Battye and Battye v Shammall No. Scciv-03-248
[2003] SASC 290
•26 August 2003
BATTYE AND BATTYE v SHAMMALL
[2003] SASC 290
Magistrates Appeal: Civil
BESANKO J: This is an appeal from a decision of a Magistrate in a civil action pursuant to s 40 of the Magistrates Court Act 1991. The Magistrate dismissed the plaintiffs’ claim against the defendant. The plaintiffs appeal to this Court.
The plaintiffs are Mr and Mrs Battye. They are husband and wife and at the time of the events giving rise to their claim they had known the defendant, Mr Shammall, for a number of years. The plaintiffs operate a small manufacturing business. The defendant is a company director with an interest in a number of businesses involved in the buying and selling of motor vehicles. The plaintiffs and the defendant have a mutual interest in harness horse racing, more commonly referred to as “trotting” or the “trots”. In these reasons, it is convenient to refer to the appellants as the plaintiffs and the respondent as the defendant.
The Nature of the Plaintiffs’ Claim
For reasons which will become apparent, it is important in considering the challenges to the Magistrate’s reasons for judgment, to bear in mind the way in which the plaintiffs pleaded their case and the way in which the parties presented their respective cases at trial. I turn to consider those matters.
The amounts referred to below are in Australian dollars unless otherwise indicated.
In their Particulars of Claim, the plaintiffs alleged that in or about April and May 1998 at Adelaide, South Australia, they entered into an oral agreement with the defendant whereby the plaintiffs on the one hand, and the defendant on the other, were to purchase a fifty percent (50%) equal share of three New Zealand horses for the purpose of racing and developing them, namely,
1. “Scherger Down NZ”; and
2.Two colts, namely, “Falcon Seelster/Brights Bid” (foaled 12 February 1997) and “Falcon Seelster/Kinaree” (foaled 24 December 1997)
and that each would contribute the sum of $25,000 for that purpose.
The defendant admitted that in or about April or May 1998 he entered into an agreement with the plaintiffs, but he claimed that the nature of the agreement was that the plaintiffs agreed to contribute the amount of $25,000 to acquire a half interest in the three horses for the purpose of racing and developing them.
The plaintiffs alleged that on 6 May 1998 pursuant to the agreement, the plaintiffs paid to the defendant a cheque for the sum of $25,000. The plaintiffs alleged that the defendant collected the cheque from the work premises of the plaintiffs and that, on 8 May 1998, the defendant banked the cheque into an account called “Main North Nominees, Trustee for the D.M. Shammall Family Settlement”. The defendant admitted that he was paid the sum of $25,000 by the plaintiffs, but alleged that the cheque was sent to him by post.
The plaintiffs alleged that in April and May 1998 and prior to the agreement, the defendant made certain oral representations to them. First, they alleged that the defendant represented to them that the three horses were worth $50,000. The defendant denied that such a representation was made. Secondly, the plaintiffs alleged that the defendant represented to them that the three horses were to be purchased by the defendant for himself and the plaintiffs and that he did not then, that is to say in April and May 1998, have an interest in them. The defendant denied that such a representation was made and alleged that he disclosed to Mr Battye at the time of the discussions that he was the owner of the two colts and that he was in the process of negotiating the purchase of Scherger Down NZ (“Scherger Down”). Thirdly, the plaintiffs alleged that the defendant represented to them that upon payment of the plaintiffs’ share of the sum of $50,000, that is to say the sum of $25,000, the defendant would register the three horses in the joint names of the plaintiffs and the defendant respectively. The defendant denied that such a representation was made. Fourthly, the plaintiffs alleged that the defendant represented to them that the defendant would contribute an equal share, namely, $25,000 to the purchase of the three horses. The defendant denied that such a representation was made.
The defendant’s case was that he sold a half interest in the three horses to the plaintiffs for the sum of $25,000 and that the price which he had paid for the horses was irrelevant.
The plaintiffs alleged that they relied upon and were induced to enter into the oral agreement by the four representations (which were denied by the defendant) and that the representations were false and misleading. In support of the latter part of that allegation, the plaintiffs relied on the following particulars:
1. The three horses were already owned by the defendant.
2. The three horses were, in May 1998, and are now, worth far less than $50,000.
3. Prior to 6 May 1998 the defendant had already paid far less for the three horses namely:
$NZ (1) Scherger Down NZ
18,000 (2) Falcon Seelster/Brights Bid
4,250 (3) Falcon Seelster/Kenaree
4,250 Total
26,500
In response, the defendant alleged that the amounts paid by him for the three horses were as follows:
$NZ (1) Scherger Down NZ
23,600 (2) Falcon Seelster/Brights Bid
7,500 (3) Falcon Seelster/Kenaree
7,500 Total
38,600
The plaintiffs alleged that through his conduct and the four representations, the defendant made fraudulent misrepresentations and was in breach of contract and/or his conduct amounted to false and misleading conduct. The defendant denied those allegations. On the application of the defendant, the Magistrate, one week before the commencement of the trial on 17 September 2002, struck out the reference in the Particulars of Claim to breach of contract and the claim for damages based on the alleged breach of contract. The Magistrate did so on the basis that the plaintiffs had not pleaded the terms of the alleged contract.
The plaintiffs alleged that their loss as a result of relying on the false and misleading misrepresentations was the sum of $13,794 being the difference in value between the amount paid by the plaintiffs to the defendant for a share and the actual value of that share at the time. The defendant denied that the plaintiffs had suffered loss and damage or were entitled to damages.
