Deverell, K.T. v Peter Johnson Earthmoving Pty Ltd

[1991] FCA 662

Re: KEVIN THOMAS DEVERELL
And: PETER JOHNSON EARTHMOVING PTY. LTD.; MORNINGTON INVESTMENTS PTY. LTD. and
PETER JOHNSON
No. T G2 of 1991
FED No. 662
Contracts
(1991) 32 FCR 268

COURT

IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY
GENERAL DIVISION
Pincus(1), Olney(1) and Hill(1) JJ.

CATCHWORDS

Contracts - repudiation on basis of purported underpayment - claim for failure to repay loan payable by instalments - whether right to repayment accelerates - whether damages recoverable for claim in debt.

HEARING

BRISBANE

#DATE 4:11:1991

Counsel for the appellant: Mr K. Read

Solicitors for the appellant: Jennings Elliott

Counsel for the respondents: Mr A.M. Blow

Solicitors for the respondents: Norma Levis and Co.

ORDER

The appeal be allowed in part.

The orders made by Spender J. on 21 December 1990 be varied by substituting "$18,480" for "$32,600.00".

There be no order as to the costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from a judgment of a single judge of this Court, given in a case concerning a written contract relating to the carriage of gravel. Under that contract, made in March 1988, the first and second respondents agreed to sell to the appellant a truck and trailer and, in addition, the right to cart gravel and like materials from certain quarries at Mornington in Tasmania. The agreement fixed the price at $70,000, apportioned as to $25,000 for the truck, $10,000 for the trailer and $35,000 for the right to cart; the price was payable on or before 11 March 1988 when property in the truck and trailer was to pass. The agreement was made conditional upon the appellant's obtaining a $35,000 loan from Esanda Limited. What happened was that Esanda Limited bought the truck and trailer from the first respondent for $35,000 and leased it to the appellant; that was treated as satisfaction of the condition.

1. Under clause 6, the second respondent agreed to lend the appellant, upon completion of the agreement, $35,000, payable as to $10,000 on the sale of a certain property and the balance by instalments of $770 per month (on account of both principal and interest) commencing on 11 December 1988. Clause 6 also provided that the loan should bear interest payable monthly in arrears from 11 April 1988 at the rate charged from time to time by the Commonwealth Bank of Australia on overdraft loans.

2. No instalments were paid, but payment of a total sum of $2,996.63 for interest was made, as well as the $10,000.

3. Under clause 7(a) of the agreement, the second respondent agreed to give the appellant priority in the cartage of materials. At the trial, the appellant put forward a case of breach of that provision, but it was not pressed on appeal. Clause 7 also made provision for payment for cartage, in terms set out below.

4. The agreement was entered into as a result of certain statements made by and on behalf of the respondents which were alleged to be misleading. The trial judge rejected that part of the appellant's case and the matter was not raised on appeal. It is unnecessary to discuss the findings the trial judge made under that head.

5. The appellant became ill on 17 May 1988 and, after some nine or ten days during which the truck was not used, a driver called Daniels was engaged to work in the appellant's place. Initially, Daniels was paid by the third respondent Johnson, but after about a month the appellant began to pay him and continued to do so. Daniels was paid "$8.00 an hour cash in hand for a forty hour week".

6. The truck's earnings dropped off during the appellant's illness and, in November 1988, it was used for some limited work unconnected with the respondents. Towards the end of November 1988, Daniels changed jobs and a new driver worked for the appellant from 1 to 8 December 1988.

7. On 8 December 1988, the appellant still being ill, he told the third respondent Johnson and one Eaves that:
   

"I was going to let the leases run out. I was not making any more payments on the leases and the truck would go back to Esanda ...

(b)ecause the contract was not viable ... and I was not getting paid the correct rates ... and therefore the whole thing had just collapsed".

1. After some further discussion, it was agreed that a new arrangement would be made in respect of the leases on the truck and trailer. Esanda Limited agreed to the third respondent's assuming the liability under the leases. It was also arranged that the third respondent would become the employer of the man who had been driving for the appellant. It was alleged at the trial by the appellant that the third respondent Johnson discussed paying him a figure for goodwill and said "I will do my best whenever I can and I will give you some money when I can". Johnson denied that he used the words just quoted and his denial was accepted by the trial judge.

2. Although it seems clear that the parties agreed to the rescission of the agreement of March 1988 and replaced it by a new or varied agreement, it was argued that conduct of the second respondent in breach of clause 7 amounted to a repudiation of the agreement of March 1988.

3. It was admitted at the trial that the appellant had been underpaid to the extent of $8,047 "contrary to clause 7(d) of the parties written agreement" and the primary judge found that, in addition, the appellant should have received $254 under clause 7. The terms of that clause, so far as presently relevant, are as follows; the "Contractor" there referred to is the second respondent and the "Sub-Contractor" is the appellant:
   

"The Contractor shall during the continuance of this agreement ...

