Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd
[2004] VSC 1
•15 January 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8384 of 2001
| CHALLENGE CHARTER PTY LTD (ABN 58 004 394 254) | Plaintiff |
| and | |
| CURTAIN BROS (QLD) PTY LTD (ABN 70 010 193 012) | First Defendant |
| and | |
| PAPUA NEW GUINEA DOCKYARD LIMITED | Second Defendant |
| and | |
| CURTAIN BROS PAPUA NEW GUINEA LIMITED | Third Defendant |
| and | |
| MICHAEL CURTAIN | Fourth Defendant |
| and | |
| PAPUA NEW GUINEA DOCKYARD LIMITED | Plaintiff by Counterclaim |
| and | |
| TIMOR STAR SHIPPING LINE PTY LTD (ABN 091 157 461) | First Defendant by Counterclaim |
| and | |
| CHALLENGE CHARTER PTY LTD (ABN 58 004 394 254) | Second Defendant by Counterclaim |
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JUDGE: | GILLARD J. | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 20-24, 27-31 October; 3, 5-7, 10, 11, 13, 14 and 17 November 2003 | |
DATE OF JUDGMENT: | 15 January 2004 | |
CASE MAY BE CITED AS: | Challenge Charter Pty Ltd and ors v Curtain Bros (Qld) Pty Ltd and ors | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 1 | |
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Contract – Alleged sale of ship – Whether a contract was concluded between the parties – Principles of formation of a contract – Necessity to accept offer and communicate it – Reliance upon conduct and silence constituting acceptance – No agreement.
Contract based on estoppel.
Bailment – Claim where deterioration due to normal conditions – No obligation on bailee to spend money when owner refused to spend money.
Claims for works performed and wharfage.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and Defendants to counterclaim | Mr M.L. Sifris S.C. with Ms C. Mavroudis | Herman Partners |
| For the Defendants and Plaintiffs to counterclaim | Mr W.T. Houghton Q.C. with Mr S.R. Horgan | Middletons |
TABLE OF CONTENTS
Parties................................................................................................................................................... 2
The Dispute......................................................................................................................................... 4
Issues.................................................................................................................................................... 8
Background Facts............................................................................................................................. 10
Formation of contract...................................................................................................................... 31
6 August 2000.................................................................................................................................... 38
Heads of Agreement........................................................................................................................ 50
Alternative Claims........................................................................................................................... 83
A. Misleading and Deceptive Conduct................................................................................. 83
B. Unconscionable Conduct.................................................................................................... 85
C. Claim in Bailment................................................................................................................ 86
Counterclaims................................................................................................................................. 105
A. PNG Dockyard's claim for removal of sand and wharfage charges............................ 106
B. PNG Dockyard’s claim against Challenge for works performed on The Xanadu and wharfage from 13 September 2000 until the present............................................................................. 109
C. Timor Star’s claim against PNG Dockyard for alleged breach of contract.................. 111
D. Timor Star’s claim against PNG Dockyard for misleading and deceptive conduct.. 111
E. Timor Star’s claim against PNG Dockyard for negligent misstatement...................... 116
Conclusion....................................................................................................................................... 116
HIS HONOUR:
This is a proceeding commenced by writ, in which the plaintiff seeks the price allegedly due pursuant to an agreement to sell a ship, in the alternative damages for breach of the Trade Practices Act or breach of bailment. The second defendant has counterclaimed against the plaintiff and an added defendant to counterclaim, seeking payment for services performed and materials supplied and wharfage. The added defendant to counterclaim claims against the second defendant relief for breach of contract, breaches of the Trade Practices Act and for negligent misstatement.
Parties
The plaintiff, Challenge Charter Pty Ltd, (“Challenge”) is and was a wholly owned subsidiary of a company, Westernport Marina Pty Ltd which operated a marina at Westernport in this State. At all relevant times, Challenge owned a ship called the “MV Xanadu at Hastings” (“The Xanadu”). Challenge was at all relevant times the registered owner of the ship. The Xanadu was purchased by Challenge in 1994 and after refurbishment was located at the Hastings Marina as a permanently moored hospitality centre.
Ronald David Goldschlager (“Mr Goldschlager”) was at all relevant times the managing director of Challenge. He obtained a degree in chemical engineering from the University of Melbourne, but for the past 30 years has been involved in commerce as the controller of companies involved in timber, property development, investment, shipping and hospitality.
A solicitor, Michael Herman (“Mr Herman”) of Herman Partners, is a friend of Mr Goldschlager, a business confidante and a lawyer whose firm was engaged by Mr Goldschlager on behalf of Challenge in respect to the acquisition and later attempts to sell The Xanadu. The evidence revealed that he is extremely close to Mr Goldschlager, who consulted him on an almost daily basis. Mr Herman became involved in the attempts made to sell The Xanadu and performed tasks that went beyond the relationship of solicitor-client. At the request of Mr Goldschlager he was actively involved in the attempted sale of The Xanadu. His closeness to Mr Goldschlager and the substantial involvement in the attempts to sell The Xanadu, compromised his position as a solicitor. He admitted he was prepared to mislead if he thought it appropriate in the interests of his client and he engaged in practices which were less than frank and open. Whilst such conduct is often seen in commercial circles it is inappropriate conduct for a member of the legal profession. His evidence must be closely scrutinised.
The first defendant, Curtain Bros (Qld) Pty Ltd (“Curtain Bros (Qld)”) is a company that conducts a marina and shipyard in Townsville. It has been in business for many years. It is one of a substantial number of companies operated and controlled by the fourth defendant, Michael Curtain (“Mr Curtain”).
The second defendant, Papua New Guinea Dockyard Limited (“PNG Dockyard”) is a company also in the Curtain Bros Group which owns and operates a dockyard in Port Moresby.
The third defendant, Curtain Bros Papua New Guinea Limited (“Curtain Bros (PNG)”) is another company in the Curtain Bros Group which was involved inter alia, in the business of developing an area of reclaimed land in Port Moresby.
The fourth defendant, Michael Curtain, is the managing director of the other three defendants and the managing director of a substantial number of companies in the Curtain Bros Group.
The Curtain Bros Group comprises some 60 companies carrying on a variety of operations from shipping and dockyards, to making roads in a variety of places in Australia and areas north of Australia, mainly in Papua New Guinea.
The financial controller to companies in the Curtain Bros Group was Ms Colleen MacCarthy who is an accountant by training and who was employed by various companies in the Group. She advised them on financial matters. She resides in Port Moresby and is a director of some of the companies in the Group incorporated in Papua New Guinea. She was substantially involved in the discussions concerning The Xanadu.
The final party to the litigation is Timor Star Shipping Line Pty Ltd (“Timor Star”), a company operated and controlled by Mr Goldschlager, whose only asset is the ship MV Kayuen which it acquired some time in late 1999. It brings a number of counterclaims.
The Dispute
The dispute which led to the present litigation can be briefly stated. In late 1994, Challenge purchased The Xanadu and sailed it from Martinique in the Caribbean to Australia and established it as a floating hospitality vessel, at Hastings where it was permanently moored to the wharf. In 1998 a decision was made to sell The Xanadu. Tenders were invited. In late 1998 a company called the South Australian Shipping Company indicated an interest in purchasing the vessel, but in February 1999, after appraisal of the condition of The Xanadu, the purchaser declined to proceed. At that stage the days of The Xanadu as an ocean going vessel were numbered and even sailing on smooth coastal or inland waters would have required a substantial amount of money being spent on the vessel. By the end of 1999 the prospects of selling the vessel were extremely slim. Despite extensive advertising the ship had not been sold. By then the Goldschlager interests knew it was a difficult task facing them to sell the vessel. Mr Goldschlager’s attention turned to East Timor which at that stage was going through the difficult years leading to its establishment as a nation and discussions took place between Mr Goldschlager and representatives of the East Timorese people. These discussions occurred in the first six months of the year 2000.
In the meantime, in late 1999, the Goldschlager interests acquired the MV Kayuen which was a vessel which had been used to illegally bring immigrants to Australia. It was sold by the Commonwealth Government. It was purchased in the name of Timor Star which was registered for the purpose of acquiring the ship. Mr Goldschlager purchased the vessel to give to East Timor but the requirements of the authorities, the difficulty slipping and inspecting it in Australia and the cost of repairs aborted that objective. The MV Kayuen became a financial nightmare for Mr Goldschlager. A solution had to be found for the MV Kayuen. As a result, the Goldschlager interests approached PNG Dockyard.
In early March 2000 an inspection took place of the MV Kayuen and in that month Mr Goldschlager met Mr Curtain in Sydney. Eventually an agreement was reached pursuant to which the MV Kayuen was to be delivered to PNG Dockyard to be slipped and inspected.
Timor Star entered into a tow agreement on 20 March 2000 pursuant to which the MV Kayuen was to be towed to Port Moresby.
On 15 April 2000 the MV Kayuen left Sydney under tow and arrived in Port Moresby on 2 May 2000
By July 2000, the plans concerning The Xanadu going to East Timor had advanced. What was proposed was a joint venture between Challenge and the East Timorese people pursuant to which the vessel would be towed to Dili and anchored in the harbour as floating accommodation. However, on 13 July 2000 the East Timorese, through their lawyer, indicated that certain requirements had to be satisfied, they could not be met and as a result the proposal was terminated.
In the meantime, Mr Goldschlager had raised with Mr Curtain the suggestion of the Curtain Bros Group purchasing The Xanadu. Thereafter discussions took place between Mr Curtain, and other persons on behalf of the Curtain Bros Group, including Mrs Colleen MacCarthy and Messrs Goldschlager and Herman on behalf of Challenge.
On the evening of 6 August 2000, a telephone conversation occurred between Mr Curtain and Mr Goldschlager. It was an extremely long telephone call. It is the contention of Challenge that the discussions resulted in an agreement to sell The Xanadu to the Curtain Bros Group. The latter deny any such agreement was concluded.
Mr Goldschlager instructed Mr Herman to prepare a document giving effect to the agreement and on 16 August 2000 Mr Herman forwarded by facsimile to Mr Curtain a letter with a three page document called “HEADS OF AGREEMENT”. The covering letter noted that there was item 3(b) in the Heads which set out a formula relating to payment, which Mr Herman informed Mr Curtain, was something he had suggested and which evidently was not fully developed between Mr Goldschlager and him on 6 August. The Heads of Agreement were forwarded on the basis that it was the understanding of Mr Herman “that both yourself and Ron are happy to rely on a simple document and therefore the enclosed Heads of Agreement are intended to serve as a final document unless you both elect to have a more detailed document brought into existence”. The letter was misleading and reflects upon Mr Herman. The letter noted that he had introduced a further term to the alleged agreement and nobody conversant with the most basic principles of contract law could have said that the Heads constituted a final agreement between the parties. Mr Curtain, in evidence, described it as a “try on” and in my view it was an apt description. Not only did the document contain clause 3(b) which had not been discussed, but clause 16 provided for an indemnity, clause 17 provided for a guarantee, and clause 18 dealt with GST. Those matters were not discussed in the telephone call of 6 August. Mr Herman did not draw Mr Curtain’s attention to these additional terms.
On any view, the document constituted an offer. The letter of 16 August was a not too subtle attempt to coerce the Curtain Bros Group into an agreement. Whilst commercial people may think it appropriate to attempt to trap people into agreements in this way, in my view it is no part of a lawyer’s job to attempt to assist in such a blatant misleading way. My observations are confirmed when one considers the drafts which were prepared between 6 and 16 August. One draft contained a clause for signature by the Curtain Bros Group. After discussion and at the insistence of Mr Goldschlager, Mr Herman deleted it from the final document. Bearing in mind that the alleged sale concerned a vessel at a price of US$1.2M it is surprising that there was no provision in the Heads for signature by the parties.
