Ange v First East Auction Holdings Pty Ltd
[2011] VSCA 335
•8 November 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2010 0029
| MIMI ANGE | Appellant |
| v | |
| FIRST EAST AUCTION HOLDINGS PTY LTD (ACN 083 112 505) | Respondent |
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| JUDGES | NEAVE and TATE JJA and SIFRIS AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 27 September 2011 |
| DATE OF JUDGMENT | 8 November 2011 |
| MEDIUM NEUTRAL CITATION | [2011] VSCA 335 |
| JUDGMENT APPEALED FROM | First East Auction Holdings Pty Ltd v Ange [2010] VSC 72 (Hargrave J) |
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CONTRACT – Paintings consigned for auction under written consignment agreement – Agreement purported to incorporate auctioneer’s general conditions of business – General conditions were not attached but had previously been provided to appellant - Whether general conditions incorporated by reference.
CONTRACT – Frustration – Whether order of Family Court requiring appellant to withdraw paintings from sale frustrated consignment agreement – Where agreement specifically provided for situation where seller restrained from consigning paintings.
CONTRACT – Penalty – Whether penalty doctrine applies where alleged penalty triggered in absence of breach of contract – Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292.
TRADE PRACTICES – Unconscionable conduct – Paintings consigned for auction by wife – Matrimonial dispute with husband – Husband and wife both legally represented in dispute – Auctioneer knew of legal representation and of disputed ownership of the paintings – Whether auctioneer’s conduct in nevertheless entering into consignment agreement with wife was unconscionable – Trade Practices Act1974 (Cth) ss 51AB and 51AC.
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| Appearances: | Counsel | Solicitors |
| Appellant | D J O’Callaghan SC with R L Kaye | Rigby Cooke |
| Respondent | R Kendall QC with M T Lapirow | Simon Parsons & Co |
NEAVE JA:
I agree with Sifris AJA.
TATE JA:
I agree with Sifris AJA.
SIFRIS AJA:
Introduction
‘Midsummer Eve’ was painted by Frederick McCubbin between 1906 and 1912 (‘the McCubbin’). According to Geoffrey Smith, Director and National Head of Art at Bonhams and Goodman,[1] it is ‘one of McCubbin’s most significant paintings remaining in private ownership’ and is ‘a masterpiece of Australian art.’
[1]The respondent, First East Auction Holdings Pty Ltd, trades as and traded at all relevant times as Bonhams & Goodman (‘Bonhams’).
The painting appears on page 29 of a glossy catalogue compiled by Bonhams. The catalogue was prepared for an Australian and International Fine Art Auction that took place on Wednesday 6 May 2009 in Melbourne (‘the May Auction’).
The catalogue is most impressive and professional. Its features Russell Drysdale’s ‘The Drover’s Wife’ on the cover and was available for purchase at a cost of $30. Page 5 contains a welcome and introduction by Mr Smith.
There are 76 lots listed in the catalogue. The artists are among the very best Australia has to offer. There are paintings by Drysdale, Streeton, Lindsay, Perceval, Rees, Nolan, Pugh, Olsen, Boyd, Gleeson and Tucker. The highlight was undoubtedly the McCubbin, which had an estimated price range of $800,000 – $1,200,000.
The provenance of the lots listed in the catalogue included Lady de Chair (by descent), Lady Hamilton Fairley (by descent), the Lustig & Moar Corporate Art Collection and the Queensland Art Gallery. However, 22 of the paintings (about 30% of the lots to be auctioned) were put up for sale by the appellant, Mrs Ange. It was anticipated that these paintings, which included the McCubbin, another McCubbin, and several paintings by Streeton and Lindsay among others, would account for about 50% of the total revenue from the May Auction.
This appeal is concerned with the enforceability of a contractual clause under which Mrs Ange was required to pay a fee to Bonhams if the paintings were withdrawn from the May Auction, as occurred. Mrs Ange argued, amongst other things, that the clause was not incorporated into the contract she had made with Bonhams and was, in any event, a penalty rather than a genuine pre-estimate of damages. On 16 March 2010, a judge of the Trial Division held that the clause formed part of the contract, was enforceable against Mrs Ange, and accordingly that the withdrawal fee was payable to Bonhams. Mrs Ange appeals against that decision and other findings made by the trial judge. Bonhams has filed a notice of contention.
Background
Mrs Ange and her estranged husband, Con Ange, bought and sold a number of expensive paintings during the course of their marriage.
Bonhams, an auctioneer of, among other things, fine art, was engaged by Mr and Mrs Ange on various occasions.
Mrs Ange first met Mr Timothy Goodman, the Chairman and Chief Executive Officer of Bonhams, in November 2000 when she attended an auction conducted by Bonhams and purchased a number of artworks. Mr Ange met Mr Goodman in about 2002. From that time onwards, Mr Ange had a number of dealings with Bonhams, including purchasing paintings at auctions conducted by Bonhams and in 2005, he consigned a painting to Bonhams to sell. Mrs Ange also continued to have dealings with Bonhams, including purchasing furniture in 2005. Mr Goodman was keen to maintain the relationship with the Anges in light of their obvious wealth and interest in fine art, furniture and jewellery.
On 26 June 2007, Mr Goodman and Mr Smith attended a meeting at Mr and Mrs Ange’s home (‘the 2007 Meeting’). The purpose of the meeting was to follow-up on a discussion between Mr Ange and Mr Goodman during which Mr Ange had indicated that he may be interested in consigning some paintings to Bonhams for sale. Initially, it was proposed that Mrs Ange would consign two paintings for sale. Mr Smith prepared the relevant consignment agreement but before it was signed, the decision was made not to consign one of the paintings. Following further negotiation, Bonhams also agreed not to charge any seller’s commission or its standard insurance charge.
At trial, there was a dispute between the parties concerning the conversations that took place at the 2007 Meeting and in particular, an allegation that Mr Ange told Mr Smith and Mr Goodman that Mrs Ange was the owner of the art collection. The trial judge accepted the evidence of Mr Goodman and Mr Smith to the effect that Mr Ange said the paintings belonged to Mrs Ange, and that it was Mrs Ange who negotiated the commission rate and fees. These findings were open to the trial judge on the evidence and it is not suggested otherwise by Mrs Ange.
In December 2007, Mr and Mrs Ange separated. Mrs Ange remained in the family home and initially, Mr Ange provided her with financial support. However, over time the level of financial support decreased and by late 2008, Mrs Ange was becoming concerned about her ability to pay mounting debts and living expenses.
Mrs Ange contacted Mr Smith and requested that he value the art collection. On 22 December 2008, Mr Smith and his associate, Marika Clenow, attended the home to value the paintings. Mrs Ange gave evidence that she told Mr Smith that Mr Ange had stopped providing her with money and that she may have to sell the artwork at a later stage. Bonhams prepared the valuation and posted it to Mrs Ange on 20 January 2009.
In February 2009, Mrs Ange requested that Bonhams store the art collection for her. Mr Smith agreed that Bonhams would do so and, hoping to secure Mrs Ange’s agreement to consign some of the paintings for auction, agreed not to charge her any fees for storage (although transport costs were charged).
On 24 February 2009, Bonhams collected the paintings for storage. A few days later, Mrs Ange received a consignment agreement form dated 24 February 2009 prepared by Bonhams (’24 February 2009 Consignment Agreement’) in the mail. The document was four pages and was the then-current version of Bonhams’ standard form used to record agreements it reached with sellers to consign items for auction. Significantly, attached to the 24 February 2009 Consignment Agreement, was a three page document titled ‘General Conditions of Business of Bonhams As at 19 June 2008’ (‘the General Conditions’).
