Australian Development Corp v G.C. Ulan PL

[2001] HCATrans 444

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S39 of 2001

B e t w e e n -

AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD

Applicant

and

G.C. ULAN PTY LIMITED (formerly EXXON Coal Australian Limited, formerly White Industries Limited)

Respondent

Application for special leave to appeal

GLEESON CJ
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 20 NOVEMBER 2001, AT 10.00 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR S.A. KERR, for the applicant.  (instructed by Colin Biggers & Paisley)

MR B.W. RAYMENT, QC:   May it please your Honours, I appear with my learned friend, MR D.T. KELL, for the respondent.  (instructed by Mallesons Stephen Jaques)

GLEESON CJ:   Mr Jackson.

MR JACKSON:   Your Honours, this application seeks to bring three issues to the Court.  The first two are related.  They related to the ability to sue in contract an undisclosed principal.  The third issue relates to measure of damages for a contravention of section 52 of the Trade Practices Act.  May I go to the first two issues.

Your Honours, as to those, this is a case where there was a finding by a referee that White Constructions (ACT) - or perhaps I could call it ACT - had entered into the contract to construct the project as agent for the respondent, the respondent being an undisclosed principal.  Your Honours will see that finding in volume 1, page 1, about line 43.

GLEESON CJ:   I presume that issue was significant because of a question of solvency?

MR JACKSON:   Yes.  Your Honours will see the ruling of the referee, the honourable D.A. Yeldham, QC, is not there, but your Honours will see it referred to at page 1, about line 43.  Your Honours will see question, issue 1, referred to at the bottom of that page.

GLEESON CJ:    I just want to understand how that issue arose, Mr Jackson.  There was a judgment for some $33 million, or something along that line, was there not?

MR JACKSON:   Eventually, your Honour, yes.

GLEESON CJ:   For what?

MR JACKSON:   That was for damages for breach of contract.

GLEESON CJ:   The building contract?

MR JACKSON:   Yes, your Honour, that we and ACT, the agent for the undisclosed principal, were the parties to.

GLEESON CJ:   Those damages were irrecoverable against the party to the contract, you claimed that that party was only an agent?

MR JACKSON:   Yes, your Honour.  I do not know that it is quite right to say that it follows that temporal sequence, but in the event, certainly, we obtained, at one point, a judgment against the company that was the contracting company, for damages for breach of contract which remains unsatisfied.  That gives rise to the second question, the Kendall v Hamilton, if I can call it that, issue.

Justice Giles held that the finding had been open to the referee, on the material that was before him, but he went on to hold on a different ground, namely, the terms of the contract ‑ by consideration of the terms of the contract ‑ to say then, that that finding had not been open, that issue not having been agitated in the first place.

Your Honours will see the discussion on the issue goes from page 4 in volume 1 through to page 7, about line 41, and in the end the reasons of Justice Giles for not adopting the referee’s decision turn on what he described as the third complaint, which is set out at page 8, about line 40.  Your Honours will see then that his reasons on that issue, the issue being whether the terms of the contract were inconsistent with there being a case of undisclosed principal, go through to page 20, about line 35, his conclusion being on page 20, at line 31, and your Honours will see that in that last paragraph commencing at line 31.

GLEESON CJ:   Having regard to the way the referee system works, this matter has already been through two levels of appeal.  This will, in effect, be a third appeal.

MR JACKSON:   Could I say, however, that because of the second point, the correctness of Justice Giles’ view of the matter was not one that was dealt with by the Court of Appeal.  That that is so your Honour will see in volume 2, at page 376, for two reasons:  first in paragraph 25, that there were decisions of the Court of Appeal itself and the decision of this Court in Hexyl which, whilst is does not greatly touch the point, were decisions which were against us on that issue.  Secondly, in paragraph 26, the second point, namely, that having sued the agent, ACT, to judgment, even though the judgment remained entirely unsatisfied, we were not entitled, then, to sue the principle.

GLEESON CJ:   That point only arises if you succeed on the point referred to in paragraph 25.

MR JACKSON:   We have to succeed on both, yes.  Your Honour, I accept that, that is why the two points are related.  In fact, it is probably accurate to say that we have to succeed on the second point before one gets to the first of those two.

Could I go back to the reasoning of Justice Giles.  Your Honours will see at page 15 in volume 1, that he sets out the relevant passages from the earlier decisions.  Your Honours will see a reference at about line 16 to Andrews v Nominal Defendant, Justice Asprey, and the basis of what is said there is that “the undisclosed principal” notion “has been stated to be ‘a primitive and highly restricted form of assignment’.”  This is criticised adversely in the Privy Council decision to which I will come in a moment.