Nobody from the Curtain Bros Group responded to that letter in the following weeks. Nevertheless, there was some contact between Messrs Goldschlager and Herman of the one part and Mr Curtain. Surprisingly no attempt was made by Messrs Goldschlager and Herman to directly raise with Mr Curtain whether there was an agreement between them. On 16 October 2000, Mrs MacCarthy, who had just returned to work after major heart surgery, wrote a letter in which it was made quite clear to Mr Herman that the Curtain Bros Group did not accept that it had entered into any agreement.
On 9 August 2000, Challenge entered into a tow contract, to tow The Xanadu to Port Moresby. It left on 27 August and arrived on 13 September 2000. She was slipped for inspection. The inspection showed the ship was in poor shape.
It is the contention of Challenge that a final and concluded contract came into existence on 6 August 2000 or subsequent to 16 August 2000 and was binding on the parties. The Curtain Bros Group contend that at no stage was any agreement reached between the parties pursuant to which The Xanadu was sold to the Group. That is the main issue in the case. Challenge alleges that the conduct of the Curtain Bros Group after 16 August 2000 establishes a concluded binding agreement or alternatively, the Group is estopped from denying the agreement.
Challenge claims from the first, second and third defendants the balance of the purchase price being a sum of US$1.2 million less a deposit of A$25,000. In addition, it claims pursuant to the alleged sale agreement the sum of A$18,575.70 for works carried out on The Xanadu to put it in a seaworthy condition before it was towed from Melbourne. In addition, Challenge claims the sum of A$27,255 for the insurance premium covering the ship during the tow from Melbourne to Port Moresby. It is alleged by Challenge that The Xanadu is now worthless, having been left exposed to the weather in Port Moresby since early 2001.
As is usual in modern litigation, Challenge has relied upon a variety of causes of action in respect of the dispute which when shorn of technicalities, is a claim for money due under an alleged contract of sale of a ship. Challenge claims in the alternative against the Curtain Bros Group –
(i)Damages for breach of s.52 of the Trade Practices Act 1974 (2 causes of action);
(ii)damages for breach of s.51AC of the Act;
(iii)that the Curtain Bros Group is estopped from denying the existence of the sale agreement;
(iv)damages for breach of bailment.
It also claims that Mr Curtain was a party to the contravention of s.52 and hence is personally liable for damages.
The company PNG Dockyard counterclaims against Timor Star the sum of US$142,884 to 31 October and continuing for wharfage. In addition, it claims the sum of A$25,000 for the removal of sand from the MV Kayuen. The same company claims against Challenge the sum of US$158,867.50 to 31 October 2003 and continuing for wharfage. In addition, it claims US$29,727.50 for works performed by it on The Xanadu. The wharfage from 1 November to judgment is claimed at US$126 per day for the MV Kayuen and US$185.50 per day for The Xanadu.
In response to the claim by PNG Dockyard, Timor Star has counterclaimed. Timor Star claims against PNG Dockyard –
(i)a declaration and an injunction that PNG Dockyard use its best endeavours to sell the MV Kayuen;
(ii)damages for breach of s.52 and s.51AC of the Trade Practices Act 1974;
(iii)damages for negligent misstatement.
Issues
The pleadings and the submissions of the parties raise the following issues for consideration and determination –
(i)Was there a concluded and binding contract between Challenge and one or all of the defendants pursuant to which Challenge sold The Xanadu?
(ii)Is one or other of the first, second or third defendants estopped from denying that it purchased The Xanadu from the plaintiff?
(iii)Did one or more of the defendants breach s.52 of the Trade Practices Act 1974 in respect of the alleged sale of The Xanadu and/or was one or more of the defendants guilty of unconscionable conduct contrary to s.51AC of the Trade Practices Act?
(iv)If Challenge fails to prove that one or more of the defendants purchased The Xanadu, was the said vessel the subject of a bailment arrangement pursuant to which the defendants or one of them was obliged to take reasonable care of it and if so, was any of the defendants in breach of the bailment?
(v)Is Challenge entitled to any monies pursuant to any agreement or damages?
(vi)Was there an agreement between PNG Dockyard and Timor Star relating to the MV Kayuen concerning works, docking and wharfing charges and if so what were the terms and payment for same?
(vii)Was there an agreement between PNG Dockyard and Challenge relating to The Xanadu concerning docking, other services and wharfage concerning The Xanadu and if so what were the terms and payment for same?
(viii)Is PNG Dockyard entitled to payment under an agreement for services performed and material supplied and wharfage against Timor Star Shipping and/or Challenge Charter?
(ix)Did Timor Star and PNG Dockyard agree that the latter would take steps to sell the MV Kayuen and if so what were the terms of the said agreement?
(x)Did PNG Dockyard breach s.52 and/or s.51AC of the Trade Practices Act in relation to dealing with the MV Kayuen?
(xi)Did PNG Dockyard negligently misstate facts in relation to its dealing with the MV Kayuen?
(xii)Is Timor Star entitled, pursuant to any of the causes of action, to damages from PNG Dockyard?
(xiii)Is Mr Curtain personally liable to pay damages for any breach of the Trade Practices Act 1974?
Background Facts
Most of the background facts leading up to 6 August 2000 are not in dispute. It is alleged by Challenge that on 6 August 2000 an agreement was entered into between it and one or more of the first three defendants. In the alternative, Challenge alleges that an agreement was made subsequently to 16 August 2000 between it and one or more of the defendants concerning the sale of The Xanadu. It is necessary to state the facts leading up to 6 August 2000.
Before stating the facts, it is necessary to say something about some of the witnesses. Mr Goldschlager is an active, busy, educated person with a keen eye for a good commercial deal. He leads a family business and from time to time was pressured by its members concerning some of the business ventures. He purchased The Xanadu and later the MV Kayuen, each of which presented challenging financial headaches to the Goldschlager interests in the year 2000. In 1999 he was under considerable pressure to sell The Xanadu. There were very few interested potential purchasers. He was anxious to sell The Xanadu and was prepared to use a number of selling techniques to achieve that end. He worked closely with Mr Herman and I have no doubt that they discussed tactics on how they might achieve a sale. His anxiety was such that in my view it clouded his memory and appreciation of discussions and one must approach his testimony with a degree of care. The solicitor, Mr Herman, as I have already stated, performed services which were outside the usual solicitor/client relationship. He did a lot of work for Mr Goldschlager’s interests and was a close personal friend and confidante of Mr Goldschlager. He and Mr Goldschlager discussed tactics concerning the sale of The Xanadu and Mr Herman played a part in the selling process which was outside what one would expect a solicitor to do. For example, he negotiated various arrangements for works to be carried out in respect to The Xanadu, negotiated a contract with the towing company, and travelled to Port Moresby to meet Mr Curtain and to see the Curtain Bros Group facilities and organisation in Port Moresby. He was part of The Xanadu selling team and had discussions with Mr Curtain and Mrs MacCarthy in that regard. During Mrs MacCarthy’s visit to Melbourne in September 2000, he played a vital role in seeking to get her into a position of getting her to admit that the Curtain Bros Group had purchased The Xanadu. I have already criticised him in relation to misleading others if he thought it was appropriate. On 5 September 2000 Mr Herman sent a facsimile to Mr Goldschlager in which he stated that he had had a telephone conversation with the Australian Bureau of Statistics which was concerned to find out whether there had been a sale of The Xanadu. He wrote to Mr Goldschlager the following –
“I made it clear that matters were in process and were commercially sensitive at this time. If and when a sale took place this would be reflected in the Bill of Sale that would be filed with the Registrar of Shipping in Canberra. At that time relevant data would be available for application by the ABS.”
(Emphasis added).
Mr Herman stated in evidence that in his opinion by 5 September 2000 a sale had been concluded. He said he was buying time. He did not think that it was wrong to mislead the Australian Bureau of Statistics. On the other hand the letter may have correctly stated the true position. If so, this impacts upon his credibility.
In a letter dated 26 September the Australian Marine Safety Authority expressed concern about the registration of the vessel known as “Xanadu at Hastings”. Mr Herman replied on 3 October in which he said
“The vessel is presently at the shipyard operated by Curtain Bros in Port Moresby.
I anticipate that the vessel will shortly be removed from under Australian Registration and will ensure that appropriate notification is filed as soon as the relevant details are finalised.”
If it is correct that a sale had been effected then Mr Herman’s letter to the maritime authorities was misleading. Mr Herman stated in evidence that he did not think it was wrong to send the letter, because he was buying time in the interests of his client. Again the letter may have correctly stated the true position.
Mr Herman was extremely alive to the issues in this case. During the year 2000 he was very much alive to the issues involved in attempting to get the Curtain Bros Group to admit there was an agreement. He was part of a strategy used by the Goldschlager interests to get the Curtain Bros Group into a position where it could not deny an agreement to purchase The Xanadu. In my view, he is a witness whose evidence must be scrutinised with considerable care.
Mr Michael Curtain is a self-made man whose success no doubt is based upon determination and hard work. He lacks the sophistication and education of Messrs Goldschlager and Herman but nevertheless is an astute and intelligent man. However, in my view he was untruthful in giving evidence that he had conversations in late August/early September with Mr Goldschlager and Mr Herman in which he made it clear that he did not agree with the Heads of Agreement. I do not accept that the conversations took place. In my opinion, he told a deliberate untruth. To reject a witness's evidence does not prove the contrary to the evidence. However if the evidence is rejected because a litigant has told a deliberate lie, a contrary conclusion may be drawn. Common sense tells us that usually a person tells a deliberate lie because the truth will be adverse to his interests. But this does not always follow. In Edwards[1], Deane, Dawson and Gaudron JJ said:
“There is a difference between the mere rejection of a person's account of events and a finding that a person has lied. A lie is a deliberate untruth. To conclude that a statement is a lie is to conclude that the truth lies elsewhere. In some circumstances, a finding that a person lied will necessarily involve acceptance of the contrary. However, the fact that a person has lied does not of itself establish a specific contrary proposition.”
[1]VR (1993) 178 CLR 193 at 208.
People tell lies for a host of reasons and it does not follow that because a person lies about an important matter he is covering up the truth because he knows the truth will hurt him. It is not unknown for parties in civil litigation to tell a lie to bolster what is in any event a good case and one has to be extremely careful in treating a lie as an admission that the opposing assertion is correct. That is, in this case that there was a concluded binding agreement of the sale of The Xanadu. I do not view the lies told by Mr Curtain as being an admission that his Group had purchased The Xanadu. Indeed, a lot of the evidence points the other way. However, it is a matter that clearly goes to his credibility and it is necessary for me to carefully scrutinise his evidence.
In the 1960s, Michael Curtain and his brothers set up a contracting earthmoving business in Queensland known as Curtain Brothers. In about 1974 the Group commenced purchasing small ships. The company also commenced business in Papua New Guinea. In 1979, Mike Curtain was the only member of the Curtain family remaining in the Group and at that stage it was based in Townsville, although it performed work in Papua New Guinea. Mr Curtain described the Group as operating a major civil construction business. Its headquarters are in Townsville. The Group performs works in Northern Australia, Papua New Guinea, East Timor and surrounding areas. Its operations are supported by company owned and operated ships and aircraft. Its business is indeed diverse, covering heavy construction, mining services, ship repairs, property development and shipping. In June 2000 there were about 60 corporate bodies in the Curtain Bros Group.
