Dwyer v Craft Printing Pty Ltd

[2009] NSWCA 405

Appeal Outcome: Special leave refused with costs by the High Court, 30 July 2010

New South Wales

Court of Appeal

CITATION:	Dwyer v Craft Printing Pty Ltd [2009] NSWCA 405
HEARING DATE(S):	16 September 2009
JUDGMENT DATE:	15 December 2009
JUDGMENT OF:	Campbell JA at [1]; Macfarlan JA at [3]; Young JA at [11]
DECISION:	Appeal dismisssed with costs.
CATCHWORDS:	TRADE AND COMMERCE - Trade Practices Act 1974 (Cth) and Fair Trading Act 1987- misleading and deceptive conduct- sole director guaranteed debts of corporation- corporation ceased to be contracting party with respondent, different corporation in group of companies continued to receive services from respondent- whether inaction by director in permitting this state of affairs a "refusal to act"- if so whether "inadvertent"- held this was positive conduct in continuing trading relationship with the respondent in same circumstances as previous arrangement without disclosing change to the structure of the companies receiving the services- director liable.
LEGISLATION CITED:	Australian Securities and Investments Commission Act 2001 (Cth), s 12BA(2) Fair Trading Act 1987, s 4 Trade Practices Act 1974 (Cth), s 51AC
CATEGORY:	Principal judgment
CASES CITED:	Airservices Australia v Ferrier [1996] HCA 54; 185 CLR 483 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 Deeley v Lloyds Bank Ltd [1912] AC 756 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Dillon v Parker (1818) 1 Swans 359; 36 ER 422 Dowling v Bowie [1952] HCA 63; 86 CLR 136 In re Montagu's Settlement Trusts [1987] 1 Ch 284 Kuru v State of NSW [2008] HCA 26; 236 CLR 1 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 Semrani v Manoun; Williams v Manoun [2001] NSWCA 337 Simson v Ingham (1823) B & C 65; 107 ER 307 Vines v Djordjevitch [1955] HCA 19; 91 CLR 512
PARTIES:	Paul Andrew Dwyer (Appellant) Craft Printing Pty Ltd (Respondent)
FILE NUMBER(S):	CA 40207/09
COUNSEL:	B A Coles QC and I Archibald (Appellant) P Greenwood SC and G George (Respondent)
SOLICITORS:	W Lawyers (Appellant) David R Purvis & Co (Respondent)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 1997/08
LOWER COURT JUDICIAL OFFICER:	Johnstone DCJ
LOWER COURT DATE OF DECISION:	7 April 2009
LOWER COURT MEDIUM NEUTRAL CITATION:	Craft Printing Pty Limited v Dwyer [2009] NSWDC 190

CA 40207/09
CAMPBELL JA
MACFARLAN JA
YOUNG JA


Tuesday 15 December 2009

Judgment

1 CAMPBELL JA: I have had the advantage of reading the reasons of Macfarlan JA and Young JA. I agree with the order proposed by Young JA, and with the reasons given by Macfarlan JA for upholding the primary judge’s finding of misleading and deceptive conduct.

2 Having considered the matter (cf Kuru v State of NSW [2008] HCA 26; (2008) 236 CLR 1 at 6 [12]) I do not think it is necessary for me to express any view concerning the question that Young JA identified as the Third Question.

3 MACFARLAN JA: Subject to the following, I agree with Young JA.

4 I give the following reasons for rejecting the appellant’s challenge to the primary judge’s finding of misleading and deceptive conduct.

5 In Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211, which was relied upon by the appellant and to which Young JA refers, Hodgson JA followed the passage quoted by Young JA in [47] with the following observations:

“59 Mr. Walker relied on the alternative submission that Peninsula’s misleading and deceptive conduct was the entry into the building contract without making the disclosure, and this was a “doing” and not a mere “refraining”. However, there was no finding by the referee that the positive conduct was itself misleading or deceptive, or any identification of how it was misleading and deceptive. In my opinion, if Abigroup wished to rely on the positive conduct as being misleading, it would have been necessary to allege and prove what representation was conveyed by the positive conduct. For example, Abigroup could have alleged and sought to prove that the positive conduct conveyed that, apart from the relationship between the two companies constituted by their common directors and overlapping ownership, there was nothing inhibiting East Asia from performing its duties as superintendent honestly and impartially. Abigroup gave no evidence as to what it understood to have been conveyed or represented by the positive conduct, but only gave evidence that if some disclosure had been made, it would have acted differently. That evidence, in my opinion, was appropriate to a case of “refraining”, but not to a case of “doing”.” (Judgment [59])

6 In my view, the present is a case in which the primary judge found, consistently with the pleadings and the evidence, that there was positive conduct, of the character referred to by Hodgson JA in the passage just quoted, which was “itself misleading or deceptive”.