The 24 February 2009 Consignment Agreement listed the paintings which had been sent by Mrs Ange to Bonhams for storage. It was endorsed with the words ‘For Storage Purposes’ and was stamped ‘Please Sign & Return’. Mrs Ange did not sign or return the 24 February 2009 Consignment Agreement. Rather, she treated it as a receipt. Further, she said (and the trial judge accepted) that she did not read the signature clause on the 24 February 2009 Consignment Agreement which referred to the General Conditions, or the General Conditions themselves, which were attached.
In the period between her receipt of the 24 February 2009 Consignment Agreement and 20 March 2009, the closing date for the consignment of items to be included in the catalogue for the May Auction, Mrs Ange spoke to Mr Smith approximately six times. She also engaged in email correspondence with him concerning the consignment of paintings for sale at the May Auction. Mr Smith gave evidence that Mrs Ange was ‘toing and froing’ about whether to consign the paintings. Significantly, she asked Mr Smith what would happen if she changed her mind after committing to consign the paintings and what would happen if Mr Ange objected to her selling the paintings. Mr Smith gave evidence, which the trial judge accepted, that he told Mrs Ange that there would be ‘substantial withdrawal fees’ if she changed her mind after consigning the paintings and that she ‘should speak to her lawyer’ in respect of her concerns about Mr Ange.
During the course of these conversations, Mr Smith told Mrs Ange that if she agreed to offer the paintings for sale in the May Auction, Bonhams was prepared to offer a discount on the seller’s commission. Mrs Ange negotiated a 0% seller’s commission and a 0% insurance levy.
On 20 March 2009, the last day for inclusion of paintings in the catalogue for the May Auction, Mr Smith telephoned Mrs Ange twice to see if she had decided to consign the paintings for sale. During the second telephone call, after speaking to her lawyer, Mrs Ange agreed to consign some paintings for sale by Bonhams at the May Auction.
The trial judge found that given the lateness of Mrs Ange’s decision, it would have been difficult for Bonhams to prepare a new consignment agreement listing the paintings to be auctioned. Instead, Bonhams amended the first page of its copy of the 24 February 2009 Consignment Agreement to record the oral agreement not to charge a seller’s commission, insurance or other fees. Bonhams then made further photocopies of the four pages as amended. On its copy, it struck out the works ‘For Storage Purposes’. It highlighted in yellow on its copy and the other photocopy the paintings to be auctioned. Finally, Bonhams prepared a separate list of the paintings to be sold, including the estimated selling range and the reserve (‘the List of Paintings’). Notably, the General Conditions were not attached to the photocopies of the 24 February 2009 Consignment Agreement or the List of Paintings.
Later on 20 March 2009, a junior employee of Bonhams went to Mrs Ange’s home to obtain her signature on the documents. At trial, all parties accepted that Mrs Ange signed nine times, affixing her signature to each page of the two copies of the amended photocopy of the 24 February 2009 Consignment Agreement and the first page of the List of Paintings. These documents formed the agreement made between Bonhams and Mrs Ange on 20 March 2009 and will be referred to as the ‘Agreement’.
In the interim, on 12 March 2009, Mr Goodman had a meeting with Mr Ange. By this time, Mr Ange had received a copy of the valuation of the art collection prepared in January 2009. Mr Ange told Mr Goodman that Mrs Ange was not the owner of the art collection and that it was either owned by him or by them both jointly. Mr Ange said that he objected to the sale of the art collection. Mr Goodman replied that Mrs Ange was his client and that Mr Ange should seek legal advice.
On 24 March 2009, after Mrs Ange had signed the Agreement, Mr Ange telephoned Mr Goodman and objected to the paintings being auctioned. Mr Goodman again told him to get legal advice.
By letter dated 3 April 2009 to Mrs Ange, Mr Ange’s solicitors threatened to seek an injunction to restrain the sale of the paintings in the May Auction. No agreement was reached between Mr and Mrs Ange and on 4 May 2009 Mr Ange made an application to the Family Court of Australia for the injunction. On 5 May 2009, the court granted an injunction and required Mrs Ange to withdraw the paintings from sale.
By facsimile dated 6 May 2009, received at some time in the afternoon, Mrs Ange gave Bonhams written notice requesting that the paintings be withdrawn from the May Auction due to be held that evening (‘Withdrawal Notice’).
The dispute between Mrs Ange and Bonhams
Following receipt of the Withdrawal Notice, Bonhams sent Mrs Ange a tax invoice requiring payment of $749,284.80, being the ‘Withdrawal Fee in accordance with your written instructions of 6 May, 2009 and in accordance with clause 11.4 of our General Conditions of Business,’ related legal fees and GST. Mrs Ange refused to pay the invoice and Bonhams issued proceedings in the Trial Division of this Court, claiming the withdrawal fee or alternatively, unliquidated damages for breach of the Agreement.
The Agreement signed by Mrs Ange, over which there is much dispute, referred to the General Conditions. As at 19 June 2008, clause 11 of the relevant version of the General Conditions provided for a withdrawal fee payable in the event that paintings were withdrawn after having been consigned for auction. The withdrawal fee was expressed as a percentage of the higher of:
(a) the average of the Estimated Selling Range high and low estimates; and
(b) the Agreed Reserved.
The percentage depended on when the withdrawal took place. The closer to the auction, the higher the withdrawal fee.
As noted above, on 16 March 2010, a judge of the Trial Division delivered judgment in favour of Bonhams. His Honour held that Bonhams’ General Conditions were incorporated into the Agreement between the parties. His Honour further held that the withdrawal fee was not void as a penalty, that the contract was not frustrated and that Bonhams had not engaged in unconscionable conduct within the meaning of ss 51AB or 51AC of the Trade Practices Act 1974 (Cth) (‘TPA’).
The trial judge said that if the withdrawal of the paintings was a breach of the Agreement, contrary to his opinion, or if the law of penalties applies to a contractual term not directed to the consequences of any breach, he would have held that clause 11.4 was a penalty.
The trial judge also held that if, contrary to his decision, the General Conditions were not incorporated into the Agreement, it nevertheless contained an implied warranty by Mrs Ange that she was entitled to sell the paintings. She had breached that implied warranty and Bonhams would have been entitled to recover damages assessed at $446,720.
Ultimately, the trial judge ordered that Mrs Ange pay to Bonhams the amount of the withdrawal fee (and GST) in the sum of $731,280, together with damages in respect of legal costs. The assessment of such damages was referred to an Associate Judge of the Court.
Issues raised on appeal
Mrs Ange appeals against the decision of the trial judge. Her Amended Notice of Appeal contains 10 grounds and at the hearing of the appeal, her counsel made application to add a further ground of appeal.[2] The grounds of appeal are, broadly speaking, directed to the following matters:
[2]Although leave to add ground 10 was not formally granted, both sides argued the substance of the ground and accordingly, I would grant the necessary leave.
