There are also differences in the versions of the two sides as to how the arrangement came about. According to Ernestine, general conversation on the Gold Coast in January 2001 turned to discussions between them about the business which the Ernestines had conducted in the Seychelles since 1984. Ernestine said that he told St Ange that he was contemplating starting a business in Perth and getting his brother to be partners with him, with his brother running the business. He says that St Ange said in response to this, "Why don't we do business here on the Gold Coast?", and that initiated discussions about their going into business together. Ernestine said that he had machines in the Seychelles that could be brought into Australia to 'do a good business' with and St Ange asked him to jot down on a piece of paper what he had in mind, and he did so. He said he arrived at prices for the various items of machinery on the basis that they were reasonable prices. He states that he told St Ange that the overall price was a very good one and that to buy the machines would normally cost double that amount. Ernestine also says that the prices placed on the machinery reflected his know-how in the business, the expertise he had, and his ties with Blue Scope Steel (he is the agent for them in the Seychelles). He would know about any problems with the machines and could repair them without having to call in engineers, and thus keep maintenance costs low. He said that this was explained to St Ange and that St Ange understood it. He also said that he told St Ange that they could conduct the business for anything up to 2 years, and if they did not like it then, and wished to get their money out, they could sell it without difficulty, as there were a lot of people immigrating to Australia, mainly to the Gold Coast. He also said that he thought the lace work (lambrequin) would do very well on the Gold Coast. He said he knew from his experience, that the machines would make a profit, and he told St Ange so. He also told St Ange that they would have a good share of the market on the Gold Coast, because the machines could use the same material as was being used there, that is, colorbond steel. He said the proposition he discussed with St Ange was that if they were not happy with the business after they had set it up and got it running, they would be able to sell for a good profit later down the track. As earlier indicated, this evidence is in conflict with that of St Ange on the subject, who denies that the prices nominated by Ernestine were on the basis of their being part of an operating business." (emphasis added)
[76] It is apparent from Mr Ernestine's evidence, which his Honour accepted, that Mr Ernestine told Mr St Ange that the overall price attributed to the partnership machinery, a half interest in which was to be purchased by the first defendant, "would normally cost double that amount". Such a representation was plainly intended, and certainly apt, to induce the defendants to agree to acquire their half interest in the partnership machinery for the contract amount, namely $169,006.45. The learned trial judge seems to have overlooked the clear thrust of the defendants' case in this regard. The obvious inference to be drawn from Mr Ernestine's admitted representations that the machinery would normally cost twice the amount he proposed as the fair market value of the machinery is that the defendants were, in fact, induced thereby to agree to pay $169,006.45 for a half interest in the machinery. As Wilson J said in Gould v Vaggelas:[41]
"If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.
The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, was either possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation."
There was nothing in the evidence to rebut the inference that Mr Ernestine's representation, that the value of the goods was twice that proposed to be adopted in the contract of sale, played a part "even if only a minor part in contributing to the formation of the contract".[42]
[77] Mr Ernestine's representation was to the effect that the partnership machinery was worth approximately $676,025.80. At trial, Mr Veal and Mr Cotton were called to give evidence as to the value of the machinery. The evidence of Mr Veal was to the effect that the partnership machinery was worth between $203,000 and $213,000, although, in special market conditions, it may have been worth more. The evidence of Mr Cotton was to the effect that the machinery was worth $32,250. The bill of lading completed by Mr Ernestine suggested that the machinery was worth $17,340. There is also the circumstance that, by the time of trial, the plaintiffs were not even moved to collect the goods. It was said that the plaintiffs had difficulty in raising the necessary Australian currency to meet the port charges for the machinery; but even making every allowance for that difficulty, all these circumstances tend strongly to suggest that Mr Ernestine's representations of value were, to say the least, highly questionable.
[78] The learned trial judge made no finding as to the actual value of the partnership machinery in July 2001, but accepted that the plaintiffs "honestly stated the position in relation to the price of the machinery". In reaching this conclusion the learned trial judge treated the partnership machinery as an asset of a going concern. It is, with respect, difficult to see why the learned trial judge thought it appropriate to approach the determination of the value of the machinery on this footing. At the point of the introduction of the machinery to the partnership, the partnership was not a going concern, and no-one (least of all the plaintiffs) was offering a guarantee that the proposed partnership business would become a profitable business which could be sold as a going concern. Be that as it may, to the extent that the machinery may be assumed to have commanded a higher price as an asset of a profitable business sold as a going concern, even on Mr Ernestine's evidence, that assumption formed no part of Mr Ernestine's representation that the machinery "would normally cost double the amount".