An important matter to note at this point is that the three horses are still owned by the plaintiffs and the defendant, and the plaintiffs’ claim for loss and damage was based on an acceptance by them that they have no more than a 50% interest in the three horses. The plaintiffs’ claim was that they purchased personal property (ie., a 50% interest in three horses) and were induced to do so by fraudulent misrepresentations and false and misleading conduct by the defendant. They relied on the common law doctrine of misrepresentation and the provisions of the Misrepresentation Act 1972 (SA). The reference to false and misleading conduct might suggest reliance on the provisions of the Fair Trading Act 1987 (SA), although that Act is not referred to in the Particulars of Claim. As far as the claim at common law for damages for fraudulent misrepresentation is concerned, the plaintiffs’ claim is of a type considered in many cases including the leading authorities of the High Court, Potts v Miller (1940) 64 CLR 282, Toteff v Antonas (1952) 87 CLR 647 and Gould v Vaggelas (1985) 157 CLR 215. The principal dispute at the trial was whether the defendant made the four representations, and in those circumstances the provisions of the Misrepresentation Act 1972 raise no considerations additional to those raised by reference to the claim at common law. On appeal, counsel for the appellants made only passing reference to any claim under the provisions of the Fair Trading Act.
The defendant filed a Counterclaim with his Defence claiming the sum of $5,516.21. The defendant alleged that it was part of the oral agreement that each party would share half the costs of maintaining, racing and training the three horses. The defendant alleged that he had expended NZ$12,258.25 in maintaining, racing and training the Falcon Seelster colts and that the plaintiffs were liable to pay to him half that sum (converted to Australian dollars) namely, $5,516.21.
The Applications Before Trial
Shortly prior to the trial of the action, the plaintiffs and the defendant each brought applications for various orders. The Magistrate considered the applications and on 10 September 2002 delivered written reasons for his decisions with respect to the applications.
The defendant’s application sought orders for the dismissal of the claim and of the action. Putting the matter broadly for the moment, the defendant submitted that properly analysed the claim and counterclaim raised a partnership dispute that might lead to an order for an account and that the Magistrates Court did not have jurisdiction to order the taking of an account. The defendant submitted that the appropriate course was for the claim and counterclaim to be dismissed, leaving either party free to bring proceedings in the Supreme Court for the dissolution of the partnership and an order for an account. The Magistrate said that although the Court might ultimately agree with that submission, it was not a matter to be determined at that stage. It was a matter to be determined at trial. The Magistrate refused the defendant’s application for an order that the action be dismissed.
As I have already said, the Magistrate made an order striking out those parts of the Particulars of Claim which alleged a breach of contract and the claim for damages based on the alleged breach of contract.
The plaintiffs’ application sought leave to file an Amended Reply and Defence to Counterclaim. The plaintiffs sought to claim from the defendant half the costs they had incurred in maintaining, racing and training Scherger Down. The Magistrate refused the application on the basis that it was made too late in the proceedings, it raised issues of discovery and there was inadequate time for the issues to be properly explored.
The Magistrate considered that the issues raised in the defendant’s Counterclaim and the issues the plaintiffs sought to raise in their Amended Reply and Defence to Counterclaim were so “intertwined” that they ought to be dealt with at the same time. Therefore, he ordered that the defendant’s Counterclaim be heard separately from the Claim and after the Claim had been heard and determined. He indicated that he would entertain the plaintiffs’ application to amend their Reply and Defence to Counterclaim when the Counterclaim was re-listed. He did not consider the course he was proposing to take would create difficulties in terms of an estoppel and he referred to Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. The Magistrate said:
“I am mindful of the Anshun principle (Port of Melbourne Authority v Anshun Pty Ltd (1981) 36 ALR 3). On the face of it the course which I am adopting, whereby the claim is separated out from the counterclaim, is contrary to the principles of Anshun. However, I take a different view. I take the view that dealing with the claim and making findings as to whether or not there was any misrepresentation will necessarily dispose of an issue which will need to be disposed of in any event. Once this issue is resolved the remaining issues between the parties will become much clearer and easier to determine. There will be outstanding issues between the parties at the end of this action. If the plaintiff succeeds in obtaining a judgment and an award of damages the position will remain that we have three horses jointly owned. How are the parties going to resolve their dispute about that? They will need to address that issue in due course.”
For the sake of completeness, I mention that in their application, the plaintiffs also sought an order for further and better discovery. The Magistrate made an order for further and better discovery with respect to some of the classes of documents identified by the plaintiffs.
Finally, it is important to note a submission put by the defendant’s counsel on the hearing of the applications and dealt with by the Magistrate. He submitted that the striking out of that part of the plaintiffs’ claim which alleged a breach of contract had the consequence that there needed to be amendments to the Particulars of Claim and, consequentially, the Defence. The Magistrate rejected that submission. He said:
“For the (sic) reasons I strike out from the particulars of claim in para. 6 the words ‘and is in breach of contract’ and I strike out para. 10.3 being the prayer for relief for damages in contract.
Mr O’Donnell for the defendant submits that there must now be amendments to the claim and consequentially the defence.
The plaintiff’s claim is a claim which is confined to the assertion that the plaintiffs were induced to enter into the agreement to purchase a 50% equal share of the three horses as a result of certain misrepresentations. The issue is an issue confined to a question as to whether oral representations were made by the defendant and if so whether the representations were false or fraudulent and if so what is the measure of damage.
It is not necessary to inquire into the nature of the contract which resulted or the precise terms and conditions of it.”