7 The primary judge referred to authority for the proposition that there is no general duty of disclosure in commercial dealings and then said:

“It is clear, however, that silence may give rise to a positive misrepresentation, where concealment of a fact may cause the true representation of another fact to be misleading. Silence will be unacceptable if the surrounding circumstances give rise to a rational expectation that information of a certain kind will be volunteered. Thus, the quality and effect of the silence is to be judged by reference to the nature of the surrounding circumstances”. (Judgment [31]).

8 Additionally, he referred, with apparent approval, to a submission by counsel for the respondent that:

“Silence may, in combination with what is stated, give rise to a positive representation. That is, concealment of a fact may cause the true representation of another fact to be misleading, and may thus become a substantive misrepresentation”. (Judgment [32])

9 The judge then expressed his conclusion as follows:

“Having regard to the surrounding circumstances in the present matter, including the way in which the relationship between the parties was first set up, the unchanged course of dealing over a long period of time, their manifested mutual assent to the continuation of that relationship on the same or similar basis, there was a clear rational expectation of disclosure by the deendant of the true facts, and his failure to do so resulted in the plaintiff being misled and deceived”. (Judgment [33])

10 Particularly when it is read in the context of his Honour’s preceding reasoning, my view is that this is a finding that there was positive conduct which was misleading or deceptive conduct and which was constituted by the appellant’s continuation of the relationship with the respondent, and in particular his causing of orders to be continued to be placed in the same way as in the past, without the disclosure of the change to the structure of the appellant’s interests. The effect of his Honour’s finding was that this involved representations by the appellant that there was no relevant change of which the respondent ought reasonably to be apprised. His Honour thus did not regard the case as one of “mere silence”. As a result, reliance upon the “refusal to act” limb of the definition “conduct” in s 4(4) of the Fair Trading Act is unnecessary in order to support the judgment at first instance and the appellant’s argument that the respondent needed to show that there had been advertence by the appellant to the question of whether or not disclosure should be made does not arise.

11 YOUNG JA: This is an appeal from a decision of his Honour Judge Johnstone of the District Court in a commercial matter.

12 The respondent is a printing company. The appellant is a director of a number of entities which from time to time have traded as “Paul’s Warehouse”. One of those entities was a company, Comsta Pty Ltd (“Comsta”).

13 On 30 July 2003, Comsta applied to open a credit account with the respondent. That application was approved by the respondent on 31 July 2003.

14 In accordance with the respondent’s usual policy, a guarantee form was issued with the credit application and this was returned completed, dated 30 July 2003 so that Paul Dwyer guaranteed the account of Comsta for any amount that was due and payable to the respondent.

15 Comsta suffered a creditors’ voluntary winding up effective from 7 March 2007.

16 The appellant claimed that Comsta ceased trading with the respondent on 1 June 2005 and that, thereafter, trading continued between Paul’s Retail Pty Ltd as trustee for the Paul’s Warehouse Discretionary Trust.

17 The respondent claimed that, as at 7 March 2007, Comsta owed the respondent $204,930.01.

18 After 7 March 2007, there was continued trading between the appellant’s enterprise and the respondent and a further debt of $135,521.01 was incurred.

19 Paul’s Retail Pty Ltd went into administration in January 2008. On 21 April 2008 a deed of company arrangement (DOCA) was delivered under which creditors were to have their claims extinguished and given a dividend out of monies contributed by the appellant and others for that purpose.

20 Initially, the respondent claimed under the DOCA. However, it later changed tack and claimed against the appellant personally in the District Court under the guarantee in respect of the pre-liquidation debt and for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1987 in respect of the post liquidation debt.

21 The proceedings were heard by Judge Johnstone on 30-31 March 2009. His Honour gave judgment on 7 April 2009. His Honour found for the respondent in respect of both claims and gave judgment against Mr Dwyer for $416,592.39.