(a)the trial judge’s finding that Bonhams’ General Conditions were incorporated into the Agreement of 20 March 2009[3];
(b)the trial judge’s finding that clause 11 of the General Conditions was not void as an unenforceable penalty[4];
(c)the trial judge’s failure to find that the orders of the Family Court on 5 May 2009 frustrated the Agreement[5];
(d)the trial judge’s failure to find that Bonhams had engaged in unconscionable conduct[6];
(e)the trial judge’s finding that if the General Conditions were not incorporated, the Agreement contained an implied warranty that Mrs Ange was entitled to consign the paintings for auction[7];
(f)the trial judge’s determination of the likely sale price of the McCubbin[8]; and
(g)the trial judge’s finding that Bonhams withdrew the lots within the meaning of clause 11.4 and that Mrs Ange was therefore liable to pay its expenses or withdrawal fee, when in order to trigger the withdrawal fee under clause 11.4, Bonhams was required to give notice in writing and it failed to give such notice.[9]
[3]Grounds 1 and 2.
[4]Grounds 3, 4, 5 and 6.
[5]Ground 7.
[6]Ground 8.
[7]Ground 8A.
[8]Ground 9.
[9]Ground 10.
For its part, Bonhams has filed a Notice of Contention directed to the trial judge’s alternative ‘findings’ on the penalty point referred to in paragraph 31 above.
Each of these matters is considered below.
Incorporation of the General Conditions
The trial judge held that although the General Conditions were not attached to the Agreement signed by Mrs Ange on 20 March 2009, they were nonetheless incorporated. His Honour noted that the signature clause immediately above Mrs Ange’s signature on the Agreement stated that it was subject to Bonhams’ General Conditions and contained an acknowledgement by the signatory (Mrs Ange) that she had read and accepted those conditions. The trial judge acknowledged that this alone did not determine whether the General Conditions were incorporated. The question remained as to whether Bonhams took reasonably sufficient steps to bring the General Conditions to Mrs Ange’s attention.
His Honour identified four matters which he considered, in combination, provided a sufficient basis to conclude that Bonhams took reasonable steps to bring the General Conditions to Mrs Ange’s attention. In summary, his Honour’s reasons were that :
(a)Mrs Ange had been in possession of the 24 February 2009 Consignment Agreement, which included the General Conditions, for approximately three weeks when she signed the Agreement on 20 March;
(b)Mrs Ange and Bonhams knew that the Agreement was an amended photocopy of the 24 February 2009 Consignment Agreement. Consequently, if Mrs Ange had read the acknowledgement above the signature clause, she would have known that the reference to General Conditions being ‘attached’ was a reference to the General Conditions attached to the 24 February 2009 Consignment Agreement, which were in her possession;
(c)Mrs Ange’s conduct in delaying her decision to consign the paintings until a few hours before the deadline meant there was little time left to prepare a fresh consignment agreement;
(d)20 March 2009 was not the first time Mrs Ange had consigned a painting to Bonhams for auction and while there were not sufficient dealings to justify a finding of incorporation by conduct, the history of the relationship was relevant to the question of whether Bonhams took reasonable steps to bring the General Conditions to Mrs Ange’s attention.
The trial judge also held that the withdrawal fee term was not ‘so exceptional, unusual and unexpected’[10] that it would only be incorporated if Bonhams could establish that it took reasonably sufficient steps to draw it to Mrs Ange’s attention. In any case, the trial judge found that prior to Mrs Ange signing the Agreement, Mr Smith told her that substantial withdrawal fees would be payable if she withdrew the paintings after consigning them for auction (although he did not specifically draw her attention to clause 11).
[10]First East Auction Holdings Pty Ltd v Ange [2010] VSC 72, [149].
Mrs Ange’s Amended Notice of Appeal raises two grounds directed at the trial judge’s finding that the General Conditions were incorporated. Ground 1 asserts that the trial judge was in error in law in finding that the General Conditions were incorporated. Ground 2 contends that his Honour was in error in determining that the General Conditions formed part of the 24 February 2009 Consignment Agreement and were not provided to Mrs Ange as a receipt.
Counsel for Mrs Ange submitted that the reasons given by the trial judge (whether viewed individually or taken together) failed to support his Honour’s conclusion that Bonhams took reasonably sufficient steps to bring the General Conditions to Mrs Ange’s notice. Further, counsel submitted, relying on Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd,[11] that the General Conditions were ‘unusual or onerous’ and in circumstances where Mrs Ange had not read them, special steps were required to bring them to her attention.
[11][1998] 4 VR 559 (‘Maxitherm’).
Bonhams contended that the statement from Maxitherm relied on by Mrs Ange was only clearly applicable in the case of unsigned documents. It submitted that the law governing the incorporation of terms into a signed contract is set out in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[12] It relied in particular on the following passage:[13]
…The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document…
[12](2004) 219 CLR 165.
[13]Ibid, 185.
Bonhams submitted that there was sufficient evidence to justify the trial judge’s findings and the legal conclusions. It emphasised that Mrs Ange had kept the 24 February 2009 Consignment Agreement, which attached the General Conditions, that the trial judge had found that Mrs Ange was ‘clearly no fool,’[14] that there had been prior dealings between Mrs Ange and Bonhams in 2007 when Mrs Ange signed a consignment agreement attaching the General Conditions, albeit in a slightly different form, and that Mr Smith had given evidence (which the trial judge accepted) that he had told Mrs Ange that if she withdrew the paintings she would have to pay substantial withdrawal fees.
[14]First East Auction Holdings Pty Ltd v Ange [2010] VSC 72, [93].
In my opinion, the General Conditions formed part of the Agreement.
It is common ground that each page of the Agreement (except for the List of Paintings) had a clause immediately above where Mrs Ange signed, which referred to the General Conditions and stated that such General Conditions were attached. Both parties accept that the General Conditions were not attached. Despite this, Mrs Ange signed her name, acknowledging that she had read the General Conditions and accepted them.
As pointed out, in the haste to ensure the paintings could be included in the May Auction catalogue, the Agreement was derived and put together or assembled, from the 24 February 2009 Consignment Agreement. The four pages comprising the 24 February 2009 Consignment Agreement were redated 20 March 2009 and each page was signed by Mrs Ange. Bonhams had already signed the document in February 2009. Mrs Ange had not. It is apparent from the document that the previous date, namely 24 February 2009, remains visible. The front page of the document has however, been modified to reflect the position negotiated by Mrs Ange, namely, that the seller would not pay any commission or insurance, and other offer fees were deleted. Otherwise, the document was the same document that was sent to Mrs Ange on 24 February 2009. Importantly, it is this document, which before modification, attached the General Conditions.
The General Conditions may have been irrelevant to the storage agreement recorded in the 24 February 2009 Consignment Agreement, yet they were referred to as being attached and were in fact attached.
Although the Agreement differed from the 24 February 2009 Consignment Agreement and had been amended, the General Conditions referred to remained the same. In the transmutation of the 24 February 2009 Consignment Agreement to the Agreement, by use of the very same document, the General Conditions were consistent and more importantly, were attached to the version before adaptation with an express indication that those very same terms would apply.
Put another way, when Mrs Ange signed the Agreement on 20 March 2009, she placed her signature immediately to the left of the date stated as 24 February 2009. This was the date that she was sent the 24 February 2009 Consignment Agreement. She would have known that this was the date of the 24 February 2009 Consignment Agreement and indeed, was a photocopy of that very document. Reference to the General Conditions appears a few lines up. Mrs Ange must have known that the General Conditions, attached to the 24 February 2009 Consignment Agreement, would now apply to the redated modified agreement.
If, as in many cases, the General Conditions were indeed attached or overleaf and formed part of the document, the fact that Mrs Ange did not read them would not be relevant.