After referring to the allegations in the pleadings as to the agreement between the parties, the Magistrate said,
“Both parties therefore acknowledge that there was a contract. Both parties acknowledge that pursuant to the contract the defendant was to acquire an interest in certain race horses. The question which is alive is whether or not that oral agreement was reached as a result of the various misrepresentations alleged.”
The defendant’s counsel then made a submission that the course the Magistrate was adopting may result in a judgment against the defendant and therefore prejudice to the defendant. As to this submission, the Magistrate said:
“I deal with one last aspect namely a proposition by Mr O’Donnell that the course which I have adopted may result in a judgment against his client and his client may be prejudiced. There will only be a judgment against the defendant if the plaintiffs succeed in establishing that they were in fact induced to enter into the agreement as a result of the defendant’s misrepresentations and if the plaintiffs also establish, as pleaded, that they were fraudulent misrepresentations. If the plaintiff proves those matters then it cannot be said to be an injustice that a judgment be recorded against the defendant.
A finding favourable to the plaintiffs will not effect any rights that the defendant may have to raise the matters referred to in the counterclaim either by way of the pleadings presently on file as a counterclaim or in the alternative by way of application to the Supreme Court for dissolution of partnership and the taking of accounts.”
The Application During the Trial
Immediately before closing their case the plaintiffs sought leave to amend the Particulars of Claim. The plaintiffs sought to plead a fifth representation, namely, that Mr Shammall had said to Mr Battye that they could buy the three horses as a partnership for $50,000 or words to that effect. The plaintiffs also sought to plead that the defendant had failed to inform the plaintiffs that:
1. The racehorses were already owned by the defendant.
2. The racehorses were in May 1998, and are now, worth far less than $50,000.
3. Prior to 6 May 1998, the defendant had already paid far less for the racehorses namely:
3.1 Scherger Down $NZ20,000
3.2 Falcon Seelster/Bright Bid }
}3.3 Falcon Seelster/Kenaree } $NZ15,000
$NZ35,000
The plaintiffs sought to plead that they would not have entered into the agreement had they been informed of the above facts.
The Magistrate refused the plaintiffs’ application. He said that to add a further representation at that stage would prejudice the defendant. The Magistrate referred to the proposed amendments raising a failure to inform as raising a case of misrepresentation by silence. He said that although he would refuse leave to amend, the plaintiffs may be able to argue a case of misrepresentation by silence by reference to the Particulars of Claims as they then stood.
The Magistrate’s Findings of Fact
The Magistrate set out a number of facts which he said were not, or not seriously, in issue. I will briefly summarise those facts.
In early 1998, Mr Battye and Mr Shammall had known each other for a number of years. They shared an interest in trotting and saw each other at the trotting track at Globe Derby Park. They were on good terms and trusted each other. In the past, they had jointly purchased and sold horses. Mr and Mrs Battye and Mr Shammall all have experience in business.
In early 1998, Mr Shammall was a close friend of Mr Wayne Francis. Mr Francis was a well-known horse breeder in New Zealand and he was the joint owner with Mr Robert McArdle of a large stud property in New Zealand operated by a company described by the Magistrate as “Nevele R Stud Limited (or similar)”. Mr Francis died about a year after the events which are the subject of this action (ie., 1999).
Some time in March or April 1998, Mr Shammall had a conversation with Mr Battye at Globe Derby Park. Mr Shammall initiated the conversation and the conversation related to the three horses. It is common ground that the two men agreed that they would jointly race the three horses in the sense that the expenses of racing the horses and any prize money would be shared.
Some time prior to 6 May 1998 there was a conversation between Mr Shammall and Mr Battye at Globe Derby Park. The conversation related to Scherger Down and the Falcon Seelster colts. It is not entirely clear from the Magistrate’s findings whether this is a further finding in relation to the conversation referred to in the preceding paragraph or is a finding that there was a second conversation.
The evidence suggests that there was more than one conversation as does the Magistrate’s later finding that Mr Battye had time to reflect on the transaction. I will proceed on that basis.
On or about 6 May 1998 the plaintiffs drew a cheque in the sum of $25,000 and the defendant subsequently banked that cheque.
Some time after 6 May 1998 the defendant brought Scherger Down to Australia at his expense and the horse was registered in the joint names of Mr Shammall and Mr Battye. The Falcon Seelster colts remained in New Zealand and are still in that country.
Since 6 May 1998 the plaintiffs and the defendant have regarded themselves as having an equal interest in the three horses. Scherger Down has been trained and has been raced. The horse has won some races thereby earning prize money. Expenses have been incurred in feeding, training and racing Scherger Down and in feeding and training the Falcon Seelster colts.
The relationship between Mr Battye and Mr Shammall soured as a result of an incident which occurred at Globe Derby Park on 26 February 2000. It is unnecessary to set out the details.
As I have said, the plaintiffs and the defendant still own the three horses. The Magistrate noted that the issue of what is to become of the three horses is one which still needs to be resolved, and he also noted that there may need to be an account taken in order to determine amounts owing as between the plaintiffs and the defendant.
After discussing the evidence put before him, the Magistrate found that the Falcon Seelster colts were purchased by the defendant in March 1998 from Nevele R Stud Limited for the sum of $NZ15,000. The cheque for payment was drawn on 24 March 1998. Scherger Down was purchased by the defendant in April 1998 for the sum of $NZ20,000 which included an amount for commission of $2,000. There were two cheques ($18,000 and $2,000) for payment which were drawn on 24 April 1998. It follows that the defendant paid a total of $NZ35,000 for the three horses. In May 1998 the equivalent of $NZ35,000 in Australian dollars was $30,000. I mention at this point that because there is no clear finding as to when the conversations took place, it is not clear whether the defendant had completed or was in the process of completing the purchase of Scherger Down at the time of the conversations. Neither party suggested that anything turned on this point.
