AU Future Health Pty Ltd (ACN 163 007 832) v Ecmoho (Hong Kong Limited)(A Company Incorporated in Hong Kong)
[2017] VSCA 380
•20 December 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0040
| AU FUTURE HEALTH PTY LTD (ACN 163 007 832) | Applicant |
| V | |
| ECMOHO (HONG KONG LIMITED) (A COMPANY INCORPORATED IN HONG KONG) | Respondent |
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| JUDGE: | WHELAN, ASHLEY JJA, and ROBSON AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 18 October 2017 |
| DATE OF JUDGMENT: | 20 December 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 380 |
| JUDGMENTS APPEALED FROM: | [2016] VCC 1987 (Judge Macnamara) |
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CONTRACT – Purchase of goods – Repudiation – Damages – Damages claimed for repudiation of a contract – Both parties to a contract held an incorrect interpretation of the contract – No entitlement to damages where there was no evidence before the trial judge that the applicant was willing to perform the contract – No damages established.
PROCEDURE – Whether judge erred in determining the case on the pleadings – Final submissions went beyond pleadings.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr N M Wood | Darrer Muir Fleiter Lawyers |
| For the Respondent | Mr D W Laidlaw CSC | Mr Mark M Morgan |
WHELAN JA:
I have read in draft the reasons of Robson AJA. I agree that leave to appeal should be granted but the appeal should be dismissed for the reasons given by him.
ASHLEY JA:
I have had the advantage of reading in draft the reasons of Robson AJA. I agree with them.
ROBSON AJA:
Introduction
AU Future Health Pty Ltd (AU) seeks leave to appeal against a judgment of a judge of the County Court of Victoria. The respondent to the application is Ecmoho (Hong Kong) Limited (Ecmoho).
Ecmoho is a company based in Hong Kong. AU is based in Victoria. AU exported Suisse Oral Chlorophyll and Collagen beauty products from Australia. AU as vendor and Ecmoho as purchaser fell into dispute over two agreements for the sale and purchase of the beauty products. The parties had previously entered into an earlier agreement for the sale of beauty products about which there is no dispute. This application concerns a claim by AU that it is entitled to an award of damages in relation to the second disputed agreement. The application requires some consideration of the first disputed agreement, as it provides relevant background to the dispute before this court, as does the earlier undisputed agreement.
Before the County Court, the trial judge found that Ecmoho defaulted on the second disputed agreement by failing to pay 30 per cent of the purchase price after the making of the agreement. Nonetheless, the trial judge dismissed AU’s claim for damages as, under its pleadings, AU claimed it was entitled to be paid 100 per cent of the purchase price prior to dispatch of goods, and did not plead the alternative
case that AU was only entitled to 30 per cent of the purchase price as a deposit.
AU claims, however, that although it did not plead that Ecmoho was only obliged to pay 30 per cent by way of deposit, it did raise the contention with the trial judge in its submissions and that accordingly the trial judge should have awarded AU damages for Ecmoho’s default in not paying the deposit, which AU says should be categorised as a repudiation of contract by Ecmoho.
Ecmoho says that AU is not entitled to damages, as AU itself was not willing to perform the agreement even if AU had been paid 30 per cent of the purchase price after the making of the agreement.
For the reasons set out below, I consider that the trial judge did not err in deciding AU’s claim on its pleadings. Further, I am of opinion that if the judge had considered the alternative case made by AU in its submissions, the trial judge would have been bound to dismiss it. On the issue of whether leave to appeal should be granted, I consider that the alternate claim by AU does raise an issue that justified leave to appeal being granted.
Accordingly, I would grant the application by AU for leave to appeal, but dismiss the appeal.
The facts as found by the trial judge
Under the earlier undisputed agreement dated 9 September 2015, AU agreed to sell and Ecmoho agreed to buy Suisse Oral Chlorophyll and Collagen beauty products for a total price of AUD $200,217.60.
Delivery was to be made at Hong Kong Airport, with the products to be dispatched within three working days from the receipt of 30 per cent of the purchase price, as a deposit, into AU’s bank account. The balance of $140,152.32 was ‘payable within two days of the receipt of the Bill of Lading, not including Saturdays and Sundays’. The balance was paid four days after receipt of the Bill of Lading. Despite this delay, this agreement was fully performed and no relief was sought with respect to it. This earlier agreement was relied on to give historical context to the differing terms in the two subsequent disputed agreements between the parties.
