Jimmy Jo v Fudlovski
[1999] WADC 12
•30 JULY 1999
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
CIVIL
LOCATION: PERTH
CITATION: JIMMY JO -v- FUDLOVSKI AND ANOR [1999] WADC 12
CORAM: FENBURY DCJ
HEARD: 3-7 MAY 1999
DELIVERED : 30 JULY 1999
FILE NO/S: CIV 489 of 1998
BETWEEN: JIMMY JO
Plaintiff
AND
NICK FUDLOVSKI
First DefendantBLUECHIP ENTERPRISES PTY LTD T/AS NIX SHEET METAL ENGINEERING (ACN 050 218 794)
Second Defendant
Catchwords:
Contract - Time for performance - Repudiation for alleged breach of condition - Notice to remedy - Time for completion not reasonable - Misleading conduct - Trade Practices Act - Turns on own facts.
Legislation:
Trade Practices Act s82
Result:
Plaintiff's claim dismissed
Representation:
Counsel:
Plaintiff: Ms S Richardson
First Defendant : Mr P Arns
Second Defendant : Mr P Arns
Solicitors:
Plaintiff: E & S Legal Group
First Defendant : Arns & Associates
Second Defendant : Arns & Associates
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
Amann Aviation Pty Ltd v Commonwealth of Australia (1990) 92 ALR 601
Charles Rickards Ltd v Oppenhalm [1950] 1 KB 616
Comalco Aluminium Ltd v Mogal Freight Services (1993) 16 ATPR 46-106
Compagnie Commerciale Sucres et Denrees v Czarnikow Ltd (1990) 1 WLR 1337
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Hartley v Hymans (1920) 3 KB 475
Hong Kong Fir Shipping Company Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Kwel Tek Chao v British Traders and Shippers Ltd [1954] 2 QN 459
McDougall v Aeromarine of Emsworth (1958) 3 All ER 431
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444
Thorby v Goldberg (1964) 112 CLR 597
United Scientific Holdings Ltd v Burnley BC (1978) AC 904
Upper Hunter County Council v Aust Chilling & Freezing Co Ltd (1968) 118 CLR 429
Wardley Australia Ltd v Western Australia (1992) ATPR 41-189
White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169
FENBURY DCJ:
Introduction
The plaintiff brings this action against the first and second defendants seeking the return of $158,000 plus interest, being the sum paid by the plaintiff to the first defendant pursuant to a contract for the construction of a rolling steel door frame mill. Upon the assertion inter alia that the first and second defendants breached the contract by failing to construct the mill within a reasonable time, the plaintiff repudiated the contract. The first and second defendants accepted the plaintiff's repudiation and the contract came to an end. In addition to alleging breach of contract the plaintiff alleges misleading conduct and seeks damages pursuant to s82 of the Trade Practices Act.
The first and second defendants allege that the plaintiff wrongfully terminated the contract, breached the contract as varied and they counterclaim seeking damages.
At all material times the first defendant was one of two directors of the second defendant. At all times the second defendant acted through the first defendant.
Background
The plaintiff is a businessman of Chinese origin who normally lives in Djakarta, Indonesia, where he owns a plastics manufacturing business. The plaintiff gave his evidence through an interpreter although it was obvious that he had some understanding of English. He had conducted all of his business dealing with the first defendant without interpretive assistance. The plaintiff employs more than thirty people in his factory in Djakarta. He owns property in Perth in the form of a house in Currambine which he purchased in January 1995. The plaintiff told me that when he first came to Australia in 1995 he was looking for business prospects and also real estate.
Mr Fudlovski, the first defendant, is with his wife the proprietor of a metal engineering business known as Nix Sheet Metal Engineering in Wangara. Nix Sheet Metal Engineering is the business name under which the company Bluechip Enterprises Pty Ltd trades and the first defendant together with his wife were the directors of the company.
Nix Sheet Metal Engineering operated mainly in the sheet metal business making switchboard cabinets, doing work for the Water Authority such as pipework, general engineering and machining of metal. The business was established in 1986. Mr Fudlovski qualified as a draft person and he was a very experienced in the sheet metal industry. At the material time the company employed about fourteen people although in recent times the number has been reduced to eight.