The sum of $25,000 paid by the plaintiffs to the defendant was paid as the monies payable by them for the acquisition of a fifty percent (50%) interest in the three horses.
Pausing at this point, one can see the reason for the dispute between the parties. The plaintiffs paid the sum of $25,000 to the defendant for a half interest in the three horses which the defendant had purchased a short time prior to the transaction for a total of $30,000.
The Magistrate observed that it was common ground between the parties that there was an agreement reached in March or April 1998 whereby the plaintiffs would acquire a fifty percent (50%) interest in three horses for the sum of $25,000 and that thereafter the parties in partnership would race the three horses.
This concludes the summary of the facts found by the Magistrate which were not in issue or not seriously in issue.
Of critical importance in this case is the content of conversations between Mr Battye and Mr Shammall prior to 6 May 1998. The Magistrate did not make a clear finding as to when the conversations took place. It would seem from the evidence that the best that can be said is that they took place in mid to late April 1998.
The Magistrate made a number of findings as to what was not said by Mr Shammall to Mr Battye. He found that Mr Shammall did not say to Mr Battye the following:
1. That he had paid $30,000 for the three horses.
2. That he had paid $50,000 for the three horses.
3. That the three horses were worth $50,000.
4. That the three horses were to be purchased by Mr Shammall for himself and Mr Battye and that he (Mr Shammall) did not then (April and May 1998) have an interest in the three horses.
5. That upon payment of the plaintiffs’ share of the sum of $50,000 (ie., $25,000) Mr Shammall would register the three horses in the joint names of the plaintiffs and himself.
6. That he (Mr Shammall) would contribute an equal share, namely $25,000, to the purchase of the three horses.
The Magistrate also found that Mr Shammall did not mention the figure $50,000 during his conversations with Mr Battye.
The Magistrate approached the question of the content of the conversations by reference to the alleged representations. In other words, he considered whether the alleged representations were made. He found that they were not made. Subject to one matter, the Magistrate appears not to have made, or at least not expressly made, findings as to what was said. He did find that Mr Shammall said to Mr Battye that the Falcon Seelster colts could be sold as yearlings for as much as $30,000 each. The Magistrate’s approach in this regard is consistent with the approach he took in considering the application one week before trial, namely, that it was not necessary “to inquire into the nature of the contract which resulted or the precise terms and conditions of it.”
Mr Battye and Mr Shammall each gave their account of what was said during the conversations. The Magistrate did not expressly state whose evidence he preferred. This may be contrasted with his approach to the conflict between the evidence of Mrs Battye and Mr Shammall as to conversations which the plaintiffs alleged took place between them. The Magistrate found that Mrs Battye was not a convincing witness, and he rejected her evidence that Mr Shammall had said to her during various telephone conversations before 6 May 1998 that he had paid $50,000 for the three horses.
There are a number of matters which suggest that the Magistrate accepted Mr Shammall as a witness of truth. First, the Magistrate said that he believed Mr Shammall when he said that he entered into the transaction in good faith. Secondly, the Magistrate said that having “seen and observed” Mr Shammall as he gave evidence he rejected the suggestion that Mr Shammall would have told Mr Battye something which he knew was untrue.
The Magistrate described the essence of each party’s case in the following terms:
“The defendant’s case is that he offered the plaintiffs a half share in three horses that he already owned for a figure of $25,000. The plaintiffs’ case in essence is that the defendant approached Mr Battye asking whether he was interested, together with Mr Shammall, in purchasing three horses and subsequently racing them together.”
The Magistrate found that Mr Shammall did not represent to Mr Battye that he did not have an interest in the three horses or that he would purchase the three horses on his behalf and on behalf of Mr and Mrs Battye. At the same time, the Magistrate did not make a finding, and the evidence would not enable me on appeal to make a finding, to the effect that Mr Shammall told Mr Battye that he was the owner of the three horses. In cross-examination, Mr Shammall gave the following evidence:
“A. … I always offered Mr Battye a half share in three horses including the freight to get the horse to Australia.
…
Q.But you never told him that you were the seller of the three horses.
A. I thought that would have been obvious.”
Furthermore, there are matters which suggest that at the time of the conversations, the question of the ownership of the three horses was unlikely to have been a matter of any great moment. Mr Battye had a good relationship with Mr Shammall at the relevant time and he trusted him. He probably did not consider it significant who owned the three horses. He made no inquiries as to the value of the three horses or the prices for which they were purchased. In light of the evidence of Mr Shammall and these considerations, I proceed on the basis that Mr Shammall did not disclose to Mr Battye that he was the owner of the three horses.
The Magistrate found that at the time he purchased the Falcon Seelster colts Mr Shammall honestly believed he had purchased the two horses at a “bargain” price.