On 15 September 2015, Ecmoho placed an order with AU for the purchase of some 13,824 Suisse Liquid Collagen bottles for a total price of $239,155.20. This agreement (‘the first disputed agreement’) became the subject of litigation in the County Court. Said by AU to be due to the late payment of Ecmoho of the balance due under the earlier undisputed agreement, full payment was required before the goods were dispatched. The time for dispatch was stated as ‘before 22nd September 2015’.
The shipment was to consist of some 18 pallets. Ecmoho made payment in full in advance, but by 24 September 2015, had not received any delivery. This was immediately prior to a national festival in China and, consequently, the delay caused difficulty for Ecmoho such that it could not receive and warehouse the product in Hong Kong.
On 24 September 2015, Ms Zhang of Ecmoho contacted ‘David’, a representative of AU, by the messaging platform ‘QQ’. Ms Zhang was assured by David that the 18 pallets were ‘flying … tomorrow’, that is, 25 September 2015.
Because of the problems associated with the late delivery, Ecmoho and AU negotiated for delivery to be made to Shanghai rather than Hong Kong. This involved Ecmoho agreeing to pay AU additional freight costs of 20 cents per unit, a total of $2,764.80, for making the delivery to Shanghai. As discussed below, at the same time as the parties negotiated this variation of the first disputed agreement, they negotiated and entered into the second disputed agreement.
Despite the promise by AU’s representative David that all 18 pallets were ‘flying’ on the night of 24 September 2015, AU delivered to Shanghai only 10 of the 18 pallets on 25 September 2015.
The trial judge found that when AU failed to deliver the full 18 pallets before 22 September 2015, as stipulated in the order dated 15 September 2014, AU was in breach of the first disputed agreement. The trial judge found, however, that Ecmoho elected to affirm the first disputed agreement through the negotiation of the varied terms relating to the place of delivery and the additional freight.
At the same time as negotiating the varied delivery of the order under the first disputed agreement, on 24 September 2015, Ecmoho placed a further order with AU for 22,272 units, or 29 pallets, of Suisse Oral Collagen bottles for a total price of $389,760 (the second disputed agreement). The total amount payable by Ecmoho under the second disputed agreement included the additional costs of delivery to Shanghai of the goods ordered under the first disputed agreement of $2,764.80. Thus, the total amount, for sale of the 29 pallets under the second disputed agreement and the supplementary charge for delivery of the shipment of goods under the first disputed agreement, was $392,524.80.
The trial judge found that under the second disputed agreement, dispatch of the 29 pallets was to occur within three working days from the receipt of 30 per cent of the total amount payable, as deposit, into AU’s bank account. Delivery was to be made after AU received full payment from Ecmoho.
Neither the additional freight of $2,764.80 nor the price for the 29 pallets of $389,760 was paid to AU by Ecmoho. No goods were dispatched or delivered by AU to Ecmoho under the second disputed agreement. No further goods were dispatched or delivered by AU to Ecmoho under the first disputed agreement.
The trial judge found that the second disputed agreement remained wholly unperformed. As mentioned above, the judge found that on its proper construction, Ecmoho was obliged to pay 30 per cent of the agreed price before the seller AU was obliged to dispatch the goods. AU, however, at all times mistakenly contended that it was not obliged to dispatch the goods until 100 per cent of the amount payable had been paid by Ecmoho to AU; and it wrongly contended that it was entitled to withhold delivery of the eight pallets, which remained undelivered under the first disputed agreement, until payment had been made under the second disputed agreement. Ecmoho, on its part, wrongly contended that it was not obliged to pay the full price (that included the extra freight) prior to dispatch of the remaining eight pallets, referable to the first disputed agreement, on the basis that the term as to 100 per cent payment only related to the price payable for the 29 pallets.
Thus, the position was as follows in relation to the two disputed agreements. Under the first disputed agreement, Ecmoho had paid for 18 pallets but had only received 10 pallets. AU had failed to deliver the eight pallets.
Under the second disputed agreement, Ecmoho had not paid any amount, either towards the purchase of the 29 pallets, or for the extra freight to deliver the 18 pallets to Shanghai under the varied terms of the first disputed agreement.