The Xanadu was built in 1962 in Scotland. She started out life as a roll‑on/roll‑off car ferry. Her dimensions are, length 53.34 metres, a maximum breadth of 11.89 metres and depth midships of 4.22 metres. Her gross tonnage is 1235 tonnes and she is constructed of steel. During the 1980s she was converted into a passenger vessel which later cruised in the Caribbean.
In October 1994 Challenge purchased the vessel which at that stage was located in the Caribbean. The vendor was a French company located in France and the total price was US$525,000. This was made up of the value of the vessel fixed at US$375,000, the value of repairs and works valued at US$100,000 and a sum of US$50,000 being the value of the transfer risk sum. Works had to be performed to enable her to sail to Australia. The vessel was delivered to Challenge in Martinique and she sailed under her own steam to Australia.
Prior to the acquisition of the vessel, Mr Goldschlager, through one of his companies, purchased the Westernport Marina. When The Xanadu arrived in Australia, it was towed to Hastings in Victoria and set up as a floating hospitality and accommodation centre. It was permanently moored to the land. Refurbishment works were carried out. In 1998 she had 3 bridge deck, 12 executive and 22 cabin suites, together with eight officers’ cabins, each with private en suite bathroom facilities. The vessel also had decks, bars, dining, entertainment and function rooms and was said to have a four star Royal Automobile Club of Victoria rating as a floating accommodation vessel. From 1995, Challenge conducted a hospitality and accommodation centre and at times in joint venture arrangements with others. In order to arrest the corrosion which is an ever present problem with steel ships, The Xanadu was placed in a fresh water bath.
In late 1998 a decision was made to sell the vessel. Advertisements were placed and brochures printed, inviting tenders for the purchase of The Xanadu. Mr Herman was handling the sale. Tenders were to be registered with Herman Partners by 30 November 1998. Nothing came of the tender process. In late 1998, a company in South Australia showed interest in acquiring the vessel.
By February 1999, there was a degree of optimism that a sale would be effected to the South Australian Shipping Company Pty Ltd. The latter intended to use the vessel as a sailing ship cruising in waters off South Australia. The suggested sale price was A$3.5M. Not surprisingly, the prospective purchaser obtained a surveyor’s report. The report revealed that The Xanadu was unseaworthy. It also revealed that her records had been falsified, including the log for the cross‑Pacific voyage and the record of engine revolutions during the voyage. It was noted that even during her period when cruising the Caribbean she was limited to being not more than 30 kilometres from land. The conclusion was that this indicated an important message concerning her seaworthiness. It was also noted that the substitute engine was inappropriate for the ship and that there were problems with asbestos. A representative of the prospective purchaser told Mr Herman, who in turn told Mr Goldschlager, that The Xanadu was a complete disaster and “a total lemon”. The surveyor advised the potential purchaser not to purchase the vessel. It was further noted in early 1999 that The Xanadu could only be used as floating accommodation or be sold as scrap.
In July 1999, the dockyard owned by PNG Dockyard was completed. It is an impressive development which cost A$20M. After its opening, PNG Dockyard was anxious for business. Mr Curtain made that clear to the employees who were encouraged to persuade ship owners to use the dock facilities. The dock facilities were first class. During this time the Curtain Bros Group with others was developing an area called Harbourside. It was a large reclaimed area which had been constructed by the Group and was to be sub-divided for residential and office purposes. The development is next to the Port Moresby Yacht Club. The Curtain Bros Group through Curtain Bros PNG owns 45% of the Harbourside development in a company called Provex Properties Pty Ltd. During 1999, consideration was given by Mr Curtain and others within the Curtain Bros Group to locating a ship in the Harbourside development as floating accommodation. To this end, Mr Curtain and others inspected the ship formerly known as the John Brewer which had been stationed at one point on the Barrier Reef opposite Townsville, subsequently moving to Ho Chi Minh City and then to Singapore. However, nothing came of that proposal.
In 1999, a vessel called the MV Kayuen was used to bring illegal immigrants to Australia. She was seized by the Authorities and tenders were sought for her purchase. The vessel was purchased by Mr Goldschlager in late 1999 through his company, Timor Star Shipping Line Pty Ltd for a sum described by him as nominal. He purchased the vessel with the intention of gifting her to the East Timorese to be used to start a merchant navy. In order to do this it was necessary to deliver her to Dili. This turned out to be a financial nightmare. At this time he was exploring the possibility of selling The Xanadu to East Timorese interests as floating accommodation. Unfortunately, the MV Kayuen had a number of problems. First of all, she had some 200 tonnes of sand in her hold and the Australian authorities refused permission to have the sand removed in Australia. In addition, the authorities were requiring Timor Star to comply with various requirements and the cost of taking the vessel into a harbour in Sydney was substantial. The MV Kayuen’s seaworthiness was unknown and it would have been necessary to slip the vessel and have her examined at some considerable expense to determine her seaworthiness. By February 2000 the future of the MV Kayuen was indeed uncertain.
Captain Peter Southwell was engaged by the Goldschlager’s interests to report on the MV Kayuen. In a report dated 12 January 2000 he indicated that there were distinct problems in the areas of stability, load line and safety construction. He then discussed her value as scrap after removing the radio and other equipment. On 22 February 2000, Mr Herman summarised to Mr Goldschlager the options for the MV Kayuen. He reported –
·The scrap iron option was not commercially viable.
·The first option was to take the vessel out to sea and scuttle her but this would have involved considerable cost.
·The other possibility was putting her back into service and this would involve towing her to PNG, having appropriate works carried out and having brought her back into class with certificates obtained from Vanuatu. “Class” means reaching a standard where it obtains international certificates to enable it to sail in open seas.
·Another option was to take her to PNG for slipping and inspection.
·The removal of the sand in the vessel was creating problems in Australia but it was hoped that the local authorities in PNG or elsewhere would permit the removal of the sand.
Mr Herman referred to what he described as “The Haemorrhage Effect” noting that the vessel was causing “a financial haemorrhage” due to heavy holding costs. He stated –
“I am therefore acutely aware that no action is costing more than any positive action.”
The Goldschlager interests were well aware by the end of February 2000 that the MV Kayuen was potentially a financial disaster and that a solution had to be found quickly. The Xanadu was also shaping up as a potential financial disaster if the East Timorese project was not concluded.
She had been on the market for some 18 months prior to the end of 1999. It was apparent by the end of 1999, that it was going to be difficult to sell The Xanadu. Realistically, her only value, if any, was as floating accommodation. The other option was scrap. Mr Goldschlager was under considerable pressure by late February 2000 in respect to the future of both ships.
Mr Goldschlager approached the leaders in East Timor in late 1999, and in early 2000 Mr Xanana Gusmao and his wife stayed on The Xanadu at Hastings. Mr Goldschlager put the proposition that the East Timorese should take over The Xanadu and that it should be moved to Dili and located in the harbour as floating accommodation. Mr Gusmao was interested. Mr Goldschlager suggested the MV Kayuen being used as the first ship in the East Timorese merchant navy. The Xanadu proposal was under discussion and consideration during the first six months of 2000. A joint venture proposal was put forward and an agreement was prepared by Mr Herman and forwarded to a lawyer representing the East Timorese interests.
In late February 2000, Captain Southwell, who was then engaged by the Goldschlager interests, approached Curtain Bros (Qld) with a proposition concerning the MV Kayuen. He spoke to Mr Curtain’s son, Peter. He indicated that the owner wanted the vessel cleaned and an indicative cost be given to get the vessel operational and “in class”. The vessel was 33 years old and there was a real concern whether she could ever be repaired to the point where she could be in class as a commercial freighter. He told Mr Peter Curtain that to dock her in Sydney was going to cost $40,000 and the Newcastle Port Authority would not let her into the harbour for environmental reasons. Peter Curtain approached his father and asked whether Curtain Bros (Qld) would be interested. Mr Curtain said to go ahead. Mr Greg Flint, who was then the slipway manager employed by Curtain Bros (Qld), spoke to Captain Southwell about the MV Kayuen and travelled to Sydney and inspected the vessel on 3 March 2000. He took notes of the repairs which he considered were necessary. On 14 March 2000, he had a telephone conversation with Mr Herman who informed him that the owner had arranged a tug to tow the vessel to Port Moresby. He had further discussions with Mr Herman in that month. It will be necessary to refer to the discussions later.
On 23 March 2000, Mr Curtain met Mr Goldschlager in Sydney to inspect the MV Kayuen. Mr Curtain was interested in getting the MV Kayuen to the PNG Dockyard to provide work for the dockyard. The sand in the hold was contaminated and could not be unloaded in Sydney. Mr Goldschlager and Mr Curtain inspected the MV Kayuen and discussed what should be done. There is a dispute between the two men as to what was represented by Mr Curtain as to the future of the vessel. In Mr Curtain’s witness statement dated November 2002, he goes into some detail as to what was said. In a pleading filed in February 2003, Timor Star alleged that Mr Curtain had made certain representations which were false and sought damages for an alleged breach of ss.52 and 51AC of the Trade Practices Act. In a supplementary witness statement dated 10 October 2003, Mr Goldschlager asserted that Mr Curtain told him certain matters which he set out. By then he had had the opportunity of considering Mr Curtain’s version. I have carefully considered the versions given. I prefer Mr Curtain’s version. He frankly conceded that he was keen to get the MV Kayuen to PNG Dockyard for the work. The men talked at some length about the work which would be needed to bring the vessel up to a standard suitable for operational use. Mr Goldschlager stated that he was hopeful that the MV Kayuen could be put back into a condition to be used as the first vessel in the East Timorese merchant shipping fleet. Mr Curtain stated that he doubted whether the MV Kayuen could ever be put back into a condition where she could be actively traded, whether in East Timor or anywhere else. He said it would be necessary to have a proper look at the hull. He stated that he had observed the ship had no gearing and since most ports in the Pacific did not have crane facilities, it would be necessary for her to be fitted with cranes and gear. Mr Curtain said that for that reason he did think that the MV Kayuen could be used as a trading vessel. Nevertheless, he did tell Mr Goldschlager that perhaps the MV Kayuen could be brought up to a sufficient standard so that she could be sold off for some other use. During the discussions, Mr Goldschlager spoke at length about his plans to establish coffee, timber and limestone/marble exporting businesses out of East Timor and was suggesting to Mr Curtain that he join him in those ventures. Mr Curtain, who had had considerable experience in these areas, counselled Mr Goldschlager to approach any ventures with caution. Mr Curtain stated that the best thing that he could do in relation to the MV Kayuen was to get the vessel out of Sydney as it was costing too much money. The men both agreed that the best option was to take her to PNG Dockyard, to slip the vessel and have her inspected. I do not accept the evidence of Mr Goldschlager that Mr Curtain said he would get Timor Star out of its difficulties with MV Kayuen, that he would be able to dispose of the MV Kayuen, that the hull would be okay because the work had been done to the vessel in China, and that the Kayuen looked sturdy and good. Mr Goldschlager told Mr Curtain about his plans for The Xanadu and his expectation that she would proceed to East Timor and be used as a floating hotel. He stated The Xanadu was to be moved from Hastings to a dock in Melbourne to have work done, to enable her to sail from Australia to Timor.
Thereafter a number of conversations took place and correspondence passed which resulted in an agreement whereby the MV Kayuen would be delivered to the PNG Dockyard and taken out of the water for inspection and report. Correspondence passed between the Curtain interests and the Goldschlager interests concerning the MV Kayuen and eventually agreement was reached in April 2000. It will be necessary to consider the agreement later.