In the present case, the General Conditions were not attached to the Agreement. However, it is apparent that Bonhams intended that the General Conditions apply to the Agreement. Further, this is what both parties assented to by signing the Agreement specifically acknowledging that the General Conditions would apply.
In Smith v South Wales Switchgear Co. Ltd,[15] the appellants had entered into an agreement with the respondents. An employee of the appellant was injured while carrying out work under the agreement and claimed against the respondents for damages. The court held that the incident had been caused by the respondents’ negligence and breach of statutory duty. The respondents sought to rely on an indemnity clause in their general conditions of contract, which they argued was incorporated into the agreement with the appellants.
[15][1978] 1 WLR 165.
The contract between the appellants and the respondents comprised a number of different documents, one of which was a purchase order which included the words ‘Please supply goods or services specified below subject to the instructions and conditions on the facts (sic) hereof and our general conditions of contract 24001, obtainable on request…’[16] The appellants did not request a copy of the general conditions, although sometime later, a copy of a particular version of the conditions was inadvertently sent to them as it was printed on the back of a purchase order.
[16]Ibid 170-171.
The court held that the respondents’ general conditions formed part of the contract. It considered that the reference to the general conditions clearly showed that the respondents intended them to be incorporated and the appellants never objected to this. That there were three possible versions of the general conditions did not prevent one version from being incorporated into the contract. It was sufficient that the purchase order clearly indicated the manner in which the general conditions could be ascertained, namely, by request.
Similarly, in Walker v Citigroup Global Markets Australia Pty Limited[17] a third letter of offer did not attach relevant conditions, despite the letter of offer stating that the conditions were attached. The court held that the conditions were incorporated and formed part of the contract as they had previously been provided to the offeree with the other offers.
[17](2006) 233 ALR 687.
Accordingly, in my opinion, the General Conditions in the present case form part of the Agreement between Mrs Ange and Bonhams. They were intended to form part of it. They were in the possession of Mrs Ange and were clearly and specifically incorporated by reference.
A further question arises as to whether Bonhams was required to give notice of the General Conditions to Mrs Ange. Precisely what steps are required (if any) to bring the terms to the notice of a party depends on the circumstances of the case.
In Maxitherm, Buchanan JA said that the inclusion of an unusual term in an unsigned document may ‘require its proponent to take special steps to bring it to the attention of the other party’[18] and ‘[w]hether special steps are required… will depend on the circumstances of each case’.[19]
[18](1998) 4 VR 559, 569.
[19]Ibid.
In Hyder Consulting (Australia) Pty Ltd v Wih Wilhelmsen Agency Pty Ltd,[20] one party to a contract argued that it should not be bound by particular Conditions of Engagement since it did not have actual notice of those conditions and they included an onerous provision. Relying on Maxitherm, the party said that the relevant question was whether it could reasonably be taken to have assented to the provisions and, on the basis of Baltic Shipping Co v Dillon (‘Mikhail Lermontov’)[21] that where limitation provisions were concerned, express consent or reasonable notice was required. Giles JA held that ‘the test is objective’[22] and that the nature of the term did not preclude the finding that it was incorporated. Rather, ‘it was not only a reasonable finding, but in the circumstances all but compelled.’[23]
[20][2001] NSWCA 313 (‘Hyder’).
[21](1991) 22 NSWLR 1, 8-9 and 24-25.
[22]Hyder [2001] NSWCA 313, [85].
[23]Ibid.
In my opinion the evidence in this case establishes that it was more probable than not that Mrs Ange was aware of the General Conditions at the time that she executed the Agreement on 20 March 2009. There are several reasons for such a conclusion.
First, the manner in which the document was prepared, as set out above, linking the new terms – completed on the same document – with the General Conditions in her possession. It is clear that the same terms and conditions applied to both the 24 February 2009 Consignment Agreement and the Agreement. Those very terms were not only in Mrs Ange’s possession, but by signing the Agreement, she acknowledged having read and accepted them. The fact that she may not have read them – if this be the case – is not relevant. There is nothing more that Bonhams should have done.
Secondly, Mr Smith gave evidence that before Mrs Ange signed the Agreement on 20 March 2009, he told her that substantial withdrawal fees would be payable if she withdrew the paintings from auction. The trial judge accepted that evidence. Consequently, although Mr Smith did not specifically discuss clause 11 with Mrs Ange, the withdrawal fee term was a term that she would have expected to find in the Agreement.
Third, there is cogent evidence that after Mrs Ange signed the Agreement, her solicitor was informed on at least three occasions that substantial withdrawal fees would be payable in the event that the paintings were withdrawn from the May Auction. The emails (one of which appears to include the General Conditions and specifically referred to the General Conditions being a part of the Agreement) were sent from Mr Goodman to Mrs Ange’s solicitor.[24] Although the emails post-date execution of the Agreement, they support a conclusion that the withdrawal fee term was known to Mrs Ange and her legal advisors at the time of signature. If the General Conditions had not been agreed or accepted, one would have expected Mrs Ange to have said something.
[24]The emails are dated 25 March 2009 (this email appears to attach the General Conditions), 3 April 2009 and 7 April 2009.
Mrs Ange’s conduct in the context of the Family Court injunction application was also inconsistent with her present claim that the General Conditions did not form part of the Agreement. At the Family Court hearing on 5 May 2009, counsel for Mrs Ange submitted that granting an injunction restraining Mrs Ange from selling the paintings would have ‘very severe consequences.’[25] He submitted that Mrs Ange should not be put in a position where she ‘is liable to have a judgment against her for $600,000.’[26] Further, Mrs Ange swore an affidavit which stated that she did not have the necessary financial resources to ‘meet the damages incurred by Bonhams and Goodman should the sale not proceed.’[27] The Judicial Register before whom the application was heard also noted that granting the injunction would give rise to a liability for $600,000 and an ‘unquantifiable…thing [being] the reputation of the auctioneer.’[28]
[25]Family Court Transcript T15.34.
[26]Family Court Transcript T18.19-20.
[27]Family Court affidavit of Mimi Ange sworn 5 May 2009 [24].
[28]Family Court Transcript T19.49 – 20.1.
At the Family Court hearing, no suggestion was made that Mrs Ange would defend any claim brought by Bonhams for withdrawal of the paintings on the basis that the withdrawal fee (or the General Conditions) were not incorporated. Nor did counsel reserve Mrs Ange’s position in respect of this issue. Mrs Ange’s position was unequivocal. One of her most important grounds for opposing Mr Ange’s application was that if the injunction was granted and the paintings were withdrawn from the auction, she would be liable to Bonhams for a sum in the order of $600,000.
Further and in any event, I agree with the trial judge that the withdrawal fee term was not so exceptional, unusual or unexpected that Bonhams was required to establish that it took sufficient steps to provide Mrs Ange with notice of the very term. In this regard, the previous course of dealing between the parties is also not without relevance.
Mrs Ange was aware of the nature of the term and in the circumstances, there was no obligation on the part of Bonhams to bring either the General Conditions or the particular term to the attention of Mrs Ange in the peculiar circumstances in which the Agreement was executed. The General Conditions formed part of the Agreement.
Frustration of the Agreement
At trial, Mrs Ange submitted that the Agreement was frustrated when the Family Court made orders restraining her from selling the paintings and ordering that she withdraw them from sale. The trial judge rejected this argument. His Honour held that since the General Conditions were incorporated and clause 11.6 of the General Conditions made express provision for the frustrating event relied upon, being an order of the court restraining the seller, the Family Court injunction did not frustrate the Agreement.