Negotiations between the parties relating to these issues broke down on 10 December 2015. At that stage, AU was still requiring full payment, for the goods ordered and the additional freight, under the second disputed agreement before dispatching any goods,[1] and Ecmoho refused to pay anything further until all remaining pallets under the first disputed agreement were delivered.
[1]Including the eight ‘missing’ pallets.
The proceedings below
In the proceedings before the County Court, Ecmoho’s amended statement of claim pleaded AU breached the first disputed agreement of 15 September 2015. Ecmoho claimed that only some 7,680 units were delivered, a deficiency of 6,144 units (being eight of the 18 pallets). Ecmoho claimed to have suffered loss and damage by reason of the short delivery, representing sales of $116,121.60.
Alternatively, Ecmoho alleged that the consideration for payment of $106,291.20 by Ecmoho for the undelivered 6,144 units had completely failed and AU ‘has had and received the sum of $106,291.20 to the use of’ AU.
In its defence and counterclaim, AU alleged that Ecmoho breached its obligations under the first disputed agreement, as varied, by failing to pay the additional 20 cents per unit for units that AU agreed to deliver to Shanghai, and thereby AU suffered a loss of $2,764.80.
Further, AU pleaded that it was a term of the second disputed agreement that Ecmoho would pay the full amount owing under the second disputed agreement ‘prior to the goods being shipped’. AU alleged that Ecmoho failed to pay the amount of $392,524.80 (including the extra freight), payable under the second disputed agreement, and accordingly, on or about 16 December 2015, AU sold the relevant product for $322,944 to a third party, leading to a loss of some $69,580.80.
Alternatively, AU alleged that Ecmoho’s failure to pay AU for the goods under the second disputed agreement prior to shipment, amounted to a repudiation by Ecmoho, which AU accepted, and AU terminated the agreement by reselling the goods to a third party for $322,944. AU alleged that it suffered a loss of $69,580.80 by reason of the repudiation by Ecmoho. AU alleged that those damages should be set off against any liability it might have to Ecmoho under the first disputed agreement.
After the hearing was completed, on 8 December 2016, the trial judge sent a memorandum to counsel, raising the possibility that the correct construction of the second disputed agreement was that 30 per cent of the purchase price was payable before dispatch of the goods (rather than 100 per cent), a construction not dealt with by either party’s pleadings. His Honour requested further submissions on the consequences of such a finding.[2]
[2]Ecmoho (Hong Kong) Pty Ltd v Au Future Health Pty Ltd [2016] VCC 1987 (22 December 2016) [70] (‘Reasons’).
The memorandum was as follows:[3]
His Honour seeks the parties’ submissions on the following matter which he does not recollect being dealt with at the trial of this matter last week:
The ‘second agreement’ provides for despatch ‘within three working days from receipt of the 30 per cent deposit into [Au’s] bank account’.
Does this mean there is no obligation to despatch until payment of 30 per cent of $392,524.80 into Au’s bank account?
If, as it seems, no such payment was made does this constitute a breach of the second agreement by Ecmoho?
Is this matter the subject of any pleaded counterclaim?
Could you please reply by 4.00pm on 14 December 2016.
[3]Ecmoho (Hong Kong) Limited v AU Future Health Pty Ltd (No 2) [2017] VCC 190 (14 March 2017) [5].
Submissions were filed and exchanged by each party responding to the memorandum. Neither party sought to amend their pleadings, nor did they seek leave to tender further evidence in support of their submissions.
On 22 December 2016, the learned trial judge published reasons for judgment. His Honour gave judgment for Ecmoho on its moneys had and received claim, and dismissed the counterclaim of AU. Orders were not entered at this time.
On 7 February 2017, the solicitors for AU filed a summons seeking, inter alia, an order to withdraw or vary any judgment or reasons given on 22 December 2016, but not entered or authenticated by the Court. Here again, AU did not seek to rely on further evidence, but sought to re-open on grounds of unfairness and denial of procedural fairness. In substance, this application related to the trial judge’s receipt of the submissions from Ecmoho consequent upon the judge’s memorandum and his decision relating to the proper construction of the second disputed agreement. The summons was heard by the trial judge on 1 March 2017.
