Intertransport International Private Ltd v Donaldson
[2005] VSCA 303
•15 December 2005
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 3728 of 2004
| INTERTRANSPORT INTERNATIONAL PRIVATE LTD. and INTERTRANSPORT INTERNATIONAL LTD. | |
| Appellants | |
| v. | |
| BRUCE DONALDSON AND LIQUID BULK SOLUTIONS PTY. LTD. | Respondents |
---
JUDGES: | CHERNOV, EAMES and ASHLEY, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 7 November 2005 | |
DATE OF JUDGMENT: | 15 December 2005 | |
MEDIUM NEUTRAL CITATION: | [2005] VSCA 303 | |
---
Contract – Restitution – Total failure of consideration – Whether mere breach of contract can constitute total failure of consideration – Whether mere non-delivery of goods can give rise to right of re-payment of purchase price.
Courts – Duty to give reasons for decision – Whether reasons so inadequate as to vitiate decision – Whether reasons for decision are necessarily implicit in judgment – Failure to call relevant witnesses without explanation – Whether adverse inference can be drawn from failure to call evidence.
---
| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr. C.R. Northrop | Middletons |
| For the Respondents | Mr. D.A. Klempfner | Coulter Roache |
CHERNOV, J.A.:
This is an appeal against the decision of a judge of the County Court made on 6 May 2004 dismissing the appellants’ claim against the respondents for the recovery of money paid by them for the manufacture and delivery of specialised heat pads and other equipment that, in the event, the respondents never supplied. The total sum claimed by the appellants in the proceeding was US$72,701.20. This sum was reduced on appeal to $US65,971.20, as I shall explain later. Briefly, the amount claimed in the proceeding below was made up as follows:
(a)US$5,971.20, being the price of six of 25 heat pads which were paid for by the appellants on 28 December 2000, but which have not been delivered;
(b)US$6,730, being the sum paid by the appellants in February 2001 to have the respondents manufacture and deliver 500 promotional model containers, which have not been delivered; and
(c)US$60,000, being the sum paid by the appellants on or about 23 October 2001 for the manufacture and delivery of 50 heat pads, which have not been delivered.
It was common ground that the amounts in question were paid by the appellants to the respondents on or about the dates referred to and that the respondents have not delivered the units to the appellants. The respondents’ principal case below was that they were not required to produce or deliver the ordered heat pads until the appellants made a request for them and that no such demand was made before 6 August 2002 when the proceeding was filed. The respondents asserted that it was unsurprising that the appellants did not request delivery of the 56 undelivered heat pads, notwithstanding that they had ordered and paid for them, given that, in about June 2002, they sold the business in respect of which the heat pads were required. Thus, said the respondents, the appellants ceased to have any need for the heat pads and sought to recover the monies paid in relation to them notwithstanding that the respondents were at all times willing and able to supply them. As to the promotional model containers, the respondents contended below that they were manufactured by them, but remained in storage at the appellants’ explicit request.
Circumstances leading to proceeding
Before dealing with the respective arguments of Mr Northrop, for the appellants, in support of the grounds of appeal, it is necessary to explain more fully the events that led to the proceeding. At all relevant times, the appellants carried on a business as freight forwarders in South East Asia as part of the Wilhelmsen shipping organisation. One method of transporting large volumes of a liquid commodity by ship was to place large, nylon fabric bags, which were coated with a synthetic rubber designed to suit different cargo, inside standard shipping containers and fill them with the liquid cargo. Such bags were called flexi-tanks. Some of the liquids would solidify during transportation, however, and, as a result, they could not be readily unloaded upon arrival at their destination port. To solve this problem, specially designed heating pads were placed in strategic positions around the flexi-tank and, at discharge, were used to heat the product and thereby transform it into liquid so that it could be unloaded. Such heat pads consisted of a length of hose sandwiched between two sheets of material. The function of the sheets was to keep the hose in place when the pad was placed on the floor or walls of a container.
It is convenient to mention at this point that, although correspondence and contractual documents, such as invoices, were usually addressed to or were issued by one or other of the appellants or one or other of the respondents, it is not necessary for present purposes to differentiate between the first and second-named appellants or between the two respondents. Consequently, I propose, in the main, to refer respectively to the respondents and the appellants collectively.
It is also necessary to say something briefly about the persons who were involved with the relevant transactions. The first respondent was, at all relevant times, the managing director and beneficial owner of the second respondent, which commenced its operations in Geelong at some time in 2000. For a number of years prior to that, he worked in Asia for international companies concerned with the distribution, on a large scale, of food and food products. Jorgen Schlotzer was at all relevant times prior to 3 December 2001 employed by the appellants as regional manager of its flexi-tank business in the Pacific region. The first respondent met Mr Schlotzer in the 1990’s when they were both working in Malaysia and it seems that they remained in intermittent contact. Whilst Mr Schlotzer was in the employ of the appellants, his immediate superior was, initially, Jan Edward Rydgren-Knudsen and later, Klaus Hyldager, who was replaced by Nigel Moore who, in turn, was assisted by Lars Rozenkranz. Winston Loo was another senior manager who was involved in the development of the appellants’ flexi-tank business at the relevant time. When, on 3 December 2001, Mr Schlotzer left the appellants’ employ, his position was filled by Simon O’Hara. In January 2002, Mr Schlotzer commenced employment with the second respondent as its manager for finance and logistics.
The first respondent became involved in the appellants’ business through his contact with Mr Schlotzer. In 2000, Mr Schlotzer contacted him to obtain his advice in relation to a technical problem concerning the sterilisation of a liquid commodity – palm oil – that had been transported in flexi-tanks. The first respondent provided the advice sought on a non-commercial basis and, not long thereafter, Mr Schlotzer approached him again, this time for the purpose of determining whether he and the appellants could work together to market and service flexi-tanks in Australia and New Zealand. Over the period November 2000 to January 2001, the first respondent analysed this market and advised that, in his view, there was a potential for the profitable development of such a business.