(d) Pay to the Sub-Contractor a sum for all materials carried at a

rate per tonne to be agreed upon PROVIDED HOWEVER that the amount payable under this clause shall not be less than an amount equal to forty five dollars per hour when both the truck and trailer are employed nor less than an amount equal to thirty dollars per hour when the truck only is employed.

...

(e) Pay all sums due to the Sub-Contractor under sub-clause (d) of

this of this (sic) clause within fifteen days from the end of the preceding month".

1. It should be added that counsel for the appellant argued that there had been a breach of clause 7(a), which has not been quoted; that argument was abandoned during the course of the hearing in this Court.

2. The primary judge found as follows:
   

"As to the admitted breaches of clause 7(d), there was in my view no particularised demand made in respect of any particular payment period until well after the commencement of litigation. Such breaches as they were, in my opinion, were not breaches of central terms of the contractual arrangement as a result of which Mr Deverell might terminate the contract. The contract was not repudiated by the respondents by these breaches and there is no entitlement in Mr Deverell to accept that repudiation on 8 December 1988. This is not a case where breaches, none of which is sufficiently serious in itself to amount to a repudiation, amount in the aggregate to a repudiation: Hudson Crushed Metal Pty Ltd v Henry (1985) 1 Qd R 202".

1. Counsel for the appellant said that the amount of the underpayment was substantial in relation to the total amount payable to the appellant and that the evidence showed that the respondents did not take steps to ensure that clause 7(d) was complied with.

2. As to the latter point, we were taken to some of the evidence; it is clear, in our opinion, that no finding could be made in favour of the appellant at this stage. The contract did not remove from the appellant the obligation which one would, as a matter of common sense, expect him to undertake, namely to keep records of the times worked and make claims accordingly. The evidence showed that he was given books of dockets by the respondents to record the work done. The matter was somewhat complicated by the circumstance that, in addition to the work covered by the 1988 agreement, the appellant did what was described as "screening work" at the quarry, which was charged at an hourly rate. For the purposes of the litigation, the appellant made calculations of his entitlement, applying the hourly rates mentioned in clause 7(d), but the records in his possession were not such as to enable the amount to be calculated directly from them; some estimates were made necessary because the records had some gaps. No contemporary documents existed to justify the figure of $8,047 agreed to have been short-paid.

3. In these circumstances, the appellant's contention that he was entitled to repudiate because of short-payment appears somewhat weaker than it might otherwise have been. The case is not one in which the appellant put forward evidence of substantiated claims amounting to $8,047 which were unpaid. The complaints as to non-payment which the appellant made while the contract subsisted were of a general kind. Part of this evidence was as follows:
   

"... So you complained about the rate that you were getting or the return you were getting from each job?---Yes.

...

Just take - go forward into a later month or so; were there other complaints that you raised?---Mainly on the same subject of - the rate was not, you know, in agreeance with the agreed amount in the contract. Right. What about the amount of work, the number of trips you were getting per day or per week?---It was the type of work that I was complaining about, not so much about the - you know, the amount of trips.

...

Were you complaining about the tonne rate he was paying or were you complaining about the fact you were only using the truck, or was it a combination of both?---It would be a combination of both".

1. In Associated Newspapers Ltd. v Bancks (1951) 83 CLR 322, the High Court referred with approval to a test stated by Jordan C.J.:
   

"The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor ..." (337).

1. What an innocent party would have done may in some instances be difficult to guess at; but in this case it seems improbable that the appellant would necessarily have refused to enter into the contract had he thought that there might have been a substantial shortfall in the payments for carriage made on the hourly basis. The prima facie provision was for payment at a tonnage rate and it was contemplated that, when necessary, the results given by that method would be compared with those calculated on an hourly rate. It appears from the concession made by counsel for the respondents that there was, as the appellant argued, a relatively substantial deficiency in payment, but it does not appear from the evidence that this was more the fault of one side rather than the other. It seems that neither the appellant nor the respondents troubled to keep a complete and accurate record for the purposes of clause 7(d).

2. In our opinion, the primary judge was right in declining to hold that the second respondent's non-compliance with clause 7 constituted a repudiation of the agreement.

3. The second point of substance which was argued on the appeal relates to the second respondent's cross-claim or, as it was called in the pleading, counter-claim. The second respondent alleged a failure on the part of the appellant to pay the balance of the sum of $35,000 payable under clause 6 of the agreement. As we have mentioned, that clause required that the balance, namely $25,000, together with interest, be paid by instalments of $770 per month, commencing on 11 December 1988.

4. As we read the pleading, this claim was simply one for a debt. Clause 25 of the respondent's pleading, apart from particulars, reads as follows:
   

"In the premises the sum of $25,000.00 remains due and payable by the Applicant to the Second Respondent together with interest thereon calculated in accordance with clause 6 of the said agreement".