Your Honours will then see in the passage at the bottom of the page, from Hexyl, a reference to what was said by Justice Moffitt and Justice Glass on the next page, page 16, and particular reference to the assignability of the contracts.  That goes over to page 17 to about line 26 where the observation made in this Court in Hexyl is discussed.

One sees a different view, a different approach, taken in a decision of the Judicial Committee of the Privy Council in Sui Win Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199. Your Honours should have that case. The passage commences at page 207, just after letter E, and your Honours will see the passage going through to page 210. I do not want to take your Honours through it word by word but could I refer, particularly, to page 209, between letters D and E, where there is the reference to the notion that the doctrine “bears some resemblance to the assignment of contractual rights.” Your Honours will see that passage in the paragraph commencing between D and E and it goes over to page 210, between letters B and C.

The point we would seek to make about it, your Honours, is that to the extent to which assignment, or the inability to assign, provided for by the contract, exists.  All that it means is that the person who, in the event is the agent, is not able to assign the contract to someone else.  It does not affect, in our submission, the notion that the person who is the agent may well be acting as agent for an undisclosed principal.  Inability to assign, in our submission, does not touch the ultimate question.

Your Honours will see, if I could go, for a moment, back to volume 1, at page 18, that the crucial reasoning of Justice Giles commences, ultimately, between lines 20 and 25, and he says that:

two further provisions put it beyond doubt.  First, article 8 prohibited assignment of the contract or any part thereof without the prior written approval of the other party ‑

and then, your Honours, about line 39:

Secondly, by article 18 ADC could terminate the contract, after notice, in the event of default by “the Company”. –

GLEESON CJ:   Just pausing there.  If that right of termination in the event of default by the company was to operate, which was the relevant company?

MR JACKSON:   The company is the company which is the party expressed to be the party to the contract.

GLEESON CJ:   Not the undisclosed principal?

MR JACKSON:   Yes.  Your Honours will see that his Honour went on in the first paragraph on the next page to discuss the issue, discuss his views a little more fully.

In our submission, the question is one which is perfectly open to argument and open to a conclusion each way.

GLEESON CJ:   Take the point at line 20 on page 19.

MR JACKSON:   Yes, your Honour.  We would accept that the right of termination is important and what we would say is that what you have is a company, which is the company which is nominated by the contract as the company which is to perform and, in those circumstances, it is that company which is the one the subject of the provision.

Could I go then to the second point.  It is clear, in our submission, that this Court has, on occasions, applied the principle, sometimes called the principle in Kendall v Hamilton (1879) 4 AC 504. Your Honours will see it stated, particularly by Lord Chancellor Earl Cairns at page 514, and it is the paragraph commencing at the middle of the page where his Lordship said:

Now, I take it to be clear that, where an agent contracts in his own name for an undisclosed principal, the person with whom he contracts may sue the agent, or he may sue the principal, but if he sues the agent and recovers judgment, he cannot afterwards sue the principal, even although the judgment does not result in satisfaction of the debt.

If one goes to the bottom of the same page, last two lines:

Again, if an action were brought and judgment recovered against the agent, he, the agent, would have a right of action for indemnity against his principal, while, if the principal were liable also to be sued, he would be vexed with a double action.

Your Honours will see that elaborated upon a little further on that page.

That proposition has been adverted to without dissent, if I could put it that way, and perhaps with approval, on a number of occasions in the Court.  Could I give one example and that is Con‑Stan Industries of Australia Pty Limited v Norwich (1986) 160 CLR 226 at 243. Your Honours will see a discussion, under the heading of Election, reference to Petersen v Moloney and then towards the bottom of that page, the quotation, the last two lines:

it is a well‑settled general principle that, while the commencement of an action against one of two persons alternatively liable does not, the entry of judgment against one of them does, constitute a final and irrevocable election . . . ”

In relation to that, could we take your Honours to our written submissions for a moment, which your Honours will see in volume 2 at page 427, paragraphs 31 to 33.  We would submit there is no very compelling reason for the notion that a person should not be able to seek judgment against both, as distinct from recovering against both.

The doctrine of election that is sought to be relied on in the earlier cases, in our submission, is not a very satisfactory result and it is, with respect, difficult to find a reason which is consistent with the interests of justice in that regard.

McHUGH J:   It is consistent with a long course of authority, is it not?  You are going back to the United Australia v Barclays in the House of Lords, you have got Marginson’s Case in this Court.