In that context, in December 2000, the appellants placed with the respondents an order for the manufacture and supply of 25 specialised heat pads. On 28 December 2000, the appellants paid the invoiced price of US$24,800 in respect of this equipment. The first respondent said in his evidence that the second respondent produced 23 heat pads, but that he was satisfied with the quality of only 19 units so only those were delivered to the appellants. These 19 units were delivered in three lots, on 26 April, 4 July and 17 October 2001. It was the respondents’ case below, as I have said, that the agreement required that they deliver the heat pads on demand and that no request had ever been made by the appellants for delivery of the remaining six heat pads. Furthermore, said the respondents, it was in the contemplation of the parties that the 25 units would be delivered progressively and that the outstanding six units would be manufactured after the completion of further research, such that, when they were ultimately supplied, they would be the new “generation III” heat pads.
In early 2001, the first respondent held a number of meetings in Singapore with the appellants’ representatives for the purpose of establishing a framework within which the parties could operate for their mutual benefit. As a result of these discussions, some aspects of the relationship between the parties were formalised. Thus, the first respondent was appointed as the appellants’ agent for the “sale, marketing and operation” of flexi-tanks in Australia and New Zealand pursuant to a written agreement, dated 25 February 2001 (“the Agency Agreement”). At the same time, however, the respondents carried on other business activities in their own right that involved the shipping of bulk products to Australia.
Although, as I have said, the appellants did not press their appeal against the judge’s decision insofar as it dismissed their claim in respect of the sum of US$6,730 paid by them for the manufacture and delivery of the 500 model units, it is nevertheless necessary to mention the circumstances relating to this matter in order to give context to the extant dispute between the parties. In order to promote their services in the region, and in particular the use of flexi-tanks, the appellants planned to hold a promotional exhibition in about October 2001 to demonstrate the benefits of their equipment and facilities, including heat pads. To this end, the appellants placed an order with the respondents for the manufacture and delivery of 500 model containers for the sum of US$6,730. This amount was duly paid on 22 August 2001 and the respondents manufactured the units. Due to budgetary constraints, however, the appellants did not proceed with the promotional exhibition and, in October 2001, Mr Schlotzer directed the respondents to store the model containers at their Geelong premises until further instructions. It is common ground that no further instructions were given in relation to those units and that the appellants never sought delivery of them.
During the latter part of 2001, the respondents carried out research and development work for the purpose of improving upon the efficiency of the heat pads to be manufactured by them. There was a deal of correspondence between the parties as to the desirability of such research being conducted and, although the appellants’ involvement in this operation was, at first, informal, in November 2001, the parties (as the respondents contended and as the appellants ultimately denied), executed a research and development agreement (“Research & Development Agreement”). This agreement gave a commercial structure to the respondents’ continuing work in this regard. Relevantly, it provided that the second respondent would manufacture, exclusively for the appellants, heat pads and that it would undertake “research, design, development, prototyping, testing and delivery of an initial 50 full sets of heating pads ...”. It went on to set out, by reference to the scope of work that was required of the second respondent that it would manufacture these initial 50 pads “upon successful testing”. The agreement also provided that “the whole project shall not last longer than 12 to 18 months” but stated that “specific timing [for research and development] could not be guaranteed.” Importantly, the agreement required the appellants to “make an initial payment of US$60,000 to fund the project”. This amount was paid, as I have noted, on about 23 October 2001.
In about March 2002, the respondents, acting as agent for the appellants, entered into a contract with Aarkus Australia Pty Ltd (“Aarkus”) for the shipment of liquid cocoa butter in flexi-tanks to Sydney for use by a biscuit company. More particularly, the respondents were to be responsible for facilitating the discharge of the material at the Sydney wharves. During the unloading phase of the shipments, however, unexpected difficulties arose, which required the first respondent to spend considerable time and money in Sydney to oversee the discharge of the product. The respondents sought to recover from the appellants the extra costs incurred by them, but they refused to reimburse the respondents and, as a result, friction developed between the parties. In the period April to June 2002, during which time the first respondent was engaged largely with rectifying the problems pertaining to the shipments for Aarkus, the relationship between the parties progressively deteriorated and broke down completely by about mid-2002. This coincided with the decision by the appellants to discontinue their flexi-tank business, with the result that they no longer had any need for heat pads. In July 2002, the appellants’ solicitors wrote to the respondents demanding repayment of the moneys that were paid for the undelivered heat pads as well as a refund of the moneys paid in respect of the promotional model containers. They also demanded the return of some equipment that belonged to them. It is important to note, however, that those letters of demand did not require the respondents to deliver the outstanding heat pads, nor did they allege that the respondents were in breach of contract by reason of their failure to supply the heat pads.
The respondents did not pay the money sought and, as a result, the appellants filed a writ in the County Court on 6 August 2002 in which they claimed a total of $US72,701.20, made up in the way I have described,[1] by way of a common count for money had and received consequent upon a total failure of consideration.[2] Consistently with such a claim, the pleadings alleged that the non-delivery of those pads constituted a total failure of consideration rather than a mere breach of contract by the respondents.[3]
[1]See para. [1] above.
[2]It seems that this cause of action has now been subsumed within the broad umbrella of unjust enrichment - see Mason and Carter’s Restitution Law in Australia, at [1114]; Goff and Jones’ The Law of Restitution, Sweet & Maxwell, 6th ed. at [1-001]-[1-002] and [1-054]; and Bullen, Leake & Jacob’s Precedents of Pleadings, 14th ed., Part V at 1543-1559. Note, however, the unjust enrichment is only a ‘framework’ for restitutionary claims where there has been a total failure of consideration – see Pavey & Matthews v Paul (1986) 162 C.L.R. 221 per Deane, J. at 256. See also Roxburgh v. Rothmans of Pall Mall Australia Ltd. (2001) 208 C.L.R. 516 per Gummow, J. at 543-544, where his Honour cautioned against treating unjust enrichment as the basis for restitutionary claims.
[3]I have already noted that, before this Court, the appellants abandoned their claim that related to the payment for the 500 model units.
