Heckenberg & Anor v Delaforce

[2001] HCATrans 198

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S156 of 2000

B e t w e e n -

MARLENE JOYCE HECKENBERG and CASPER LEON HECKENBERG

Applicants

and

ERIC DELAFORCE

Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 22 JUNE 2001 AT 11.43 AM

Copyright in the High Court of Australia

MR P. LeG. BRERETON, SC:   May it please the Court, I appear for the applicants. (instructed by Budd & Piper).

MR J. C. CAMPBELL, QC:  May it please the Court, I appear with my learned friend, MR M. S. HENRY, for the respondent.  (instructed by Priest McCarron)

GLEESON CJ:   Yes, Mr Brereton.

MR BRERETON:   If it please the Court, this application is put on the dual bases that questions of principle concerning the law of conveyancing and restitution arise, and that manifest therein in the Court of Appeal as a consequence of the justice of the case warrants a grant of special leave.

Shorn of the irrelevancies, the essential facts are simply that Mr Delaforce paid the Heckenbergs $100,000 as the agreed price for what turned out to be a 20 per cent interest in an unregistered and unregisterable quarry lease, and 20 per cent equity in a company called Port Macquarie Concrete.  Although Mr Delaforce never received a formal assurance of a one-fifth interest in the quarry lease, nor ever became registered, as the Court of Appeal found, at least, as a shareholder of one-fifth of the shares in Port Macquarie Concrete, he did receive one-fifth of the profits of the quarry in the interim.  There was unchallenged evidence that Mr Heckenberg had executed a return of allotment of shares to him, such as would have made him a one-fifth shareholder, and the return itself was in evidence.  The Heckenbergs remained willing to deliver formal assurances of a one-fifth interest in the quarry lease if called upon to do so.  They had never been called upon to do so; have never been given notice to perform or notice to complete, and have never refused to do so.

HAYNE J:   Now, all of the principles that apply to resolve this are well established, are they not?  What is in issue is the complexity of the facts to which those well-established principles are to be applied?

MR BRERETON:   That is undoubtedly correct in part, your Honour, but there are, in our submission, two matters of principle which do arise in the application of principle to those facts, and to them I will momentarily come.

Mr Delaforce issued a statement of claim for a variety of relief.  In his initial and, indeed, in his second, the first amended statement of claim, he claimed specific performance as well as damages for breach of contract as well as return of the $100,000.  Neither the first nor the second versions of the statement of claim articulated a restitutionary based claim based on total failure of consideration.

Ultimately, five major issues went to trial, and Mr Delaforce failed on four of them.  He succeeded in a restitutionary claim articulated in the third edition of the statement of claim based on total failure of consideration.

It is fundamental and uncontroversial that in a restitutionary claim based on total failure of consideration under an agreement, a plaintiff must plead and prove that the transaction has not become what the academics describe as “non-effective” or, in the vernacular, that the contract has gone off, and secondly, that the plaintiff has not received any part of the benefit bargained for in the contract.

The defendants’ case denied both of those aspects and had three main elements.  The first was that the respondent plaintiff had never become entitled to terminate.  The second was that he had never validly and effectively terminated even if entitled to do so, and the third was that he had received benefits under the contract such as to preclude a finding of total failure of consideration.

In respect to the first and third of those points, issues of principle arise.  In respect of the second, the Court of Appeal, by a majority, was, in our submission, in manifest error.

As to the first of those points that the plaintiff never became entitled to terminate, the trail judge did not address that argument.  In the Court of Appeal Mr Justice Meagher upheld the argument that he never became entitled to terminate.  The President, on the other hand, with whom Justice Beazley concurred, held that it was open to the trial judge to find that termination had ended the contract  That was not really addressed in the first judgment of the Court of Appeal, but it is addressed in the supplementary judgment, which is included in our friend’s bundle of documents at page 12 of that bundle.

HAYNE J:   What is the point of principle that emerges?

MR BRERETON:   The point of principle that emerges in this respect is what I call the conveyancing point.  One of the bases upon which it was said that contract had gone off was that the defendants had not conveyed a formal assurance of the interest in the land.