The Magistrate found that the plaintiffs had not established the “actual” or “true” value of the horses in May 1998. This meant, said the Magistrate, that they had not established that any representation as to the value of the three horses was false, nor had they established any loss. The Magistrate found that any presumption as to the value of the three horses in May 1998 arising from the fact that at about this time Mr Shammall had paid $30,000 to purchase the three horses was rebutted by the evidence of Mr McArdle. Mr McArdle was a joint owner of Nevele R Stud Limited. The other owner was Mr Francis. Mr McArdle gave evidence that the only reason the two Falcon Seelster colts were sold to Mr Shammall for $NZ15,000 was because of the friendship between Mr Shammall and Mr Francis. The Magistrate accepted the evidence of Mr McArdle and said that it was not “opinion” or “expert” evidence and therefore could be received and acted upon even though the defendant had not complied with the Rule of Court relating to the service of expert evidence (r 69). I note at this point that towards the end of the trial, the plaintiffs applied either to reopen their case to call evidence from an expert as to the value of the three horses or to call such evidence in rebuttal. It appears that the application was unsuccessful.
The Magistrate found that the defendant’s offer to the plaintiffs, after the relationship had soured, to pay them $25,000 was not made out of a sense of guilt. The defendant entered into the transaction in good faith, and when he discovered that the plaintiffs were not happy, he made a fair offer.
Despite the fact that the Magistrate said it was not pleaded, the Magistrate dealt with and rejected a case of what he called misrepresentation by silence. He said that Mr Battye was an experienced businessman who was aware at the time that the stallion, Falcon Seelster, was popular. He had purchased many horses in the past. Mr Battye had time to reflect and make his own inquiries. He could have asked questions. Instead, he chose to exercise his own judgment. It was a commercial transaction. There was no duty on Mr Shammall to disclose to Mr Battye what he had paid for the three horses.
The Magistrate found that Mr Shammall spoke glowingly of the Falcon Seelster colts. He spoke of them as having a value as yearlings of $30,000. Mr Shammall had paid only $NZ15,000 for the Falcon Seelster colts. However, the Magistrate found that Mr Shammall honestly believed that the Falcon Seelster colts could be sold for $30,000 each, and that in any event he could not say whether Mr Shammall was right or wrong because there was no evidence as to the true value of the horses.
In the result, the Magistrate found that there were no misleading or false representations made and no failure to disclose anything that ought to have been disclosed. It was not a case of misrepresentation by silence.
The Magistrate held that the plaintiffs’ claim failed and he entered judgment for the defendant upon the claim. In summary, his conclusions were as follows:
1. The plaintiffs failed to establish that the four representations were made by the defendant.
2. Mr Shammall had not engaged in misleading or false representations and he had not failed to disclose anything that he ought to have disclosed.
3. There was no evidence of the true or actual value of the three horses at the time of the transaction, and even if he had been satisfied that a representation as to the value of the three horses had been made, it had not been established by the plaintiffs that it was untrue.
Issues on Appeal
Although there are eleven grounds of appeal in the Notice of Appeal, the plaintiffs’ complaints about the reasons for judgment of the Magistrate were refined by their counsel on the hearing of the appeal. I start by considering those grounds which relate to the plaintiffs’ claim for damages for misrepresentation.
Fraudulent Misrepresentation
The plaintiffs challenged the Magistrate’s finding that Mr Shammall had not made the four representations. They submitted that the Magistrate had taken “too literal an approach” to the question of whether the representations had been made. I understood the submission to be that the Magistrate rejected the plaintiffs’ case that the representations had been made because Mr Battye could not remember the precise words used. I reject that submission. There is nothing to suggest that the Magistrate made what would be such an obvious error. The Magistrate made it clear in his reasons that he was alive to the difficulties confronting witnesses in recounting events that occurred some four years previously. The Magistrate said that in evaluating the evidence of the parties he would bear in mind that over a period of four years or so memories were likely to fade. The fact is that Mr Battye did not give clear evidence that the four representations were made. Furthermore, the Magistrate appears to have accepted the evidence of Mr Shammall and the circumstances in which an Appeal Court might interfere with a trial Judge’s assessment of a witness have not been made out (Devries v Australian National Railways Commission (1993) 177 CLR 472; Fox v Percy [2003] HCA 22).
The plaintiffs also submitted that the Magistrate erred in refusing to allow their application during the trial for leave to amend the Particulars of Claim and in rejecting their case based on what the Magistrate called misrepresentation by silence. I have already summarised the terms of the proposed amendment. There was no complaint on appeal about the refusal to allow the amendment insofar as it sought to raise a fifth representation. Even if there had been, it does not advance the plaintiffs’ arguments because I am not persuaded that the Magistrate was wrong in finding that Mr Shammall did not use the figure of $50,000 during the conversations. The plaintiffs do complain about the Magistrate’s refusal to allow them to amend to allege a failure to disclose the matters identified in paragraph 24 above. The Magistrate treated the proposed amendment as raising a case of misrepresentation by silence. On the appeal it was submitted that the proposed amendment had a dual character, namely as providing particulars of a case of common law misrepresentation or as the Magistrate called it “misrepresentation by silence” and as raising a case of breach of fiduciary duty. I do not think the Magistrate treated the proposed amendment as raising a case of breach of fiduciary duty. The Magistrate’s approach was justified having regard to the arguments put on the applications before trial and the Magistrate’s reasons in relation to those applications. I have already referred to those matters. The Magistrate’s approach was also justified having regard to the terms of the proposed amendment which makes no reference to a fiduciary duty arising from a partnership.
The plaintiffs submitted that the amendment should have been allowed and referred to The State of Queensland v J.L. Holdings Pty Ltd (1996) 189 CLR 156. On the assumption that the amendment did not raise a case of breach of fiduciary duty, the plaintiffs have not shown that the Magistrate erred in refusing leave to amend at that stage of the trial. In any event, although he said it was not pleaded, the Magistrate did consider a case of misrepresentation by silence.