On 20 March 2000, Timor Star entered into a tow agreement with Mr Jurgen Ruh’s company, Islands Shipping Limited, pursuant to which the vessel was to be towed to Port Moresby for US$78,000. A deposit of US$26,000 was paid that day. The tugboat was coming from Lae in Papua New Guinea and expected in Sydney on 28 March 2000.
On 15 April 2000, MV Kayuen left Sydney under tow. She arrived on 2 May 2000.
In the meantime, the Goldschlager interests had retained the surveyor, Mr Carlos Marques, who had performed the survey for the vendor on The Xanadu at the time of purchase in 1994. He was requested to come to Australia to inspect the MV Kayuen and to report on her condition and potential uses. Mr Marques was also requested to prepare a survey report to enable The Xanadu to be towed to West Melbourne for slipping, inspection and any necessary repairs to enable her to travel to Timor under her own steam.
On 8 April 2000, a diving survey was carried out on The Xanadu and it revealed that the thickness of the hull around the stern was 9.8mm (average) and 15.7mm (average) on both the port and starboard side of the vessel. The divers experienced difficulties taking readings and this was thought to be because “of the paint coating blistering over the entire hull”. It was noted that the blistering was mostly between paint layers but there were some small isolated areas where the blistering was down to the bare metal. It was noted that the vessel had a slight list and more importantly, many of the original anodes were between 70% and 98% depleted. Anodes are important to arresting corrosion.
On 4 May 2000, Mr Marques provided two survey reports, the first recommending 30 items to be attended to, to enable The Xanadu to be towed to Melbourne and the second dealing with her seaworthiness for the voyage to Dili. One of the requirements of the latter was a Drydock Special Survey.
On or about 22 May 2000, a joint venture agreement was prepared in respect to The Xanadu and sent to the lawyer acting for the East Timorese interests. In anticipation that the joint venture agreement would be signed on 17 June 2000 The Xanadu was towed from Hastings to a dock at West Melbourne. Unfortunately, the dock was not big enough to slip the vessel. Prior to the tow, a marine surveyor, Raymond Newall, was engaged by an Insurer to prepare a report on The Xanadu’s relocation from Hastings to Melbourne. Mr Newall provided a report dated 22 May 2000 which he sent to Mr Herman and also the broker. He noted that the hull was fair with welded patches on starboard aft port below the water line but the decks had not been fully surveyed. He noted that there were four unauthorised penetrations in the bulkheads and many unauthorised penetrations through watertight areas.
The Goldschlager interests did not hear from Mr Xanana Gusmao or his lawyer after forwarding the draft joint venture agreement. On 16 June 2000 Mr Goldschlager sent an e-mail to Mr Gusmao complaining that no response had been received to that date and requesting an urgent response. It was apparent by that time that the joint venture was in doubt. Mr Herman informed Mr Marques on 22 June 2000 that “The Xanadu project is on hold” and made a request to Mr Carlos Marques as follows –
“In simple terms, unless we are able to find a solution to our present problems with The Xanadu we look to yourself to assist us in selling her internationally on an ‘as is basis’ (there is one advantage at present in that she is berthed alongside a slipway and is near to other such facilities – and this would make it easy to facilitate repairs and maintenance)”.
By the end of June the prospects of a joint venture with East Timor were becoming remote, and Mr Goldschlager was under considerable stress because of pressures relating to the future of both the MV Kayuen and The Xanadu. Evidently, his family was extremely upset with him because of the huge cost overruns for both vessels. Captain Southwell had earlier in that year informed Mr Goldschlager that the MV Kayuen was shaping up as a financial disaster and he expressed the view to Mr Herman by facsimile on 22 May that “every instinct I have says that The Xanadu could well be a repeat”. The anticipated failure of the joint venture with East Timor added to the enormous pressure of disposing of The Xanadu. By this time the vessel was in Melbourne, had not been slipped, was running up holding costs, and many matters had to be attended to before she could be towed to any area inside or outside Australia.
In late June, Mr Herman flew to Townsville to meet Mr Curtain and Mrs MacCarthy. Mr Herman has over the years been a close friend of Mr Goldschlager, though he has stated that in more recent years their socialising has been less. Nevertheless, it is clear that Mr Goldschlager relied heavily on Mr Herman not only for his legal advice but also as a business confidante and tactical adviser. As Mr Herman stated, and I accept his evidence, the commercial questions were always ultimately matters for Mr Goldschlager. Nevertheless, Mr Goldschlager used him for a variety of jobs in relation to both the MV Kayuen and The Xanadu outside his retainer as a lawyer.
On 29 June, Mr Herman travelled to Port Moresby and met Mr Curtain and Mrs MacCarthy, inspected the dockyard and was present when the MV Kayuen was inspected by Carlos Marques. The Xanadu was discussed during this period in the context of hers use as floating accommodation in Dili, although by this time it is clear that the Goldschlager interests were having doubts that the Timor project would go ahead. Mr Curtain showed interest in the use of The Xanadu as a floating accommodation centre. I accept that there was discussion involving Mr Curtain and Mr Herman about the value of The Xanadu.
Mr Herman opined the view that she could be worth hundreds of thousands of dollars or millions of dollars. He stated that it depended upon what she was used for, and also upon the view of the purchaser. I am satisfied that on this visit Mr Herman was shown over the Harbourside development, that Mr Curtain expressed some interest in The Xanadu if she was available, to be used as floating accommodation in the Harbourside development and that at a dinner party at Mrs MacCarthy’s residence, she and Mr Curtain expressed enthusiasm in respect of The Xanadu being used in the Harbourside development. Prior to leaving, Mr Herman telephoned Mrs MacCarthy and during the course of the conversation asked whether she was interested in The Xanadu. She said that she was and it was suggested she might come to Melbourne to have a look at her. Some time later, she said, she would.
She arrived in Melbourne on 7 July 2000 and stayed over the weekend. Mr Herman, at the request of Mr Goldschlager, collected her at the airport, drove her to the Westernport Marina and gave her a short guided tour of the facilities there. He then took her to West Melbourne to look over The Xanadu. Mrs MacCarthy indicated that she was impressed with the vessel. Mr Herman did not discuss any commercial matters with her because he had been told by Mr Goldschlager not to do so. On this occasion the lawyer was acting as part of the sales team. Mr Goldschlager asked him to act as a guide for Mrs MacCarthy when she arrived in Melbourne. He then dropped out of the picture and Mr Goldschlager took over the selling role. Mr Goldschlager entertained Mrs MacCarthy at his home with his family, at which no discussions took place concerning The Xanadu. The following day Mr and Mrs Goldschlager entertained Mrs MacCarthy at a restaurant and Mr Goldschlager informed her that it was not certain that The Xanadu would become available but he did indicate it may be so because the East Timor project looked like failing. Mrs MacCarthy expressed an interest in The Xanadu.
Mr Jurgen Ruh operates a tug boat company, Islands Shipping Limited, in Papua New Guinea. His tug boat towed the MV Kayuen to Port Moresby. He acquired another tug boat in Australia at the beginning of July 2000. He was anxious to obtain a tow back to Papua New Guinea. This came to the notice of the Goldschlager interests. Mr Herman asked Mr Ruh to give a quote for the tow of The Xanadu to Port Moresby and then on to Dili. On 12 July 2000, Mr Ruh quoted the sum of US$50,000 to tow The Xanadu to Port Moresby. In his e‑mail he made it clear he was intending leaving Sydney on the following Sunday, 16 July, thereby putting pressure on the Goldschlager interests. Meanwhile, Mr Herman was putting pressure on the lawyer acting for the East Timorese, pointing out that The Xanadu, which at that point was in West Melbourne, was attracting “endless holding costs and these are hurting my client terribly”. Costs were being run up. The Goldschlager interests were in a difficult position because there were no purchasers for The Xanadu in Australia. There was, however, a window of opportunity, because the Curtain Group was showing interest in acquiring The Xanadu. The following day, 13 July, the East Timor venture was terminated. On 14 July Mr Goldschlager told Mr Curtain that he was now in a position to make new plans in relation to The Xanadu, that the Dili venture looked like it was not going to proceed, and that The Xanadu may be available for Mr Curtain. Mr Goldschlager agreed to go to Papua New Guinea via Townsville. Mr Herman sought help from Mr Marques on Sunday 16 July. By this time the East Timorese had pulled out of the project and the Goldschlager interests were now looking for the best means of disposing of her. In his e-mail Mr Herman noted the following – “Curtain Bros are interested but it is still early days”. He stated that it was believed that it would be best to tow The Xanadu to Port Moresby as soon as possible, where any required works could be carried out cheaply and “with minimal outside interference”. He also noted that the vessel would be in the part of the world where they might be able to do business. He also wrote –
“We have sufficient trust in Curtain Bros at this time to feel comfortable with taking The Xanadu to them.”
Mr Herman had ascertained that The Xanadu could be towed with a minimal amount of work to be attended to. He also referred to Mr Ruh offering to tow The Xanadu to Port Moresby. He sought urgent advice concerning the seaworthiness of The Xanadu for the tow. He concluded his e-mail as follows –
“Please let me have your thoughts as soon as possible as there is a 50/50 chance of us moving rapidly towards us contracting out with Jurgen Ruh for the tow. As his tug will otherwise depart Sydney for Port Moresby within the next few days we have to give him answer before it is too late if we are going to do business with him.”
Mr Marques responded that day by saying that he thought it was best to tow The Xanadu to Port Moresby, noting that the tow price was “very attractive”.
On 17 July Mrs MacCarthy requested the engineer’s drawings of The Xanadu be sent to her. At this time Mrs MacCarthy was supervising a feasibility study concerning The Xanadu. Meanwhile, Mr Ruh was applying pressure and informed Mr Herman that the tug was required in PNG and that he was about to leave. In the meantime, Mr Goldschlager made arrangements to go to Townsville and on to Papua New Guinea.
By 19 July 2000 it was clear that The Xanadu was to be sent to Port Moresby and that an agreement had been reached with Mr Ruh in principle for the tow. Mr Herman informed Mr Marques on 19 July –
“We are almost certainly going to also send The Xanadu to Port Moresby – are you having any luck at your end with The Xanadu?
It appears that we are likely to receive offers for The Xanadu once she has been slipped in Port Moresby on an as is basis (subject to inspection report). Are you able to ascertain from your end as to what her market value will be in Port Moresby.”
On 20 July Mr Herman sought the cost of insurance with respect to taking The Xanadu under tow to Port Moresby. On the following day Mr Marques informed Mr Herman that the best thing that could happen to The Xanadu was to “get a deal with Curtain Bros in Port Moresby, as a floating hotel and restaurant”. He did not respond to the request to value The Xanadu.
I am satisfied by this time that the Goldschlager interests had made a decision to send The Xanadu to Port Moresby, and appreciated that her future was as a permanently moored accommodation centre. They knew there were no potential purchasers in Australia and to take her to Port Moresby gave them an opportunity to sell her. Adding to the pressure was the realisation that the MV Kayuen had a very uncertain future.
On 21 July, Mr Herman informed Mr Ruh of the decision to tow The Xanadu to Port Moresby. On Monday 24 July, Mr Goldschlager flew to Townsville, met Mr Curtain, inspected the facilities and later they flew to Port Moresby. In the meantime, Mr Herman made a request through Mrs MacCarthy to get Mr Curtain to persuade Mr Ruh to stay in Melbourne so that the tow contract could be executed.