HAYNE J:   The question is was a further assurance needed, and if it was, whose obligation was it to tender it?

MR BRERETON:   The question was, was it a precondition to the obligation to execute and deliver an assurance that the transferee tender an assurance first.  Now, if I can turn then directly to that point of principle, the authorities referred to in written argument, in our submission, make it clear that the tender of a draft assurance by the transferee is a precondition to an obligation on the part of the transferor to execute and deliver it.

Our friends argue that E. Bown v Florence in the Supreme Court of South Australia illustrates that that is not so.  With respect, properly understood, E. Bown v Florence deals with whether it is necessary in a suit in equity for specific performance by a purchaser for the purchaser first to have tendered an assurance before suing for specific performance.  That is quite a different question as to whether there has been such a failure on the part of the vendor in executing and delivering an assurance to justify termination.

That issue about the obligation to tender it transferred before the defendant into default for failure to deliver it was argued before the trial judge in written argument and determined by him adversely to the Heckenbergs on the basis that evidence of conveyancing practice was needed.  In the Court of Appeal Mr Justice Meagher upheld the Heckenbergs’ position, and held that it was a matter of law and not a matter of conveyancing practice.  The President held that it was a complete answer to the point that it was apparently common ground before the trial judge that the contract had been terminated.  In any event, his Honour described it as an arcane and technical conveyancing point, and adopted the trial judge’s reasons about lack of evidence.

The essence of our learned friend’s argument on this issue in this Court is itself a pleading point, and the respondent, apparently, contends that we should not now be permitted to agitate that point because of the way the case was conducted.  But it is not as if this issue was not decided below.  It was argued before the trial judge without objection.  It was decided by the trial judge.  It was argued in the Court of Appeal without objection.  Mr Justice Meagher decided it, although the other members of that court were able to avoid deciding it.

The issue arose essentially late in the trial in this way:  six months after judgment had been reserved, the trial judge asked the parties for further assistance as to the precise nature of the vendor’s obligation under the contract.  Then for the first time the plaintiff articulated the suggestion that a formal assurance was required and, in response to that, the defendant articulated the argument that if that was the matter on which the plaintiff relied, then a precondition to that was a tender of an assurance.  That having been argued, the trial judge decided it and it was then litigated without objection except from two members of the Bench in the Court of Appeal.

It was always for the respondent, the plaintiff, to plead and prove an entitlement to terminate; not for the defendant in the absence of such an allegation to raise by way of defence an absence of entitlement to terminate.  In those circumstances, this issue, in our submission, has always remained properly open and it has always been taken and argued at every level of the case.  The authorities are, in our submission, clearly one way on the point and for the reasons I have already advanced E. Bown, referred by our friends, is not to the contrary.  So that is the first point of principle.

The second major element of the applicants’ case was that even if there was an entitlement to terminate, that entitlement was never validly and effectively exercised.  The trial judge held that the plaintiff terminated by instituting the proceedings.  Mr Justice Meagher did not have to decide that issue having held there was no entitlement to terminate anyway.  The majority in the Court of Appeal did not in their principal judgment really address this issue, although Mr Justice Mason acknowledged that the argument had been advanced.  But in the supplementary judgment on the application for reconsideration, the majority held that the initiating process was not an election to affirm the contract so as to preclude a decision. 

Now, that becomes quite important, and could I take your Honours to what the majority said in our learned friend’s bundle, first of all paragraph 9 which appears at page 5 of the bundle - the pagination is in the top right‑hand corner, in which Mr Justice Mason noted that the “versions of the Statement of Claim” initially “included . . . specific performance cheek by jowl with” other claims, and that “It was open for the case” for the plaintiff “to be conducted” that way, and his Honour returns to the same point at paragraph 27, page 11.  But what his Honour was there holding was, therefore, that the plaintiff did not elect to affirm the contract so as to keep it on foot by that initiating process.  The basis of that holding was that election did not arise until later.  If that be so, then the initiating process could not have operated as an election to determine to put an end to the contract, any more than it could have operated as an election to affirm it.

HAYNE J:   So what is the point of principle that is not unique and specific to the curious facts and curious way in which this case has developed?