Conduct of trial
It has already been noted that the respondents admitted receipt of the moneys in question and that they had not delivered to the appellants the outstanding heat pads and promotional items. Because of these admissions, at trial, the appellants were permitted to split their case and, as a consequence, the respondents were the first to adduce oral evidence. Their principal witnesses were the first respondent and Mr Schlotzer. Not surprisingly, the trial centred around the appellants’ claim for US$60,000. The respondents argued, consistently with their filed defence, that the above amount was paid pursuant to the Research & Development Agreement and that, according to its terms, the period stipulated for delivery of the units had not expired at the date of the writ. The respondents argued that they had until 8 April 2003 to deliver all of the 50 ordered heat pads. They also said that they were, at all times, willing to produce and deliver the heat pads. In the circumstances, it was claimed by the respondents, the appellants were not entitled to be repaid the US$60,000. In their pleadings the appellants asserted that the Research & Development Agreement was not binding on them because Mr Schlotzer did not have authority to enter into it on their behalf. But, at trial, they radically changed their position in this regard, contending that the Research & Development Agreement was a sham document that had been created by the first respondent and Mr Schlotzer sometime after Mr Schlotzer commenced employment with the respondents (namely, some time in 2002) and that it had been backdated to October 2001. Thus, a key, if not the key, issue at the trial was whether the Research & Development Agreement was fraudulent as the appellants contended and, in any event, whether Mr Schlotzer had the requisite authority to execute it on the appellants’ behalf. I will refer to the relevant evidence on these issues later.
As to the claim that relates to the outstanding six heat pads the subject of the December 2000 agreement, the respondents’ case was, as has been noted, that the agreement provided that the 25 heat pads would be delivered when they were called for by the appellants – 19 were delivered but no request for delivery was made by the appellants in relation to the remaining six pads prior to the issue of the proceeding, or at all. The respondents contended that they would have delivered all the outstanding heat pads had the appellants made a request for them. The appellants, however, denied such an arrangement and contended that it was plain that the agreement required the respondents to deliver the heat pads as soon as possible after the placing of the relevant order. They also maintained that the respondents were not able to produce the heat pads because they lacked the financial resources to do so and claimed that, in the circumstances, they were entitled to be repaid the money paid in respect of them on the basis of there being a total failure of consideration.
Decision below
In dismissing the appellants’ claims, his Honour found that the Research & Development Agreement was not a sham but was made in October 2001 and that Mr Schlotzer had authority to enter into it on behalf of the appellants. The judge also found that the appellants had made no demand for any of the outstanding heat pads – under either the December 2000 or the Research & Development Agreement – and that the respondents were ready and willing to supply them. As to the promotional containers, his Honour found that they had been manufactured by the respondents and remained at their premises at the specific request of the appellants. The learned judge characterised this claim in particular as being “less than meritorious”.
Appellants’ principal case on appeal
In his well thought out and presented argument, Mr Northrop, for the appellants, first argued that his Honour’s reasons were so inadequate as to vitiate his decision. In that regard counsel relied on the principles stated in a number of cases to which I will refer later. More specifically, Mr Northrop argued that his Honour failed to set out the reasons that led to his findings, particularly his finding that the Research & Development Agreement was executed in October 2001 and did not explain why he accepted implicitly the evidence of the respondents’ witnesses on this issue, given that he also considered that the appellants’ witnesses, who gave conflicting evidence, were also credible. It was further claimed that his Honour failed to state the basis on which he found that the appellants’ had made no request for the outstanding 56 heat pads and that, notwithstanding the respondents’ financial predicament, they would have been able to manufacture and deliver those heat pads. There were also other grounds of attack on his Honour’s decision, to which I will refer later.
Failure to provide adequate reasons
Turning first to the appellants’ claim based on inadequacy of reasons, I should say at the outset that I consider that it is plain that is Honour’s reasons are unsatisfactory in the sense that they fail to explain, in terms, how he came to his impugned findings. The trial occupied three sitting days, during which four witnesses were called and cross-examined and a large number of documents tendered in evidence. The reasons for judgment consist of just 39 relatively short paragraphs, 35 of which deal with the evidence and the parties’ contentions. The remaining four paragraphs contain his Honour’s impugned findings but he gives no reasons that explain, explicitly, how he arrived at these findings.
It is well-settled that, ordinarily, a judicial officer is under an obligation to explain, however briefly, why he or she came to the conclusion that is sought to be challenged – the reasoning process by which the impugned conclusion was reached must be apparent.[4] While, as Buchanan, J.A. pointed out in Perkins v County Court of Victoria[5], “[t]here is no general principle that a court’s failure to give reasons is an error of law which vitiates the court’s decision”[6], the giving of reasons is a normal incident of the judicial process: see Public Service Board of New South Wales v. Osmond[7] and Sun Alliance v Massoud[8]. As Samuels, J.A. explained in NRMA Insurance Ltd v. Tatt[9], where there are issues of fact necessarily posed for judicial decision, or where the resolution of a substantial principle of law depends on findings of fact, “…the judge has a duty, as part of the exercise of his judicial office, to state the findings and the reasons for his decision adequately for that purpose.” A principal justification for this requirement is obvious enough – the parties, particularly the losing parties, are entitled to know the basis on which the judge came to the impugned conclusion so that proper consideration can be given whether it might be properly challenged on appeal. Moreover, reasons for the decision should be set out so as to enable an appellate court to determine if there was relevant error.[10] As Gray, J. said in Sun Alliance Insurance v. Massoud[11], reasons for judgment will be inadequate if “the appeal court is unable to ascertain the reasoning upon which the decision is based [or if] justice is not seen to have been done.” Furthermore, an adequate statement of the reasons provides “the foundation for the acceptability of the decision by the parties and the public [as well as fostering judicial accountability].”[12]
[4]See, for example, Fletcher Construction Australia Ltd v. Lines Macfarlane and Marshall Pty Ltd (No 2) (2002) 6 V.R. 1 at 30-31; Sun Alliance Insurance v. Massoud [1989] V.R. 8 at 18 per Gray, J.; Pettit v Dunkley [1971] 1 N.S.W.L.R. 376 at 382 per Asprey, J.A. and 387-8 per Moffitt, J.A.; and De Iacovo v Lacanale [1957] V.R. 553 at 557-559 per Monahan, J.
[5](2000) 2 V.R. 246 at 270.
[6]See also Fletcher at 43.