Initially the plaintiff and defendants came together upon the recommendation of a third party following an expression of interest by the plaintiff who was making enquiries concerning the manufacture of concrete slabs used in a type of fencing. The plaintiff was interested in different types of slabs and patterns including wood grain, brick look‑alike and so forth. Following some business interaction concerning those matters the plaintiff then made enquiries of the first defendant concerning the manufacture of metal door frames.
The plaintiff alleged that the first defendant represented he and his company had proven experience in the manufacture of door frame making machines and that the company possessed the necessary technical and manufacturing skills to construct a metal door frame rolling mill. The first defendant maintained that he represented no such thing but in fact merely advised the plaintiff that he had had some involvement in the construction and commissioning of another form of metal door frame making machine which used the press breaking method.
"The rolling mill method"
The "press breaker" form of machine manufactured metal door frames in an entirely different way to that of a rolling sheet metal mill. In brief, the rolling mill method produced a continuous ribbon of rolled steel door frame profile which was cut automatically and then welded together for a door frame. The metal came off a roll of precision cut sheet metal and was "uncoiled" by a decoiler, fed into a bank of sliding press units mounted on linear rods, each of which was connected to an air cylinder then processed through a roll former.
The precise technical description is not necessary but suffice it to say that the mill fed in a ribbon of flat sheet metal of a certain dimension at one end and out the other came pressed profile which had been punched for hinges and latches and which simply needed welding into a frame. The mill was a relatively lengthy and bulky piece of machinery but capable of producing product in a significant quantity The rollers that shaped the sheet metal ribbon into profile were all precisely set according to defined criteria. There were a number of photographs tendered in evidence which very clearly depict the machine, and I refer especially to those attached to the report of the expert, David Newton, which was exhibit 15.
"The press breaking method"
The press breaking method which the defendant said he had had experience of and which he says he told the plaintiff about was a less sophisticated and efficient procedure whereby each length required for a frame was pressed out individually and was then ready for welding. The machine required manual operation as distinct from the roll forming machine and it produced product at a reduced rate.
The first defendant maintained that although he had had experience in the press breaking method he had no experience of the roll forming method. He emphatically denied making any suggestion to the plaintiff about any experience or expertise in the roll forming method.
"The negotiations"
In the course of the precontractual negotiations the evidence disclosed that the plaintiff was interested in taking an involvement in a business in Western Australia. According to the first defendant the plaintiff indicated that he was a person of substantial means in Indonesia and there was no problem about finance for a venture in this State.
Although at first reluctant the first defendant became interested in participating in a door frame production business especially upon the basis that there was the market in Indonesia that the plaintiff indicated and given the plaintiff's apparent substantial means. The first defendant's difficulty was, that neither he nor the company had much in the way of capital to contribute to the venture.
There is no doubt that the parties decided to embark upon a metal door frame production venture together and that their negotiations and concluded agreement occurred without the assistance of an interpreter. When it was put to the first defendant that the plaintiff did not know about most of the contents of a document called "business plan" (exhibit 4) the first defendant said:
"Well that's rubbish...when you talk about anything with money lent, Jimmy Jo does understand. He was there in front of me because he had the money, he had the power. I was right here, he was there. He can talk when he wants to." (T59)
In my view the parties were able to communicate adequately and the plaintiff understood major aspects of the enterprise although he may have been labouring under a misapprehension about the extent of the first defendant's experience in constructing a mill. It is clear to me that the first defendant's experience was as to the "press breaking method". The first defendant did not have nor pretend he had experience of the "rolling mill" method. The plaintiff may have been confused on that point but I reject the suggestion that the first defendant tried to mislead the plaintiff by pretending he had experience in the "rolling mill" method.
"The Contract"
Following negotiations it was agreed that the defendants would construct a steel door frame rolling mill. The defendants' proposals were contained in a written quotation dated 23 October 1996 which was handed to the plaintiff, being exhibit 1. The quotation was accepted by the plaintiff and it provided for the manufacture of a "door frame rolling and punching mill" at a price of A$280,000, "CNF Djakarta". This appeared to mean cost and freight with delivery said to be "24 weeks from the date of order and receipt of deposit". The quote also stated:
"We require 20% deposit with the order. 2 further payments each of 25% to be made payable one at week 10 and one at week 15. The final payment of 30% to be made payable on complete and approved test runs at our works Wangara, Western Australia."