22 Mr Dwyer appeals to this court seeking that the respondent’s claim be dismissed.

23 The case before the primary judge centred on what were described as the First, Second and Third Questions viz:

24 The First Question: Did Comsta cease to be the contracting party for the pre-liquidation debts?

25 The Second Question: Did the appellant engage in misleading and deceptive or unconscionable conduct with respect to the post liquidation debts?

26 The Third Question: Were the debts extinguished by the respondent’s appropriation?

The First Question does not arise for consideration on this appeal.

27 There was no issue that the proper defendant was Mr Dwyer personally rather than one of the companies in the Paul’s Group.

28 The appeal was heard on 16 September 2009, Mr B A Coles QC and Mr I Archibald appearing for the appellant and Mr P Greenwood SC and Mr G George appearing for the respondent.

29 I will deal with the issues arising on the appeal by considering the Three Questions noted above.

The First Question

30 Although this question does not arise on the appeal, it is necessary briefly to set out some of the facts that arose in connection with it as they are germane to live issues in the appeal.

31 In May 2005, Mr Dwyer says that he decided to reorganise his various businesses so that all trading would be conducted by Paul’s Retail Pty Ltd as trustee for the Paul’s Warehouse Discretionary Trust.

32 Mr Dwyer says that as a consequence of this decision, he instructed his staff to send a circular letter to all his companies’ trading partners. A copy of this generic letter was produced in evidence. It bears date 30 May 2005. It is unnecessary to set out the terms of the letter in full. Essentially, it advised that all orders from the Paul’s Group would, from 1 June 2005, be made in the name of Paul’s Retail Pty Ltd as trustee for Paul’s Warehouse Discretionary Trust.

33 The circular letters were allegedly produced by a computer process called “Mail Merge” which was supposed to produce letters to each trading partner with identical text, though copies of each letter were not produced as evidence. Mr Dwyer believed that an employee named Tania put each letter into a window faced envelope and that they were all despatched. He assumed thereafter that debts would be charged to the Discretionary Trust.

34 There was evidence that the respondent did not receive any such letter. This was reinforced by evidence from the respondent’s financial executives that, had they received any such letter, they would have insisted on a new guarantee before allowing future credit (see his Honour’s judgment at [16].

35 The primary judge found as a fact that no such letter had been received by the respondent and that, even if it had been received there was never any agreement by the respondent to altered trading. No basis has been demonstrated for concluding that this was erroneous.

The Second Question

36 This is the core problem in the appeal and is raised by Appeal ground 1.

37 The primary judge noted at [27] that for this part of the case, the respondent relied on the fact that the appellant failed to inform the respondent of the winding up of Comsta with the intention that his businesses would continue to receive credit and that he continued to deal with the respondent knowing that the respondent would mistakenly think that its account was secured by the appellant’s guarantee.

38 The appellant argued both here and below that he made no misrepresentation. He was under no obligation to make any disclosure. In his belief that he had informed the respondent of the change of operation of his group’s accounts, the fact that Comsta had gone into liquidation was of no moment.

39 The primary judge accepted at [31] the proposition that silence may in certain circumstances constitute a substantive misrepresentation, that “concealment of a fact may cause the true representation of another fact to be misleading”.

40 Mr Coles submitted that the so-called conduct which the primary judge ruled was misleading and deceptive was not “conduct” as defined in the Fair Trading Act.

41 Section 4(4) of that Act provides that a reference to “conduct” in the Act “is a reference to an act or a refusal to act, including in either case an act that constitutes, or would but for the refusal constitute, making or giving effect to a provision of a contract or arrangement, arriving at or giving effect to a provision of an understanding, or requiring or entering into a covenant …”.

42 Further, the section provides in subs (4)(b)(i) that “a reference to refusing to do an act includes a reference to refraining (otherwise than inadvertently) from doing the act.”

43 A very similar definition occurs in s 12BA(2) of the Australian Securities and Investments Commission Act 2001 (Cth).

44 Mr Coles put that in each statute “refraining” is not within “conduct” unless the refraining is otherwise than inadvertent. In the present case, the primary judge made no finding that Mr Dwyer did not believe that his organisation had informed the respondent of the change of trading terms. All he found was that the respondent did not receive the letter.

45 Thus, it was put that the evidence did not establish anything more than inadvertent non disclosure of the winding up and that was not enough for the respondent to establish misleading and deceptive conduct.