[7](1986) 159 C.L.R. 656 at 666-667 per Gibbs, C.J. where his Honour held “It has long been the traditional practice of judges to express the reasons for their conclusions by finding the facts and expounding the law and there have been many cases in which it has been held that it is the duty of a judge… to state his reasons. That does not mean that a judicial officer must give his reasons in every case; it is clear, to use some of the words of Woodhouse P in Reg. v Awatere [[1982] 1 N.Z.L.R. 644 at 649], that there is no ‘inflexible rule of universal application’ that reasons should be given for judicial decisions. Nevertheless, it is no doubt right to describe the requirement to give reasons, as Mahoney, J.A. did in Housing Commission (NSW) v Tatmar Pastoral Co [[1983] 3 N.S.W.L.R. 378 at 386], as ‘an incident of the judicial process’, subject to the qualification that it is a normal but not a universal incident.” (Some citataions omitted.)
[8]At 19 per Gray, J. See also Soulemezis v Dudley (1987) 10 N.S.W.L.R. 247 at 279 per McHugh, J.A.
[9](1989) 92 A.L.R. 299 at 312 per Samuels, J.A. with whom Hope and McHugh, JJ.A. agreed.
[10]See, for example, Fletcher Construction at 31-32.
[11]At 18.
[12]Fletcher Construction at 31-32.
Mr Northrop pointed out, correctly, that a judge’s expression of preference for one witness over another on the basis of credit ordinarily does not constitute adequate reasons for relevant purposes. As Kirby, P. pointed out in Palmer v. Clarke[13], notwithstanding the need for the appellate court to recognise the advantages enjoyed by a trial judge who has seen and heard witnesses give evidence in the context of the trial, “bald findings on credit, where there remain substantial factual issues to be dealt with, may not constitute an adequate compliance with the judge’s common law duty to provide the parties, and the appellate court, with the basis of his [or her] decision” even though the verdict is said to be based substantially on the judge’s assessment of witnesses’ creditability. Consideration of whether the reasons given for judgment are adequate is, of course, independent from consideration of the correctness of the decision[14] and whether they are adequate will depend on the circumstances of the case. As Nettle, J.A. explained in Wakool Shire Council v. Walters[15]:
“The degree of detailed reasoning required to be provided in support of a determination depends upon the nature of the determination, the complexity of the issues, whether the issues are of fact or law or mixed fact and law and the function to be served by giving reasons, namely, that the parties may know the basis on which the matter has been decide and to enable a court of appeal to determine whether there has been error.”[16]
But reasons will be adequate notwithstanding that they are brief if they reveal the steps in the thinking process of the court by which it reached its decision: see Kiama Construction Pty Ltd v. Davey.[17] It may be that the basis for the decision can be inferred from the whole of the reasons for judgment, having regard to the circumstances of the case. As Gray, J. explained in Sun Alliance[18],
“The simplicity of the context of the case or the state of the evidence may be such that a mere statement of the judge’s conclusion will sufficiently indicate the basis of a decision. … In such cases, the foundation for the judge’s conclusion will be indicated as a matter of necessary inference.”
[13](1989) 19 N.S.W.L.R. 158 at 170.
[14]See Fletcher at 46.
[15][2005] VSCA 216 at [35].
[16]See also Fletcher at 31-32.
[17](1996) 40 N.S.W.L.R. 639 at 647-648 per Meagher, J.A.
[18]At 19.
Whether a judgment sufficiently indicates the basis of the decision depends, as I have said, on the circumstances of the case, including how the case was conducted by the parties and, relevantly for present purposes, what were the principal issues in dispute between them.
Evidence relating to Research & Development Agreement
As I have already noted, the key difference between the parties at trial was whether the Research & Development Agreement was made before Mr Schlotzer left the appellants’ employ and whether, in any event, he had authority to enter into it on their behalf. On this issue, the only witnesses who had any association with the events surrounding the making of the impugned agreement were the first respondent and Mr Schlotzer. They claimed, in effect, that the agreement was made in October 2001. The first respondent said that the second respondent carried out a significant amount of research and development in respect of the “generation III” heat pads pursuant to the Research & Development Agreement that was signed in October 2001. He went on to say that, after Mr Schlotzer left the appellants, he showed Mr O’Hara in January 2002 what the second respondent had done by way of such work. The first respondent also said that he had spoken to Nigel Moore, Mr Schlotzer’s superior, about matters associated with the development of the flexi-tank business. Mr Schlotzer explained that he had drafted the Research & Development Agreement and signed it for the appellants. He also said, as his Honour noted, that after the Research & Development Agreement was executed it was filed at the appellants’ Kuala Lumpur office. In the course of cross-examining Mr Schlotzer, Mr Northrop effectively put to him that the Research & Development Agreement was a sham, that it had been produced well after he left the appellant’s employ and had been backdated to show that it was executed in October 2001. In support of this assertion, counsel highlighted to the witness that there was no reference to the agreement in any of the numerous emails and invoices that passed between the parties in or about October 2001 – the suggestion being that such reference would have been made in correspondence if the agreement had been executed in October 2001 as the respondents claimed. Whilst Mr Schlotzer agreed that no reference was made to the agreement in the emails or the invoices, he did not accept that this showed that it was not made until 2002. He also denied the suggestion by Mr Northrop that he did not have discussions with others at the appellants about the matter. He was then asked to name the persons with whom he claimed to have had such discussions – “Who would that someone be?” counsel asked. In response, the witness identified Messrs Hyldager, Rozenkranz and Moore. It was then put to Mr Schlotzer that he was “making up” that evidence, but this too was denied by him.