The quote was accepted by the plaintiff on the same date. Contemporaneously the plaintiff prepared a document called "Indonesian Party Investment" which was also signed by the parties on 23 October 1996. This document is exhibit 2. It was prepared by the plaintiff. It lists property that the plaintiff had in Indonesia comprising land, a factory building, an office, various factory and office equipment, plant and the like.
Immediately following the list of the plaintiff's property in Indonesia exhibit 2 then contained four items which were described as follows:
"Item 10 New company licence fee.
Item 11. Import door frame machine tax and transport fee.
Item 12. Australian party is responsible to provide the new
door frame machine CIF.
Indonesian party will add A$280,000 for the investment.
Item 13. Ownership.
Australian party share 30%. Indonesian party share 70%."
It was not disputed that the approximate cost of constructing a machine such as that which was contemplated was in the order of $400‑$420,000. It was agreed that the price of the machine to be constructed by the defendants would be $400,000.
The plaintiff's case asserted that there were two contracts into which the parties entered, one being for the design, construction and supply of the door frame rolling mill and the other being a joint venture for the manufacture of door frames in Indonesia.
The defendants asserted that there was only one agreement at all material times. It is to be noted that the formula for party share provided in exhibit 2 seems to have been followed when calculating the contribution required for construction of the machine. The plaintiff agreed to pay A$280,000 to the defendants which amounts to 70 per cent of A$400,000. The defendants' contribution was therefore A$120,000 being 30 per cent of the price.
As to the nature of the agreement I favour the construction asserted by the first defendant. The defendants' contribution to the venture was its forbearance of A$120,000 of the construction fee and if they were not to participate in the Indonesian venture in the way that was spelled out in exhibit 2, then it is difficult to see what other reward it would have obtained for their contribution. I think that the construction asserted by the plaintiff was artificial and it is far more likely that there was one agreement.
The precise nature of negotiations between the plaintiff and the first defendant were the subject of dispute in the trial. In most cases only the two of them were present. The assessment of the plaintiff's reliability and credibility was made difficult by reason of his lack of English but there was a stage when I thought he looked uncomfortable in cross‑examination even though it was conducted through an interpreter. Counsel for the defendants was asking the plaintiff whether the assertions of fact contained in a "Business Plan" (exhibit 4) were true statements. (T127). The evidence was that exhibit 4 was prepared on the instructions of the plaintiff in support of an application for finance to purchase land in Western Australia upon which a factory was to be built. Counsel asked the plaintiff whether the statement under the heading "The Partnership" on the third page, that "management responsibilities have been allocated with Nick Fudlovski being responsible for manufacturing and Jimmy Jo for finance and marketing" was true or false.
Instead of answering the question the plaintiff began jiggling about in his seat and attempted to deal with the issue by dismissing the statement as of no significance because it was made to the bank and, by implication, it was not reliable and did not need to be reliable as a statement of fact.
By contrast I was impressed with the evidence of Mr Fudlovski and found him to be more reliable and credible as a witness than I did the plaintiff.
"Performance"
Following the 23 October and on the 12 November 1996, the plaintiff paid A$28,000 to the defendant. This was only 10 per cent of the price. On 20 December 1996 the plaintiff paid another A$28,000 and this sum when combined with the first payment amounted to the 20 per cent deposit provided for in exhibit 1. According to exhibit 1 the time for delivery was 24 weeks from the date of the last of those two payments. The receipts for those two payments and other payments comprise exhibit 3 as a bundle.
In order to construct the machine the defendants needed to engage the services of an outside expert and in due course one, Barry Martin, was employed. Work began. It is unclear precisely what was done, when, or at what stages in the early part of 1997 construction progressed. Neither the plaintiff nor the defendants kept written records concerning the date of meetings and the reaching of milestones in the construction and the like.
According to the defendants there were some problems in the construction of the machine. These were the result of, on at least one occasion, construction machinery breakdown. However a primary cause of difficulty was the plaintiff's concern about the deteriorating financial situation in Indonesia and his decision that the machine should no longer be delivered there for use in that country but that it should be built for and used in Australia. This was a significant change in the plans which had far reaching effects.
Firstly the evidence disclosed that there was far more competition in the metal door frame making business in Western Australia than there was in Indonesia. In Western Australia the market was dominated by two or three much larger corporations than that proposed by the parties. The difficulties of breaking into the market were obvious.