On the following day, Mr Goldschlager inspected the Curtain Bros facilities in Port Moresby, was shown the Harbourside development, looked at the MV Kayuen and the sand that had been removed from the vessel. He was shown the site of the proposed marina at the Harbourside development and was told that somebody had shown interest in purchasing the MV Kayuen. Mr Curtain talked about his development on Magnetic Island and also there was discussion about East Timor business ventures. Mr Goldschlager handed to Mrs MacCarthy the engineer’s drawings that she had requested and also provided her with details concerning the employment of Mr Preville, The Xanadu’s engineer. He also supplied marketing brochures for The Xanadu. That evening a dinner was held at Mrs MacCarthy’s apartment. Mr Curtain, his son, and some of Mrs MacCarthy’s neighbours were also present. Mr Goldschlager was introduced to Mr Salter, an employee of Curtain Bros Group, there was some discussion about the Harbourside development and there was a discussion about the feasibility of mooring The Xanadu in the development area. I am satisfied that Mr Goldschlager gave some general advice to Mr Salter about the development. Mr Goldschlager had experience in property development.
In the afternoon of 25 July 2000, Mr Goldschlager returned to Australia in the Curtain Bros private aircraft. Also on board were Mrs MacCarthy, Peter Curtain and Michael Curtain. By then the Curtain Bros Group was showing interest in acquiring The Xanadu for the Harbourside development and Mr Curtain and Mr Goldschlager discussed The Xanadu on the trip. Mr Curtain pointed out that Mrs MacCarthy was very keen on having The Xanadu in the Harbourside project, that the opportunity to acquire the vessel was six to 12 months too early because he had a tight cash‑flow position and that the real issue for him was one of timing. I accept that there was a discussion about value and that Mr Goldschlager told Mr Curtain that Mr Marques had valued The Xanadu “as is and where is” as between US$1.2M – US$1.5M. Mr Goldschlager indicated he was prepared to accept US$1.2M for The Xanadu. I accept that Mr Curtain indicated that he wished to discuss the acquisition with Mrs MacCarthy. At this stage Mr Curtain had not seen The Xanadu. He had seen a short video and some photographs. By this time both men could see in the other, business opportunities, and each was anxious to accommodate the other. It was in this context that Mr Curtain offered at his expense to send two men to help make up the crew for a manned tow. If it was a manned tow then the overall costs would be less. Mr Herman was informed that day and made a final offer to Mr Ruh to tow The Xanadu to Port Moresby.
On 27 July, Mr Goldschlager sent a facsimile to Mr Curtain in which he thanked the Curtains for their hospitality. Mr Ruh had been engaged in principle to tow the vessel, Mr Curtain had agreed to send two seamen to assist with the manned tow at his cost, and Mr Flint was also sent down by Mr Curtain to assist with the preparation. But on any view, no sale had occurred. Mr Goldschlager and Mr Herman appreciated that this may be the last attempt to sell The Xanadu at a reasonable price, and were very keen to cement a sale.
By this time Mr Goldschlager had adopted a selling plan which was aimed at the Curtain Bros Group, particularly at Mrs MacCarthy who had shown considerable interest in the vessel and who would be expected to bring pressure upon Mr Curtain to acquire her; hence, an unusual statement in the facsimile sent by Mr Goldschlager on 27 July 2000. He ended his facsimile after thanking Curtain Bros for their hospitality in Port Moresby by stating –
“Looking forward to an early commercial solution for the Kayuen and a very exciting new phase in the life of our beautiful Xanadu as she moves north to join your family”.
(Emphasis added).
The clear thrust of the latter words was to impress upon the Curtain Bros Group that The Xanadu was their vessel. But that was not the position at all. Indeed, on no version of the facts could it be said that The Xanadu had been purchased by the Curtain Bros Group.
On 27 July 2000, The Xanadu sprang a leak and this was a cause of real concern to the Goldschlager interests. It appears that during the process of removing rust and scale from the ship’s side plating within the aft ballast tank No. 3 starboard, an area of approximately 50mm diameter of plating broke away, opening the tank to the sea. The parent metal had become so thin due to wastage/corrosion that once the rust and scale was removed the area was punctured. Mr Robert Selby prepared a report in which he opined the view – “This must be considered representative of the condition of the complete area of shell plating contained within the tank.” He also noted that the shell frames within the tank were so corroded by rust and black iron oxide that the remaining material could be pulled away by hand. He noted that the condition of the steel work in the aft section of the vessel was critical and placed the vessel in a hazardous position of serious ingress of sea water. He also noted a sewage tank next to the ballast tank was heavily pitted and holed and he stated that it must be “assumed that the shell plating contained within this tank is in a similar condition to that found in the ballast tank”. He stated that repairs to the subject areas were not possible, even of a temporary nature, while the vessel was afloat. He said the nature of the parent metal was such that any attempt to weld it would cause loss of further material. Mr Newall, who was advising Mr Herman and the insurance broker, recommended certain works be carried out immediately to “minimise the risk of serious water ingress into the subject vessel”. Mr Newall required that the wasted plates, frames and bulkheads were to be repaired to the satisfaction of the surveyor and the underwriters. His report and Mr Bob Selby’s report were forwarded to Mr Curtain. Contact was made with Mr Flint in the latter part of July in relation to this problem and various discussions took place. Mr Curtain was informed of the problem and he instructed Mr Flint to go to Melbourne to provide assistance with respect to the repairs and preparation for the tow. The reports showed The Xanadu’s overall condition was generally poor. Mr Flint arrived in Melbourne on 31 July 2000, visited the vessel, met Mr Preville and spent the morning inspecting the vessel. He was concerned about the level of corrosion, degradation and wastage to the frames in the main structure of the vessel’s hull and the integrity of the bulkheads. On the 31st he met with Mr Selby, and the marine surveyor retained by the vessel’s underwriters, Mr Newall. Mr Flint suggested certain repairs be carried out. Mr Flint formed the view, based upon his inspection, that the vessel could not be repaired to a standard required of an operating vessel and he had real concerns about the vessel being brought into a state of adequate seaworthiness. The following day he had another inspection and telephoned Mr Curtain and informed him that he could feel the deck giving way under his feet as he walked across the carpeted surface. He informed Mr Curtain that the vessel was in very poor structural condition and required substantial repair before she could be brought into a seaworthy state. On 1 August, Mr Flint returned to Townsville.
On 27 July 2000, Mrs MacCarthy suffered a heart attack in Townsville, and on 3 August underwent a heart quadruple bypass operation in Townsville. About a week later she travelled to Brisbane to convalesce. The evidence revealed that from 27 July until early in October, Mrs MacCarthy was convalescing and was not involved in any work related activity of substance.
Mr Curtain informed Mr Herman that he thought the best thing to do was to have the vessel removed from Melbourne as soon as possible. A consideration of both the Newall and the Selby reports showed the vessel was in poor condition and this was confirmed by Mr Flint. She could be towed to Port Morseby as a manned tow, with a minimum amount of work being done on her.
Whilst the Curtain Bros Croup was the most likely possible purchasers, Mr Herman said that there were other options. He referred to a possibility of her going to the Maldives as a floating dive vessel. He also said that there was some interest from a Mr Hollands who was considering the ship as floating accommodation on Thursday Island.
In the meantime, Mr Curtain had agreed at the request of the Goldschlager interests to employ Mr Preville because he saw the good sense in having continuity of the engineer and his knowledge of the vessel and how important that was. I am satisfied that discussions took place between Messrs Herman and Curtain about purchasing the vessel, but I am equally satisfied that Mr Curtain did not commit to any purchase. The Curtain Bros Group was interested but Mr Curtain did not commit in any way. Indeed, at that point Mr Curtain had not seen the vessel.
Around this time, Mr Curtain spoke to Mr Ruh and impressed upon him that he ought to stay in Australia to get the tow job for The Xanadu and if it cost him money, Mr Curtain said he would make it up for him on a contra basis, that is, he would do some work on his ships at the dockyard. I am also satisfied that generally during this period there were discussions between Mr Curtain and Mr Goldschlager concerning both the MV Kayuen and The Xanadu, and also discussions about various trading ventures involving both men in East Timor and Papua New Guinea.
On 31 July, Mr Herman spoke to Mr Curtain, and Mr Curtain indicated that it would be wise if the vessel was removed from Melbourne as soon as possible because of the problems being experienced. Mr Herman put to Mr Curtain that he should make up his mind whether he wanted The Xanadu and Mr Curtain indicated that he was very interested in the vessel. However, he did not commit himself to any agreement. Mr Curtain stated that he needed time to think about it. He also indicated that if he was to purchase the vessel he would use an offshore entity.
On 4 August 2000, Mr Goldschlager spoke to Mr Curtain over the telephone and impressed upon him that he had to make up his mind whether he wished to purchase The Xanadu and Mr Goldschlager wished to know. Mr Curtain replied that he would telephone him at home the following Sunday, 6 August, to discuss a purchase.
I will trace the events concerning the MV Kayuen in some detail when I consider and determine the claims relating to the vessel. However, for present purposes it is necessary to briefly summarise the situation at the end of July 2000. The vessel arrived in Port Moresby on 2 May 2000 and was slipped in mid-July. An inspection was carried out. Agreement had been reached in April 2000 concerning the cost of these works. In addition, the sand was removed from the vessel at a cost of A$25,000.
A conversation took place on the evening of 6 August 2000. It is an important conversation in that Challenge asserts that a concluded binding contract came into existence between the parties. Before considering the events of 6 August 2000 it is necessary to briefly summarise the principles concerning the formation of a contract.
Formation of contract
Whether or not a concluded and binding contract in law has come into existence is a question of fact. The plaintiff has the burden of persuading the court that agreement was reached and that the parties intended to be bound in law by the agreement.
The issue involves a threefold inquiry. First, did the parties arrive at a consensus, ie did the parties agree to the terms of this bargain – in most cases did one party make an offer which was accepted unqualified by the other party? Secondly, if they did, was the consensus such that it was capable of forming a binding contract in the circumstances; and, finally, did the parties intend that the consensus at which they arrived should constitute a binding contract? See Ayre Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd.[2] Mahoney JA[3] explained each question –
“The first question looks to the existence of a common intention. …(were the parties ad idem?)
The second question looks to what the parties have agreed and to whether what they have agreed is capable of forming a binding contract. There are some forms of agreement which, because of (as it is conveniently described) uncertainty, are not capable of constituting such a contract. There are various forms or categories of uncertainty in this sense. Thus, some of the terms of the consensus arrived at may be, as to the meaning of them, too vague to be given legal effect. …
Alternatively, some of the terms of the consensus may be clear as to their meaning but ineffective in the circumstances. Thus, a transaction on ‘the usual terms’ may be incapable of constituting a binding agreement where, in fact, there are no terms which answer the description of ‘usual terms’. …
…
(At p.329) – the third question looks to whether, the parties’ intention being congruent as to the terms of their agreement, they intend that agreement to be a binding contract in the sense of being legally enforceable as such.”
[2][1985] 2 NSWLR 309 at 326 per Mahoney JA.
[3]At 327.
In determining the questions, the court considers all relevant facts which may also include facts which occurred after the date of the alleged contract.[4]
[4]See Hussey v Horne‑Payne (1879) 4 App Cas 311 at 316 and 320; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68; and Toyota v Ken Morgan Motors [1994] 2 VR 106 at 134.