Generally speaking, there is no duty to speak at common law (Smith v Hughes (1871) LR 6 QB 597). There are circumstances where there may be a duty to speak at common law such as where a failure to speak in light of what has been said is misleading, or where a statement originally correct becomes false due to a change of circumstances.
The Magistrate found that Mr Shammall owed no duty to disclose what he had paid for the horses. I have already referred to the matters which he took into account in reaching that conclusion. Leaving aside a fiduciary duty, I do not think he erred in holding that there was no duty. I do not think the Misrepresentation Act expands the concept of a representation at common law and it does not advance the plaintiffs’ submission on this point. The plaintiffs’ case (if any) under the Fair Trading Act 1987 is unclear. The Act is not referred to in the Particulars of Claim or in the Magistrate’s reasons. Some cases decided under the Act were the subject of a passing reference by counsel for the plaintiffs in the argument before me, and the Act is briefly referred to in some of the written submissions placed before the Magistrate. There is no allegation in the Particulars of Claim that Mr Shammall engaged in conduct in trade or commerce and it is by no means apparent that this requirement of s 56 of the Act is satisfied (O’Brien v Smolonogov (1983) 53 ALR 107). It may be accepted that a duty to speak may arise because the representations which were made were incomplete and potentially misleading (Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd & Ors (1987) ATPR 40 – 782). However, in light of the way in which the matter was presented to the Magistrate and the fact that the section was only mentioned in passing before me, I am not prepared to find that the elements of a breach of s 56 of the Fair Trading Act have been made out.
That leaves the main submission put on the appeal in relation to the duty to speak, namely, that there was a duty to speak because there was a fiduciary relationship between the plaintiffs and the defendant. Although the plaintiffs’ submissions to the Magistrate raised the point, the Magistrate did not deal with the argument in his reasons for judgment. It will be necessary for me to consider whether the Magistrate erred in failing to deal with the argument and, if he did, whether the argument should succeed. Before I do so, it is necessary for me to consider the other major attack on the Magistrate’s findings.
The Value of the Three Horses at the time of the Oral Agreement
The plaintiffs did not call a witness to give evidence of the value of the three horses in May 1998. It is clear that insofar as the plaintiffs’ claim was based on fraudulent misrepresentations, the plaintiffs bore the onus of establishing the value of the three horses in April and May 1998 (Boffo v NC Nominees Pty Ltd (2002) 220 LSJS 319 per Perry J at paras 44 - 46). There was evidence of the price the defendant had paid for the three horses at about that time, namely, the sum of $30,000. On the face of it, that was some evidence of value. It would not be evidence of value if there were circumstances surrounding the transaction which suggested that it was not an arms length transaction between a willing but not over anxious seller and a willing but not over anxious buyer (Spencer v The Commonwealth (1907) 5 CLR 418). The defendant sought to put such evidence before the Court.
Mr McArdle, a co-owner of Nevele R Stud Limited, was called as a witness by the defendant. It will be remembered that Nevele R Stud Limited sold the Falcon Seelster colts to the defendant and that the other co-owner, Mr Francis, had died before trial. Mr McArdle gave evidence that the only reason the Falcon Seelster colts were sold for the sum they were, was because of the friendship between Mr Francis and Mr Shammall.
The defendant had not complied with those provisions of the Magistrates Court (Civil) Rules 1992 relating to the delivery of expert evidence before trial. The defendant acknowledged that fact before the Magistrate and he acknowledged that he could not lead expert evidence from Mr McArdle. However, he submitted that the evidence of Mr McArdle summarised above was not expert evidence. The Magistrate agreed. He allowed the evidence to be given and concluded:
“I agree with Mr O’Donnell that this evidence rebuts any suggestion that the price paid by the defendant for the Falcon Seelsters establishes the true value of the horses at the time when they were purchased.”
The plaintiffs challenged the Magistrate’s conclusion that the evidence of Mr McArdle was not expert evidence. They submitted that the evidence was expert evidence and ought not to have been received.
It seems to me that Mr McArdle’s evidence did involve the expression of an opinion as to the value of the three horses. At the very least, an opinion as to the value of the Falcon Seelster colts is implicit in the evidence that the colts would not have been sold for the price they were but for the friendship between Mr Shammall and Mr Francis. Mr McArdle’s evidence that Mr Shammall and Mr Francis were close friends is not expert evidence but that evidence in itself does not say anything as to value. Mr McArdle should not have been permitted to give evidence that the Falcon Seelster colts would not have been sold for the price they were but for the friendship between Mr Shammall and Mr Francis. However, in view of my conclusions on the other issues on this appeal, it is not necessary for me to consider whether the effect of this error by the Magistrate is that a retrial should be ordered, or whether the appeal should be determined disregarding the relevant evidence of Mr McArdle.
Fiduciary Obligation
The main submission put by the plaintiffs on the appeal was that the defendant owed a fiduciary obligation to disclose to them the fact that he owned the three horses and the fact that he had paid the sum of $30,000 to purchase them. The plaintiffs submitted that the fiduciary obligation arose from the fact that the plaintiffs and the defendant entered into a partnership agreement. The defendant did not discharge his fiduciary obligation in that he failed to disclose the said facts to the plaintiffs. The defendant was liable to account to the plaintiffs for the profit he had made without their knowledge and consent. The plaintiffs submitted that such a case was made out on the findings of the Magistrate. The plaintiffs submitted that the Magistrate should have given the plaintiffs leave to amend to allege the non-disclosure of the matters identified in paragraph 24 above. As I understood their argument they also submitted that a case of breach of fiduciary duty was alleged in the Particulars of Claim as they stood at the commencement of the trial. The plaintiffs referred to the requirements for pleadings in the Magistrates Court Rules 1992. Rule 24(1) of those Rules provides as follows:
“24.(1) (a) Subject to any order of the Court a short form of pleading disclosing the date(s), place(s), circumstances and the cause of action upon which the action is based is sufficient.