46 The primary judge did not make any finding as to whether the non-disclosure was or was not inadvertent.

47 In Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211, Hodgson JA, with whom Mason P and Stein JA agreed, said at [58] that “the requirement … that a refraining be otherwise than inadvertent requires that there be actual advertence to the question of whether something should be done or not and the formation of an intention that it not be done.”

48 One gets to the same result if one follows through the reasoning in cases on exceptions and provisos in statute law such as Vines v Djordjevitch [1955] HCA 19; 91 CLR 512 at 519-520 and Dowling v Bowie [1952] HCA 63; 86 CLR136 at 139-140, which were much discussed during argument.

49 Thus, the appellant submitted, even though there is no direct finding on the issue, it is implicit in the primary judge’s approach that there was no advertence to the question as to whether the respondent should be notified of the cessation of Comsta. Thus, if the case be one of refraining, the refraining must be inadvertent.

50 Mr Greenwood said that all this is irrelevant as the case is not one just of a refusal to or refraining to do something, but of a combination of acts and refrainings which must be looked at as a whole.

51 It is to be noted that in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, Black CJ said:

“Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.”

52 The Chief Justice cited copious authority including the words of Samuels JA in this Court in Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 88 that silence “may simply be an element in all the circumstances which render the conduct in question misleading or deceptive.”

53 Again, there is high authority for the proposition that the court is to look at conduct generally not just at representations; see eg Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 at 623 per McHugh J and Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at 341 [102].

54 In Demagogue Pty Ltd v Ramensky, Gummow J said at [40] that:

“in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct. The expanded meaning given by s4(2) to ‘conduct’ should not distract attention from the fundamental issue in the case at hand.”

55 It is not necessary to enter into discussion as to the actual extent of the degree to which inadvertent refraining from disclosure (which is not of itself “‘conduct”’ as defined and so cannot, of itself, amount to misleading or deceptive conduct) can nonetheless be a core element of a totality of behaviour which can be held to be misleading and deceptive conduct. This is because as Finkelstein J said in Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 at 722-3, it is clear that:

“One circumstance where the failure to provide information will constitute misleading or deceptive conduct is where the circumstances of the case give rise to a reasonable expectation that if a relevant fact exists it will be disclosed.”

56 In Semrani v Manoun; Williams v Manoun [2001] NSWCA 337 at [62], Beazley JA with whom Mason P and Ipp AJA agreed said that in order for the silence in that case to be “actionable, [the defendant] must have had actual knowledge of a matter which he intentionally refrained from telling [the other party] in circumstances where there was either a duty to disclose or else where [the other party] had a reasonable expectation that such information would be disclosed to him.”

57 The primary judge held at [33] that in the circumstances there was a “rational expectation” that the disclosure would be made. Mr Coles criticised the fact that there was no specific finding as to what those circumstances might be. However, he put that there was in fact nothing in the circumstances which would give rise to an expectation.

58 Mr Coles submitted that there is no general duty of disclosure in commercial dealings. This is so, though it is also so that there is a duty to disclose in various sets of circumstances. Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475 per Gleeson CJ, Mr Coles submitted, supports both parts of this proposition.

59 That may be so, but Mr Greenwood put that even if that be the case, one needs to make disclosure of the fact that the company who is paying the bills reinforced by a director’s guarantee is no longer doing so and that continued trade will be on some other basis.

60 Mr Coles’ submissions focussed strongly on Mr Dwyer and what Mr Dwyer could reasonably expect. However, the question is not what Mr Dwyer could reasonably expect, but as noted in the passage quoted from Semrani in [56] above, what the other party (in this case, the respondent) would reasonably expect. That matter is to be judged objectively by what a reasonable person would expect in the relevant circumstances.

61 There is some suggestion in Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (see p 722) that even if the non-disclosure is part of the rolled up conduct sued upon the non-disclosure element must be intentional. If I have read the case right, I would respectfully disagree.

62 Mr Coles pointed out that the guarantee was given in 2005 and Comsta was wound up in 2007. He put that it was unrealistic to assume that in 2007, he still remembered what had occurred in 2005.

63 Mr Coles quoted from the judgment of Megarry VC in In re Montagu’s SettlementTrusts [1987] 1 Ch 264 at 284:

“If a person once has clear and distinct knowledge of some fact, is he to be treated as knowing that fact for the rest of his life, even after he has genuinely forgotten all about it? To me, such a question almost answers itself. I suppose that there may be some remarkable beings for whom once known is never forgotten; but apart from them, the generality of mankind probably forgets far more than is remembered … the question is whether at the time in question notice previously obtained continues to operate on the mind of the recipient.”