As a general proposition the court is concerned with the objective manifestation of both the fact of agreement and intention. As a general rule it is inappropriate to look into the minds of the parties to seek what they actually intended. In ABC v XIVth Commonwealth Games Ltd[5] Gleeson CJ said –
“Although there are qualifications to it, (the) general test of objectivity is of pervasive influence in the law of contract.”
[5](1988) 18 NSWLR 540 at 549.
His Honour referred to what Lord Diplock said in Gissing v Gissing[6] -
“As in so many branches of English law in which legal rights and obligations depend upon the intentions of the parties to a transaction, the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party.”
[6][1971] AC 886 at 960.
See also Ashington Piggeries Ltd v Christopher Hill Ltd[7] per Lord Diplock and Ayre Great Lakes Pty Ltd v KS Easter Pty Ltd[8] per McHugh JA. Gleeson CJ posed the test where there is a question of a concluded contract which is said to arise from a series of communications –
“The case involved the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular, to the subject matter of those communications: Allen v Carbone (1975) 132 CLR 528 at 531-32.”
[7][1972] AC 441 at 502.
[8]Supra at 334-6.
The court considers all the circumstances leading up to and subsequent to the date of the alleged contract. This involves considering the background facts, the setting in which negotiations took place, the negotiations, the facts objectively known to the parties, what they said, wrote and did or did not do, and any other matters which bear on the question whether they intended to and did reach a concluded binding agreement in law.
In considering both the fact of agreement and intention to be bound, a relevant matter to determine is whether the parties reached the point of agreement on all essential matters or were there matters that were still subject to negotiation? To be binding the parties must have reached a concluded bargain.[9] The law does not recognise an agreement to make an agreement, nor does it recognise a contract to negotiate.[10] If any alleged term is uncertain and/or vague this would be a relevant factor pointing against a binding contract.[11]
[9]See May v Butcher [1934] 2 KB 17 at 21.
[10]See Thorby v Goldberg (1964) 112 CLR 597 at 603.
[11]See Brew v Whitlock (1968) 118 CLR 445 at 456-457 and 460-61.
The law is well established that the mere fact that the parties have agreed is insufficient and the plaintiff must prove that the parties intended to enter into a binding contract in law. In other words, they objectively intended that the agreement they had reached had legal effect. In Ayre Great Lakes Pty Ltd case, McHugh JA said[12] –
“The weight of authority in favour of the objective theory is too great. But the decision is consistent with what I think is clearly the Anglo‑Australian law, namely, that an intention to create a legally enforceable contract is a necessary element in the formation of the contract.”[13]
[12]Supra, at 336.
[13]See also Toyota Motor Corporation v Ken Morgan Motors [1994] 2 VR 106 at 130.
Uncertainty as to a term or vagueness are factors to take into account when considering the question whether there is a binding contract in law. This is so because a term may be so uncertain or vague that it leads to the conclusion that the parties did not intend to be bound by the arrangement reached at that point but intended to further negotiate.[14] In this regard it is important to determine whether the parties had agreed on the essential terms necessary to give effect to the commercial purpose of their arrangement. The failure to agree on some essential term is strong evidence against the existence of the necessary intention to make a binding contract in law. The approach to issues of fact of agreement and intention was discussed by Gleeson CJ in the ABC case[15] when he said –
“It is to be noted that the question in the case such as the present is expressed in terms of the intention of the parties to make a concluded bargain … That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that the parties to negotiations have agreed upon sufficient matters to produce the consequences that, perhaps by reference to implied terms or by resort to considerations of reasonableness, the court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.”
(Emphasis added).
[14]See the Toyota case, supra, at 130.
[15]Supra, at 548.
In determining the issue, the court must bear in mind if it be the case that it is considering and determining the dealings of commercial men who are not lawyers and may use language in a loose sense. In this regard the court must heed the often quoted words of Lord Tomlin in Hillas and Co v Arcos Ltd [16]-
“The problem for a court of construction must always be so to balance matters that, without the violation of essential principle, the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains.”
[16](1932) 38 Com Cas 23 at 29.
His Lordship was referring to construction of an agreement but in my respectful opinion his observations apply equally to the court’s approach when considering whether or not there is a binding contract in law. Commercial men, unaided by lawyers, often use loose language, they assume matters known to the parties which are not spelt out, and often fail to state in clear terms their agreement. The law must make allowance for such actions and omissions and where satisfied on the evidence that there was a concluded contract and an intention to contract, should be prepared to imply terms to give effect to their intention. Matters of uncertainty or incompleteness should not, if possible, stand in the way of giving effect to what the parties intended. However, it must be emphasised that the issues are questions of fact and each case will depend upon its own circumstances. Brooking J discussed the approach in the Toyota Motor Corporation case[17] when he said –
”If the court comes to the conclusion that parties intended to make a contract it will if possible give effect to their intention by overcoming difficulties said to result from uncertainty or incompleteness.
While the distinction between uncertainty and incompleteness is a useful one, the vagueness of the provision may lead to it being held that there is no contract either on the ground of uncertainty or on the ground of incompleteness, the fatal dilemma being that the provision either is incapable of being given a definite meaning or properly construed, shows that the parties intend to reach an agreement hereafter by way of settling some point presently left outstanding.”
[17]Supra, at 130.
In this case, like many cases involving the issue of contract or no contract, evidence was called of the internal communications within the particular parties’ camp, and the actions and omissions of the parties seeking to demonstrate on the one hand contract and the other hand no contract. In the end, it is a matter of the common intention of the parties and this is, as a general proposition, to be determined by an objective test. But nevertheless, in my opinion, evidence of the statements and conduct of the parties unknown to the other parties may be relevant to the question of whether there was or was not a concluded contract. The evidence may amount to an admission either that there was or was not an agreement. The question was discussed by Gleeson CJ in the ABC case.[18] His Honour said –
“The position is by no means so clear, however, in connection with internal memoranda, communications by one or other of the parties with some third party, or statements as to subjective intention made by individuals in the course of giving evidence. … (His Honour referred to the evidence being equivocal and that witnesses were cross‑examined at length as to what was in their minds at particular times). This process in the end principally served to demonstrate what might have been expected to be the case, that is to say, that the witnesses, not being lawyers themselves, were in a state of considerable confusion about the issue that ultimately emerged as determinative of the rights of the parties.”
[18]Supra, at 550-1.
His Honour concluded as follows –
“Insofar as acts or statements of the kind referred to, not involving communications between the parties, claim to be relevant in a case such as the present upon the ground that they constitute an admission, seems to me that it will often be necessary to identify with some care the fact which is said to have been admitted. As was noted, there may be cases in which the issue is such that the fact of the subjective state of mind of one or other of the parties is relevant. Normally, however, what is in issue is not the subjective state of mind but their ‘intention as expressed’ … and caution may need to be exercised in relating the fact which is said to be admitted to the fact which is legally relevant.”
(Emphasis added).
Whilst the court is not assisted by a party indicating what he or she had in mind at the time of the negotiations leading to the alleged contract, nevertheless the statements made, their conduct, both of act and omission, may demonstrate that there is a contract or not a contract. When parties are in dispute as to whether there is or is not a contract, in my view their actions and conduct and their statements, are all relevant to the question of whether there was in fact an agreement and whether they intended to be bound. The evidence may be something other than communications between parties and it may be that the other party is unaware of the actions of the other party which bear on the topic. For example, where there is a real dispute whether one party has accepted an offer, the doubts expressed by the offeror in an internal communication is evidence relevant to the issue of agreement. But as Gleeson CJ emphasised, one must proceed with caution in considering such evidence and making findings based on it. In the final analysis the test whether the parties have agreed is an objective one. Have the parties by their conduct and statements outwardly agreed on the same terms upon the subject matter?
In the present case two principles of the law of contract are particularly relevant. They are the principles concerning a party to a contract and the right to nominate a particular entity as the party and secondly, acceptance of an offer in circumstances where the offeror in effect says, “if I do not hear from you I will assume there is a contract”.
It is a trite proposition that there must be at least two parties to a contract. There must be a promisor and a promisee. The parties to the contract must be ascertained at the time when the contract is made. The parties must be identified either by name or some appropriate description which if necessary can be proven as a fact. See Rosser v Austral Wine and Spirit Co Pty Ltd.[19] Of course each party must be a legal person. “A party cannot have an agreement with the whole world; he must have some person with whom the contract is made.” See Squire v Whitton.[20] The well known cases of making offers to the world at large do not contravene this principle because an identified person becomes the other contracting party by accepting the offer. The law recognises an agreement pursuant to which another party may be substituted. However, it is clear that the concluded binding contract is between identified parties and it is a term of that agreement that a party can be substituted for the identified party – see Tonelli v Komirra Pty Ltd.[21] The principle is clear. There must be identified legal entities at the time when the contract is said to come into being.
[19][1980] VR 313 at 315 quoting Di Biase v Rezek [1971] 1 NSWLR 735 at 742.
[20](1848) 1 HLC 333 at 358, 9 ER 785 at 796.
[21][1972] VR 737 at 739-40.
A contract does not come into being unless there is evidence of agreement between the parties. Often, that comes about because an offer is made and accepted. The general rule is that acceptance must be communicated to the offeror before an agreement comes into being. This means assent by some overt act, whether it be words or conduct. A contract comes into being when the acceptor has done something which indicates his intention to be bound to the offeror and not at the time when he has made up his mind to do so. It follows that mental acceptance or mere acquiescence by one party does not amount to acceptance of the offer. An offeror may prescribe a form or method of acceptance which results in a binding agreement but he cannot prescribe a method which involves the offeree doing nothing. In the old case of Felthouse v Bindley[22] a party offered by letter to buy a horse from his nephew adding, “If I hear no more about him I shall consider the horse mine at £30.15s”. No answer was received in response to the letter and the nephew told the auctioneer to keep the horse out of the sale of the farm stock, because he intended to reserve it for his uncle. The auctioneer sold the horse by mistake and the uncle sued him for conversion. The court held that the offeree had never signified to the offeror his acceptance before the auction sale took place and hence there was no bargain to pass the property in the horse and therefore the party had no right to sue. It follows as a matter of principle that the offeree must signify his acceptance of the offer by some overt act which comes to the knowledge of the offeror. There are exceptions to this rule in relation to postal communications, waiver of the requirement of communication of acceptance, for example in a unilateral contract performance may constitute acceptance, estoppel and acceptance being communicated to the offeror’s authorised agent.
[22](1862) 11 CBNS 869; 142 ER 1037.
(Emphasis added).
[48]Supra.
[49]At 377.
His Honour’s reference to “delivered” was in the context of re delivery of goods in a coolstore.
In my opinion, the deterioration in the condition of the vessel between September 2000 and October 2003, was a deterioration due to an inherent vice and was not due to the bailee’s want of care. In my opinion, the duty did not extend to expending substantial sums of money on the vessel to arrest the natural progression of deterioration when the vessel was delivered by Challenge in that condition. It was contemplated by the parties that she would be re-delivered to Challenge thereafter in the same condition subject of course to corrosion in the normal course of events; in other words, “fair wear and tear”. At no stage did Challenge suggest that steps should be taken to arrest the corrosion. PNG Dockyard’s obligation as bailee to take reasonable care in the circumstances did not require it to expend large sums of money to arrest the natural deterioration. Challenge was not prepared to spend the money. The contract contemplated the return of the vessel in the same condition subject to normal wear and tear. The deterioration in the vessel’s condition was not due to any breach of the bailee’s obligation.