(b)If the Court requires a more detailed pleading the pleading must comply with the Supreme Court Rules 1987.”
Counsel for the plaintiffs referred to S P Hywood Pty Ltd v Standard Chartered Bank Ltd [1992] SASC S3764 as authority for the proposition that in the ordinary case the trial Judge is not restricted to the cause of action identified by a party or by his or her counsel. In this context, I should also note s 31 of the Magistrates Court Act 1991. It provides as follows:
“31. (1) Although a particular form of relief is sought by a party to an action, the Court may grant any other form of relief that it considers more appropriate to the circumstances of the case.
(2) In particular-
(a) where a party seeks relief by way of injunction or specific performance, the Court may award damages in addition to or in substitution for such relief;
(b) where a party seeks foreclosure of the equity of redemption in mortgaged property, the Court may, instead of ordering foreclosure-
(i) direct the sale of the mortgaged property; or
(ii) direct a transfer of the mortgage debt and security to a person who agrees to assume the debt.
(This subsection is not exhaustive.)”
It seems to me, however, that the problem for the plaintiffs in this case is a different one from that discussed in S P Hywood Pty Ltd v Standard Chartered Bank Ltd. The question here is whether the plaintiffs have alleged sufficient “circumstances” on the “material facts” to raise a case of breach of fiduciary duty. In my opinion the answer to that question is no. The Particulars of Claim contain no reference to a fiduciary relationship or the circumstances in which it is said to have arisen, and in particular, the partnership and the terms and conditions thereof. Without the proposed amendment, the Particulars of Claim contain no particulars of a breach of fiduciary obligation. If the amendment had been allowed, that problem and only that problem would have been cured. The Particulars of Claim contain no particulars of the relief claimed as a result of the breach, whether it be a claim for equitable compensation or a claim for an account. In fact, in terms of relief, the Particulars of Claim are quite clearly limited to a claim for damages for misrepresentation. A claim based on breach of fiduciary duty is outside the terms of the Particulars of Claim. However, that is not the end of the matter if in fact the case at trial was conducted on the basis that the plaintiffs’ claim included a claim for breach of fiduciary duty (Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666). If that had been the case, the Magistrate would have been entitled to consider a case of breach of fiduciary duty.
In addition, it may have been a good reason to allow the proposed amendment (even at this late stage), although, as I have said, the particular amendment was deficient in that it pleaded no more than a failure to disclose certain matters.
In my opinion, having regard to the applications made and determined one week before trial and the Magistrate’s reasons therefor, the case was not conducted on the basis that the plaintiffs’ claim included a claim for breach of fiduciary duty. I think that it was clear that the plaintiffs’ claim was independent of any claim or action based upon an alleged partnership and the question which was alive before the Magistrate was whether or not the plaintiffs entered into the agreement as a result of the four representations. In addition to the matters I have referred to earlier in these reasons in relation to the defendant’s application before trial to dismiss the plaintiffs’ claim, I refer to the fact that in relation to that application the plaintiffs, in their written submissions in reply dated 9 September 2002, said the following:
“Dismissal
3.Apparently the defendant is saying that the plaintiffs’ claim relates to a partnership and, although it is not pleaded, orders should be made pursuant to the Partnership Act.
4.None of the pleadings before the Court either in their amended or unamended form allege a partnership or seek any relief in relation to a partnership. All the pleadings allege simple contracts and remedies relating to such contracts. These causes of actions (sic) fall within the Magistrates Court jurisdiction (see Lunn pages 80, 119-80, 122). The Court will confine itself to the pleadings even if a partnership may be suggested (see Kelly v CA and L Bell Commodities Group (1989) 18 NSWLR 248 at 257-8).”
All of this points strongly to the conclusion that the question of a partnership and relief in relation to a partnership was not an issue at the trial before the Magistrate. In light of these matters, the plaintiffs should not be permitted to rely on a breach of fiduciary duty said to arise because of a partnership between the parties. Insofar as it is necessary to support this conclusion to identify prejudice to the defendant, I think prejudice to the defendant is made out. The applications determined by the Magistrate on 10 September 2002 and the action itself may have taken quite a different course in terms of the issues before the Court and indeed whether those issues were determined in the Magistrate’s Court or in this Court, had the plaintiffs had made it clear at that time that they were alleging a partnership giving rise to particular fiduciary duties, a breach of fiduciary duty and a liability in the defendant to account to the plaintiffs for a secret profit. Furthermore, I am not satisfied that the trial itself may not have taken a different course in terms of the evidence put before the Court had the defendant known that the plaintiffs were alleging a liability for breach of fiduciary duty. For example, there is a suggestion that the defendant may have been able to call evidence showing that the plaintiffs had some knowledge of the transactions whereby the defendant purchased the three horses. In my opinion, the trial was conducted on a certain basis. The plaintiffs’ claim did not include a claim for breach of fiduciary duty and the Magistrate did not err in not considering a claim of that nature. Nor is it open to the plaintiffs to raise such a case on appeal.