Ground 7 of Mrs Ange’s Amended Notice of Appeal provides:
…the Trial Judge was in error in law in failing to find that the effect of the orders made by the Family Court of Australia on 5 May 2009 to restrain the sale of the art work was to frustrate the consignment agreement of 20 March 2009 and therefore the entitlement of the Respondent to damages (if any) was governed by the Frustrated Contracts Act 1978 (NSW), or alternatively, s32ZG and following of the Fair Trading Act 1999 (Vic) (as amended).
Counsel for Mrs Ange submitted that irrespective of whether the General Conditions were incorporated, the Family Court order operated to frustrate the Agreement at law. If the General Conditions were incorporated the matter would be governed by the laws of Victoria. If they were not, New South Wales law would apply.
A further argument was based on the precise terms of clause 11.6. Clauses 11.1, 11.4 and 11.6 are in the following terms:
11.1A Seller may only withdraw a Lot from sale by written notice signed by the seller…
11.4If a Seller withdraws a Lot from sale after the Lot has been put on view at the sale venue or in the Company’s premises up to and including 28 days after the sale, the Seller shall pay to the Company the Expenses plus a withdrawal fee equal to 30% plus GST of the higher of:
(a)the average of the Estimated Selling Range high and low estimates; and
(b)the Agreed Reserve…
11.6If the Company or the Seller is restrained by order of any Court or other competent authority from selling a Lot or if the Company has reasonable cause for believing that either:
(a)the Company or the Seller is so restrained or otherwise not legally entitled to sell the Lot;
(b)the Seller is in breach of any one or more of the warranties of the Seller, or
(c)the description of the Lot given to the Company by the Seller is inaccurate or misleading in any material respect,
then the Company may by notice in writing to the Seller decline to sell the Lot in question and the Seller shall be deemed to have withdrawn the Lot from sale.
Counsel for Mrs Ange submitted that the clause only applied if Bonhams gave notice in writing declining to sell the lot. In the present case, Bonhams gave no such notice. Therefore it was argued that clause 11.6 had no application.
It was further submitted by counsel that according to Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[29] the test for frustration was whether the situation resulting from the grant of the injunction was fundamentally different from the situation contemplated by the contract. Since the subject and purpose of the Agreement was no longer available after the Family Court orders were made, the situation was fundamentally different, therefore the contract was frustrated.
[29](1982) 149 CLR 337 (‘Codelfa’).
In these circumstances, it was submitted that the Fair Trading Act 1999 (Vic) applied and provided that amounts payable under the discharged contract ceased to be payable. Counsel for Mrs Ange submitted that the Court should not allow Bonhams to recover money for expenses incurred.
Counsel for Mrs Ange submitted that the contract was also frustrated if the General Conditions were not incorporated, again on the basis that the subject and purpose of the Agreement was no longer available. In this situation, it contended that the Frustrated Contracts Act 1978 (NSW) governed the consequences of frustration and Bonhams would only be entitled to half of its expenses incurred in performing its part of the contract up until the date of frustration.
Counsel for Bonhams disputed these arguments. He accepted that Codelfa set out the test for frustration, but submitted that the situation after the Family Court injunction was not fundamentally different from that anticipated by the parties, since the General Conditions expressly provided for that situation. Further, even if the Agreement was frustrated, he submitted that it would be unjust for the Court to deny Bonhams the right to recover damages for the expenditure it incurred in preparing and promoting Mrs Ange’s paintings for sale, including producing the catalogue. He submitted that the matter should be referred to the trial judge for assessment of damages.
There is clear authority for the proposition that if an agreement makes express provision for what is to occur should certain events arise, the happening of those events does not ordinarily frustrate the contract. According to Carter, Peden and Tolhurst, this is because the express terms of the contract leave no room for the operation of the doctrine of frustration.[30]
[30]Carter, Peden and Tolhurst, Contract Law in Australia (2007, 5th ed) 772.
In Claude Neon Ltd v Hardie,[31] for example, the parties had entered into a contract for the hire of a neon sign, but the premises on which the sign was erected were resumed by the landlord. The court held that this event did not frustrate the contract, since it included a clause that deemed the hirer of the sign to have defaulted if his ‘interest’ in the premises was extinguished or transferred. The court considered that this term applied in the situation and that since the parties had expressly indicated the result which was to follow from the event (default under the contract), the contract could not be discharged under the doctrine of frustration.[32]
[31][1970] Qd R 93.
[32]Ibid 96.
As noted above, counsel for Mrs Ange properly conceded that if clause 11.6 applied, it made provision for who was to bear the risk if the identified events took place. However, he contended that in order to activate the clause, Bonhams was required to give the notice referred to in clause 11.6 and that failure to do so would not trigger the operation of clause 11.4, the relevant clause dealing with the withdrawal fee.
Accordingly, the critical issue in relation to frustration is simply whether Bonhams was required to comply with clause 11.6 by giving the requisite notice in circumstances where Mrs Ange had already given notice (on the very afternoon of the May Auction) of a request to withdraw the paintings from the May Auction because of the order made by the Family Court.
In my opinion, it would be unnecessary and indeed undesirable for Bonhams to have given notice pursuant to clause 11.6 when it had already received the Withdrawal Notice from Mrs Ange on the afternoon of 6 May 2009. What purpose would such notice serve? The effect of clause 11.6 and the notice referred to is to deem the seller to have withdrawn the paintings from sale. No such deeming was necessary as an actual withdrawal had taken place pursuant to the Withdrawal Notice. That the Withdrawal Notice was framed as a request asking Bonhams to withdraw the consigned paintings is a matter of semantics. This was merely a polite way of indicating that Mrs Ange was withdrawing the paintings. It may well be that the notice given by Mrs Ange (pursuant to clause 11.1) in any event attracted the operation of clause 11.4 thereby rendering the operation of clause 11.6 irrelevant in the circumstances. The result would be the same and clause 11.6 would not lose its significance as a risk allocator in the circumstances.
In my opinion, there is no error in the decision of the trial judge in relation to frustration. In light of my view, it is unnecessary to consider the consequences of frustration set out the legislation. The trial judge did not deal with this issue and I do not propose to do so.
Accordingly, appeal grounds 9 and 10 are not made out.
Penalty
The trial judge held that clause 11 of the Agreement, which provided for the imposition of a withdrawal fee, was not an unenforceable penalty because the doctrine of penalties only applies to contractual terms requiring payment in the event of breach. According to Export Credits Guarantee Department v Universal Oil Products Co[33], AMEV-UDC Finance Ltd v Austin[34] and more recently, Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd,[35] a term imposing an obligation to pay money on the occurrence of a specified event, other than breach, is not a penalty.
[33][1983] 1 WLR 399.
[34](1986) 162 CLR 170.
[35](2008) 257 ALR 292 (‘Interstar’).
The trial judge held that since clause 11 of the Agreement did not provide that withdrawal of an item from auction constitutes a breach, the doctrine of penalties had no application to the term requiring payment of a fee for withdrawing an item from auction. His Honour considered that the distinction between the two types of clauses was firmly established in the case law and it was not open to a judge at first instance to apply the penalty doctrine to the withdrawal fee term in these circumstances.