MR JACKSON:   Your Honour, I accept that but in relation to it, if one looks to see what underlying principle there is to support it apart from simply being a rule of positive law, it is difficult, with respect, to find a satisfactory reason, in our submission.  Could I say in relation that, a rather similar situation obtains whenever there is a judgment against two persons for the same sum.  Could I say, finally, in relation to it, your Honours will see that the respondent’s summary at page 434, in paragraph 11 going through to the next page and the top of the next page as well, refers to attempts that we made to enforce the judgment against the agent.  That, in our submission, highlights, really, the suitability of the case for the determination of the issue, rather than the reverse, because it is a case where the issue is not one which is, in any way, academic.  It is one where attempts have been made to recover the moneys.

McHUGH J:   I suppose there have been some changes in the law in this area and other areas ever since one can give judgment against joint tortfeasors and contributionists.

MR JACKSON:   Your Honour, the decision the Court gave, I think earlier this week or last week, Baxter v Obacelo - I have forgotten how to pronounce it now - that was a case where the question was one of satisfaction of the judgments as distinct from the fact of judgment.

McHUGH J:   Yes.

MR JACKSON:   There is nothing very unusual about it, your Honours, and what Lord Penzance had to say in dissent in Kendall v Hamilton, in our submission, has much to recommend it.

Could I come, then, to the third point, and that is the damages question.  This is a very short issue.  It can be seen in two passages in the Court of Appeal’s reasons.  The first is at page 377.  It is a passage which goes through - if I could use the paragraph numbers of the Court of Appeal’s reasons - from paragraphs 27 to 32.  Paragraph 30, the written submissions on our side before the Court of Appeal were summarised, but essentially what those submissions were appear at page 378.

GLEESON CJ:   I just cannot understand, at the moment, the relationship between this issue and the attempt to recover the $33 million.

MR JACKSON:   I am sorry, your Honour, they are different things, I should have prefaced what I was saying.  What was found was that there had been a contravention of section 52 by the respondent, in any event, in saying in answer to a question, our question, in effect, “Can you build the building in steel for this price?”  They said, yes, they can.  In fact, the building cost a great deal more and we contend that we lost, in effect, sums of money, calculated by reference to – and your Honours will see the submission made at page 378 at about line 13 – that the true measure of damage should be the difference in value between what we actually had to expend by entering into the transaction ‑ ‑ ‑

GLEESON CJ:   I am looking at page 392, paragraph 65, and then paragraph 67, the last sentence.

MR JACKSON:   Undoubtedly, we could recover consequential losses but the point that we seek to make is simply this, that we entered into the construction of the building on the basis of a representation that it could be built for the price.  What we say we were entitled to was to obtain the costs of building the building, as, in fact, they were, less the value of the building as constructed.

GLEESON CJ:   The consequence of the building not being able to be built for the price quoted was to the cost of the builder, not to the cost of the owner, was it not, unless there were some consequential losses?

MR JACKSON:   What I am saying is the losses, the costs that we had to bear of completing the building, all these sorts of things were - because, in the end, we had to complete the building and it was the cost of building the building, not just the amount we had agreed to pay the builder.  The cost of building the building, less, as it actually was, less what is was worth to us at the end.  That is what we said was the proper measure.  What the Court of Appeal said was, “No, one starts really - it would have cost you more to build anyway, had you gone ahead and built it the other way, namely, in concrete.”

What we would say is that the Court of Appeal adopted the wrong approach.  They should have said, “What loss did you sustain by acting on the misrepresentation?”  That is a question that will then have to be resolved, less what the building was worth.  Instead, your Honour, the measure of damages was treated as one not available at all.

Your Honours, those are our submissions.

GLEESON CJ:   Thank you, Mr Jackson.  Yes, Mr Rayment.

MR RAYMENT:   The first question on which special leave is sought is, we would submit, just a narrow question of construction of a particular contract.  It was a building contract and to suggest that the identity of the builder would not be important in such a contract so that some undisclosed principal could come in and enforce it for his own benefit, we would submit, would be most unlikely.  Whether you get to a question of whether you had an express term in the contract or not, prohibiting assignment, we submit that the ‑ ‑ ‑

McHUGH J:   The judge did rely on two reasons.  One of them, the termination ground, seems to be a very strong point in your favour.

MR RAYMENT:   Yes.

McHUGH J:   He did rely on the other ground, the assignment ground which - I was counsel in the Court of Appeal for Hexyl, but notwithstanding that my argument succeeded there, it may be that it needs to be re‑examined.

MR RAYMENT:   What he puts to one side is what I draw attention to, at page 19 between lines 10 and 15.  His Honour said:

Putting aside any question of importance of the personality of “the Company” as the designer of the project, expert builder, and in part adviser –

This was not just a building contract, it was a design contract.  To say that the personality of the other party is unimportant so as to permit an undisclosed third party to come in and stand in his place, we submit, is extremely unlikely.