In case I am wrong in reaching this conclusion and in the event that there is an appeal, I should indicate my views on the assumption that it was open to the Magistrate, and was open to me, to consider if the defendant is liable to the plaintiffs for breach of fiduciary duty.
It appears to be common ground that there was a partnership between the plaintiffs and the defendant. It is not clear to me what position the respective parties take as to whether the partnership is still in existence or has been dissolved. It is common ground that the business of the partnership at least included the training and racing of the three horses and, in the case of Scherger Down, breeding from that horse. The plaintiffs submitted that the business of the partnership also included the purchase of the three horses, but perhaps recognising the difficulty with that contention in light of the Magistrate’s finding that Mr Shammall did not say to Mr Battye that he would purchase the three horses on behalf of himself and the plaintiffs, the plaintiffs put their principal submission on this point on the basis that even if the business of the partnership included only the training and racing (and in the case of Scherger Down, breeding) of the three horses, nevertheless the defendant owed a fiduciary duty to the plaintiffs to disclose the fact that he owned the three horses and had purchased them for $30,000. The plaintiffs referred to authorities to the effect that an intending partner can owe fiduciary duties and may do so even if a partnership agreement is not subsequently made. The plaintiffs referred to the speech of Lord Atkin in Bell v Lever Brothers Limited [1932] AC 161 (at 227):
“Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending partner. Unless this contract can be brought within this limited category of contracts uberrimae fidei it appears to me that this ground of defence must fail.”
In United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1, Gibbs CJ said (at 5):
“In Lindley on Partnership, 15th ed. (1984), p. 480, it is said that the ‘obligation to perfect fairness and good faith’ is not confined to persons who actually are partners, but ‘extends to persons negotiating for a partnership, but between whom no partnership as yet exists …’. This statement, which also appeared in earlier editions, is criticised in Higgins and Fletcher, Law of Partnership in Australia and New Zealand, 4th ed. (1981), p. 50, on the ground that it is not supported by the authorities cited. The decision of Lord Lyndhurst L.C. in Fawcett v. Whitehouse is clear authority for the proposition that a person who is negotiating for himself and his future partners as an agent for the intended partnership, and who clandestinely receives an advantage for himself, must account for that advantage to the partnership when it is formed. Hichens v. Congreve is a similar case. Other authorities, cited by Lindley, concerned promoters of companies, but there is an analogy between the position of company promoters and that of persons who invite others to join in a partnership. The principle was stated generally in Directors, etc. of Central Railway Co. of Venezuela v. Kisch:
‘It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterize their published statements’.”
Mason, Brennan and Deane JJ said (at 11-12):
“To the extent that that submission involves a general legal proposition that the relationship between prospective partners or joint venturers cannot be a fiduciary one until a formal agreement is executed, it is clearly wrong. A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.”
In Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1, Williams J held that intending partners owed fiduciary duties to each other even though a partnership did not subsequently come into existence.
In response to this submission, the defendant submitted that on a proper characterisation of the facts as found by the Magistrate there were two transactions, one for sale and purchase of the three horses and the other for the formation of a partnership. Fiduciary obligations arose in relation to the second transaction but not the first.
The defendant submitted that it is necessary to determine the subject matter over which the fiduciary obligation extends. He referred to the observations of Dixon J in Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384, Dixon J said (at 408):
“The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties. Of the duties imposed by these doctrines, one which is material for the decision of this case is that which forbids a partner from withholding from the firm any opportunity of advantage which falls within the scope of its undertakings, and from using for his own exclusive benefit, information, knowledge or resources to which the firm is entitled. (See Dean v. MacDowell; Aas v. Benham; and cf. Trimble v. Goldberg, and also secs. 33 and 34 of the Victorian Partnership Act 1915.) Another duty of present materiality is that which requires a fiduciary to refrain from engagements which conflict or which may possibly conflict, with the interests of those whom he is bound to protect. (Aberdeen Railway Co. v. Blaikie Bros.) Moreover, in considering such a matter it is important to remember that, in the language of James L.J., ‘the general principle that … no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal … is an inflexible rule, and must be applied inexorably by the court, which is not entitled … to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that’ (Parker v. McKenna).”
During the conversations which constitute the agreement, Mr Shammall offered to Mr Battye a half interest in the three horses for $25,000 and proposed that they jointly (ie., in partnership) train, race, and in the case of Scherger Down, breed the three horses. On the Magistrate’s findings, nothing was said about who then owned the three horses. Mr Shammall was enthusiastic about the proposal and spoke of the Falcon Seelster colts as being worth as much as $30,000. The partnership was constituted on and by reason of the plaintiffs’ acquisition of a half interest in the three horses. To my mind it is artificial to suggest, as the defendant did, that there were two separate and distinct transactions. There was one transaction which resulted in the acquisition by the plaintiffs of a half interest in the three horses and the constitution of the partnership. In my opinion, the defendant owed a fiduciary duty to the plaintiffs to disclose the fact that he owned the three horses and the fact that he had paid $30,000 to purchase them. On the findings of the Magistrate he did not disclose those matters. On the face of it, he made a profit from the transaction of $10,000.
A question would then arise as to whether a remedy in relation to that profit could be claimed by the plaintiffs from the defendant in proceedings in the Magistrate’s Court. That was not a matter upon which any detailed submissions were made. Had it been open to the plaintiffs to base their claim on breach of fiduciary duty, I would have asked the parties to make further submissions. In the circumstances, it is unnecessary to do so.
Conclusion
For these reasons, the appeal must be dismissed. I will hear the parties on the question of costs.
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