Grounds 3, 4, 5 and 6 of the Amended Notice of Appeal are directed towards the trial judge’s finding that clause 11 was not void as an unenforceable penalty. Mrs Ange contends that the trial judge erred in law in finding that the clause was not void as an unenforceable penalty, failing to find that clause 11 took effect upon breach, failing to find that withdrawal of the paintings by Mrs Ange was in breach of the Agreement and failing to find that the law of penalties was not limited to breaches of contract.
The submissions for Mrs Ange on the penalty issue centred on the correctness of the decision in Interstar. In that case, a judge of first instance in the New South Wales Supreme Court held that the doctrine of penalties extended beyond a term providing for the consequences of a breach of contract. The decision of Brereton J was subsequently reversed by the New South Wales Court of Appeal. After examining the conflicting authorities, Allsop P (with whom Giles and Ipp JJA agreed) held that the better view was that the payment complained of must be conditioned on a breach of contract.
In written submissions, counsel for Mrs Ange submitted that the Court should find the approach taken by the New South Wales Court of Appeal was plainly wrong and that the reasoning of the primary judge in the matter should be preferred. However, at the hearing of the appeal, Counsel properly acknowledged that the Court of Appeal’s decision was not plainly wrong. He did not abandon the point, but rather suggested that it was a matter that should be dealt with by the High Court (if necessary), rather than an intermediate appellate court.
Counsel for Bonhams submitted that there were compelling reasons for following the decision of the Court of Appeal in Interstar and that this Court should not depart from the practice of following the decision of another State’s appellate court on a common law principle.
The current state of the law in Australia is that a term of a contract that imposes an obligation on a party to pay money on the happening of a specified event which is not a breach of contract does not constitute a penalty. Primarily, this is because it is not the role of the court to relieve a party from a bad bargain.
In Interstar, in reversing the decision of Brereton J, the President of the New South Wales Court of Appeal, Allsop P said:
[106]In my view, the expression of view by the primary judge that the doctrine of penalties (distinguished from relief against forfeiture) in the common law of Australia (using that expression to mean, relevantly here, the general law encompassing common law and equity) was not limited to circumstances of breach of contract was not open to his Honour. The intermediate appellate authorities in Australia, the persuasive view of a unanimous House of Lords, existing High Court authority and other views expressed in the High Court constrained the primary judge (and constrain this court) to limiting the application of the doctrine of penalties to circumstances of breach of contract. If a wider doctrine is to be enunciated in the form of that appearing in [75] of his Honour’s reasons, it is for the High Court of Australia to enunciate it. This is so not least because of the need to resolve the views of a number of justices of the High Court, including but not limited to a majority of the court in IAC (Leasing).[36]
[36]Interstar (2008) 257 ALR 292, [106].
The decision of Allsop P is, with respect, careful, considered and comprehensive. The paragraph referred to above clearly represents the present state of the law. It is also consistent with the approach followed by the Full Court of the Supreme Court of South Australia in Diakos v Mason.[37]
[37][2010] SASCFC 37, [16] and [18].
Accordingly, it is not for this Court to determine that the jurisdiction to set aside a term as a penalty extends to circumstances beyond a breach of contract.[38]
[38]It was not contended that the clause, as a matter of substance, was in fact directed to non‑performance or breach.
Grounds 3, 4, 5 and 6 are therefore not made out.
Unconscionable conduct
At trial, Mrs Ange contended that Bonhams had engaged in unconscionable conduct in breach of ss 51AB and 51AC of the TPA. The trial judge held that in order for there to be unconscionable conduct under ss 51AB or 51AC, there must be conduct which is unconscionable within the ordinary dictionary meaning of the word. His Honour made reference to the following passage from Hurley v McDonald’s Australia Ltd[39]:
[22]For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated – Cameron v Qantas Airways Ltd (1994) 55 FCR 147 at 179. Whatever ‘unconscionable’ means in s51AB and s51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable – Qantas Airways v Cameron (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term ‘unconscionable’ import a pejorative moral judgment – Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 283-284 and 298.
…
[31]Before s51AA, s51AB or s51AC will be applicable, there must be some circumstances other than the mere terms of the contract itself that would render reliance on the terms of the contract ‘unfair’ or ‘unreasonable’ or ‘immoral’ or ‘wrong.’[40]
[39](2000) ATPR 41-471.
[40]Original emphasis.
Mrs Ange identified three instances of alleged unconscionable conduct on the part of Bonhams, namely:
(a)its failure to give her unequivocal notice of the withdrawal fee term before asking her to sign the Agreement;
(b)obtaining her signature on the Agreement in circumstances where Mr Smith knew she was involved in a matrimonial dispute, was desperate for money and was a person of ‘relative naivety in the art world’.[41] In these circumstances, Mr Smith should have known Mrs Ange was relying on him to look after her interests; and
(c)obtaining her signature on the Agreement in circumstances where Bonhams knew Mr Ange was claiming an interest in the art collection.
[41]First East Auction Holdings Pty Ltd v Ange [2010] VSC 72, [210].
The trial judge rejected the submission and found that none of these matters amounted to unconscionable conduct. In respect of (a), his Honour noted that Mrs Ange had the 24 February 2009 Consignment Agreement in her possession for three weeks before signing the Agreement, that Mr Smith had specifically informed her that there would be a fee if she consigned paintings and later withdrew them and that a party is bound when he or she signs a contract which incorporates even an exceptional, unusual or unexpected term.
The trial judge also rejected the submission that Bonhams had engaged in unconscionable conduct in obtaining Mrs Ange’s signature on the Agreement in circumstances where it should have known she was relying on it to protect her interests. His Honour found that although Mrs Ange was going through a difficult period and was short of money, she had prior experience negotiating favourable consignment terms, was represented by a solicitor, spent weeks reflecting on the decision of whether to consign paintings and was told by Mr Smith to seek legal advice if she had doubts about her position. The trial judge also found that Mrs Ange did not present as a vulnerable person and appeared to be experienced in the business of selling fine art.
Finally, the judge rejected the allegation of unconscionable conduct based on Bonhams’ knowledge of Mr Ange’s claimed interest in the paintings. His Honour noted that in light of past dealings with the Anges, Bonhams was entitled to assume Mrs Ange owned the art. Further, both Mr and Mrs Ange had legal representation.
On appeal, Mrs Ange argued that the trial judge erred in law in failing to find that the Agreement was unconscionable within the meaning of ss 51AB or 51AC of the TPA in circumstances where Bonhams knew:
(a)that Mrs Ange was a separated spouse in desperate need of funds;
(b)that it had not specifically brought to her attention the operation of Clause 11;
(c)that a copy of the General Conditions had not been provided to Mrs Ange’s solicitor; and
(d)that it would make a windfall gain if Mrs Ange entered into the Agreement then later withdrew the paintings.
Further, counsel for Mrs Ange submitted that the trial judge failed to take account of the different positions of Bonhams and Mrs Ange (including that English was not her first language), that no Bonhams representative took Mrs Ange through the Agreement, that Mrs Ange had assumed that there was no withdrawal fee and that Bonhams exerted pressure on Mrs Ange in the lead up to her signing the Agreement.
Counsel for Bonhams submitted that the trial judge had correctly identified and applied the test for unconscionable conduct under ss 51AB and 51AC of the TPA. He emphasised Mrs Ange’s competence in English, prior experience buying and dealing in art, that she had obtained legal advice and that she had spoken extensively with Mr Smith about the consequences of withdrawing paintings once consigned.