GLEESON CJ:   There is an anterior problem that puzzles me a little.  It must have been resolved adversely to you by the referee.  But if there is an undisclosed principal hanging around, why is it the one with the money?  Why might it not be some other member of the corporation who has got no money?  A member of the corporate group, I mean.

MR RAYMENT:   Yes, quite.

GLEESON CJ:   I could understand if you were choosing an undisclosed principal to sue you would chose the one with the money, but what was there about the facts of this case that identified as the undisclosed principal the one that could afford to pay the damages?

MR RAYMENT:   Really, the case went off on very detailed facts that are set out in the first referee’s report.  I think he said that it pointed in one direction rather than to others in the group, on particular facts of the case.

We do, with respect, rely upon the second ground referred to by the judge, which we would respectfully submit, is sufficient.  We stress also that this was a contract for the doing of particular skilled work, including design work, and it is, we submit, an inappropriate vehicle to examine a narrow question of whether a clause prohibiting assignment stands against us.

GLEESON CJ:   Mr Rayment, as a matter of the structure of the litigation, how do the first and second issues relate to the third issue?

MR RAYMENT:   They are independent, entirely, of it, as we would see it.  My learned friend seeks to recover damages for an admitted breach of section 52, whether or not he would have acted differently if the representation had not been made.

GLEESON CJ:   It is against the same defendant?

MR RAYMENT:   Yes.  There was a representation found against the person who is not a contractual party.

GLEESON CJ:   Said that the alleged undisclosed principal was the representor?

MR RAYMENT:   Yes.

GLEESON CJ:   Right.

MR RAYMENT:   In other words, entirely independent causes of action were run before different judges and different referees ‑ ‑ ‑

GLEESON CJ:   In the same action?

MR RAYMENT:   In different stages of the same action.  The Court of Appeal heard appeals from Justice Giles, who dealt with the first referee’s decision, and from Justice Einstein, who dealt with the second referee’s decision.  They, in effect, dismissed all appeals, so that the third issue is entirely independent of the first and second.

The third, we would respectfully submit, is my learned friend really shows no error.  He has to show that even if he would have acted differently, it matters not that the findings made by the referee were that no different result would have occurred had the representation not been made.  That, really, would overrule ‑ ‑ ‑

GLEESON CJ:   Could you just, in a summary fashion, tell us the factual basis of that finding.

MR RAYMENT:   What the referee found was that if the representation in question had not been made, nothing would have been different.  The parties were negotiating for a certain kind of contract.  All of the items of loss which did flow would have flowed, according to the referee, if the representation had not been made.  That finding was adopted by Mr Justice Einstein and my learned friend does not challenge the Court of Appeal’s rejection of the appeal in that respect.  We said Gate’s Case shows that there is no damage in this matter, everything would have been the same if the representation had not been made, was not productive of loss.

GLEESON CJ:   Does that mean - and I am not encouraging you to make a submission if it is not right - that you have not just concurrent findings of fact but two layers of concurrency?

MR RAYMENT:   Yes, it does.  Essentially, the Court of Appeal dealt with this matter as a factual matter of causation, and rightly so, we would submit.  That is how we have put it in there.

GLEESON CJ:   I would just like to understand their reasoning a little better than I do at the moment.  If the representation that the steel building could be built for the contract sum had not been made, what would have happened?

MR RAYMENT:   There would have been a contract with the same contract sum, or substantially the same contract sum, for the building of the building in concrete.  All of the items of loss that were found to have – if it were suffered, would have been suffered in any event, all of the various things ‑ ‑ ‑

GLEESON CJ:   Is that because the same misrepresentation would have been made in relation to the concrete building?

MR RAYMENT:   No.  There was no representation in respect of a concrete building.

GLEESON CJ:   No, that occasion never arose.

MR RAYMENT:   No.  Well, it did, because the parties were negotiating for that.  There was no misrepresentation, at all, relied upon, and none proved.

GLEESON CJ:   There was no misrepresentation in relation to the concrete building because there was no opportunity to make one.

MR RAYMENT:   Yes, there was, there was detailed discussion about it.  The parties were in lengthy discussions and, at the last moment, the building was changed from a concrete one to a steel one because it was said it would be cheaper.  It was found that all of the same events that would have occurred had that representation not been made, would have happened, in any event.  That was the referee’s finding.  Justice Einstein adopted it.  The Court of Appeal dismissed an appeal.

GLEESON CJ:   Where do we find the Court of Appeal dealing with that point, specifically, Mr Rayment.