Importantly, the only witnesses called by the appellants on this issue were Messrs Knudsen and Loo, neither of whom had any personal knowledge of the circumstances in which the respondents’ witnesses claimed the Research & Development Agreement was made. Mr Loo, for example, was not with the appellants at the relevant time. In his evidence, he said that he first became involved in the business affairs of the appellants in about November 2001 and that he did not have frequent contact with Mr Schlotzer. Relevantly, Mr Knudsen was absent from the appellants between about September 2000 and November 2001. Moreover, he was not involved in the day-to-day affairs of the appellants in the area of their business that involved Mr Schlotzer and it will be recalled that Mr Schlotzer left the appellants’ employ on 3 December 2001. The only possibly relevant evidence on this issue from the appellants’ witnesses came from Mr Loo – and that evidence was given over the objections of the respondents’ counsel. Mr Loo said that, in April 2002, Mr Schlotzer had alerted him to the execution of the Research & Development Agreement and he had searched without success for it in the appellants’ offices. He also said that a copy of the agreement was given to him by Mr O’Hara in August 2002. Thus, the most that could be said about the appellants’ evidence on this critical issue is that it established that the appellants knew that Mr Schlotzer claimed in April 2002 that the Research & Development Agreement existed and that the appellants were in possession of a copy of it by August 2002, well after the relationship between the parties had broken down, although they had not been able to locate it prior to this. No evidence, however, was adduced on their behalf as to when, and the circumstances in which, the copy of the agreement came into Mr O’Hara’s hands. It was suggested by Mr Northrop that his Honour should have inferred that Mr O’Hara received the copy of the agreement from the appellants’ solicitors, but I see no basis for such a contention. Moreover, as Mr Klempfner pointed out in his submissions, the appellants must have known before the trial that they would allege that the document was a sham, yet they did not call as witnesses the persons employed by the appellants – in particular, Messrs Hyldager, Rozenkranz and Moore – to whom Mr Schlotzer said he had spoken regarding the research and development work that was being undertaken pursuant to the agreement by the respondents. Furthermore, subject to one exception,[19] no explanation was given as to why they were not called. In the circumstances, it may be assumed that their evidence would not have assisted the appellants’ case on this issue.[20]
[19]In the case of Mr O’Hara, the appellants explained why no evidence was adduced from him and it seems that this explanation was accepted by the respondents at trial.
[20]See, for example, Jones v. Dunkel (1959) 101 C.L.R. 298; O’Donnell v. Reichard [1975] V.R. 916 at 929 per Newton and Norris, JJ.; and Transport Industries Insurance Co. Ltd. v. Longmuir [1997] 1 V.R. 125 at 131-132 per Winneke, P. and at 138, 142-143 per Tadgell, J.A.
It is also obvious enough that the mere fact that the agreement was in the appellants’ possession in August 2002 does not establish that it was made in that year. Moreover, the suggestion by the appellants that the absence of any reference to the agreement in the emails and the invoices to which I have referred shows that it was not made at that time, must also be rejected. No reasons were advanced as to why the agreement should have been referred to in those documents. And, as Mr Klempfner pointed out, the Research & Development Agreement, like the Agency Agreement, was of a different character to the relatively informal arrangements or agreements that were made between the parties through emails, such as the December 2000 agreement and the agreement relating to the model containers. The Agency Agreement and the Research & Development Agreement were, unlike the other commercial arrangements between the parties, relatively formal in their structure and, by their terms, it is plain that they were intended to be an exhaustive repository of the parties’ relevant contractual obligations.
Thus, there was no evidence adduced by the appellants that could be said to establish, or go towards establishing, that the Research & Development Agreement was a sham as they contended. In stark contrast to this, the judge had evidence before him from those involved in the making of the agreement, namely, the first respondent and Mr Schlotzer, to the effect that it was made in October 2001. Moreover, there was other, incontrovertible evidence to this effect. For example, Messrs Loo and Knudsen conceded that the appellants’ internal correspondence showed that they knew, at least by April 2002, that Mr Schlotzer claimed that 50 heat pads were to be produced pursuant to a Research & Development Agreement. More particularly, Mr Schlotzer pointed out in his email of 19 April 2002 that there were agreed terms and conditions between the parties concerning the testing and “eventual delivery” of the 50 heat pads and suggested that Mr O’Hara might read the relevant material in his, Mr Schlotzer’s, former files at the appellants. Upon receipt of this email, Mr O’Hara sent an internal memorandum to Mr Loo about the matter. Importantly, he did not deny in that memorandum that such an agreement existed. Rather, he contended in that communication that Mr Schlotzer had no authority to sign the agreement. For completeness, I mention that Mr Loo sent Mr O’Hara an email suggesting how he should respond to Mr Schlotzer’s communication. Relevantly, he proposed that Mr Schlotzer be told that the file had been searched, but the document in question could not be found. In my view, however, there must be real doubt as to whether such a search, or a diligent search, was in fact conducted. The communications between Messrs O’Hara and Loo, to which I have just referred, occurred within a very short space of time and there must be doubt as to whether there was sufficient opportunity for a proper search to have been undertaken. Be that as it may, on the evidence before his Honour, Mr Loo’s proposed response was never sent. No evidence of such a communication was adduced at the trial and this is consistent with the internal email from Mr Knudsen, sent late on 19 April, telling his “team” that the proposed response to Mr Schlotzer was not to be sent: “Guys, this correspondence stops here!”
The material before his Honour also indicated that Mr O’Hara knew, in May 2002, that the respondents had been modifying heat pads and that this necessarily involved at least some research and development on their part. Such an understanding is necessarily implicit in his email to the respondents of 16 May 2002 in which he speaks of the “original” type of heat pads (that were ordered in December 2000), as distinct from the new version that was in the process of being produced by the respondents, namely, “generation III” heat pads.
In the circumstances, it is obvious enough why his Honour accepted the evidence of the first respondent and Mr Schlotzer on the critical issues, namely, the date of the making of the Research & Development Agreement and his authority to sign it on the appellants’ behalf. Contrary to the appellants’ submission, I consider that the conclusion is not inconsistent with his Honour’s expressed view that not only were the appellants’ witnesses credible, but that both Messrs Loo and Knudsen “were truthful.” Although his Honour accepted the truthfulness of each of the four witnesses, the only evidence directly relevant to the circumstances and date of the execution of the agreement was given, as I have noted, by the first respondent and Mr Schlotzer. The appellants’ witnesses, on the other hand, had no personal knowledge of the agreement and the circumstances of its execution (or otherwise). Moreover, those persons who might have been able to give such evidence were not called by the appellants and, subject to the exception mentioned above, their absence was not explained. It follows, I think, that, notwithstanding that the judge found all four witnesses to be credible and notwithstanding the shortness of the reasons given by him, it is sufficiently apparent why the judge rejected the appellants’ claims that the Research & Development Agreement was a sham and that Mr Schlotzer had no authority to sign it on behalf of the appellants.
