Goldburg v Shell Oil Co of Australia Ltd
[1990] FCA 494
•11 SEPTEMBER 1990
Re: GEOFFREY WAYNE GOLDBURG
And: THE SHELL OIL COMPANY OF AUSTRALIA LIMITED
No. V G379 of 1989
FED No. 494
Damages - Contract
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney(1), Davies(2) and Ryan(1) JJ.
CATCHWORDS
Damages - breach of contract - onus of proof on plaintiff to establish facts upon which appropriate measure of damages can be based - onus on defendant to prove plaintiff's failure to mitigate - no damages for future loss of profits where situation cannot be prophesied had defendant not breached contract - effect on quantification of damages of contractual term entitling one party to terminate contract on happening of certain events.
Contract - whether valid contract concluded in absence of agreed starting date.
HEARING
MELBOURNE
#DATE 11:9:1990
Counsel for the appellants: Mr R. Dean
Solicitor for the appellants: Mr Peter Cahill
Counsel for the respondent: Mr J. Middleton
Solicitors for the respondent: Arthur Robinson Hedderwicks
JUDGE1
Geoffrey Wayne Goldburg and Deidre Goldburg have appealed against an award of damages made in a judgment pronounced by a single judge of this Court on 17 August 1989, in which it was found that the respondent, Shell Oil Company of Australia Limited ("Shell"), had been in breach of contract, had contravened s.52 of the Trade Practices Act 1974 and had been negligent in relation to an agreement under which the firstnamed appellant, Mr Goldburg, in partnership with a Mr Murray, was to conduct as licensee of Shell a business of a commercial road terminal on premises at 542 Footscray Road. The business was that of selling a full range of petroleum products and other requirements for trucks and other commercial vehicles. At the time of this agreement, the business was being carried on by Chenoa Pty Ltd and the respondent was seeking in a proceeding in this court to terminate that company's occupation of the premises.
The learned trial judge assessed the damages suffered by the first appellant as a result of a breach of contract in the sum of $14,350. After receiving further submissions he ruled that the second appellant, Mrs Goldburg, was entitled to an award of nominal damages fixed at $5.
In its cross-appeal the respondent has contended that the learned trial judge erred in concluding that a contract was made between it and the appellants.
At the trial the appellants intimated their consent to judgment being entered in favour of the respondent upon its cross-claim against them, as guarantors of the liabilities of Alimnews Pty Ltd which carried on the business of a petrol station at Malvern, to which reference will later be made. Judgment had been entered in the Supreme Court of Victoria against that company for $93,268.09, with $640 costs.
In their appeal against the assessment of damages, the appellants have contended that the learned trial judge misdirected himself by holding that the appellants bore an onus of proving that Mr Goldburg had mitigated the damages by using his available capital and his own labour effectively to derive income from some enterprise or business activity other than that of the Footscray terminal.
His Honour, having reviewed the evidence in relation to the formation of a contract between the parties, said -
"My conclusion is that the conduct of the four men constituted, at the time when Mr. Richardson, on one side, and Messieurs Murray and Goldburg, on the other side, declared at the January lunch that Messieurs Murray and Goldburg would take over the operation of the Footscray Road premises, a contract between the respondent and those two persons of which the terms were expressed partly in exhibit A3 and partly in oral statements the three persons at the lunch had made at and before the lunch. There were in my opinion terms of the contract thus constituted in the words of clauses 23 and 24 of exhibit A3. The question as to the amounts to be supplied in the text of the Eleventh Schedule was, I conclude, left by the parties for later agreement, as being a question of insufficient importance to justify deferral of the making of the contract. Mr. Richardson's conduct - his proffer of exhibit A3 as the form of a contract in writing recording the substance of the terms of the written contract into which the operator of the premises would be required by the respondent to enter and his discussions with Messieurs Murray and Goldburg about the amounts disclosed by exhibit A1 and his silence concerning the matters with which clauses 23 and 25 of that form deal and his declaration that Messieurs Murray and Goldburg would take over the premises - manifests in my opinion the respondent's willingness to make a contract without agreement about the amounts to be inserted in the Eleventh Schedule. The conduct of Messieurs Murray and Goldburg - their discussions with Mr. Richardson about the amounts disclosed by exhibit A1 and their silence concerning the matters with which clauses 23 and 25 deal and their declarations that they would take over the premises - manifests in my opinion the same willingness to make a contract without agreement about those amounts, which all the circumstances suggest would be, and would be taken by Richardson to be, of relatively minor importance."