On 14 March 2017, the judge published reasons in respect of the summons. He decided that it should be dismissed. He made orders accordingly. He also made orders in accordance with his reasons delivered on 22 December 2016. In substance, the judge dismissed Ecmoho’s claim for loss and damage by reason of the alleged short delivery on the first order. His Honour held that as part of the second disputed agreement there was a revised term for payment of an additional 20 cents per unit to the original price agreed under the first disputed agreement, to secure the delivery of 6,144 units to Shanghai. His Honour said that once that agreement was made, the initial breach of the first disputed agreement by AU was waived by agreement.
His Honour held that Ecmoho’s claim for loss of bargain damages proceeded upon the footing that it was entitled to receive delivery of the missing 6,144 units from the first disputed agreement without payment of the additional freight charge.
His Honour said that if the obligation to pay the additional freight of $2,764.80 was regarded as arising under the first disputed agreement as part of the CIF term, the obligation to make payment before dispatch had not occurred. On the other hand, his Honour said that if, ‘more appropriately’, the obligation to pay the additional freight was to be regarded as arising under the second disputed agreement, then Ecmoho had not paid 30 per cent of the agreed sum as it was obliged.
With some hesitation, his Honour concluded that there was no obligation, under the first disputed agreement as varied, on AU to dispatch the outstanding 6,144 units unless and until 30 per cent of the amount payable under the second disputed agreement was paid.
In those circumstances, his Honour found that Ecmoho’s primary claim must fail.
The trial judge upheld Ecmoho’s alternate claim for moneys had and received in restitution and gave judgment for $104,755.20, which was the cost paid for the eight undelivered pallets, minus $1,536, representing the 20 cents per unit for the 7,680 units (10 pallets) delivered under the first disputed agreement.
The trial judge dismissed AU’s counterclaim for damages for the unpaid additional freight costs.[4]
[4]Allowance for part of that counterclaim was built into the judgment referred to in [38].
The trial judge found that the second disputed agreement required payment by Ecmoho of 30 per cent of the total price, three working days before dispatch. The total purchase price included the amount payable for the order of the 29 pallets and the extra freight costs referable to the first order. The trial judge found that both components of the price in the second disputed agreement were subject to the same payment regime, and it followed that Ecmoho was in default of the second disputed agreement for failing to pay the 30 per cent deposit.
The trial judge said that he construed the second disputed agreement as including a term which was at odds with the pleaded position of both parties. AU pleaded that it was to be paid 100 per cent of the agreed payment prior to the goods being shipped by AU. Ecmoho denied the term requiring payment in full prior to shipping the outstanding goods on the basis that the terms of payment under the second disputed agreement pertained only to the second order of 29 pallets and not to the supplementary freight payment relative to the first disputed agreement.
The trial judge sent the above memorandum to both parties, drawing attention to the anomalous state of the pleadings in light of the express terms of the second disputed agreement.
His Honour held that there were authorities which entitled a court to proceed in a manner inconsistent with the pleadings where the parties had conducted a proceeding in that manner; however, as the parties conducted the proceedings in accordance with the pleaded issues, he could see no justification for simply ignoring the pleadings.
The trial judge found that he could not accept the repudiation alleged by AU as set out in the counterclaim:
Further and or alternatively, by reason of the buyer’s failure to pay the seller for the goods ordered under the second agreement prior to shipping or at all the buyer repudiated the second agreement.
His Honour held that the alleged repudiation moved from the premise that there was an obligation on Ecmoho to pay the whole $392,524.80 ‘prior to shipping’, which he found was incorrect. The counterclaim seeking loss of bargain damages relative to the second disputed agreement was therefore dismissed.
Grounds of appeal
AU seeks an order that its counterclaim be allowed and that Ecmoho pay AU $69,580.80, or that the matter be remitted. In its leave to appeal application, AU raises two grounds of appeal, first being that the orders made dismissing AU’s counterclaim were made in circumstances involving a denial of procedural fairness.
This ground was not the focus of the appeal, as on behalf of AU it was said that ‘whether or not there was unfairness is perhaps, in a sense, academic, because it can be cured on the appeal by way of rehearing’.