Non-delivery – total failure of consideration
I now turn to consider the appellants’ claim that his Honour failed to explain the basis on which he found that the appellants never demanded the outstanding 56 heat pads and that the respondents were prepared and able to supply them in accordance with the agreements. Necessarily implicit in his Honour’s findings was the conclusion that the respondents were not contractually obliged to deliver the heat pads until the appellants made a request for them. It is true that his Honour did not explain, in terms, how he came to the impugned findings, but I consider that, in light of the evidence before him, the basis for such findings is obvious enough and is necessarily implicit in his reasons for judgment.
Before analysing the relevant evidence relating to this matter, it is necessary to consider briefly the basis on which the appellants brought their claim and what they were required to establish in order to succeed. It has already been noted that they pleaded their case as a common count for money had and received consequent upon a total failure of consideration.[21] But in light of the pleadings, I think, the claim for restitutionary relief, based on total failure of consideration, was probably misconceived. I say “probably” because the matter was not argued before us and, consequently, it would be inappropriate to express a concluded view on the issue. Nevertheless, in assessing the evidence that came before his Honour on this question, it is relevant to have regard to how the appellants put their case in support of their claim for restitution. In broad terms, the essential question raised by their claim was whether, by retaining the money in question, the respondents have been unjustly enriched[22] or, put another way, whether it would be unconscionable for them to retain it.[23] To put this criteria in context, it should be noted that in Pavey & Matthews Pty Ltd v. Paul, Deane, J. cautioned[24] that “to identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate”. Moreover, Deane, J. did not treat unjust enrichment as a legal requirement or basis for restitutionary claims. Rather, his Honour put forward unjust enrichment as a conceptual framework for analysing at least some restitutionary claims within which the ultimate question is whether it would be fair and just for the defendant to make restitution of the benefit sought to be recouped by the plaintiff.[25]
[21]See para. [12] above.
[22]See, for example, Pavey & Matthews Pty Ltd v. Paul (1987) 162 C.L.R. 221 at 255-257 per Deane, J., with whom Mason and Wilson, JJ. generally agreed; Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation (1987) 164 C.L.R. 662 at 673 per Mason, C.J., Wilson, Deane, Toohey and Gaudron, JJ.; and David Securities Pty Ltd v. Commonwealth Bank of Australia (1992) 175 C.L.R. 353 at 378-379 per Mason, C.J., Deane, Dawson, Toohey, Gaudron and McHugh, JJ.
[23]Roxborough v. Rothmans of Pall Mall Australia Ltd (2001) 208 C.L.R. 516 at 545-551 per Gummow, J.
[24]At 256.
[25]See Roxborough at 543-545 per Gummow, J.
Be that as it may, the basis of the appellants’ restitutionary claim was total failure of consideration and, although that concept is not limited to non-performance of a contractual obligation,[26] the appellants pleaded that total failure of consideration was constituted by the non-delivery of the outstanding heat pads. The pleadings do not contend that the non-delivery was wrongful, but it may be assumed in their favour that such an allegation is implicit. In my view, however, it is doubtful whether such mere breach of a contract in the circumstances of this case can amount to a total failure of consideration. Ordinarily, where a contract remains to some extent executory, there can be no total failure of consideration.[27] In Foran v. Wight[28], the High Court recognised that mere breach of an agreement does not necessarily give rise to a restitutionary claim.[29] In that case the vendors under a contract for sale of land, which provided that the date for completion was an essential term of the agreement, had, by anticipatory breach, repudiated their obligations to settle on time. The purchasers did not, at that time, accept the anticipatory breach but, when the vendors did not settle on the due date, having thereby committed an actual breach, the purchasers accepted that repudiation and terminated the contract and sued for the balance of the deposit as money had and received on a total failure of consideration. Relevantly, Brennan, J. said[30]: “… upon rescission of the contract, the consideration for which the purchasers had paid the deposit failed totally. The purchasers became entitled to recover the deposit not as damages but in quasi-contract as money paid for consideration which had totally failed.” Similarly, Deane, J. said[31]: “Upon rescission, the purchasers were entitled to obtain restitution of the deposit which they had paid. Their claim was founded in the equitable notions of fair dealing and good conscience which required restitution for benefit received as, or as part of, the quid pro quo for a consideration which has failed.”[32] Thus, the court recognised that mere non-performance of a contractual obligation does not, in itself, ordinarily amount to a failure of consideration for purposes of restitution law. In Foran, there was no total failure of consideration just because the vendors intimated by way of anticipatory breach that they would not settle on the due date or because they committed the actual breach. It was only when the latter repudiation was accepted, and the contract was rescinded, that the right to restitution arose.
[26]See Roxborough at 525 per the majority. See also Gummow, J. at 555.
[27]Mason & Carter’s Restitution Law in Australia at [1118], Goff & Jones’ The Law of Restitution, Sweet & Maxwell, 6th ed., at [1-063]. See also at [1-067].
[28](1989) 168 C.L.R. 385.
[29]Although the case was decided when a claim for money had and received ordinarily involved an implied contract analysis – an approach which has since been rejected in Pavey – nothing turns on this point for present purposes.
[30]At 432.
[31]At 438.
[32]See also Dawson, J. at 455.
Similarly, in Dies v. British & International Mining & Finance Corporation Ltd[33] it was recognised that mere non-delivery of goods by the seller did not amount to a total failure of consideration where the purchaser’s anticipatory breach had relieved the seller from its obligation under the contract. In that case, the plaintiff bought arms for the price of ₤135,000 and paid ₤100,000 in advance. Prior to the delivery of the goods, the plaintiff said that it was unwilling to take delivery and, on that basis, the defendant elected to treat the plaintiff’s breach as bringing the contract to an end. The plaintiff, however, sued for the ₤100,000 paid to the defendant on the basis of total failure of consideration. Although the plaintiff succeeded in its claim for the money, Stable, J. expressly held that there was no total failure of consideration since the seller was relieved from the obligation to deliver the goods because of the plaintiff’s anticipatory breach, which had been accepted. The right of recovery was based on the particular terms of the parties’ contract. In the course of his reasons for judgment, his Lordship referred to Stray v. Russell[34], in which the plaintiff contracted to buy shares for which he had paid but refused to accept their tender and sued for the return of his money on the basis of a total failure of consideration. The plaintiff failed because, as Stable, J. explained, it was held that there had been no failure of consideration inasmuch as the defendants had always been able, ready and willing to do everything that they had contracted to do and the contract was never rescinded.