If I am wrong, nevertheless, in my opinion, PNG Dockyard has satisfied the standard of care imposed upon it. As stated by Lord Diplock in China Pacific v Food Corporation of India, supra,[50] a duty of care was imposed on PNG Dockyard if damage occurred “to take such measures to preserve (the ship) from deterioration by exposure to the elements as a man of ordinary prudence would take for the preservation of his own property”.
[50]At 960.
Would a ship owner of ordinary prudence spend substantial sums of money on the vessel to arrest the deterioration? In my opinion, the evidence is overwhelming. I refer in particular to the evidence of Captain Southwell, Captain Copland and Mr Cookson as to the vessel’s value and the wisdom of spending money on her. Mr Curtain told Mr Goldschlager in late January 2001 that the cost of repairs would be at a minimum US$150,000 to US$400,000. Mr Goldschlager was not prepared to spend any money on the vessel arresting this deterioration in mid 2000 and was adamant that no more money was to be spent on The Xanadu unless absolutely necessary. In my opinion, the prudent ship owner would not have incurred substantial expense to arrest the corrosion in this ship. It was uneconomic. The owner did not wish to spend money on her. The decision made by Challenge was based on economic grounds. It amply supports the decision made by PNG Dockyard not to carry out any rust preventative works which could not be justified in all the circumstances. In my opinion, PNG Dockyard satisfied the duty of care which rested upon it as bailee.
In my opinion, the claim in bailment must fail.
Counterclaims
PNG Dockyard has brought two counterclaims, the first against Timor Star in respect of the wharfage of MV Kayuen and works done; secondly, against Challenge in respect of the slippage and wharfage of The Xanadu and works done. Timor Star brought two claims against PNG Dockyard, the first claiming damages for misleading and deceptive conduct in relation to the MV Kayuen and secondly, a claim for breach of contract in that it was alleged Curtain Bros Group failed to use its best endeavours to procure the sale of the MV Kayuen as soon as possible for a fair commercial value.
I will deal with each claim separately.
A. PNG Dockyard claim for removal of sand and wharfage charges
The Heads of Agreement dealt with the MV Kayuen and her future. As the Heads of Agreement did not constitute a binding and concluded contract, the terms can be put to one side. PNG Dockyard claimed two heads of claim, namely, the sum of A$25,000 for removal of the sand and wharfage charges in respect of the MV Kayuen from 22 September 2000 until 31 October 2003 and continuing. The first question is was there a contract between PNG Dockyard and Timor Star concerning sand removal and wharfage. The MV Kayuen when purchased by Timor Star contained many tonnes of sand which were polluted. It was agreed by PNG Dockyard and Timor Star that the sand would be removed in Papua New Guinea and Timor Star would pay the sum of A$25,000. Timor Star does not deny that there was such an agreement but contends that there was a term concerning payment. The cost of A$25,000 was to be paid for the works, but the payment of the sand removal charge was contingent upon the sale of the MV Kayuen or further agreement. On 20 July 2000 PNG Dockyward sent a facsimile to Mr Herman which itemised a claim for works performed on the MV Kayuen. Included in the claim was the charge for removal of the sand. The facsimile contained the following note – “NOTE: Item 6, sand removal costs are held in abeyance until sale or further agreement reached between Mr Curtain/Mr Goldschlager”. In a letter dated 28 July 2000, sent by Mr Goldschlager to PNG Dockyard, he confirmed the agreement with Mr Curtain that the sand removal cost “will be adjusted against the proceeds of sale of this vessel”, and Mr Curtain gave evidence to the same effect. On 1 November 2000 Mr Curtain wrote a letter to Mr Goldschlager to the same effect. He stated –
“The sand removal cost (A$25,000) has been held in abeyance until sale of vessel or further agreement between you and I.”
The MV Kayuen has been on the market since she arrived in Port Moresby on 2 May 2000. Mr Carlos Marques examined her in Port Moresby in mid‑2000. Despite the efforts of the Goldschlager interests, Mr Marques, and the Curtain Bros Group, the vessel has not been sold. She is presently in the possession of PNG Dockyard, is floating off the dockyard and is secured and maintained by the PNG Dockyard.
It was submitted by Mr Houghton, that although the agreement was that the amount would be paid on sale of the MV Kayuen or further agreement between the parties, nevertheless it would be implied that either event would take place within a reasonable period. The parties have been in dispute since late 2000 over The Xanadu and there has been a stand‑off. But there is no dispute concerning the MV Kayuen. Timor Star has not given any instructions to PNG Dockyard. PNG Dockyard is entitled to be paid. Mr Sifris submits that its entitlement to be paid is subject to sale or further agreement. Since there is neither, PNG Dockyard is not entitled to be paid. On 31 October 2002, PNG Dockyard sent two invoices to Timor Star concerning the Kayuen, claiming the cost of the sand removal and wharfage. By so doing, in my opinion, PNG Dockyard was giving notice that it required to be paid what it was owed as at that date. In my opinion, there was an implied term in the agreement that if the vessel was not sold within a reasonable period PNG Dockyard was entitled to be paid. The conditions necessary to imply a term are satisfied. It is necessary to imply the term for the reasonable operation of the contract in the circumstances. See Hawkins v Clayton[51] and Byrne v Australian Airlines Ltd.[52] In my opinion, a reasonable period was to 31 October 2002 and PNG Dockyard was entitled to be paid as at 1 November 2002.
[51](1988) 164 CLR 539 at 573.
[52](1995) 185 CLR 410 at 422.
With respect to the claim for wharfage, the original agreement concerning the MV Kayuen was that she was to be towed to Port Moresby, slipped and inspected, and then a decision would be made as to her future. Correspondence passed between the parties in late March/early April 2000, and by 18 April the parties had reached agreement. In respect of wharfage, it was agreed that there would be a period of 60 days grace from the day the condition report was provided to Timor Star and that after that, a wharfage fee would be paid.
The condition report dated 23 July 2000 was forwarded to Mr Carlos Marques. It was sent to Mr Herman on 27 July 2003. Sixty days from that date would be 26 September 2000. In a letter dated 24 December 20002, Mr Herman accepted that an agreement was reached on 14 April 2000, that there would be a 60 day period of grace from the day the condition report was provided to Timor Star.
However, on 1 November 2000, Mr Curtain, in a letter, stated that the PNG Dockyard would store the vessel at its cost. In the letter, Mr Curtain wrote – “We’ve since put the word around regarding the sale and have had no bites. Maybe she’s only worth scrap. We continue and care for it at our cost.”
Mr Curtain in evidence said that he expected that the cost would be paid upon a sale when the profits, if any, would be divided. Earlier, on 28 July 2000, Mr Goldschlager had written to PNG Dockyard stating, “We understand that no further costs will apply or accrue to our account. We thank you for your kind attention.” Mr Curtain gave evidence that at that time he did not agree to that. The evidence relating to the agreement concerning the cost of keeping and securing the MV Kayuen and when the liability for payment commenced is murky. PNG Dockyard carries the burden of proving the terms of the agreement.
I am satisfied that PNG Dockyard gave notice that it was requiring that the wharfage costs be paid. On no view could it be accepted that the parties had the common intention that the vessel would be maintained and secured indefinitely without payment. In my opinion, it is clear that as at 31 October 2002, PNG Dockyard, in the tax invoice dated that day, gave notice that it was seeking wharfage. The charge is US$1.50 per metre. The vessel is 84 metres in length. There is no suggestion that that was not a reasonable charge. On the contrary, the evidence was that it was a reasonable standard charge. In my opinion, PNG Dockyard is entitled to recover from Timor Star the sum of US$126 per day from 1 November 2002 until the present. The amount to 15 January 2004 is US$55,496.
B. PNG Dockyard’s claim against Challenge for works performed on The Xanadu and wharfage from 13 September 2000 until the present
The first question is what was the agreement between PNG Dockyard and Challenge concerning The Xanadu. I am satisfied that there was an agreement that The Xanadu upon arrival in Port Moresby, would be taken to PNG Dockyard and slipped, her hull cleaned and the vessel inspected. Any necessary remedial works sufficient for the vessel to be returned to the water would be performed. It was then a question of reporting to Challenge and a decision being made as to her future.
The Xanadu arrived at Port Moresby 13 September 2000 and was slipped on 30 November 2000. Her hull was cleaned to enable inspection to be carried out. In mid January Captain Copland prepared his report concerning her condition. The report was not sent to Challenge but the Goldschlager interests were informed as to her condition.
By the time The Xanadu was slipped and inspected, the parties were in dispute. Nevertheless, works were carried out in accordance with the agreement and PNG Dockyard is entitled to be paid for the necessary works carried out. In addition, PNG Dockyard had to perform necessary works to make the vessel water proof prior to her being returned to the sea in July 2002. It is entitled to recover the cost of the necessary works.[53] There is no dispute that the works were carried out. Further, I find the charges were reasonable. I also find that the later works were necessary as part of the bailee’s obligation to preserve the vessel. The rates claimed for those works were reasonable. The evidence established that the total hours for the work was 2,702 hours. Mr Newall on behalf of Challenge carefully considered the works and the hours and his calculation comes to 2,692.2 hours. I accept the evidence of PNG Dockyard as to the total hours. The rate of US$11 per hour is reasonable. Accordingly, PNG Dockyard is entitled to recover the sum of US$29,727.50 from Challenge for works performed and materials supplied.
[53]See China Pacific v Food Corporation, supra, at 960.
The second part of the claim relates to wharfage in respect of The Xanadu. Where a vessel is alongside a wharf, a charge is made based upon the length of the vessel and when it is dry dock there is a also a charge based upon length. The Xanadu was alongside the wharf from 13 September 2000 to 29 December 2000, was in dry dock from 30 November 2000 to 17 July 2002, was alongside from 18 July 2002 until 11 September 2003 and was in dry dock from 12 September 2003 until at least the last day of the hearing which was 17 November 2003.
There is no evidence of any express terms agreed between the parties for wharfage and dry dock storage, but in my opinion it was implied that PNG Dockyard was entitled to charge Challenge a reasonable rate for daily wharfage and dry dock storage. The evidence revealed that the wharfage charge is $1.50 per metre and the dry dock charge is $3.59 per metre. In my opinion, the sums are reasonable.
PNG Dockyard is entitled to charge wharfage in respect to The Xanadu at the following rates for the following periods –
(a)From 13 September to 29 November 2000, wharfage, at US$1.50 per metre per day = 77 days x 53m x US$1.50 = US$6,121.50;
(b)from 30 November 2000 to 17 July 2002, dry dock, at US$3.50 per metre per day = 594 days x 53m x US$3.50 = US$110,187.00;
(c)from 18 July 2002 to 11 September 2003, wharfage, at US$1.50 per metre per day = 421 days x 53m x US$1.50 = US$33,469.50.
PNG Dockyard claims from 12 September 2003 to the last day of the sitting a charge for dry dock. The vessel was taken into dry dock for the purposes of enabling the Curtain Bros Group to defend the proceeding. It was not done at the request of Challenge. In my opinion, PNG Dockyard is not entitled to the higher rate. It is entitled to recover from 12 September 2003 to the date of judgment 15 January 2004 at US$1.50 per metre per day = 125 days x 53m x US$1.50 = US$9,937.50.