MR BRERETON:   On this second issue I have to accept this is not a point of principle.  This is what I put in the category of manifest error in the Court of Appeal warranting a grant of special leave on the “justice of the individual case” basis.

Now, for the reasons that I have just articulated, in my submission, it was manifestly wrong for the Court of Appeal to uphold the conclusion of the trial judge that by initiating proceedings, the contract had been terminated and gone off, and for that reason the second part of the defendants’ arguments should have succeeded.

The third argument - and this brings me tot he second issue of principle - was whether there had been such a receipt of benefits under the contract as to preclude a finding of total failure of consideration.  The trial judge held that the profits received by the plaintiff in the interim were referrable to his rights under the contract in question but added that did not preclude a finding of total failure.  Mr Justice Meagher held that they were referable and that they did amount to receipt of practically everything to which the plaintiff was entitled under contract and precluded a finding of total failure.  The majority held, contrary to the trial judge and in the absence of any notice of contention, that they were not referable to the contract in question but to some different arrangement. 

The essential point of principle that arises on this point is best illustrated by reference to the judgment of the trial judge at page 44 to 45 of the application book.  His Honours held that the case was like Rowland v Divall, at line 42 on page 44, and distinguishable from Yeoman Credit v Apps at 45, around about line 15.  But his Honour held that the point of distinction, at line 20, was that “the owner of the car” in Yeoman Credit v Apps “was in fundamental breach, the hirer decided to retain and continued to use the car.”  The essential difference between Rowland v Divall and Yoeman Credit v Apps is that in Rowland v Divall the lessor of the car had no title to the car.  In Yeoman Credit v Apps the lessor had title but it was in an appalling condition such as to amount to fundamental breach.

In those circumstances, in our submission, the true distinction between the two cases is that referred to by Justice Mason, quoted at page 45, line 45:

Where the buyer is entitled under the contract to good title and lawful possession but received only unlawful possession, he or she does not receive any part of what he or she bargained for.

In our submission, the true question is whether what Mr Delaforce received under the contract was the equivalent of lawful possession or unlawful possession.  As he was receiving profits, which those who held the quarry lease were entitled to distribute to him, he was receiving the equitable equivalent of lawful possession, that is, his share of the profits.  And if that be the true distinction between Rowland v Divall and that line of cases and Yeoman Credit v Apps and its line of cases, then the Heckenbergs were entitled to succeed on that issue.  So the point of principle is whether the true distinction between those to lines of cases is lawful possession versus unlawful possession.  If that be the true point of distinction, then the Heckenbergs were entitled to succeed.  Those are my submission.

GLEESON CJ:   Thank you, Mr Brereton.  Yes, Mr Campbell.

MR CAMPBELL:   Your Honours, the way the case was run at the trial precludes this Court being in a position to decide this conveyancing point, which my learned friend puts forward.  It is a matter which was not agitated in the evidence at the trial.  The case went to hearing ‑ ‑ ‑

HAYNE J:   What do you mean by that?

MR CAMPBELL:   What I mean by that is ‑ ‑ ‑

HAYNE J:   It is not suggested that there had been some assurance tendered?

MR CAMPBELL:   There was certainly no assurance tendered; however, the case went to trial on the basis of issues for trial which are set out in full in the judgment of Justice Simos at page 14 in the application book.  The issues for trial include, line 26, number 7:

Alternatively, as the defendants did not –

and then there is a list of six different things -

has the consideration for the plaintiff’s payment of $100,000 wholly failed?

There was no issue for trial tendered about whether there was an entitlement to terminate.  There was no issue for trial tendered about whether, in fact, there had been a termination.  As the Court of Appeal has held in its supplementary reasons in paragraph 22, Justice Mason said:

the evidence filed in support of the present application confirms that the juridical basis for termination of the first deed was barely explored at trial.

That while on this application to reopen before the Court of Appeal there was some evidence of submissions that had been put to the trial judge, which Justice Mason sets out at page 8 of the supplementary reasons.  His Honour goes on to say over the page that:

The trial submissions thus recorded elide several different points.