64 There was some evidence that Mr Dwyer was bored by emails and probably accounting matters were in the same plight. However, being bored by matters of administration is no excuse for being slack in administration. There was nothing to suggest that the terms of trade with a major supplier had somehow or other slipped out of Mr Dwyer’s mind and there was no evidence that it did, indeed what evidence there was suggested that Mr Dwyer did remember signing a guarantee but placed little significance on that fact as he never contemplated the activation of the guarantee.

65 The primary judge determined at [33] that, having regard to the surrounding circumstances, there was a clear “rational expectation” of disclosure by the appellant of the true facts and failure to do so resulted in the respondent being misled and deceived. He found at [35] the post liquidation debt as the damage caused by this misleading and deceptive conduct.

66 In my view, he was fully entitled to find that fact.

67 Because the primary judge found misleading and deceptive conduct, he did not spend much time on the alternate claim of unconscionable conduct pursuant to s 51AC of the Trade Practices Act: indeed his Honour merely announced his conclusion that the appellant was in breach (see [37]).

68 The notice of appeal complained of inadequacy of reasons. The appellant’s submissions put forward two other complaints: (1) that the transaction impugned was not between buyer and seller; and (2) that, on the facts, the appellant’s conduct could not be unconscionable. The first of these was later abandoned.

69 The submissions on the latter ground were that as Mr Dwyer, on the facts as he genuinely supposed them, did not act unfairly, he could not be said to be acting unconscionably.

70 Mr Greenwood’s riposte was that Mr Dwyer acted with a wanton disregard towards the respondent. He had information which any person of business would realise was vital to his or her trading partner and he deliberately withheld it. This is particularly so because the account with the respondent was seriously in default during most of the post liquidation period.

71 Mr Greenwood further commented that there was no argument put on the inadequacy of reasons point and that, in any event, when one reads the judgment as a whole, the reasons were sufficient.

72 In reply, Mr Coles put that there were no reasons as to how the primary judge came to the conclusion that there was unconscionable conduct in connection with the supply of goods to Comsta or Paul’s Retail.

73 The primary judge did note at [37] that it was in connection with the matters listed in s 51AC(4)(i) and (k) that he found liability, but he did not set out the constituent facts as to why he considered that the failure to disclose was “unreasonable” (ie unconscionable) in the light of Mr Dwyer’s assumptions.

74 I consider that these criticisms are valid. However, there is no purpose in remitting the matter in the light of my upholding the primary judge’s decision on misleading and deceptive conduct

The Third Question

75 In view of the decision on false and misleading conduct, it is strictly speaking unnecessary to canvass this matter. However, as it was argued, I should briefly deal with it. Discussion of this question requires me setting out more background facts.

76 The evidence of Mr Webster, who was the Credit Controller for the respondent at the relevant time, was that when the respondent received monies from the Paul’s Group, which were paid electronically, the monies were applied to the oldest outstanding invoices. Thus, though 2007, $129,930.01 was received and credited in that way.

77 Mr Webster said that in September 2007, he received a cheque for $20,000 from Paul’s Retail. This aroused his suspicions. His actions thereafter led to the making of a company search and he discovered on 31 October 2007 that Comsta was in liquidation.

78 It is clear that, after this discovery, Mr Webster sought first to claim in the liquidation of Comsta and later proved in the DOCA of Paul’s Retail.

79 Although entries were made in the respondent’s books, there is no evidence that the fact that such entries were made was communicated to the appellant before the present proceedings were commenced.

80 The appellant said that the appropriations made by Mr Webster had the effect that the pre-liquidation debt has been paid in full.

81 In Deeley v Lloyds Bank Ltd [1912] AC 756 at 771, the House of Lords summarised the authorities that there is a principle that if a creditor appropriates payments from a debtor that the debtor has not designated for a particular purpose there is a presumption of fact, not a rule of law, that when the creditor makes the entry in its books it has appropriated the payment accordingly.

82 The appellant submitted that this principle directly governs the present case.

83 The primary judge acknowledged at [40] that the facts were there on which the defence could be based. He noted the submission from the appellant that the effect was that the pre-liquidation debt was extinguished by the appropriation and that neither error in making the appropriation nor subsequent events could change the position.