In my opinion, no error has been made out in the decision of the trial judge and I agree that there was no unconscionable conduct on the part of Bonhams. With respect, I consider that his Honour identified the correct test and applied it to the relevant facts of the case. It is clear that Mrs Ange was competent in English, had sufficient prior experience in buying and dealing in art works and had obtained legal advice in relation to her negotiations and discussions with Bonhams, in particular about the withdrawal provisions. Further, she negotiated extremely favourable terms that did not require her to pay any seller’s commission or insurance fees. Mrs Ange was not vulnerable and Bonham’s conduct in obtaining her signature cannot be said to be ‘clearly unfair or unreasonable.’
There has been no serious misconduct or unfair or unreasonable conduct on the part of Bonhams which would justify a finding that it had engaged in unconscionable conduct within the meaning of ss 51AB and 51AC of the TPA. The reasons provided by his Honour in paragraphs 209 to 215, and in particular the factual findings, were supported by the evidence and were clearly open to his Honour.
Accordingly, no error has been demonstrated in relation to his Honour’s decision in relation to this aspect of the appeal and Ground 8 is not made out.
Conclusion
It follows from the above analysis that grounds 1-8 of the Amended Notice of Appeal and additional appeal ground 10 have not been made out. The General Conditions did form part of the Agreement and the Agreement remains unaffected by frustration, penalty and unconscionability. Accordingly, the judgment sum follows from and is calculated according to clause 11.4.
The trial judge dealt with a number of other alternatives in the event that his primary conclusions were not upheld. It is only necessary to deal with those alternatives that form part of the appeal or Notice of Contention.
The position if the General Conditions were not incorporated
Implied warranty as to entitlement to consign
The trial judge held that if the General Conditions were not incorporated into the Agreement, the Agreement nevertheless contained an implied warranty by Mrs Ange that she was entitled to consign the goods for auction. His Honour held that all the necessary elements for an implied term were satisfied.
Ground 8A of the Amended Notice of Appeal provides:
That because of the findings of the trial Judge referred to in 8(2) above [namely, that Bonhams knew Mr Ange claimed an interest in the art collection], it was not open to the trial Judge to hold…that if the general conditions were not incorporated, the agreement contained an implied warranty by Mrs Ange and (sic) she was entitled to consign the goods for auction.
Counsel for Mrs Ange submitted that the warranty implied by the trial judge did not comply with the criteria for implying terms set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[42] in that the term was not reasonable, equitable and certainly did not go without saying.
[42](1977) 180 CLR 266 (‘BP Refinery’).
Counsel for Bonhams submitted that the warranty could be implied as a matter of law or alternatively, as a matter of fact and that the test for implication of terms in BP Refinery only applied in the case of terms implied as a matter of fact. He submitted that the facts supporting the implication of the warranty included that Mrs Ange had signed the Agreement which described her as a ‘Seller’ and that she had obtained legal advice concerning her right to sell the paintings.
Terms may be implied into a contract by law, irrespective of the actual intention of the parties.[43] In Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd,[44] Hope JA, referring to the decisions of Bowen LJ in Miller v Hancock[45] and Lord Wilberforce in Liverpool City Council v Irwin,[46] explained that the basis for implication by law is necessity or that ‘the term was one which “the parties…must have intended by necessary implication, as a basis without which the whole transaction would be futile.”’[47]
[43]Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 484, 486 (‘Castlemaine’).
[44](1987) 10 NSWLR 484.
[45][1893] 2 QB 177.
[46][1977] AC 239.
[47]Castlemaine (1987) 10 NSWLR 484, 489.
Counsel conceded that the Agreement is not subject to the Goods Act 1958 (Vic), which provides that it is an implied condition on the part of the seller under a contract of sale that the seller has the right to sell the goods.[48] Nonetheless, it seems that a necessary term of all contracts under which goods are consigned for auction must be a warranty by the person consigning the goods that he or she is entitled to sell them. Otherwise, the inability to transfer good title would render the whole transaction futile. I accept counsel for Bonhams’ submission that there is no need to resort to the law relating to implied terms as exemplified by Codelfa.
[48]Goods Act 1958 (Vic) s 17(a).
So far as may be necessary, I would also be prepared to imply the suggested term to give business efficacy to the Agreement.[49] By signing the Agreement, Mrs Ange intended that the listed paintings be sold in the May Auction and intended to transfer to any purchaser, good title to the paintings. Implicit in the circumstances is Mrs Ange’s assertion and representation that she had the ability or authority to do so. It should also be noted that on page 2 of the catalogue Bonhams guaranteed good title to the paintings. The intention and circumstances give rise to an implied warranty that Mrs Ange was able to deal with, and dispose of, the paintings in order to make good the guarantee as to title proffered by Bonhams.
[49]In my opinion, the other requirements for implication of a term based on the High Court’s decision in Codelfa are also satisfied.
The position is, in my opinion, not affected by knowledge of Bonhams that there was a competing claim to ownership, namely that of Mr Ange. Mrs Ange alleged that she was the owner and was entitled to sell, a position confirmed by Mr Ange at the 2007 Meeting. Bonhams did not become involved in the dispute and was entitled to rely on representations made by Mrs Ange, and indeed also by Mr Ange at the 2007 Meeting, in relation to ownership of the paintings.
Accordingly ground 8A is not made out.
Assessment of loss
The trial judge held that he would (if necessary) have found that Mrs Ange had breached the implied warranty that she was entitled to sell the paintings and therefore, Bonhams was entitled to recover damages. The trial judge made findings about Bonhams’ claim for unliquidated damages based on the loss of buyers premium and legal costs arising from the withdrawal of the paintings. His Honour assessed the loss of buyers premium at $446,720 and referred the question of legal costs to an Associate Judge for determination.
Paragraph 194 of his Honour’s reasons sets out the calculations relating to the sum of $446,720. It is useful to set out the paragraph in full:
On the above basis, I assess the plaintiff’s loss at $466,720, as follows:
(1) Buyer’s premium (20 per cent) on a notional sale of the McCubbin for $1.2 million - $240,000;
(2) 85 per cent of buyer’s premium on the mid-point between the total of the reserve prices and the total of the high estimates for the remaining 21 paintings, calculated as follows:
| (a) | total reserve prices - | $1,019,000 |
| (b) | total high estimates - | $1,413,000 |
| (c) | mid-point - | $1,216,000 |
| (d) | 85 per cent of $1,216,000 - | $1,033,600 |
| (e) | 20 per cent of $1,033,600 | $206,720 |
(3) Total of (1) plus (2) $240,000 $206,720 $446,720
For the purposes of this appeal, it is only the trial judge’s findings with respect to the loss of buyers premium in respect of the McCubbin, item (1), that is relevant.
The trial judge held that Bonhams would have been entitled to $240,000 in unliquidated damages arising in respect of the McCubbin. The approach that his Honour took to determining this figure differed from the approach taken in respect of the other paintings. In respect of all of the other paintings, his Honour calculated the buyer’s premium on the basis of an 85% clearance rate and that the painting would have sold for the mid-point between the reserve price and the high estimate. However, in respect of the McCubbin, the buyers premium was calculated on the basis that the painting would certainly have sold and would have reached the high estimate, being $1.2 million. The decision was based on the evidence of Mr Goodman and Mr Smith about the level of interest in that painting.