[33][1939] 1 K.B. 724.
[34](1859) 1 El. & El. 888; 120 E.R. 1154.
In the present case, at the time of the proceeding, the two agreements[35] remained executory and it was not pleaded that they had been discharged by breach. Nor is such a contention necessarily implicit in the pleadings. The pleadings did not allege that there had been a refusal by the respondents to comply with a request for delivery of the heat pads or that the respondents had put it out of their hands to do so. Either claim would probably amount to an anticipatory breach entitling the appellants to bring the contract to an end. But, given the pleadings, I have considerable doubt that the appellants’ case as pleaded made out its claim in restitution. As I have said, however, the respondents did not argue before us that the appellants should fail on appeal because of any material deficiency in their pleaded case. This may well have been because, at the trial, the appellants pressed two matters as going to total failure of consideration – the first being that the respondents knew that the appellants required the heat pads as soon as possible after the orders for them were placed and that, in any event, they had failed to comply with the appellants’ request for delivery of the outstanding heat pads;[36] and the second being that, because of lack of funds, the respondents had effectively put it out of their hands to produce and deliver the units to the appellants and had, therefore, repudiated the agreements. In those circumstances, it was claimed, there was a total failure of consideration, entitling the appellants to claim the money as money had and received.
[35]The one of December 2000 (which was partly performed) and the Research & Development Agreement.
[36]I mention for completeness that, in my view, although such failure may give rise to damages, I doubt that it would form a basis for a restitutionary claim as I have explained, particularly in relation to the earlier contract given that 19 of the 25 heat pads had been delivered – see in this respect Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32 at 48-49 per Viscount Simon; and Baltic Shipping Co. v. Dillon (1993) 176 C.L.R. 344 and at 376-378 per Deane and Dawson, JJ.
No request for delivery
In examining the appellants’ claim that the respondents had failed to comply with their requests for delivery, it is necessary to differentiate the position in respect of the six outstanding heat pads and those that were to have been delivered under the Research & Development Agreement. In my view, there was no evidence produced by the appellants, either in chief or through cross-examination, that supports their claim that the respondents had failed to comply with delivery requests in relation to the six outstanding heat pads. The material on which Mr Northrop relied to establish that contention simply does not support it. At most the material shows that the appellants had issued a demand for the return of certain equipment belonging to them but, as Mr Klempfner has said, those items were duly returned and, in any event, that demand was not a demand for the delivery of the outstanding six heat pads. There was not one shred of evidence that the appellants’ had made such a demand. On the other hand, there was clear evidence to the contrary. For example, the first respondent said in cross-examination that there was no requirement under the December 2000 agreement to deliver the outstanding heat pads until a request for them was made. Importantly, as late as May 2002, the appellants were telling the respondents that they were not seeking delivery of the six outstanding heat pads. In his email to the respondents of 16 May 2002, Mr O’Hara effectively said as much.[37] It will be recalled that the parties accepted that the six heat pads would be generation III units – to be manufactured after the respondents had completed their development pursuant to the Research & Development Agreement. There was no suggestion contained in any communication from the appellants that formed part of the evidence that they had, before the issue of the writ (or indeed, subsequent to it), requested delivery of the outstanding six heat pads. Furthermore, the appellants’ email of 6 May 2002 to the respondents confirmed that the delivery of the 19 heat pads had been spread over April, July and October 2001 as I have mentioned, rather than being made in response to a requirement that all 25 be delivered as soon as possible after the order has been placed. Finally, it is relevant to note that Messrs Loo and Knudson gave evidence that the appellants had decided to withdraw in or about May 2002 from the flexi tank business. Thus, as the respondents point out, the appellants did not require the heat pads and, therefore, it is unsurprising that they did not request their delivery.
[37]The relevant part of the email read: “...this isn’t a request for delivery only confirmation of our current orders placed.”
As to the 50 heat pads that were to be manufactured under the Research & Development Agreement, there was some evidence that the appellants were pressing the respondents in early 2002 for the generation III heat pads, but it is also clear that the respondents kept the appellants informed that, pursuant to the terms of that agreement, they were then still working on the development phase of the units and would produce the heat pads upon completion of it. There was no evidence before his Honour that the appellants rejected that position and this is unsurprising bearing in mind that, under the terms of the agreement, the respondent had at least 12 months from October 2001 to produce the units.
In the circumstances, I think it is plain enough that the evidence compelled the finding that the appellants had not made requests for delivery of the outstanding heat pads.
Ready willing and able to deliver
The appellants did not lead any direct evidence on the question whether the respondents effectively put it out of their hands to produce the outstanding heat pads. In response to the first respondent’s evidence that the respondents were able and willing to deliver the units as soon as a request was made for them, however, the appellants asserted that the respondents were so impecunious at the relevant time that they would have been incapable of producing the units had the appellants made a call for them. In support of this claim, they first pointed to the respondents’ email of 20 May 2002 in which the respondents sought financial assistance from the appellants to enable them “to produce as well as catch up on the systems outstanding.” They also relied on evidence given by the first respondent and Mr Schlotzer in cross-examination to the effect that the respondents had requested that a further order be placed with the second respondent so as to increase its cash flow and enable it to produce the generation III heat pads more quickly. The appellants argued that this showed that the respondents did not have the funds necessary to produce the outstanding heat pads on demand.