[79] In my respectful opinion, his Honour failed to come to grips with the point that Mr Ernestine's representations about the value of the partnership chattels were plainly unsupportable, and plainly apt to induce the defendants to agree to enter into the contract of sale. I am, therefore, driven to the conclusion that the learned trial judge erred in failing to conclude that the defendants had been induced to enter the contract of sale by misleading and deceptive conduct on the part of the plaintiffs. His Honour should have concluded that the first plaintiff had contravened s 52 of the Trade Practices Act. In my respectful opinion, this Court should so conclude.
[80] So far as the quantum of damages under s 82 of the Trade Practices Act was concerned, the machinery was plainly worth something, but the defendants failed to prove what it was truly worth. Because the evidence tendered to establish the value of the machinery the subject of the contract of sale was regarded by his Honour as being of a quality which could not be acted upon to come to any reliable conclusion as to the true market value, the defendants were unable to establish the extent to which the true market value of the goods was less than they agreed to pay. Consequently, the defendants failed to secure findings which would enable them to establish the measure of damages recoverable by the first defendant under the right of action conferred by s 82 of the Trade Practices Act. It is well settled that a failure by a party to prove the true worth of goods procured under the influence of misleading and deceptive conduct is a fatal deficit in a claim for damages measured by reference to the difference between the true value of the goods and the price which the buyer was induced to pay.[43]
[81] The defendants are, however, in my respectful opinion, entitled to relief under s 87 of the Trade Practices Act. The power conferred by s 87 of the Trade Practices Act can be exercised if it is likely that loss or damage will result from a contravention of s 52 of the Act. Section 87(1A) of the Trade Practices Act provides that:
"the Court may … on the application of a person who … is likely to suffer, loss or damage by conduct of another person … in contravention of [a provision of] Part … V … make such … orders as the Court thinks appropriate against the person who engaged in the conduct … if the Court considers that the order … concerned will … prevent or reduce the loss or damage … likely to be suffered, by such a person."
Under s 87(2)(a) of the Trade Practices Act, the Court may make an order declaring a "contract made between the person who … is likely to suffer, the loss or damage and the person who engaged in the conduct … to be void and, if the Court thinks fit, to have been void …". It is well-established that the range of remedies made available by s 87 of the Trade Practices Act enables the Court to do justice in order to return an innocent party to the position it would have been in had the misleading conduct not occurred.[44]
[82] In the present case, the circumstances to which I have referred in para 77 above support the conclusion that it is likely that the defendants will suffer loss if they are left to their rights to a half interest in the partnership machinery. His Honour made no finding as to the true value of the machinery: it is, therefore, not necessary to set aside a finding favourable to the plaintiffs.
[83] Avoidance of the contract of sale from 31 October 2001 by which date the port costs had been incurred by the defendants will prevent the likelihood of that loss. Avoidance of the contract would mean that the first plaintiff would be left with 100 per cent ownership of the partnership machinery while being obliged to repay the price actually paid by the first defendant for its 50 per cent share, namely $152,585 advanced for the purchase of the Hope Island house, and $9,000 paid for port charges. There is basic justice in leaving the plaintiffs to bear the risks associated with the value of the partnership machinery.
[84] This conclusion gives rise to a further question in relation to the entitlement of the second plaintiffs to the release of the mortgage given by them to secure the repayment of the loan advanced to enable them to buy the Hope Island property. The second plaintiffs were entitled to have the mortgage discharged when the contract of sale was "completed". The question which arises is whether it can be said that the contract which has been avoided can be said to have been "completed".
[85] The mortgage was given to secure repayment of the loan but the parties agreed that in the event that the contract of sale was performed by the plaintiffs the mortgage would be discharged. In substance, the parties' agreement was that the defendants would forego their charge on the Hope Island property as security for the repayment of the loan upon the plaintiffs' performance of the contract of sale: in return for a charge over the Hope Island property, the defendants would hold a half interest in the chattels the subject of the contract of sale. The avoidance of the contract of sale means that the entitlement of the second plaintiffs to a discharge of the mortgage cannot arise because the contract, completion of which gave rise to that entitlement, has been avoided albeit retrospectively.
[86] The plaintiffs did not seem to dispute that retrospective avoidance of the contract of sale would mean that they were not entitled to the discharge of the mortgage. Rather, the plaintiffs' argument focussed upon whether relief under s 87 of the Trade Practices Act was available to the defendants. The plaintiffs argued that relief under s 87 of the Trade Practices Act should be refused because any loss suffered, or likely to be suffered, by the defendants was not loss suffered "by" the conduct of the plaintiffs for the purpose of s 87 of the Trade Practices Act, but loss suffered because that loss was a consequence of the defendants' wrongful repudiation of the contract of sale. There are a number of difficulties with this argument. In the first place, the plaintiffs' case, which succeeded at trial, was not that the plaintiffs had terminated the contract of sale by reason of the defendants' repudiation, but that the plaintiffs had performed their contractual obligations. Secondly, the defendants' loss, said to justify s 87 relief, flows not from any breach of contract but from the making of the contract of sale as a result of the misleading representations of the plaintiffs. The purpose of relief under s 87 of the Trade Practices Act is to relieve the defendants of the bargain which they were induced to make, not to enforce that bargain.