1. On the hearing of the appeal, Mr Blow, who appeared for the respondents, argued that the liability was properly put forward as one in debt. Mr Blow contended that this aspect of the matter had been incorrectly treated by the primary judge. His Honour said:
   

"In my opinion, the characterisation to be applied to the events on 8 December 1988 and subsequently is that the applicant repudiated the contract, which repudiation was accepted by the second respondent. It is entitled to sue in respect of the breach of obligation to make the payments under clause 6, but the measure of the damage for that breach is not $25,000.00, with interest at the relevant Commonwealth overdraft rate since 11 December 1988. Such an amount is greater than the loss flowing from the breach. In the absence of precise evidence of that loss, it is necessary to adopt a robust view. I think that justice will be served if I order the applicant to pay $25,000.00, together with interest from 11 December 1988 calculated at 15% and then slightly rounded down".

1. It appears to be correct, as Mr Blow contended, that the primary judge treated the claim as if it were one for damages.Mr Blow said that clause 6 of the agreement created an obligation to repay a loan with interest and that if one "defaults in respect of such an obligation one is liable for debt and not for general damages".

2. Counsel for the appellant argued that the respondent could only be entitled to damages for breach of the clause, there being no ground upon which one should imply a term that the whole amount under clause 6 could be called up in the event of a default. Counsel argued that, if damages were assessed, then the trial judge, looking at the contract as a whole, should have taken into account that the $25,000 in question was part of a sum of $35,000 paid for the right to cart gravel; that right the appellant no longer had, after the agreement was rescinded.

3. We could see no justification, if the argument were accepted that damages should be awarded in favour of the second respondent, for reducing the damages on account of the second respondent's having available the right to cart gravel, which right could be again sold. Although the appellant's experience in exercising that right may have been a poor guide to its value, there is no substantial reason to think that another purchaser was likely to be found willing to pay a significant sum for the right. However, that is by the way: in our opinion, the second respondent's claim was properly regarded one in debt, although not for so much as was claimed.

4. Without doubt, non-payment of a debt gives rise to a cause of action in debt. The difficulty is to see why the obligation should be accelerated on default or repudiation. If the payments of $25,000 principal plus interest, required to be made by clause 6, had been discharged as the clause required, the last payment would not have become due until 1992. There is no rule that an implication must be made, in a contract for payment of a debt by instalments, that in default of any payment the balance becomes due immediately. In some circumstances, a contention might be open that a right of acceleration is necessarily implicit, but in our opinion no such argument is open here; nor was any explicitly put forward by Mr Blow. Business efficacy may be given to the contract between the parties without making any such implication. It should be added that there was but brief reference during the course of the argument in this Court to the point just discussed. Counsel for the appellant focused on the question of the measure of damages and counsel for the respondent argued that it did not matter whether there was an implied term, "that at some stage the whole amount outstanding would become payable". That is so, but the question is what was due at the date when the matter fell for consideration in court. Although the transcript in this Court discloses some confusion as to precisely what was being debated about the cross-claim, it is our view that the appellant's counsel should not be taken to have conceded the right to acceleration, nor could he sensibly have done so.

5. The question then remains whether or not the primary judge was right to give damages. In general, no damages are payable for non-payment of money. In Watson v Brennan's Amphitheatres Limited (1915) 15 SR (N.S.W.) 332, it was said that:
   

"The general rule applicable to these cases is that the money recoverable in an action for non-payment of that money is the money itself and the interest, where, by statute or otherwise, interest is recoverable"

(334-335).

1. Substantially the same rule was stated by Rowlatt J. in Urquhart Lindsay and Company Limited v Eastern Bank Limited (1922) 1 KB 318 at 323. There is a number of cases in which it has been recognised that there is an exception to the general rule where, to the defendant's knowledge, some special circumstances giving rise to a special loss exist. In Watson's case it was said that:
   

"Where there is a special contract for the payment of money, as for instance, where money is stipulated to be paid for a specific purpose, the effectuation of which depends upon the payment of that money, it has been pointed out in various cases that it is necessary to see whether damages have resulted that are the natural consequences of the failure to make that payment" (335).

1. More recently, in Van Amstel v Country Roads Board (1961) VR 780, O'Bryan J. said:
   

"where the circumstances are such that a special loss is foreseeable at the time of the contract as a consequence of non-payment or unpunctual payment, damages may be recovered for that loss" (789).

1. Nothing which could make these principles applicable was pointed to here. The repudiation of the contract of which the appellant was guilty, according to the findings of the judge, did not bring about any special loss; it made no difference to the then position, which was that the appellant was not paying instalments which fell due each month. The result is, in our view, that the amount which should have been allowed was the total of the instalments which had fallen due at the appropriate date. In the circumstances, it seems proper to allow the instalments due up to the date of judgment, namely 21 December 1990; that treats the counter-claim as having been amended accordingly. The number of instalments due up to that date was 24, making a total of $18,480. The sum of $2,996.63 which was paid applies to the interest payable up to 11 December 1988, prior to the instalments falling due. In our opinion, the appeal should be allowed to the extent of reducing the judgment entered for the second respondent to $18,480.

2. In our opinion, the orders made below should be varied by ordering, in lieu of the second order made below, that "judgment be entered for the second respondent against the applicant in the sum of $18,480". We would make no order as to the costs of the appeal.