His Honour found that the respondent repudiated its obligations under the contract made at the January 1986 lunch, by conduct which occurred in June 1987 and "Messieurs Murray and Goldburg thereupon terminated the contract for that anticipatory breach". However, his Honour declined to award to the appellants any damages for that breach measured in the first manner which he considered in these terms:
"The evidence justified the inference that the parties to the agreement expected that the conduct of the business at Footscray Road would be the only substantial employment in which Messieurs Murray and Goldburg would be engaged. There was no evidence, other than the evidence that Mr. Murray had approached the respondent in response to the respondent's advertisement for persons interested in becoming petrol distributors, as to the opportunities available to Mr. Goldburg in 1987 or thereafter to enter into another agreement with another petrol distributor, of the same kind as that which he had made with the respondent. In my opinion the onus on the applicant Mr. Goldburg of proving the damage flowing from the respondent's breach of the agreement extends to proof of any difference between profit which would have been derived if the agreement had been performed and profit able to be derived because Mr. Goldburg has been freed by the respondent's breach to devote his capital and his labour elsewhere in the same field of economic activity during the period in which the agreement would have been performed. Notwithstanding the engagement of Messieurs Murray and Goldburg as agents to sell the respondent's 'Motor Fuels', from which activity only a small proportion of the anticipated profit could, according to exhibit A1, be expected, the agreement should in my opinion be regarded, not as analogous to a contract of employment, but as analogous to a contract for the provision of services by means of capital, or capital equipment, and labour. Upon breach by an employer of a contract of service the plaintiff employee bears the onus of proving only the remuneration lost which he would have earned if there had not been that breach, and the onus lies upon the employer of proving what substitute employment the plaintiff employee ought reasonably to have obtained and what remuneration he would thereby have earned in mitigation of his loss. (See Greig and Davis : The Law of Contract, pp 1391-2). But for breach of a contract for the provision of capital and the purchase of goods for re-sale and the provision of services I apprehend that the measure of damages caused to the party contracting to buy the goods and to provide the services and capital is the difference between the profit he would have gained by performing the contract and the profit he could gain in the same field of activity during the period of the contract by the use of the resources which would have been committed to the performance of the contract. The onus is on the party claiming damages so to be measured to prove both elements of the measure. (See McGregor On Damages (15th ed.) para. 42; Greig and Davis, op cit pp 1388-1393.) I do not doubt that I may take judicial notice of the existence of a market in this State for the provision of such services as were the subject of this agreement. The Petroleum Retail Selling Sites Act 1981
(Vic.), the Petroleum Retail Marketing Sites Act 1980 (C'wlth) and the Petroleum Retail Marketing Franchise Act 1980 (C'wlth) recognised the existence of such a market. The absence of evidence as to what profit Mr. Goldburg could reasonably have derived in that market by the commitment of his capital, $125,000, and his time and energies precludes recovery of damages so measured."
In our view there is a clear conceptual difference which the learned primary judge understood and applied between the measure of damages and a plaintiff's duty to mitigate damages properly measured. See e.g. Liesbosch Dredger v S.S. Edison (1933) AC 449 per Lord Wright at 461. The onus remains on the plaintiff to prove, according to the appropriate measure, that he has suffered loss. An example of a plaintiff's failure to discharge that onus is provided by Kargotich v Mustica (1973) WAR 167. If the defendant contends that the loss proved by the plaintiff could have been minimized or avoided altogether by the taking of some step which the plaintiff could reasonably have taken but did not take, the onus is on the defendant to make out that contention on the evidence.
However, we doubt, with respect, the correctness of the proposition which the learned primary judge derived from Greig and Davis: The Law of Contract pp 1391-2 that:
"Upon breach by an employer of a contract of service the plaintiff employee bears the onus of proving only the remuneration lost which he would have earned if there had not been that breach, and the onus lies upon the employer of proving what substitute employment the plaintiff employee ought reasonably to have obtained and what remuneration he would thereby have earned in mitigation of his loss."
Of the cases cited by Greig and Davis in the passage to which his Honour referred Baker v The Denkera Ashanti Mining Corporation (Ltd) (1903) 20 TLR 37 was confined to the question of whether damages for wrongful dismissal could extend beyond the agreed salary for two months which was the period of notice upon which the employer could lawfully terminate the contact of employment. In Beckham v Drake (1849) 2 HLC 579; 9 ER 1213 Erle J. (as he then was) at 606-607 said nothing about an onus of proof, but observed only that:
"The measure of damages for the breach of promise now in question is obtained by considering what is the usual rate of wages for the employment here contracted for, and what time would be lost before a similar employment could be obtained. The law considers that employment in any ordinary branch of industry can be obtained by a person competent for the place, and that the usual rate of wages for such employment can be proved, and that when a promise for continuing employment is broken by the master, it is the duty of the servant to use diligence to find another employment; Elderton v. Emmens (4 Com Bench Rep 498, n.; 6 Com Bench Rep 160; 17 Law J., C.P. 307). Upon these principles, in the present case, if the place of foreman in a type-foundry could not probably be again obtained without delay, and if the wages in the contract broken were higher than usual, the damages should be such as to indemnify for the loss of wages during that delay, and for the loss of the excess of the wages contracted for above the usual rate;"
Likewise, Latham C.J. in Automatic Fire Sprinklers Pty. Ltd. v Watson (1946) 72 CLR 435 was concerned to emphasise the undoubted existence of a duty on the employee to mitigate his damages, but did not consider the onus of proof as this fuller extract from his judgment, at 452, reveals:
"It is only in an exceptional case, where the payment of money to the servant does not depend upon his doing work, that the servant can recover remuneration without doing work. He cannot remain idle, even though he truly alleges readiness and willingness to do the work, and claim wages or salary as if he had done the work. The rule that a dismissed servant is bound to mitigate his damages by obtaining other suitable employment, if available, is inconsistent with the view that he is entitled to do nothing and to sue for his full wages as if he had earned them. The duty to mitigate damages has never been held to depend upon whether the servant had accepted a breach or a repudiation of a contract as entitling him to regard the contract as at an end and upon his exercising this right."