Challenge cannot complain that it was not consulted as to where the vessel was to be located at any time after the report was given as to The Xanadu’s condition in January 2001. The vessel remained in dry dock for a long period of time. Mr Curtain requested the Goldschlager interests to go to Port Moresby, to discuss the matter and make a decision. The Goldschlager interests declined the invitation and gave no instructions to the dockyard. Given that the parties were in dispute, in my opinion it was not unreasonable for the Curtain Bros Group to keep the vessel in dry dock, especially as a decision had to be made to perform more works on the vessel before she could be returned to the water. Finally, the decision was made, works were carried out to make her waterproof and she was returned to the water. Challenge can hardly complain, having pursued litigation in an attempt to enforce the alleged agreement, and failing. The Xanadu still belongs to Challenge.
C. Timor Star’s claim against PNG Dockyard for alleged breach of contract
This is an unusual claim. It is alleged that in breach of clause 8(l) of the Heads of Agreement, PNG Dockyard failed to use its best endeavours to sell the Kayuen as soon as possible for a fair commercial value. What is sought is not damages, but “a declaration and order to the effect that PNG Dockyard use its best endeavours to sell the Kayuen as soon as possible for a fair commercial value”.
This claim is based upon the Heads of Agreement being a concluded binding contract. The Heads of Agreement provided that the Curtain Bros Group would use its best endeavours to procure the sale of the MV Kayuen as soon as possible for fair commercial value. The Heads of Agreement did not constitute a binding contract. Accordingly, this claim must fail.
D. Timor Star’s claim against PNG Dockyard for misleading and deceptive conduct
This claim is for damages incurred as a result of Timor Star relying upon representations allegedly made by Messrs Flint and Curtain in March 2000. It is alleged the representations were false and breached s.52 of the Trade Practices Act 1974 and in the alternative, amounted to unconscionable conduct in relation to the supply or possible supply of services in breach of s.51AC of the Act.
There are two sets of representations relied upon. The first were allegedly made by Mr Flint on behalf of PNG Dockyard prior to entering into the Kayuen agreement and prior to the vessel being towed to PNG. The said representations were oral and written in that they were made by Mr Flint to Mr Herman on 14 March 2000 and in a letter written by Mr Flint to Mr Herman dated 20 March 2000. The Kayuen agreement was negotiated between Mr Flint and initially Captain Southwell and later Mr Herman during the period from early March 2000 to 18 April 2000. The agreement was actually concluded on 18 April 2000. The MV Kayuen left Sydney on 15 April 2000 and arrived in Port Moresby on 2 May 2000. It is important to note, that a decision to tow the vessel from Sydney to Port Moresby was made prior to 20 March 2000 and on that date a formal agreement was executed between Timor Star and Jurgen Ruh’s company. The cost of the tow was US$78,000 and on 20 March 2000 the deposit was actually paid by Timor Star.
The Kayuen agreement provided, inter alia, for the delivery to the dockyard of the vessel, for the purpose of slipping and a condition inspection at a capped cost of US$14,997. No works were to be carried out until a decision was made after inspection. Mr Herman insisted on the following term, namely, “and such decision will be the result of consultation between the parties and the input of appropriate independent expert advice. In particular, the decision will be driven by relevant commercial consideration”.
Mr Goldschlager purchased the MV Kayuen with the intention of gifting the vessel to the East Timorese but it transpired that the Australian Maritime Safety Authority would only allow the vessel to be towed to East Timor and only after extensive works were carried out. It soon became apparent that the whole exercise would be very costly. Mr Goldschlager looked at alternative solutions but one by one they proved unsatisfactory. Eventually he came to the view that the only avenue that was open to him was to have the vessel towed to Port Moresby. On 22 February 2000, Mr Herman reported to Mr Goldschlager that the option of selling the vessel for scrap iron was not possible, and that the only other two options were scuttling her or putting her back into service. The latter, according to Mr Herman, would “involve towing her up to PNG and having appropriate works carried out and having brought her back into class (with Vanuatu certificates)”. He concluded his report by writing – “Nevertheless it is a fact of life the vessel is causing a financial haemorrhage.”
The thrust of the cause of action is that both Mr Flint and Mr Curtain represented that the MV Kayuen had a future and should not be sunk. The dates of these alleged allegations are 14, 20 and 23 March 2000. By 14 March a decision had already been made to send the MV Kayuen to PNG and on 20 March 2000 the tow contract was concluded and a substantial deposit paid.
It is alleged in the pleading that both sets of representations were relied upon by Timor Star. However, the pleading does not identify in what way Timor Star relied upon the representations and what it was induced to do. In his first witness statement, Mr Goldschlager does not refer to this cause of action. In his supplementary witness statement, made shortly prior to the commencement of the trial, Mr Goldschlager gave evidence that in reliance of the statements made by Mr Curtain on 23 March 2000 and a facsimile from Mr Flint dated 20 March 2000, “I agreed to arrange for the Kayuen to be towed to Michael Curtain’s dockyard in Papua New Guinea.”
Timor Star claimed $360,815.05, being loss and damage suffered as a result of “relocation of Kayuen”.
In my opinion, there is a short answer to this claim. The evidence establishes beyond doubt that Mr Goldschlager did not rely upon any statements made by Messrs Curtain and Flint in making the decision to tow the MV Kayuen to the dockyard in Papua New Guinea. Mr Goldschlager, in evidence, accepted that his discussion with Mr Curtain on 23 March 2000, had nothing to do with the decision to enter into the towing contract made on 20 March 2000. If any representations were made concerning the future of the MV Kayuen by either Mr Flint or Mr Curtain, in my opinion Timor Star has failed to prove that the representations induced Timor Star to have the vessel towed to Papua New Guinea. It was the transporting of the MV Kayuen which resulted in the cost which Timor Star now wishes to recover. The claim fails.
According to the counterclaim, it is alleged that Mr Flint represented that –
“(a)The Kayuen was great;
(b)the Kayuen had a future as a resurrected working entity.”
There is no evidence that Mr Flint represented that “the Kayuen was great”, whatever that might mean. Mr Flint told Mr Herman on 14 March that he was pleasantly surprised by the vessel. He said words to the effect that “This ship is good- I thought I was on the wrong vessel – it turned out to be a very pleasant surprise”. He was expressing nothing more than his thoughts as to how the vessel looked. It is noted that Mr Goldschlager did not rely upon that statement. He relied upon what Mr Flint wrote to Mr Herman on 20 March 2000. As at that date, discussions had taken place and correspondence had passed between the parties concerning the possible costs of repairs for docking and repairing the MV Kayuen. On 20 March 2000, Mr Flint sent a facsimile to Mr Herman and after referring to the question of the works went on to say –
“We are very positive about what you are trying to achieve and certainly believe your goals are obtainable re getting the vessel resurrected as working entity.”
There is no doubt by that date, the Goldschlager interests were pursuing what they believed was the only option open, namely, to see whether the vessel could be resurrected as working entity. The representation was not relied upon in reaching the decision to send the vessel to Port Moresby.
The second set of alleged representations were said to be oral and were made in conversations between Mr Curtain and Mr Goldschlager on 23 March 2000. I have carefully considered the evidence of Mr Goldschlager and Mr Curtain. I am not persuaded on that evidence that Mr Curtain made any representations that the vessel had a future, that Mr Curtain could get Timor Star out of its difficulties, and that Mr Curtain would be able to dispose of the MV Kayuen.
But if I am wrong in relation to that finding, in my opinion Timor Star has not proven that any representation made as to resurrecting the MV Kayuen as a working entity or words to that effect was false when made. There is no evidence that any such representations were false. The Kayuen agreement was specific. The vessel was to be slipped and inspected for a fixed price. No other works were to be carried out on it until a decision was made by the Goldschlager interests. The fact was that no decision was made to carry out any further works on the MV Kayuen. The instruction was to dispose of the vessel “as is”. On 25 August 2000, Mr Goldschlager sent an e-mail to Mr Marques seeking his opinion as to whether or not the Kayuen could be relatively cheaply converted into an economic, commercially operating vessel. The fact was that Timor Star did not request that any works be carried out and her future as a sailing vessel depended upon works being carried out on her. This cause of action also fails because it has not been proven that if the representations were made by Mr Curtain, they were false. The mere fact the MV Kayuen has not been sold does not prove that if a representation was made by Mr Curtain about MV Kayuen that it was false when made.
The claim, based upon a breach of s.52, fails.
As an alternative, it is alleged that the conduct of PNG Dockyard was unconscionable in the circumstances in relation to the supply or possible supply of services. Timor Star relied upon the alleged misrepresentations and the alleged unequal bargaining position of the parties. It was said that Timor Star had little experience in shipping.
In my opinion, this claim has no merit and fails. Indeed, in final address, Mr Sifris did not refer to this claim.
The evidence establishes that the Goldschlager interests obtained much advice from a number of sources prior to 20 March 2000 and made a decision that its only option was to tow the vessel to Papua New Guinea for slipping report and maybe repairs for a sale. At that stage, the cost of keeping the vessel in Australian waters was reaching a prohibitive level and a decision was made without any input from Curtain Bros to induce them to send the vessel to Port Moresby. A decision was made before Mr Goldschlager met Mr Curtain.
E. Timor Star’s claim against PNG Dockyard for negligent misstatement
This claim is a variation of the claims under the Trade Practices Act. It is said that PNG Dockyard owed Timor Star a duty of care to properly and accurately advise the company about the condition and viability of the MV Kayuen. In my opinion, it did not owe such a duty of care. The parties were at arm’s length. The Goldschlager interests obtained advice from a variety of sources prior to 20 March 2000. It approached PNG Dockyard with the intention of entering into a contract with it to slip the vessel and provide a condition report. The decision to send the vessel to PNG Dockyard was made prior to 20 March 2000. The circumstances did not require PNG Dockyard to give any advice as to the condition of the MV Kayuen. But in any event, I am not persuaded that any advice was given, which apparently is based upon the alleged misrepresentations, was negligently given. There is no evidence to that effect. The mere fact that the MV Kayuen has not been sold does not prove that any advice given prior to 20 March 2003 or indeed thereafter in the month of March or April was negligently given.
Finally, Timor Star has not proven that any advice given induced into “deciding to and in fact towing the Kayuen to PNG”. See paragraph 42 of counterclaim. I have already found that Timor Star did not rely upon any of the alleged representations.
Mr Sifris made no submissions in support of this cause of action. It had no merit and fails.
Conclusion
Challenge has failed in its causes of action against the four defendants. The first defendant by counterclaim, namely, Timor Star, has also failed in its claims against PNG Dockyard. PNG Dockyard has succeeded in its claims against both Challenge Charter and Timor Star.
Subject to submissions by counsel, I propose to enter judgment in accordance with the following minutes -
(i)That each of the causes of action brought by the plaintiff Challenge Charter Pty Ltd against the four defendants be dismissed.
(ii)That the proceeding be dismissed.
(iii)That the counterclaim brought by the first defendant by counterclaim, Timor Star Shipping Line Pty Ltd, be dismissed.
(iv)That the first defendant by counterclaim, Timor Star Shipping Line Pty Ltd, pay the sum of A$25,000 to the second defendant, Papua New Guinea Dockyard Limited, for the removal of sand from the MV Kayuen.
(v)That the first defendant by counterclaim Timor Star Shipping Line Pty Ltd, pay the sum of US$55,496 to Papua New Guinea Dockyard Limited for wharfage of the MV Kayuen to 15 January 2004.
(vi)That Challenge Charter Pty Ltd pay the sum of US$189,443.00 to the second defendant, Papua New Guinea Dockyard Limited, being for works done, materials supplied and wharfage in respect to the MV Xanadu to 15 January 2004.
I will hear counsel on the issues of damages in the nature of interest on the amounts recovered by Papua New Guinea Dockyard Limited and costs.
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