Ground 9 of the Amended Notice of Appeal provides that the trial judge erred in not determining Bonhams’ loss in respect of the McCubbin on the basis that it would have sold for the midpoint between the reserve price and the high estimate. Counsel submitted that the trial judge should not have placed reliance on the evidence of Mr Goodman and Mr Smith as to the likely sale price of the McCubbin given their interest in the outcome of the case. Further, counsel submitted that the trial judge failed to take into account evidence of Mr Smith that the global financial crisis had caused a drop in the fine art market.
Counsel for Bonhams submitted that the trial judge correctly assessed the likely loss arising from breach of the implied warranty in respect of the McCubbin and that the finding was based on careful consideration of the value of the painting. He asserted that Mrs Ange had not identified any clear error in the approach taken by the trial judge.
In my view, his Honour’s finding that the likely sale price of the McCubbin would have been the high estimate of $1.2m was carefully considered and based on the largely unchallenged (in this respect) evidence of Mr Goodman and Mr Smith. In my opinion, there is no error in his Honour’s approach and reasoning. Accordingly ground 9 is not made out.
Notice of contention
In light of the trial judge’s finding that the law of penalties did not apply to clause 11, it was not strictly necessary to consider the position if the law of penalties did apply. His Honour nevertheless went on to state that if Mrs Ange’s withdrawal of the paintings was a breach of the Agreement or if the law relating to penalties otherwise applied, he would have held that clause 11.4 was a penalty.
His Honour found that the withdrawal fee term could not be justified as a genuine pre-estimate of Bonhams’ loss in the event the paintings were withdrawn by Mrs Ange. Mr Goodman had acknowledged that since Mrs Ange had negotiated a 0% seller’s commission, Bonhams lost the 20% buyer’s commission that it would have earned if the paintings were sold, whereas the withdrawal fee of 30% was prepared on the basis that ordinarily, a seller’s commission of 12% would also be payable. Consequently, his Honour considered that in the normal case, clause 11.4 was a genuine pre-estimate of Bonhams’ loss. However, this was not the ordinary case and in the circumstances, the withdrawal fee ceased to represent a genuine pre-estimate of loss. His Honour accepted that Bonhams would suffer intangible losses, such as loss of reputation, but considered this could not bridge the 12% gap. Applying the principles set out by the High Court in Ringrow Pty Ltd v BP Australia Pty Ltd,[50] his Honour concluded that clause 11.4 would therefore be a penalty.
[50](2005) 224 CLR 656 (‘Ringrow’).
By its Notice of Contention filed 22 February 2011, Bonhams contended that his Honour was in error in ‘finding’ that in the event that the law relating to penalties extended beyond the breach provisions of a contract, he would have considered clause 11.4 was a penalty.
The Notice of Contention and submissions filed in support are detailed. Bonhams submitted that the clause could only be a penalty if Mrs Ange proved[51] that it was ‘extravagant and unconscionable in amount’ and ‘out of all proportion’[52] with the greatest conceivable loss. It contended that a clause in the nature of 11.4 was necessary because of the severe consequences to Bonhams where a painting is withdrawn at the last minute. It emphasised that clause 11 had a tiered structure, whereby the size of the withdrawal fee increased depending on the time at which the painting was withdrawn, and argued that this reflected a careful consideration of its likely loss. Finally, it emphasised that although various aspects of the damages were difficult to quantify, such as the impact on its reputation, the trial judge should still have taken this into account in considering whether clause 11.4 provided a genuine pre-estimate of Bonhams’ loss.
[51]Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109, [11] (‘Yarra Capital’).
[52]Ringrow (2005) 224 CLR 656, [32].
Counsel for Mrs Ange submitted that the trial judge was correct to find that the withdrawal fee term would have been a penalty because it was exorbitant and the 30% bore no relationship to the losses suffered by Bonhams. It contended that at trial Bonhams adduced no evidence as to the amount of expenditure for auction which related specifically to Mrs Ange’s paintings. Further, it submitted that the trial judge did take into account Bonhams’ loss of reputation, but held that this could not account for the gap between the buyer’s premium and the withdrawal fee charged.
It is strictly not necessary to consider the matter. However, for the reasons that follow, it has not been established that the withdrawal fee was so ‘extravagant and unconscionable… in comparison with the greatest loss that could conceivably be proved to have followed from the breach’ that it amounted to a penalty.[53]
[53]Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Co Ltd [1915] AC 87 (‘Dunlop’). Dunlop has been referred to and applied in Australia on numerous occasions including Esanda Finance Corporation Ltd v Plessing (1989) 166 CLR 131, 143; O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; 399; Yarra Capital (2006) VSCA 109, [12]; Ringrow (2005) 224 CLR 656, 666.
Mrs Ange bears the onus of proving that it is a penalty.[54] Although she has clearly established that the withdrawal fee of 30% exceeds the amount of commission that Bonhams would have received if the paintings were not withdrawn and were instead sold at the May Auction, this is not sufficient. As the High Court emphasised in Ringrow,[55] ‘it is not enough that [the sum] should be lacking in proportion. It must be “out of all proportion.”’ Put another way, the difference between the withdrawal fee provided for in the contract and the likely loss, judged at the time of making the contract, must be ‘significant’[56] and the test calls for ‘a “degree of disproportion” sufficient to point to oppressiveness.’[57]
[54]Yarra Capital Group Pty Ltd v Sklash Pty Ltd (2006) VSCA 109, [11] referring to Robophone Facilities Ltd v Blank [1996] 1 WLR 1428 (Lord Diplock); Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504, 527.
[55](2005) 224 CLR 656, 669.
[56]Yarra Capital (2006) VSCA 109, [12].
[57]Ringrow, (2005) 224 CLR 656, 666.
In the usual case, Bonhams receives a commission of 32%. The seller pays 12% and the buyer pays 20%. This comprises its turnover against which various expenses are incurred. The expenses are both direct and indirect. The withdrawal fee of 30% is in fact, less than the loss which Bonhams would suffer through lost commissions alone in the ordinary situation.
The trial judge accepted, based on the largely uncontested evidence, that the late withdrawal of paintings can have a major adverse effect on the viability of an auction and can damage the business reputation of the auction house and cause a major loss of confidence among customers. This last point is demonstrated by the newspaper articles provided to the Court during the hearing of the appeal, which are critical of Bonhams and concern the withdrawal of paintings from the May Auction.[58] It is also in addition to the direct and indirect costs incurred.
[58]Although it is not suggested that one should compare the actual loss occasioned by breach and the amount provided for in the contract, see Zachariadis v Allforks (2009) 26 VR 47, 79.
At paragraph 165 of his reasons, his Honour said:
It was submitted on behalf of the plaintiff that there are a number of other aspects to its loss, including loss of reputation arising from the late withdrawal of the paintings from sale. I accept that this is so. However, those intangible losses cannot bridge a gap of 12 per cent between the 30 per cent specified in the withdrawal fee term and the plaintiff’s likely loss of commission (buyer’s premium) in the event that the paintings were withdrawn from sale.
The gap referred to by his Honour is actually 10%.[59] There is nothing extravagant about the 20% that Bonhams would have earned as the absolute minimum. These damages are the usual expectation losses and clearly recoverable. Is the other 10% so extravagant and not even conceivably within the greatest loss that could be suffered, judged at the time of making the contract? Given the categories of intangible loss and the limited evidence, I do not consider that Mrs Ange has established that the withdrawal fee is so extravagant that it exceeds the greatest loss that could be suffered.
[59]The withdrawal fee is 30% and the buyer pays 20%.
Disposition
I would dismiss Mrs Ange’s appeal.
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