See also per Starke J. at 462 who expressed the same proposition in terms of the measure of damages saying:
"The measure of damages in an action for wrongful dismissal is not however the remuneration agreed upon but the actual loss sustained including compensation for the period of service up to dismissal (Goodman v Pocock (1850) 15 QB 576; Lucy v The Commonwealth (1923) 33 CLR 229 at 253)."
Other, early, authorities support the view that proof of loss according to the proper measure of damages is an integral part of the cause of action for wrongful dismissal. Thus in Goodman v Pocock (1850) 15 QB 576 at 583; 117 ER 577 at 580 Erle J. said:
"I think that the servant cannot wait until the expiration of the period for which he was hired and then sue for his whole wages on the ground of a constructive service after dismissal. I think the true measure of damages is the loss sustained at the time of the dismissal. The servant, after dismissal, may and ought to make the best of his time; and he may have an opportunity of turning it to advantage."
See also Emmens v Elderton (1853) 4 HLC 624; 10 ER 606 and Hochster v De La Tour (1853) 2 El and Bl 678 at 691; 118 ER 922 at 927. In Hartland v General Exchange Bank (1866) 14 LT 863 the defendant did not specifically raise the issue of whether the plaintiff could obtain other employment in mitigation of his loss, but Willes J. in charging the jury observed that the question of damages was one of some difficulty and continued:
"The jury ought only to take the salary into account not the commission. Next they were not to give the whole salary for the two years and eight months, 2800 pounds, nor anything like that amount. They must reduce the amount by the probabilities of the plaintiff having other employment to fill up his time during that time. No doubt the position of manager of a bank was not to be got every day, and that they would consider. Still, they would also consider what might reasonably be deemed the value of his time. Then came the question of the winding-up, and certainly the stoppage of the concern might fairly be taken into consideration in assessing damages."
An explanation, which suggests itself to us, of the apparent contradiction revealed by the authorities is that most claims for damages for wrongful dismissal are now brought after the expiration of the period of notice to which the employee claims to be entitled. If he has not obtained alternative employment in that period, an inference, rebuttable by the defendant, can be drawn that no suitable employment was available. Thus in Harding v Harding (1928) 29 SR (NSW) 96, the first of the cases cited by Greig and Davis at p 1392 of their work, Campbell J. observed at 106:
"I recognise that generally the onus is on the defendant to show that the dismissed servant might have obtained equivalent or at least suitable employment within the period of notice, but where the dismissed servant himself proves that he sat by for the full period of the omitted notice, and occupied himself unremuneratively on some concern of his own, without making any enquiry or effort about other employment, and the evidence supplies no reason for thinking that such employment could not be obtained, or that it would be even difficult to obtain, and the jury, after proper direction, then gives full wages for the full period of the required notice, I think the verdict would be open to the inference that the jury must either have misapprehended their duty or have acted on a wrong principle."
Our supposition is also borne out by the second of the cases cited by Greig and Davis at p 1392. That is Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR(NSW) 421 where Jordan C.J. indicated, at 429, that:
"In the case of wrongful dismissal, the measure of damage is the amount of wages or salary which the employee has been prevented from earning . . . plus the value of any other benefits to which he is entitled by virtue of the contract of employment and of which he has been deprived by its breach, with a deduction of the value to him of the time placed at his disposal by his dismissal - i.e., what he has earned, or might have earned if he could by due diligence have obtained similar suitable employment elsewhere during the period;"
The learned Chief Justice then continued, at 430:
"There is no difficulty in the present case in arriving at the proper basis. It is simply a question of calculating the amount of his salary, at the rate of 400 pounds per annum, for the proper period of notice, since there is no evidence suggesting that anything additional was receivable in respect of percentage on the company's net profits or commission on the sale of debentures, and then making a proper deduction in respect of other similar employment which the plaintiff might have obtained. It is true that, upon the latter point, there was no evidence before the jury; but inasmuch as the onus is upon the defendant to establish facts going to mitigation of damages: Roper v. Johnson (LR, 8 CP 167 at 181-2); James Finlay and Co. v. Kwik (1928) 2 KB 604); Tooth v. Kitto (30 WN 86); Criss v. Alexander (45 WN 187), and this principle applies to cases of wrongful dismissal: Harding v. Harding (29 SR 96 at 106), the only consequence was that the jury were not called upon to make any deduction."
The cases, other than Harding v Harding, cited in support of that proposition did not involve actions for wrongful dismissal. James Finlay and Co v N.V. Kwik Hoo Tong Handel Mattschappij (1928) 2 KB 604 concerned a claim by plaintiff purchasers of goods under a c.i.f. contract as to which Wright J. (as he then was) said, at 614, in a passage to which we have added emphasis:
" . . . where the proper measure of damages has been prima facie established, it is for 'the defendant to show circumstances which would entitle him to a mitigation': Roper v. Johnson
(1873) LR 8 CP 167, at 181."
In Tooth v Kitto 30 WN(NSW) 86 the appellant complained that the trial judge should have directed the jury that, in assessing damages for breach of a sharefarming agreement, they should have taken into consideration that the plaintiff had wilfully neglected to obtain another share farm for the balance of the term and should, accordingly, have deducted some amount from the damages which they would otherwise have been disposed to have awarded. It was held by the Court of Appeal that the plaintiff was not bound to show that he had endeavoured to procure another farm and that the jury could not speculate as to how far his position might have improved if he had done so. Criss v Alexander 45 W.N.(N.S.W.) 187 concerned an action by a purchaser for damages for breach of contract for the sale of goods.