84 The primary judge rejected that submission saying that “the evidence … as to the intention of the parties [was] overwhelming”. He held at [41]-[42] that the appropriation was an error caused by the appellant’s misrepresentations and he could not be heard to complain once the true position emerged.

85 The primary judge expressed his conclusion at [42]:

“I am satisfied that any appropriation of payments made by the plaintiff was induced by the defendant’s false and misleading conduct and by his misrepresentation as to the true debtor. In those circumstances any presumption said to arise by reason of that appropriation is rebutted, it being the common intention of the parties, objectively viewed, that such a presumption should not apply in the circumstances that obtained when the appropriation was made.”

86 The appellant challenged these conclusions. First, he said that there was no evidence to support the view that, had Mr Webster been aware of the liquidation of Comsta he would have made the appropriations differently. Secondly, he said that as a matter of law once a payment has been appropriated the creditor is bound by its election and that election is not voidable because of error.

87 Mr Greenwood’s riposte was that the principle only applies where there is a running account and there ceased to be such an account when Comsta went into liquidation. As to the first challenge, Mr Greenwood said that what Mr Webster may have done after he knew about Comsta’s liquidation is quite irrelevant. He did not address the second argument directly, but the inference from what he did say is that, as the rule depends on intention, an intention formed on the basis of error or misrepresentation is of little worth.

88 Despite the fact that both sides and the primary judge have embraced it, in my view the presumption referred to in Deeley’s case has nothing to do with the present case. The basic rule is that a debtor has the option of electing to which debt its payment is to be placed. If the debtor fails to make the election, the creditor may so elect. If neither have done so, then, if, and only if, there is a running account, the presumption is that the oldest debt is satisfied first.

89 The fourth sentence of the previous paragraph noted the principle summarised in Deeley. It does not apply here for two reasons: (1) there was no running account after the liquidation of Comsta (see the definition of running account in Airservices Australia v Ferrier [1996] HCA 54; 185 CLR 483 at 504-5); and (2) the creditor has in fact made an appropriation.

90 Indeed, there seems to be some other principles that may also become relevant. One is that where a partnership ceases and a new partnership succeeds it, and the new partnership pays debts as if there had been no change, the debts of the old partnership are taken to be paid first: Simson v Ingham (1823) 2 B & C 65 at 72; 107 ER 307 at 310. However, no-one has referred us to this principle and I merely mention it to show that it has not passed me by and deal with the arguments presented to us.

91 I note that the parties and the primary judge considered that an appropriation had been made. I will proceed on that basis, though it would seem to me that there was room for argument that as the entries in the respondent’s books were not communicated before the commencement of the litigation, there had been no appropriation.

92 The rules as to appropriation of payments are, really, merely an outworking of the principles of common law election that a person who is faced with two inconsistent courses must, in due course, choose one, and once that person has communicated his or her choice to the other party, the choice is irreversible.

93 Because communication of the choice is essential in election, entries in a party’s account books without communication do not amount to an election to appropriate: Simson v Ingham (at page previously cited).

94 I agree that Mr Webster’s actions after he made any appropriation are irrelevant. Thus, I need turn my mind only to whether an appropriation is voidable for misrepresentation or error and, if that is the law, whether as a mater of fact the alleged misrepresentation had that effect in the instant case.

95 Mr Coles referred to Simson’s case as authority for the proposition that once a creditor has exercised an election to appropriate that election is unchangeable. That is clearly so, but the real question is whether a supposed election made because of misrepresentation can stand.

96 There seems to be no authority on the effect of misrepresentation and the like on appropriation. However, on ordinary election, it is clear, as Plumer MR said in Dillon v Parker (1818) 1 Swans 359 at 403; 36 ER 422 at 434, that election only becomes operational where the person said to have made the election has made his or her choice with full knowledge and was cognisant of their rights and genuinely intended to make the choice.

97 It follows that a person cannot successfully plead that the other party has elected to treat payments in a particular way when the purported election was made under circumstances where the elector was misled by misrepresentation or misleading or deceptive conduct and so was not a genuine choice.

98 Thus, even of the basis of the way in which this case was argued, in my view the primary judge came to the correct conclusion.

99 It follows that the appeal must be dismissed with costs.

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