Ground 2 is that:
Further or alternatively, the trial judge erred in dismissing the counterclaim
Particulars
a.The trial judge held that, properly construed, the Agreement required Ecmoho to pay 30% of the price prior to the goods being shipped. The trial judge erred in this respect. Properly construed, the Agreement required Ecmoho to pay 100% of the price prior to the goods being shipped.
b.In any event, the trial judge held, correctly, that: (i) Ecmoho had not made any payment; and (ii) Ecmoho was ‘in default of’ (i.e., ‘in breach of’) the Agreement.
c.Insofar as it is relevant, the trial judge erred in finding that there was a ‘lack of evidence’ that AU was ready and willing to perform its obligations under the Agreement. An inference arose from the evidence of correspondence between the parties that AU was ready and willing. Such an inference also arose from the unchallenged evidence of AU’s subsequent on-sale of the goods (at a reduced price) to third parties in mitigation of its losses arising from Ecmoho’s breach.
d.The trial judge ought to have awarded AU damages for Ecmoho’s breach.
e.Insofar as it is relevant (for example as to the assessment of damages), the trial judge erred in not finding that Ecmoho had repudiated the Agreement. Ecmoho’s delay in paying for the goods was so long, or was of such a character, as to amount to repudiation.
On the hearing of the appeal, AU acknowledged that its contention that the trial judge was in error in finding that on the proper construction of the second disputed agreement, Ecmoho was only obliged to pay 30 per cent of the agreed price by way of deposit and that the applicant was not entitled to demand payment of 100 per cent of the price before dispatch, was ‘not their strongest point’.
AU submitted that during the hearing below, AU raised, as an alternative to its pleaded case (that Ecmoho was required to pay 100 per cent of the contract price before dispatch of the goods), that Ecmoho was required to pay 30 per cent of the agreed price before dispatch of the goods under the second disputed agreement and Ecmoho failed to do so.
AU contends that during the hearing before the trial judge, it addressed the issue of whether or not the second disputed agreement provided for a payment of 30 per cent or 100 per cent of the price before delivery, and that counsel for AU went on to say:
None of that in the end really matters because on any view [Ecmoho] immediately upon execution of the second agreement, became obliged at the very least to pay a 30 percent deposit. It didn’t do that. It therefore, was in serious breach and remained in serious breach until the contract was terminated by my client in late December last year when it accepted that repudiation by the plaintiff.
And having accepted that repudiation it was then entitled, of course, to the expectation of damages for the contract which included obviously the whole payment. So the tension between 2.1 and 2.2 might not need to be resolved, but if it does we say the better view is that all of the moneys were payable before dispatch.
In AU’s defence and counterclaim of 18 May 2016, AU pleaded that there were terms of the second disputed agreement, at paragraph 11, that:
(a)[AU] would deliver to [Ecmoho] 22,272 units of [Suisse] Hair Skin Nails Liquid at a purchase price of $17.50 per unit being a total purchase price of $389,760;
(b)[Ecmoho] would pay to [AU] an amount of $2,764.80 being the amount of $0.20 per unit of product for 13,824 products delivered under the first agreement; and
(c)[Ecmoho] would pay [AU] for the amount owing under the second agreement prior to the goods being shipped to [Ecmoho].
Paragraph [12] provided:
In breach of the second agreement [Ecmoho] failed or refused to pay [AU] the amount of $392,524.80 owing under the second agreement.
In response to the memorandum (above at 30) sent to the parties after the trial and before judgement was delivered, AU filed submissions on 15 December 2016. AU contends that these submissions also sought to put the alternative case. Paragraphs [6] and [9] were as follows:
6. However, whether Ecmoho had to pay:
(a) full payment of $392,524.80; or
(b)to make that payment in stages of 30% initially and then the balance of 70% at a later time is academic.
That is because it is a common position between the parties that Ecmoho made no payment at all to AU under the Second Agreement at any time.
Accordingly, AU contends that Ecmoho breached the Second Agreement.
…
9.In any event, Ecmoho never denied AU’s claim that Ecmoho breached the second agreement by failing to pay $392,524.80 on the basis that its only obligation was to pay 30% of that amount. Such a defence (which was not made) would have been wrong. Such a defence (which was not made) would also have been pointless, given it is a common position that Ecmoho made no payment at all (30% or 100%) under the second agreement at any time.
Despite making these submissions, AU did not seek to amend its pleading to raise the alternative case that Ecmoho was obliged to only pay 30 per cent of the contract price before dispatch of any further goods, and in breach of the second disputed agreement, Ecmoho failed to do so. Further, AU did not seek leave to adduce further evidence in support of its alternate submission; it simply relied on existing evidence. As discussed below, this is consistent with AU’s approach on the application for leave to appeal, where AU seeks to rely on the existing evidence to support an inference that AU was ready willing and able to proceed, on the basis of 30 per cent being payable.