The last of the cases cited in the relevant passage at p 1392 from Greig and Davis (supra) in Yetton v Eastwoods Froy Ltd (1967) 1 WLR 104 where this passage occurs in the judgment of Blain J. at 115:
"The basic principle of damages is restitutio in integrum: the plaintiff should have what he has lost through the defendants' fault. But, of course, if a plaintiff in fact, in the case of a contract of service, earns something elsewhere through being at liberty so to do, then he has lost that much less as the consequence of the default. And if he can minimise his loss by a reasonable course of conduct, he should do so, though the onus is on the defaulting defendant to show that it could be or could have been done and is not being and has not been done. Thus, the opportunity to reduce damages by finding reasonable (I repeat reasonable) alternative employment should be taken and, indeed, sought, whether such employment is by the same defaulting employer or by someone else; in either case the test being whether it is reasonable to refuse it or not in the circumstances of each case."
The excursus on which we have just engaged to justify our reservations about the gloss which has been made on the principle governing the proof of damage in actions for wrongful dismissal reinforces, we consider, the correctness of the approach to the general measure of damages which was taken at first instance in the present case. The learned trial judge declined to infer from the evidence before him that there was no alternative petroleum products distributorship in which Mr Goldburg could reasonably have deployed his capital, time and energies after he accepted Shell's breach of the contract into which his Honour found it had entered. We can detect no error in that treatment of what was essentially a question of fact.
Attention was given later in the reasons for judgment to another measure of damages, the application of which resulted in the award of $14,350 to which we have already referred.
The learned trial judge prefaced his examination of that different measure of damages by noting that the agreement which he found to have been concluded between Shell on the one hand and Mr Goldburg and Mr Murray as jointly constituting "the Operator" on the other:
"expresses many and detailed requirements concerning the manner in which 'the Business' is to be conducted. There is no express requirement that the Operator himself attend the premises. (The agreement is so drafted as to be apt in application to an Operator which is a corporation aggregate.) Sub-clause 10(2) provides:
'(2) A person previously approved by Shell shall give substantial personal attention at the Premises to the conduct of the Business.'
His Honour then made these findings of fact relevant to the application of the second measure of damages:
"By the end of May 1986 the proceeding in this court between Chenoa Pty. Ltd. and the respondent was thought likely to continue for another nine months, Mr. Richardson (an employee of the respondent) informed Mr. Goldburg, unless a settlement of the proceeding supervened. Mr. Goldburg accepted a proposal by Mr. Richardson that he conduct a 'self-serve' petrol station in Malvern under an agreement with the respondent, and that he leave that business when he and Mr. Murray should commence business at the Footscray Road premises. In the result the agreement, which was similar in form to the form of agreement of which exhibit A3 consists, was made between the respondent and Alimnews Pty. Ltd., a company of which the applicants were the beneficial owners. The term for which that company was licensed to carry on business at the Malvern premises ran from 1 August 1986 until 31 July 1987. At about the time when the applicants began to carry on the business Mr. Richardson left the respondent's employment. One of the respondent's employees, Peter George Short, who had regular contact with the applicants while they were conducting the Malvern business, reported unfavourably to his superiors on Mr. Goldburg's capacity to conduct a business of the kind which was to be carried on at the Footscray Road premises. In June 1987 the applicants were informed by the respondent that no renewal of the agreement concerning the Malvern premises would be offered to Alimnews Pty. Ltd., and both Mr. Murray and Mr. Goldburg were informed that they would not be permitted to take over the Footscray Road premises. The respondent pleaded in its defence that, if any contract of the kind alleged had been made in respect of those latter premises, the contract was 'conditional upon Shell being satisfied with the ability of the Applicants to conduct an outlet satisfactorily'. There was no evidence to suggest the existence of any such a condition. No other justification for the repudiation of the contract was suggested, or appeared by evidence The applicants did not leave Bendigo or their respective employments at Bendigo until they agreed to undertake the conduct of the Malvern 'self-serve' petrol station. The cost of moving their furniture and personal possessions to Melbourne was $850. That sum was claimed as damages caused by the respondent's breach of the contract.
The residence the applicants first acquired for their accommodation in Melbourne was purchased in September 1986 and retained for about two years. The interest paid during those two years on the loan necessary to enable them to pay for the house was claimed as damages caused by the respondent's breach of the contract.
During the year ended 30th June 1986 Mr. Goldburg earned in his employment about $20,000 and Mrs. Goldburg earned in her employment about $10,800. During the following year, when the applicants were working at the Malvern 'self-serve' premises, their combined income was about $13,000. During the year ended 30 June 1988 the applicants were conducting a sandwich bar business, which was purchased by them at the beginning and sold at the end of that financial year at a profit to them of $14,000. Their combined income during that year was $25,000. Their gain for the year was therefore $39,000. At the time when the contract was made Mr. Richardson was aware that Mr. Goldburg was in clerical employment in Bendigo and that he resided there with his wife. The contract provided that Messieurs Murray and Goldburg commence to operate the business at the Footscray Road premises shortly after the occupancy of Chenoa Pty. Ltd. ceased. Richardson contemplated, as I find, that Mr. Goldburg's daily attendance at the premises, and therefore his residence in or near Melbourne, was a practical necessity. Mr. Richardson knew that the cessation of Chenoa Pty. Ltd.'s occupancy could occur at any time in or before September 1989, which was the time when, even if Chenoa Pty. Ltd. were wholly successful in the litigation that had just commenced, its right to occupy the premises would terminate. He knew also that for some indeterminate period, until the litigation concluded in a final judgment or was compromised by the parties, prediction of the time at which the occupancy of Chenoa Pty. Ltd. would cease might prove unreliable."