His Honour goes on to conclude in paragraph 28:

it was open to the primary judge to conclude that termination was effective to bring the first deed to and, thereby opening the way to recovery of the purchase price if the plaintiff established total failure of consideration.

The trial proceeded on more of an assumption so far as the giving of evidence was concerned, that the contract had, indeed, gone off in some fashion or another by the time the hearing came on.

HAYNE J:   Can you tell me, then, what is the significance of this agreed statement of issues.  Did that limit the battleground of the parties totally?

MR CAMPBELL:   As we understand it, yes.  That was put forward as agreed issues for trial, and while there would have been some matters, which I suppose the parties could have consensually agreed to depart from in the course of the trial, there was, we would submit, in this particular case no clear raising of the issue of whether the conveyance was required to be tendered in a way which precluded the availability of a restitution or a remedy.  We say that the Court of Appeal was right in the way in which they said that this was not a matter which was overlooked by themselves in their own judgment, and the manner of conduct of the trial was such that the issue had not been raised.

GLEESON CJ:   What was the basis on which Justice Meagher held that at the time of the institution of proceedings your client was not entitled to terminate?

MR CAMPBELL:   It appears that the basis of his Honour’s finding was that there had been a failure to tender a conveyance.  That is something that is referred to by his Honour in paragraph 84 of his judgment, which is at page 93 in the application book.  His Honour was saying there had been no breach by the Heckenbergs.

GLEESON CJ:   Well, that was an additional ground.  That was an additional reason why he said your client was not entitled to terminate.

MR CAMPBELL:   Yes.

GLEESON CJ:   The primary reason being that your client had received some benefit.

MR CAMPBELL:   Yes.  So far as that is concerned, we say that Justice Meagher was incorrect in the construction which he placed on the agreement.  The relevant clause of the agreement is to be found at page 5 in the application book.  It is set out in the judgment of Justice Simos there.  This is what is referred to as the default clause.  The vendors are the Heckenbergs:

If for any reason the vendors are unable to transfer to the proposed new company, the assets of Port MacQuarie Concrete and its right, title an interest in the quarry, presently the property of Heckenberg Holdings Pty Ltd, then the vendor will transfer to the said Eric Delaforce twenty percent (20%) of its interest in the quarry the property of Heckenberg Holdings Pty Ltd, and twenty percent (20%) of the shares in the said Port Macquarie Concrete.

Now, Justice Meagher said what had been received, namely, some payments of royalty were what amounted in practical terms to 20 per cent of its interest in the quarry, and that, we say, is a finding which is manifestly incorrect.  A 20 per cent interest in the quarry would be something which would confer – would be a deed which conferred a right of property in the quarry.

HAYNE J:   What does that mean?

MR CAMPBELL:   What that would mean would be that it would confer a right as tenant-in-common of a 20 per cent interest of the same nature of the interest that ‑ ‑ ‑

HAYNE J:   But there is the point, is it not; 20 per cent of what?  What is the property in the quarry?

MR CAMPBELL:   The property in the quarry is the right which Heckenberg Holdings had from the owner of the quarry under a deed to lease the quarry and use it for quarrying purposes for 20 years.  Their right under that deed was one which would entitle them to go there and dig out rocks.  The benefit which was received by Mr Delaforce was 20 per cent of royalties deriving from some other company, which he declined to be a member of, carrying out quarrying operations there.  That is a completely different entity to having a 20 per cent interest in the quarry itself.  So we say that the factual conclusion that was arrived out below that Mr Delaforce did not receive any part of the benefit that he was entitled to receive under the deed is not only a factual question of no general interest, but is manifestly correct.

Also another question my learned friend raised was the nature of the correct test to apply concerning restitution.  There we say it has been clearly decided in this Court but the real test have you received any part of the benefits under the contract, and the question of whether there is lawful or unlawful possession is not a relevant question.  One needs to always ask, “Lawful or unlawful possession of what?” to even try and make such a test run, and it has to be all the benefit required to be conferred under the contract, we would submit.