AU submits that the trial judge should have addressed the alternate claim and should not have refused to do so by reason of the pleadings.
Prior to the hearing before the trial judge, the parties had exchanged detailed pleadings and the trial judge observed that the parties conducted the proceeding strictly in accordance with the pleaded cases.[5]
[5]Reasons [70].
In the face of the pleadings and the understanding between the parties that the case was to be conducted on the pleadings, I find that the trial judge was not obliged, nor did he err in not considering an alternative claim of AU based on Ecmoho not paying a 30 per cent deposit.
The alternate case
AU contended that if the alternate case had been considered, the Court would have found that the failure to pay any moneys upon conclusion of the second disputed agreement constituted a repudiatory breach, by Ecmoho, of the second disputed agreement. AU submits that AU accepted the repudiation by Ecmoho following a ‘WeChat’ conversation of 10 December 2015 between representatives of AU and Ecmoho.
As mentioned above, for the following reasons I am of the opinion that if the trial judge had considered the alternate case of AU, he would have been bound to dismiss it.
On the alternate case, AU submits that it was entitled to terminate the agreement, which AU says it did by its actions of selling the goods to a third party and that crystallized the loss.
AU accepts that to establish its entitlement to damages, it would need to establish that it was ready, willing and able to have carried out its side of the bargain. AU accepts that there was no direct affidavit or oral testimony addressing whether AU was ready and willing to carry out the second agreement if only 30 per cent of the price had been paid in advance of dispatch. Rather it relies on inferences that it alleges can be drawn that establishes it was ready and willing to carry out the second agreement if 30 per cent of the purchase price was paid prior to dispatch of the goods.
AU was asked if there was any further evidence it would have led if the trial judge had considered the alternate case. AU said that there might have been evidence, but was not able to identify any such evidence, and that the ordinary position was that AU was not bound to identify what evidence it may have led if it had been given the chance to do so.
No authorities were cited to support this proposition; counsel for the applicant stated that this was his understanding of the ordinary position for procedural fairness appeals/reviews.
In any event, AU’s submission appears to be inconsistent with the submission that AU ran the alternate case at trial. It also fails to account for AU’s response to the memorandum, which did not seek to adduce any further evidence on the alternate case.
AU sought to establish that it was ready, willing and able to perform the contract and submitted that the trial judge reached the wrong conclusion in accepting that no evidence was led as to the readiness and willingness of AU to deliver the goods at any time.[6]
[6]Foran v Wight (1989) 168 CLR 385, 452 (Dawson J).
AU submits that the evidence established that it was ready and able to perform the second agreement. The grounds of appeal contend that an inference arose from the evidence of correspondence between the parties that AU was willing to perform the second disputed agreement.
AU relied particularly on the ‘WeChat’ conversation between representatives of AU and Ecmoho on 10 December 2015, where AU submits that it clearly manifested a desire to send the products, and a frustration that Ecmoho had not paid the purchase price.
AU contends that an inference of its willingness also arose from the unchallenged evidence that AU’s subsequent on-sale of the goods (at a reduced price) to a third party in mitigation of its losses, arising from Ecmoho’s breach, only occurred six days after the conversation of 10 December 2015.
In any event, AU submits that it is speculative to consider what AU would have done if 30 per cent rather than 100 per cent had been paid because nothing was paid; and it is artificial to do so, because Ecmoho, AU says, also thought 100 per cent of the purchase price was payable before the 29 pallets would be dispatched. AU submits that it was ready to perform the bargain that the parties had understood to be the bargain at the time.
For its part, Ecmoho submitted that if AU had amended its pleadings to claim that Ecmoho repudiated the agreement by failing to pay the 30 per cent deposit, it would have made further submissions on whether the delay in making payment amounted to a repudiation in the circumstances where the eight pallets had not been delivered under the first agreement, and as to whether AU was willing to complete its own obligations if the deposit had been paid.
Consideration of the alternate case
Assuming AU would be able to establish repudiation of the second disputed agreement by Ecmoho, and that the agreement was validly terminated by AU,[7] the following consideration of the relevant legal principles establishes that AU must show readiness, ability and willingness to complete the contract in order to succeed in its claim for damages.