MR RAYMENT:   The law is discussed, relevantly, in paragraphs 69 and 70 on page 393.  The facts ‑ ‑ ‑

GLEESON CJ:   The conclusion is expressed at paragraph 72.

MR RAYMENT:   Yes, and the facts as to what would have happened are dealt with elsewhere in the judgment which my learned friend has not challenged.  It is paragraph 13 and following on page 372.

GLEESON CJ:   I see on the bottom of page 372 that the argument of ADC was that if it had not been induced “to enter into the steel contract, it would have entered into the concrete contract with another builder”.

MR RAYMENT:   Yes, and that was rejected on facts, because they had been in negotiation with this builder only for a very long period of time and they were satisfied with ‑ ‑ ‑

GLEESON CJ:   If they had been negotiating with this builder, why would this builder have not made the same representations about the concrete?  Was there no question about the concrete?

MR RAYMENT:   It was only the particular representations made about the steel which were said to be misleading or deceptive, nothing else was said to be misleading or deceptive in this case.  There were never representations made about, or relied upon, about the contract which otherwise was being negotiated between these parties and would have been entered into but for the last minute change with respect to steel.

GLEESON CJ:   ADC is, itself, very experienced in building and construction.

MR RAYMENT:   It is.

GLEESON CJ:   That was what led it to query whether the steel building could be built for this ‑ ‑ ‑

MR RAYMENT:   The steel, in particular, yes, but not the concrete.

Your Honours, as to the second ground on which special leave is sought which arises only if the first is satisfactory to your Honours, we submit that my learned friend really shows no reason why a long train of authority about the matter ought to be disturbed.  The circumstance was not just that he obtained a judgment.  He obtained a judgment against ACT, then he ‑ ‑ ‑

McHUGH J:   He has funded the liquidator in liquidations in Spink’s Case.

MR RAYMENT:   Yes, and a whole lot of examinations before liquidators in current proceedings in the Supreme Court by ACT against directors.  It is not just obtaining a judgment, it is heavy reliance upon the judgments, and we would respectfully submit that, in those circumstances, the first special leave point is precluded and the second special leave point has no prospects.

Those are our submissions, your Honour.

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, as to my learned friend’s last point, of course we have relied on the judgment, we have relied on the judgment to try to get some money from it.  That is how the issue arises.

Could I go back to the first point.  May I just say something about the facts in relation to the companies.  Your Honours will see from page 1 of volume 1, line 30, that, in fact, the shares in the contracting company, the agent, were held by the respondent.  Shares were held.

The second feature is, as to the actual facts of why a finding might be made.  Your Honours will see those summarised at page 7 in the paragraph commencing at line 20, in particular, at about line 26 going through to the bottom of that paragraph.

The next aspect to which I wish to refer is this:  our learned friend referred to additional aspects that have been referred to by Justice Giles.  Your Honours will see that the additional features, really, seem to have been no more than that in the case of a contract of this kind, of course, you see the agent, a company, being described, hardly surprisingly, in the contract as the company, and matters following from that.  Your Honours will see that at page 17, line 29, through that paragraph to the top of the next page.

Finally, on the question of damage.  Your Honours have seen the finding as to damage at page 372.  It is referred to also in the Court of Appeal, at paragraphs 13 and 31, pages 372 and 379.  The essence of it is that what the court has looked at is, in a sense, not really what was done in consequence of the representation.  As your Honour the Chief Justice observed, we are an experienced developer, in effect.  We ask the question; we are given the information; we rely on the information; we enter into an agreement because of that; the agreement costs us a great deal of money.  The question is, then, what did we expend by reliance upon the misrepresentation?  What did we get in return?  It is not really, in our submission, to the point to say, “The probability is you would have entered into a contract for the construction of another building which would have had about the same contract price.”  Your Honours, that is a question which, in the end, in our submission, was not the right question.

GLEESON CJ:   Thank you.

This litigation, which arises out of a building and construction contract, has been before two referees, two judges of the Commercial Division of the Supreme Court of New South Wales, who respectively reviewed the reports of the referees and accepted them in part and rejected them in part, and the Court of Appeal of the Supreme Court of New South Wales.

The decision of the Court of Appeal upon the questions of principle sought to be agitated further in this Court was closely bound up with the view taken by the referees, the primary judges and the judges of the Court of Appeal of the particular facts and circumstances of the case and the provisions of the particular contract in question.

The Court is of the view that the case raises no issue suitable for a grant of special leave to appeal to this Court and that there are insufficient prospects of success of such an appeal to warrant a grant.  The application is refused with costs.

AT 10.38 AM THE MATTER WAS CONCLUDED