His Honour then analysed the relevant legal principles and reached a conclusion that the case should be regarded as one where it was not possible for the appellants to establish any loss of profits. The appellants' second contention is that the conclusion so reached is infected by error. It is therefore appropriate to set out in full the reasons given by the learned trial judge for reaching that conclusion:
"But there is another question, whether expense wasted in consequence of breach of contract, but not incurred in the performance of a contractual obligation, is recoverable as damages for breach of contract. If one party's breach of contract has made it impossible to prove what the other party would have gained by performing it, wasted expense incurred in preparing for performance is recoverable : McRae v. Commonwealth Disposals Commission (1951) 84 CLR 377; Anglia Television Ltd. v. Reed (1972) 1 QB 60; C and P Haulage v. Middleton (1983) 1 WLR 1461. It might be argued that in this case the respondent's breach did not render impossible a reasonable assessment of the profit Messieurs Murray and Goldburg would have derived from the performance of the contract, so as to enable the difference to be assessed between that profit and the profit which they or one of them might have derived from another similar contract if they or one of them had sought one upon the respondent's repudiation in June 1987. But one provision of the repudiated contract made such an assessment quite speculative : sub-clause 23(2). That sub-clause has been set out above. It enabled the respondent to cut short the agreed term of nine years by giving three months' notice if the respondent had as its purpose in giving notice -
(a) reconstructing, replacing or making substantial alterations or additions to the Premises,
(b) changing the basis upon which the Premises are occupied or the nature of the use of the Premises; or
(c) closing the Premises.'
Estimation of the chance that the respondent would during the nine year term have conceived and given effect, by invoking sub-clause 23(2), to such a purpose is very difficult. This case is, in my opinion, 'a case where it would not be possible to establish any loss of profits because the situation could not be prophesied had the defendant complied with his contractual obligations' : C and P Haulage v. Middleton (1983) 1 WLR at 1465. This case is to be contrasted with the C. and P. Haulage Case. In that case the defendant's licence to occupy premises was, in breach of the contract, terminated before the expiration of the agreed term of the licence. The agreement provided that the term was six months, but that the licensor might, if it chose, renew the term for a further six months. Because the defendant's right to occupy the premises would have come to an end at the expiration of the period of six months during which the breach occurred, notwithstanding that the licensor might have renewed the licence, the defendant's counterclaim for damages for the breach had to be assessed on the assumption that he would have had to leave the premises at the expiration of that period. In this case, however, a notice given under sub-clause 23(2) has no effect unless the existence of a purpose of a description contained therein can be established. Prediction whether during the nine year term such a purpose would have come into existence is not possible, at least by the applicants. When in those circumstances damages for breach of the contract are claimed by reference to expenditure and loss incurred in enabling the plaintiff to perform the contract and in reliance on the contract, the onus of proving that the expenditure and loss would not have been recouped out of the gains which the plaintiff would have derived from performance of the contract lies on the defendant. (See Greig and Davis, op cit pp 1356-7.) No such proof was offered in this case. Accordingly expenditure and loss incurred by Mr. Goldburg, in reliance on the contract, which is not too remote is in my opinion recoverable as damages for breach of the contract."
In the first part of that passage, the learned trial judge was dealing with the second element of the first measure of damages which we have already discussed. As we have noted, his Honour had first concluded that there was no evidence which would support a finding that the appellants could have derived any level of income from an alternative distributorship or similar business after Shell's repudiation of its agreement, or that no such alternative distributorship had been available to them. Notwithstanding that conclusion, his Honour went on to indicate that the second element of the measure had not been made out. Like the winding up of the defendant bank in Hartland v General Exchange Bank (supra) the contingency that Shell might legitimately have invoked sub-clause 23(2) at some time during the nine year term accepted by Mr Murray and Mr Goldburg was a matter to be taken into account in assessing their damages. If the evidence, or lack of it, made prediction of their likely period of occupation impossible, the premise from which an estimate of their loss of profits would have proceeded had not been established.
Accordingly, in our opinion, his Honour correctly held that the burden lay upon the appellants of proving their loss of the chance of making profits, by contrasting the position which would have obtained had the contract not been repudiated with that which obtained when it was. He correctly analysed the terms of the contract which he had found, and took into consideration the terms of sub-clause 23(2) in deciding that the present case was one "where it would not be possible to establish any loss of profits because the situation could not be prophesied had the defendant complied with his contractual obligations".
We see no error in his Honour's reliance upon sub-clause 23(2) or in the conclusion which he reached. The appeal should be dismissed, with costs.
In its cross-appeal the respondent submitted that no contract came into existence between the parties, because there were matters of vital importance to them which were not the subject of agreement.