[87] In my respectful opinion, the plaintiffs' submission depends on far too narrow a view of the remedial purpose of s 87 of the Trade Practices Act. There is nothing in the language of s 87 to suggest that loss suffered, or likely to be suffered, by reason of the termination of a contract is not capable of attracting a remedy under that provision so long as the loss can sensibly be said to have been incurred, or likely to be incurred, by reason of the making of the contract in consequence of misleading conduct. The language of s 87(2)(a) expressly contemplates that a contract made as a result of misleading conduct may be avoided and the rights accrued under the contract set aside by an order made under that section.
[88] I am, therefore, of the opinion that by reason of the avoidance of the contract of sale, the entitlement of the plaintiffs to a discharge of the mortgage does not arise.
[89] The mortgage contains the usual "all moneys" clause. It is apt to secure the repayment to the defendants of the moneys which the plaintiffs were obliged to pay by way of port charges.
[90] The orders proposed by the defendants provide for the repayment by the plaintiffs of the amount of the advance and the port charges less the sum due to the plaintiffs in respect of the credit card transaction. This sum was said to be $151,295. The plaintiffs did not dispute either this approach or the defendants' calculations.
Conclusion and orders
[91] The defendants' appeal should be allowed, and the following orders made:
(a) set aside declarations and orders made below;
(b) set aside the dismissal of the counterclaim;
(c) the contract of sale is avoided from 31 October 2001, and the first plaintiff is to repay to the first defendant the sum of $151,295 and the defendants are to release to the plaintiffs all machinery and property noted in the bills of lading;
(d) the first plaintiff is to pay to the second defendant interest on the sum of $151,295 from 31 October 2001 at the rate of seven per cent per annum pursuant to s 47 of the Supreme Court Act 1995 (Qld);
(e) set aside the order for costs of the trial, and order instead that the plaintiffs pay 75 per cent of the defendants' costs of the trial.
[92] It is not necessary or appropriate to make any orders in relation to the enforcement of the defendants' rights under the mortgage.
[93] The defendants enjoyed substantial success on the appeal. The plaintiffs should pay the defendants' costs of the appeal.
[94] ATKINSON J: I agree with the reasons for judgment of Keane JA and with the orders he proposes.
Footnotes
[1] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [1].
[2] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [2].
[3] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [4].
[4] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [5] – [8].
[5] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [11].
[6] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [11].
[7] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [8].
[8] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [15].
[9] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [15].
[10] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [17].
[11] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [24].
[12] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [62].
[13] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [24].
[14] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [26].
[15] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [29] – [31].
[16] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [34].
[17] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [42].
[18] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [61].
[19] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [68].
[20] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [68].
[21] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [79] – [81].
[22] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [69] – [75].
[23] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [63] – [64].
[24] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [65] – [67].
[25] See CSR Ltd v Della Maddalena (2006) 80 ALJR 458 at 465 – 466 [16] – [23].
[26] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [57].
[27] Pratten v Pratten [2005] QCA 213 at [60] – [61], Appeal No 158 of 2005 and Appeal No 159 of 2005, 17 June 2005.
[28] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [44].
[29] [1892] AC 166.
[30] [1973] QB 195 at 201.
[31] [1892] AC 166 at 174 – 177.
[32] [1892] AC 166 at 171.
[33] [1892] AC 166 at 172.
[34] See also Greenwood v Bennett [1973] QB 195.
[35] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [69] – [75].
[36] (1933) 48 CLR 457 at 476 – 477.
[37] (2002) 4 VR 252 at 255 – 256 [9] (citations footnoted in original).
[38] (2002) 4 VR 252 at 276 – 277 [58].
[39] (2002) 4 VR 252 at 280 [64].
[40] Rapid Roofing Pty Ltd & Anor v Natalise Pty Ltd & Anor, unreported, McLauchlan DCJ, DC No 115 of 2002, 8 September 2006 at [15].
[41] (1984) 157 CLR 215 at 236. See also Smith v Chadwick (1884) 9 App Cas 187 at 196; Arnison v Smith (1889) 41 Ch D 348 at 369; Holmes v Jones (1907) 4 CLR 1692 at 1710.
[42] Gould v Vaggelas (1984) 157 CLR 215 at 236.
[43] See Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23 at 37; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 7, 13 – 14; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 512; JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 245 – 246, 250; Ray Teese Pty Ltd v Syntex Australia Ltd [1998] 1 Qd R 104 at 110, 115; [1996] QCA 259; Robertson Street Properties Pty Ltd v RPM Promotions Pty Ltd [2005] QCA 389, Appeal No 4264 of 2005, 21 October 2005 at [5], [45] – [49].
[44] Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 365.