It is plain enough that, in April and May 2002, the respondents were in financial difficulties, mainly due to the unforeseen expenditure by them to meet problems that had arisen in relation to discharging the cargo of Aarhus shipments, which I have mentioned earlier. It is also plain that financial assistance would have enabled the respondents to produce more quickly the outstanding orders. The first respondent was frank in his cross-examination on this issue; he admitted that, during that part of 2002, the respondents were in financial difficulties for the reasons I have just outlined. But he denied that by reason of this they would not have been able to complete the outstanding orders. On the contrary, he claimed that they would have been able to do so. As Dixon, C.J. said in Rawson v. Hobbs[38]:
“One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness. On the other hand it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his part when his turn comes, simply because his incapacity to do so is not necessarily final or logically complete.”[39]
Here, there was no evidence before the court that showed that the respondents were in such straitened circumstances that they would not have been able to produce the 50 heat pads within the period stipulated by the Research and Development agreement or the six outstanding heat pads upon demand, albeit that they may not have been generation III type pads.
[38](1961) 107 C.L.R. 466 at 481.
[39]See, however, the observations of Brennan, J. in relation to this test in Foran at 425.
Consequently, it is apparent that the reason his Honour concluded that the respondents were willing and able to produce the outstanding heat pads was that he accepted the first respondents’ evidence on this issue, there being no sufficient evidence for the appellants (or otherwise) to establish the contrary.
Inadequate reasons do not vitiate decision
Given my conclusions I consider that, notwithstanding his Honour’s failure to articulate, in terms, the reasoning that led him to make the impugned findings, such reasoning is, as I have explained, implicit in his decision. Consequently, his decision is not vitiated on the basis that no adequate reasons were given in its support. Moreover, the impugned findings, to which I have referred, were well open to his Honour on the evidence.
Other alleged errors
Failure to take account of evidence
The appellants also contended that his Honour erred by failing to have regard to incontrovertible evidence on critical issues. Thus, for example, it was said that his Honour did not have due regard to the lack of reference to the Research & Development Agreement in the emails and invoices passing between the parties at the time the agreement was allegedly made in determining whether the document was a sham. Similarly, it was said that his Honour failed to take into account sufficiently the respondents’ request to the appellants for financial assistance when determining if they were able to produce the outstanding units upon a relevant demand being made. But for the reasons I have given, I consider that this evidence does not support the appellants’ claim for money had and received.
Similarly, contrary to the appellants’ submission, I think the fact that the respondents did not seek to rely on the Research & Development Agreement to obtain additional funds has no bearing on the question whether that agreement was executed in October 2001 or sometime in 2002. I also do not accept the appellants’ submission that his Honour uncritically accepted the evidence of the respondents’ witnesses without evaluating it against the outstanding facts and contemporary documents. As I have mentioned, the main contest between the parties was whether the Research & Development Agreement was made in 2002 as the appellants alleged. I have already referred to the evidence on that issue and it is abundantly clear, I think, that in light of it, his Honour was compelled to the conclusion that the agreement was made in October 2001.
I should mention for completeness that merely because the first respondent did not produce, during his cross-examination in February 2004, documents referable to the research and development activities of the second respondent in early 2002 does not compel acceptance of the appellants’ assertion as to the fraudulent nature of the Research & Development Agreement or of the bare assertion that the respondents did not conduct any research and development work in early 2002. As I have said, the evidence, including emails from the appellants referring to the conduct of such research and anticipated development of generation III heat pads, was unsupportive of the appellants’ case on these issues.
Burden of proof
It was contended for the appellants that his Honour also erred by assuming that they bore the burden of proof on all issues, irrespective of whether that burden was evidential or legal in nature. As to the meaning of those terms, and the shifting nature of the evidential burden of proof, see, for example, Purkess v. Crittenden[40]. It was claimed by the appellants that, although they bore the ultimate burden of proof, the evidential burden on some issues shifted to the respondents but that this was not recognised by his Honour. In support of that claim the appellants pointed to the following passage in his Honour’s reasons:
“The plaintiff, as is conceded in all civil actions, must on the balance of probabilities establish his case wherein he says there has been a failure of consideration.”
[40](1965) 114 C.L.R. 164 at 167-168 per Barwick, C.J., Kitto and Taylor, JJ.
Putting aside the unhappy form of the sentence, it is plain enough, I think, that all that his Honour meant to say by it was that the appellants carried the ultimate burden of proof on the issue of whether they were entitled to restitution as claimed by them. I consider that there is nothing in that sentence, or elsewhere in the reasons for judgment, that indicates that his Honour was unaware or disregarded the shifting nature of the burden of proof. Consequently, I consider this attack on his Honour’s decision should also fail.
Findings of fact allegedly not open
It was further claimed by the appellants that his Honour’s findings that the Research & Development Agreement was properly made in October 2001 and that there was no wrongful failure on the part of the respondents to deliver the outstanding heat pads to the appellants were not open on the evidence. But, for the reasons I have given, I consider that, on the evidence, these conclusions were clearly open to him.
Failure to apply the relevant law
Mr Northrop also argued that his Honour failed to apply the relevant law to the facts as found by him. I have already explained that the basis of the appellants’ restitutionary claim was the alleged total failure of consideration. Given that his Honour found that, in the circumstances, there was no wrongful failure by the respondents to deliver the outstanding heat pads and that, at the time of the proceeding, they remained willing and able to comply with a request by the appellants for delivery of the units, it must follow that there has been no total failure of consideration for the payments in question as the appellants contended.
Consequently, this claim must also be rejected.
It follows that, in my view, this appeal should be dismissed.
EAMES, J.A.:
For the reasons given by Chernov, J.A., I agree that the appeal should be dismissed.
ASHLEY, J.A.:
Chernov J.A. gives consideration in his reasons to the question whether the appellants’ claim based upon total failure of consideration was conceptually sound. Having stated certain provisional conclusions, he proceeds to an analysis of the way in which the case was in fact fought out, and expresses conclusions in that connection. It was the appellants’ case, relevantly, that the trial judge did not explain the basis upon which he found that there had been no request for delivery of the 56 outstanding heat pads, and that the respondents were prepared and able to supply them in accordance with the agreements. I agree with his Honour’s conclusions concerning the issues as they were fought out at trial. That is enough to dispose of the point raised on the appeal.
Subject to that one qualification, I agree with his Honour that, for the reasons which he gives, the appeal should be dismissed.
---
19