The trial extended, we were told, over six or seven days, with a considerable volume of evidence which the learned trial Judge analysed carefully. In the passage from his reasons set out earlier, his Honour found that Mr Richardson, acting for the respondent, had manifested its willingness to make a contract with the appellants, without agreement being reached on all matters. His Honour was satisfied that the conduct of Mr Murray and Mr Goldburg manifested "the same willingness to make a contract" without agreement about the amounts to be inserted in the Eleventh Schedule to exhibit A3, dealing with compensation, which amounts, he said, "all the circumstances suggest would be, and would be taken by Richardson to be, of relatively minor importance".
In our opinion it was open to his Honour, without error of law, to arrive at these conclusions. We would dismiss the cross appeal with costs.
JUDGE2
The appeal from his Honour's judgment questions the damages awarded, which are said to be inadequate. The cross-appeal challenges his Honour's finding on liability.
The trial Judge held that Shell Oil Company of Australia Ltd ("Shell") had repudiated a contract between itself on the one hand and Mr Goldburg and a Mr W.A. Murray on the other, made in January 1986, whereby it was agreed that Mr Murray and Mr Goldburg should take over as lessees a service station owned by Shell in Footscray Road, West Melbourne and that they should do so as soon as Shell had obtained occupation from the then occupant, Chenoa Pty Limited ("Chenoa").
In late 1985, Shell was attempting to obtain possession from Chenoa of the station, which retailed petroleum products mainly to truck operators and which included a small restaurant. In October 1985, an employee of Shell, Mr T.W. Richardson, invited Mr Murray to take over the business at the premises when possession was obtained. At one of the meetings held with Mr Murray in late 1985, three documents were given to him, the first containing a "prophetic statement of the income and expenditure of the business" and a statement of the capital required for stock, working capital and debtors, the second setting out "Working Procedure Guidelines" and the third being a blank form of "Commercial Road Transport Outlet Agreement".
Mr Murray was interested in the proposition and suggested to Mr Goldburg, who had had no previous experience in this type of business and who was at that time living in the Bendigo area, that, subject to Shell's agreement, they should together take on the business at the Footscray Road premises. Mr Murray informed Mr Goldburg that each would have to contribute $125,000 for use as capital and he gave to Mr Goldburg copies of the above documents.
Subsequently, during the first week of January 1986, Mr Richardson, Mr Murray and Mr Goldburg had lunch at the Hilton Hotel in Melbourne. Mr Goldburg's business and employment experience were discussed as were the expected income and certain other aspects of the business. The trial Judge found:-
"Mr Richardson told Messieurs Goldburg and Murray during the lunch that he was prepared to accept them as the operators, in partnership, of the business at the Footscray Road premises, and they expressed their agreement to taking over the operation of that business as soon as Healy should leave. Richardson said that Healy's departure might be only a matter of days in the future. Mr Goldburg told Richardson that he had available the required capital, $125,000. Mr Richardson had told Mr Murray that the period of occupancy of the Footscray Road premises which was being offered by the respondent was nine years."
There was evidence from Mr Murray, inter alia:-
"And what happened in that meeting?---We discussed the partnership and explained to Tom (Richardson) that we felt that the operation would run more efficiently, given the fact that it was going to be expanded and we had a lot of ideas for the operation. It would take the pressure off - basically I could act as a marketing type role and Geoffrey (Goldburg) looking after the operational side, increase the business quite substantially with two people working on it rather than one and it was to get Tom's approval also of Geoffrey as a person and also the concept of the partnership.
. . .
MR DEAN: Were the conversations with respect to the partnership taking over the outlet?---Yes. And effectively, what were those conversations? What were the substance of those conversations?---Well, instead of me taking over myself, the offer was then made to the partnership to take over the operations at Footscray Road ---
And was that accepted by yourself and Mr Goldburg?---That is correct, yes. That was accepted, yes.
And when was the outlet to be taken over and the lease entered into?---It was again going to be very very quickly. They were talking basically of weeks. January was going - early February was the indicative time. It was going to be December mind you, at the end of November but it was going to be very very quickly. They were negotiating with Healy on the terms of him getting out and ---
What state of readiness were you asked? Were you asked to be in a state of readiness?---We were asked to be very much in a state of readiness - two weeks ---
What sort of readiness does that mean?---Well, basically to move in as quickly as possible and I again explained the problem I had with resigning but it was agreed that Geoffrey could go in on his own initially and I could follow after about two to three weeks when I became available from CRA and it was to the extent that I was due to go overseas on business in the second half of January and I asked Tom whether I should cancel that trip or resign right away so that I could be totally in residence - well, ready to move in - and we decided that I would go overseas and Geoffrey would basically keep in touch with Tom during that period when I was away because I had to go away for three weeks."
Mr Goldburg gave this evidence, inter alia:-
"After the initial discussions between the two of you, did Mr Richardson give any indication as to your suitability?---Well he - he said he would be happy to - that we were in a partnership together to take over Footscray Road.
And once that had occurred and there were further discussions about the nature of the venture, what was the substance of those discussions?---Mainly returns on our - in Footscray Road, how much we would expect to get out of it, what - what our capital input would be, what the debtors listing was, what equipment - what equipment was there. Basically relating to what we would need to go into it.
After Mr Richardson had said he was happy for you to go as a partnership, did you accept that offer?---Yes, I did. . . .