[7]These assumptions involve acceptance of the judge’s finding that Ecmoho breached the second disputed agreement and that the breach was sufficiently serious to constitute repudiatory conduct. The breach identified by the judge was apparently Ecmoho’s failure to pay 30 percent of the amount payable under the second disputed agreement. Unlike in the case of the first disputed agreement, no time was fixed for payment – in this instance, of the deposit rather than the entire amount - by the second disputed agreement. A question might have arisen as to when payment of the deposit was due in such a case, and in turn a question whether Ecmoho was in breach at all. There is considerable relevant learning. Another question might have arisen whether breach of a stipulation as to time for payment ought be accounted a breach of such consequence as to constitute repudiatory conduct. Absent such breach as at 10 December 2015, analysis of the situation arising out of the discussion between parties on that day must have followed a different path. But Ecmoho did not challenge the judge’s finding of breach, and this application should be determined on the basis that the finding was correct, that being the starting point for the arguments advanced in this Court.
The authorities confirm that a plaintiff who is not ready, willing and able to perform the contract itself should not be compensated for the loss of the benefit of the contract.[8]
[8]Foran v Wight (1989) 168 CLR 385, 400–1 (Mason CJ), 451–452 (Dawson J).
In Foran v Wright, Dawson J said:[9]
In an action for breach of contract, the readiness and willingness of the plaintiff to perform those mutual obligations remaining to be performed on his part under the contract is a condition precedent to his right to recover: see Hensley v Resche.[10] Under the old rules a plaintiff was required to plead that he was ready and willing but under the present rules that fact is implied with the effect that he is not required to prove it unless the defendant puts it in issue. In that event, the burden of proving readiness and willingness rests upon the plaintiff. See Supreme Court Rules 1970 (NSW) Pt 15, r 11.[11]
But what if the breach is anticipatory rather than actual? The authorities have given conflicting answers to this question, but it is now clear that in cases of repudiation as well as actual breach, readiness and willingness on the part of the plaintiff is part of his cause of action. The position was clearly stated in DTR Nominees Pty Ltd v Mona Homes Pty Ltd):[12]
‘A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach …’
[9]Ibid, 451–452.
[10](1914) 18 CLR 452.
[11]Since repealed.
[12](1978) 138 CLR 423, 433 (‘DTR v Mona’).
In Foran v Wight, Deane J said:[13]
If the purchasers had sustained other loss caused by the vendors’ repudiation of the contract, it would have been open to them to claim damages for breach of contract. Such a claim would, however, have succeeded only if the purchasers could discharge the onus of establishing that such further loss had been in fact sustained by them and had been caused by the vendors’ breach. The learned trial judge’s finding that the purchasers had not established on the balance of probabilities that they would, but for the vendors’ repudiation, have been able to complete the contract would, while it stands and subject to the possible effect of any relevant estoppel, preclude them from discharging that onus.
[13]Foran v Wight (1989) 168 CLR 385, 438.
I accept that the ‘WeChat’ conversation of 10 December 2015 establishes that AU was ready and able to perform the second disputed agreement. The difficulty lies with establishing that AU was willing to perform the second disputed agreement, in the face of its refusal to supply the goods outstanding under the first disputed agreement and those subject to the second disputed agreement, unless it was paid 100 per cent of the amount payable, in advance of dispatch. On this application, AU accepts that ‘willingness’ is a more difficult point.
At the trial, counsel for Ecmoho observed that no evidence was led as to the readiness and willingness of AU to deliver at any time. In my opinion, Ecmoho did put readiness and willingness into issue, and the burden remained on AU to establish that it was in fact ready, willing and able to perform the second agreement.
As Dawson J said in his judgment in Foran v Wight, quoted above, once in issue, readiness and willingness are required elements of the cause of action in the case of both actual breach and repudiation, as AU claims here.
The High Court has recognised a low threshold to establishing readiness and willingness in the case of anticipatory breach of a contract. In a case where a party ‘has been absolved from tendering performance’ due to the other party’s repudiatory conduct, ‘he may not have to prove a great deal.’[14]
[14]Ibid, 452 (Dawson J).
In Foran v Wight, Deane J said: [15]
I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness and willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view the proposition is unjustified by either principle or common sense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific performance of the contract or for the recovery of damages for its breach.
[15]Ibid, 437.