The fundamental point that we make, your Honours, is that this is essentially a case which involves construction of the badly drafted provision

in the default provision that I have taken your Honours to; that that has been construed by the courts in a way which says what it was that Mr Delaforce was to received, and their factual findings that he has received none of it are correct.  Under those circumstances and when the question of the entitlement to terminate was not one which was raised squarely at the trial or litigated, the application should be refused.

GLEESON CJ:   Yes, Mr Brereton.

MR BRERETON:   Your Honour, the Chief Justice asked my learned friend upon what basis Mr Justice Meagher had held there was not an entitlement to terminate.  The answer is that there were four bases, his Honour having upheld each of the Heckenbergs’ contentions.  At application book page 92, paragraph 81, his Honour held that Delaforce had received the relevant benefit in respect to the quarry lease under the contract.

At page 93, paragraph 84, his Honour held that they could not put the Heckenbergs in breach because they had not tendered a conveyance.  At paragraph 85 his Honour held that the Heckenbergs had always been willing to perform the contract, and at paragraph 86 his Honour held that Mr Delaforce had failed to prove that he had not been made a shareholder in Port Macquarie Concrete.  So his Honour upheld each of those contentions separately.  The defendant needed to succeed only on one of them to succeed overall.

HAYNE J:   Now, do those conclusions square with the agreed statement of issues at trial, and what is the significance, if any, to be attached to that agreed statement of issues?

MR BRERETON:   They all address paragraph 7 of the agreed statement of issues, and they all go to the point that, notwithstanding, that, for example, the transfer of the shares is not completed and the transfer of the interest of the quarry is not completed, the consideration had not totally failed because, first, benefits had been received under the contract, which deny a total failure of consideration; and, secondly, because the whole question of whether consideration failed was tied up with the question of whether there was a non-effective transaction.  Now, I accept that on its face paragraph 7 does not say “was there a non-effective transaction”, but it does say “has the consideration wholly failed”.

HAYNE J:   “For reasons (a) to” whatever.

MR BRERETON:   Yes, your Honour, and the answer to that is, “No, it has not wholly failed because, (a)” - the answers to the questions are not set out obviously enough, but theoretically the answer is, one, he received some of the benefits; two, you cannot have a total failure of consideration when the contract has not gone off.

Now, the agreed statement of issues does not completely limit the battleground at trial, to return to your Honour Justice Hayne’s question.  It does not replace the pleadings.  In any event for the reasons I have just articulated, the question of non-effective transaction and termination was encompassed by paragraph 7, but, more importantly than that, the issue was plainly argued and decided by the trial judge.  First of all, the Court of Appeal supplementary reasons show that to be so.  At page 8, paragraph 22, they set out the submissions made at trial:

Before the plaintiff can proceed for restitution, he must first bring the contract to an end . . .Not only has he not done so, but he has accepted benefits under the contract. 

Now, these were notes of submission; not a transcript, and that established clearly that the point was taken at trial.

At the top of the following page a further submission:

Time was not essential.  No assignment was ever tendered.  No notice was ever given.

That makes it totally clear that the point was taken in oral submissions, then subsequently in supplementary written submissions.

HAYNE J:   If you were given leave, Mr Brereton, would not we be spending half a day arguing about what was done at trial and not done at trial?  Not very productive.

MR BRERETON:   In my submission, we would not be spending much time on that, your Honour, because the judgment of the Court of Appeal makes clear that the point was taken at trial.

Ultimately, the trial judge decided the case, including on that point, and that appears from application book page 28, line 50:

the plaintiff was not required to tender to the defendants a form of instrument - - -

and page 47, lines 13 to 36, where the trial judge deals explicitly with the argument.  In those circumstances it is just not open to say this was not run at trial.  It plainly was.  Those are my submissions.

GLEESON CJ:   The outcome of this case turns upon the application of settled general principles to the complex and rather unusual circumstances of the particular case and to the manner in which the proceedings were conducted at first instance and the issues for trial formulated.  The case does not raise an issue of general principle appropriate to a grant of special leave to appeal and the Court is not persuaded that there has been a miscarriage of justice.  In those circumstances, the application for special leave is refused with costs.

AT 12.17 PM THE MATTER WAS CONCLUDED