Yes, and you knew that the written agreement was not going to be handed to your for signature until Healy was out?---I never - I presume, yes.
Well you never spoke to Richardson and said: well, look you can get Healy out as soon as you can but in the meantime let us sign the contract. You never said that, did you?---I never said that, no.
No. Because you knew that getting Healy out was fundamental. That was the first step, was not it?---It was always accepted that he would be out, yes.
That is not what my question was: I said you always knew that getting Healy out was fundamental. That was the first step?--- That was the first step, yes, I suppose so."
Mr Richardson gave this evidence:-
"As you said to my learned friend, once you determined Mr Goldburg's background you assumed that the partnership was going to be run on the basis that Mr Murray would effectively be the overall manager and Mr Goldburg would run the day-to-day operations?---Yes, that was my idea of the operation. And you found Mr Goldburg acceptable?---Yes. . . .
That was the purpose of it, was it not, to determine whether or not they were available or OK for Footscray Road, or Mr Goldburg? You had already decided on Mr Murray and you agreed that Mr Goldburg was acceptable and so you said, 'As far as I am concerned that is fine; you can have Footscray Road?'---I am not sure exactly what I said.
Well you gave an indication to that effect, I suggest? That they were the people who would go into Footscray Road?---Yes."
At that stage, January 1986, there was nothing in writing between the parties. Some details, many of a minor nature, still had to be arranged before the blank Commercial Road Transport Outlet Agreement could have been completed. It had not been decided whether Mr Murray and Mr Goldburg personally would carry on the business or whether a company or other like structure would be the lessee. The details of the stock and so on and of the debtors to be taken over had not been settled. Indeed the terms on which Chenoa would leave the premises had not been negotiated. No date for occupation had been fixed.
The trial Judge nevertheless concluded that there was a binding contract between the parties that Shell would lease the Footscray Road station to Messrs Murray and Goldburg when possession was obtained from Chenoa. His Honour found:-
"My conclusion is that the conduct of the . . . . men constituted, at the time Mr Richardson, on one side, and Messieurs Murray and Goldburg, on the other side, declared at the January lunch that Messieurs Murray and Goldburg would take over the operation of the Footscray Road premises, a contract between the respondent and those two persons of which the terms expressed partly in exhibit A3 and partly in oral statements the three persons at the lunch had made at and before the lunch. There were in my opinion terms of the contract thus constituted in the words of clauses 23 and 24 of exhibit A3. The question as to the amounts to be supplied in the text of the Eleventh Schedule was, I conclude, left by the parties for later agreement, as being a question of insufficient importance to justify deferral of the making of the contract. Mr Richardson's conduct - his proffer of exhibit A3 as the form of a contract in writing recording the substance of the terms of the written contract into which the operator of the premises would be required by the respondent to enter and his discussions with Messieurs Murray and Goldburg about the amounts disclosed by exhibit A1 and his silence concerning the matters with which clauses 23 and 25 of that form deal and his declaration that Messieurs Murray and Goldburg would take over the premises - manifests in my opinion the respondent's willingness to make a contract without agreement about the amounts to be inserted in the Eleventh Schedule. The conduct of Messieurs Murray and Goldburg - their discussions with Mr Richardson about the amounts disclosed by exhibit A1 and their silence concerning the matters with which clauses 23 and 25 deal and their declarations that they would take over the premises - manifests in my opinion the same willingness to make a contract without agreement about those amounts, which all the circumstances suggest would be, and would be taken by Richardson to be, of relatively minor importance."
His Honour did not express a view as to when the lease was to start save by referring on two occasions to the statement "as soon as Healy should leave" and by reciting that Mr Dean, counsel for Mr and Mrs Goldburg, submitted that:-
"The period for which the agreement was to endure was expressly stated to be nine years, and it might be implied that the period would commence when Messieurs Murray and Goldburg commenced to conduct the business."
Mr Dean had also submitted that his Honour should find that Shell contracted to give a lease of the premises by 31 March 1986. However, his Honour rejected that term and the evidence fully justifies his Honour's conclusion.
Notwithstanding his Honour's careful consideration of the issue, I respectfully disagree that the parties bound themselves contractually to give and take a lease for nine years commencing whenever Chenoa should leave the premises, however far into the future that period might be. At the time of the hearing, Chenoa was still in occupation of the Footscray Road premises. Evidence was given by Mr A.F. Healy that Chenoa's lease would not expire until September 1990. I cannot accept that, in January 1986, Shell on the one hand and Murray and Goldburg on the other, orally agreed to give and take a nine year lease whenever the premises become available, even should that be on the expiration of the lease. That would not have been a businesslike arrangement and no such future time was the subject of the discussions. Mr Murray, Mr Goldburg and Mr Richardson discussed an event expected to happen early in 1986, at a time proximate to their conversations. Indeed, his Honour held that Mr Richardson had misled Mr Murray and Mr Goldburg as to the imminence of the departure of Chenoa.
It is relevant to look briefly at what happened after the lunch in January 1986. Chenoa refused to leave the premises and claimed that it was a franchisee and protected under the Petroleum Retail Marketing Franchise Act 1980 (Cth). Negotiations between Shell and Chenoa for the surrender of the premises were unsuccessful. Legal proceedings were instituted against Chenoa. The legal proceedings were not concluded at an early date, and, at the time of his Honour's judgment, Chenoa was still in occupation and considered itself entitled to remain for the duration of its lease.