In Psaltis v Schultz,[16] Dixon J said:
To be ready and willing to perform a contract a party must not only be disposed to do the act promised but also have the capacity to do it. But the tenor of the promise will show when and how the act is to be performed and it is to that time and mode of performance that the capacity and disposition to fulfil the promise are to be directed. It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes, what the contract requires.
[16](1948) 76 CLR 547, 560 (Dixon J).
AU contends that it was ready and willing to perform the bargain, that both parties understood to be the bargain at the time.
In DTR v Mona,[17] both parties, to a purchase agreement, had maintained a right to rescind based on different constructions of the contract, each of which was found to be incorrect. Each party was held not to have validly rescinded. Subsequently, the parties each treated the contract as being at an end; conduct which was held to result in a conclusion that the contract had been abandoned and that a deposit paid to the vendor, was ordered to be returned to the purchaser.
[17] (1978) 138 CLR 423, 432–4, (Stephen, Mason, and Jacobs JJ (with whom Aickin J agreed)).
It was held there, that insisting upon an incorrect interpretation of a contract is not necessarily repudiation. More significantly, for this application, the judgment held that if at the same time the other party is also insisting on an incorrect interpretation, that party cannot rescind because he ‘must at the time of rescission, himself be willing to perform the contract on its proper interpretation’.[18]
[18]Ibid, 433.
It follows, in my opinion, that AU, in order to claim damages, must show that it was willing to perform the contract on its proper terms. It is not sufficient that AU was willing to perform what it mistakenly believed to be the correct interpretation of the contract, even in circumstances where Ecmoho had not made AU aware of the correct interpretation. The difficulty faced by AU on this ground of the proposed appeal is that apart from the pleadings, AU ran its case on the basis that Ecmoho was obliged to pay the full contract price before AU was obliged to do anything. Even when AU made the submissions to the trial judge on the assumption that Ecmoho only had to pay 30 per cent of the price before dispatch, it did not seek to adduce any further evidence in support of that alternate case. On the contrary, AU contended that ‘it did not matter’ because Ecmoho paid nothing.
AU pointed to the ‘WeChat’ of 10 December 2015, as inferential evidence that AU was willing to perform the contract. In the ‘WeChat’ conversation, AU made it clear to Ecmoho that the total price was required before any of the goods would be dispatched.
In the circumstances where AU ran its case on the basis that it was not obliged to perform its part of the bargain, unless it was paid the full purchase price in advance, where no evidence was led as to what AU would, or would not, have done if Ecmoho paid 30 per cent of the purchase price, and the only evidence before the judge was that AU was not prepared to perform the contract unless it was paid the full purchase price in advance, there is, in my opinion, no basis for inferring that AU would have been willing to perform the second agreement, if Ecmoho only paid 30 per cent of the price. In so considering, I accept that ‘not willing’ encompasses ‘not indisposed’, as Dixon J (as he then was) held in Psaltis v Schultz, as quoted above.
In my view, the evidence before the trial judge did not support an inference that AU would have been willing to perform its obligations if only 30 per cent of the purchase price had been paid. AU was adamant that it was not dispatching any further goods until the contract price was paid in full.
If any inference is to be drawn, in my opinion it was open to infer, from the uncompromising demands that AU was making for full payment, that AU would only have been willing to dispatch the goods if 100 per cent of the purchase price had been paid by Ecmoho.
Conclusion
AU argues that the trial judge erred in not determining the alternate argument, that AU was entitled to damages for Ecmoho’s failure to make a 30 per cent of the purchase price payment within a reasonable time of the second agreement being concluded. AU submits that if the trial judge had correctly addressed the un-pleaded alternate case, the trial judge would have held that AU was ready, willing and able to dispatch the goods if only 30 per cent deposit had been paid. AU did not seek to call any further evidence before the trial judge in support of its alternative case, to show that it was ready, willing and able to dispatch the goods.
I have concluded that the trial judge did not err in dismissing AU’s counterclaim based on the pleadings, without considering the alternate un-pleaded case raised in the written final submissions and final address.
If, however, contrary to my view, the judge ought to have addressed the un-pleaded alternate case, I conclude, for the reasons given above, that the trial judge would have been bound to dismiss it.
Nevertheless, I consider the application for leave to appeal has raised a ground justifying leave to appeal. Accordingly, I would allow AU leave to appeal on ground 2, and dismiss the appeal.
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