In May 1986, Mr Goldburg was offered, as an interim measure, a self-service petrol station owned by Shell. Mr Goldburg and Mrs Goldburg formed a company, Alimnews Pty Limited, which took the agency at the self-service station for one year. It seems that the conduct of the station was not successful, at least from Shell's point of view. Shell declined to renew the agency at the expiration of the year. The judgment on the counter-claim was for the substantial sum due to Shell on the conclusion of that operation.
At the beginning of June 1987, an officer of Shell, Mr P.G. Short, by letter and orally, informed Mr Goldburg that, not only would the lease of the self-service station not be extended, but no offer would be made to Mr Goldburg and Mr Murray of the Footscray Road station should it become available. It was those communications which were held by the trial judge to amount to a repudiation of the contract between Shell on the one hand and Mr Goldburg and Mr Murray on the other and which entitled Mr Goldburg and Mrs Goldburg to damages.
In my opinion, at the beginning of June 1987, there was no contract on foot between Shell, Mr Murray and Mr Goldburg with respect to the Footscray Road station, there was merely an arrangement or understanding in principle.
Whatever may have been the situation when the parties were holding discussions in their anticipation that the Footscray Road station would become available in the very near future, a substantial period had passed. Possession had not been obtained at a time proximate to the discussions which took place in January 1986, or within a reasonable time thereafter. Seventeen months had elapsed and it was unknown when Shell would obtain possession of the Footscray Road station or what the circumstances might then be.
The absence of an agreed starting day is a most significant feature. But there are other features which point to the same conclusion. It was not known whether Mr Murray and Mr Goldburg would take over any part of the assets of the business of Chenoa, particularly stock, debtors and the like. No party knew on what terms Chenoa would leave the premises. So the subject matter of the transaction was not defined. No written agreement had been executed, though the execution of a written agreement was in contemplation. Several terms, mainly of a minor nature, had not been discussed. Financial terms had been discussed and agreed but, presumably, they were terms appropriate and usual in early 1986, not terms appropriate for a lease whenever it might commence.
The importance of a commencing date was emphasised in Harvey v. Pratt (1965) 1 WLR 1025 in which it was held by Lord Denning M.R., Davies and Russell L.JJ. that a contract for the grant of a lease was not concluded in the circumstance that a commencing date had not been defined. At p 1027, Lord Denning said:-
"This is an agreement for a lease to start at some future time. The time has never been specified or agreed. There was, therefore, no concluded contract."
At p 1027, Davies L.J. said:-
"In the case of an agreement for a lease, if the length of the term and the commencement of the term are not defined, then the subject of the agreement or contract is uncertain. Therefore, there is no agreement."
At p 1027-8, Russell L.J. said:-
"The truth is that the parties must themselves define the subject matter of their bargain, and a term of years can only be defined by indicating the commencement and the termination."
The present case is dissimilar in that a commencing date was discussed, namely "as soon as Healy should leave". However, that date had ceased to be proximate to the time of the January 1986 discussion and the commencement of the lease was so indefinite that, in my opinion, the parties should not be held to have been contractually bound in June 1987 to give and take a lease. His Honour held:
"Once they (Murray and Goldburg) were told, shortly after 6 March (1986), that the outcome of the court proceedings was uncertain and would not in any event be known for several months, they ceased to place reliance on the respondent's predictions."
In my opinion, once the date of commencement was known by all parties to be uncertain, and this was known in March 1986, there remained between them only an arrangement or understanding in principle which was not contractually binding.
In the circumstances, I would allow the cross-appeal on the issue of liability.
As to the appeal, it must necessarily fail as, in my opinion, the claim for damages was not well-founded. I would merely add that, had I taken a contrary view on the question of liability, I would not have allowed the appeal on the question of damages. His Honour considered that the damages claimed were too speculative and assessed damages on the footing of the loss incurred by Mr and Mrs Goldburg in reliance upon the contract. See McRae v. Commonwealth Disposals Commission (1951) 84 CLR 377 and Amann Aviation Pty Ltd v. The Commonwealth of Australia (1990) 92 ALR 601. Counsel for Mr and Mrs Goldburg had called little evidence before his Honour as to the damages which Mr and Mrs Goldburg suffered by the repudiation. Counsel relied principally upon the financial details which had been made available to Mr Murray in late 1985 and which were discussed at the meeting in the Hilton Hotel in January 1986. These figures emanated from Shell. Their application to an uncertain time in the future, which might not have commenced to run until September 1990, in a competitive and changing industry, was speculative to say the least. There was evidence that Mr A.F. Healy, who with his father operated Chenoa's business, had in mind to open a competing station in Footscray Road and possibly to take over many of the account customers which Chenoa had at the subject station. And there was the uncertainty as to what might have been the financial and personal circumstances of Mr Goldburg and Mr Murray when and if the service station became available. In the absence of any probable scenario for the future, the trial Judge was left to speculate as to the facts on which he should award damages. For these reasons, which differ in some respects from those of the trial Judge, I agree with his Honour's assessment of damages.
I would disallow the appeal with costs. I would allow the cross-appeal with costs. I would set aside paragraphs 1, 2, 3 and 5 of his Honour's orders and would substitute therefor an order that the application to the Court be dismissed with costs.
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