The timing of the change of plan was also critical. There is dispute about this. The plaintiff maintained that the change of plan occurred early in proceedings, in January or February 1997 before much had been done in construction of the machine and that therefore the change was not a cause of great delay in construction.
On the other hand the first defendant maintains that the change of plan occurred in about May or June at a time when considerable expense had been incurred and work done on the manufacture of the machine. According to the first defendant the change of location of the machine and therefore of proposed market for the product from Indonesia to Australia required alterations to the profile of the product such that the door jamb or protruding central section of the profile had to be deeper or bigger for Indonesia than it did for Australia. This was to accommodate the greater variety of door size in Indonesia and climatic swelling to whatever door was used. The defendants' case was that to alter the profile in this way required significant changes to be effected to the steel rollers used in the machine. The rollers had to be re‑cast or re‑machined and realigned. This was a very big job according to the first defendant. It contributed greatly to the delay in construction.
The first defendant also suggested that his financial commitment to the project by the time of the change was such that he was not able to withdraw from the project in spite of having misgivings about the viability of breaking into the Western Australian market for the product.
The plaintiff's case was that the variation to the contract was not of any great consequence in the total scheme of things. There is no doubt that the parties agreed to a variation of the contract and that the machine proposed was now to be delivered in and utilised in Perth to produce product for the Western Australian market. This variation was brought about, according to the defendants, because the plaintiff became very apprehensive concerning the political and economic situation in Indonesia.
There is no doubt that the unilateral change of venue of delivery and operation for the first machine resulted in significant delay in the production of the machine. I accept the first defendant's evidence on those matters. A contributing factor to the delay was mechanical breakdown in the defendants' factory.
Whatever the precise date of the change, as a result of it, in early May the parties sought finance from a local institution to acquire land and premises for a Western Australian factory. At the suggestion of the first defendant the plaintiff approached a financial adviser and a business plan was prepared which was exhibit 4. This document was created for the purposes of presenting a proposal to a bank for funding. Upon analysis it can be seen that the document had little persuasive potential especially when one looks at the "cash flow forecast for period August 1997 to July 1998" contained on the last page. The document is dated 2 May 1997. It speaks of City Metal Door Frames being formed "as a partnership" in April 1997 in Perth, Western Australia. It expresses optimism about breaking into the local market based upon the production of a significantly cheaper but equally good quality unit to that manufactured by the two major competitors identified in Western Australia.
Not only was the business plan unlikely to have persuasive effect upon a lender, but the plaintiff's conduct, according to the first defendant, was a cause for concern. The first defendant gave evidence that the information upon which the business plan was based came from the plaintiff and one Loraine Wiley being an accountant the plaintiff had engaged.
The business plan stated in the section entitled "The Partnership" that "factory location and design has been finalised...". It also stated under "Location" that:
"The business will operate from land in the Neerabup area north of Wanneroo. Land will be purchased and a factory built to our specifications. Sufficient land will be bought to allow for future expansion."
The first defendant said, and I accept, that he believed the plaintiff to be a person of considerable means who had the financial wherewithal to acquire the premises for the factory. In fact the first defendant thought the purpose of going to the bank was to effect the transfer of the plaintiff's funds from Indonesia. The first defendant's account of this in his evidence is worthy of repetition, from T63 where he describes the meeting with a bank manager from the top of the page:
"What happened?---Jimmy Jo pulled out this business plan and he gave it to him, so the officer at the bank looked at it. He says 'Oh that's very good, very impress, very impressing,' he says. 'Anyway,' he says, 'what can I do for you now this morning?' He says, 'We need to borrow for the building and the land, 450,000.'
... Jimmy Jo asked him for a loan of four to four hundred and fifty thousand dollars for a loan.
What did the bank officer say?---He said, 'Look,' he says, 'as I explained to you yesterday,' he says, 'that we don't give in Australia any money, anything like that on machinery. It's got to be land, property and other things like that,' he says, 'but we don't give money for machinery.'
What was Mr Jo's response to that?---Then he said, 'No. No. No problem, he says. My friend here has got business Wangara. He'll give, you know' ‑ I says, 'Give what, Jimmy?'. I says, 'The bank' ‑ I says to the chap, I said, 'Listen, you know, I - - -'
... Mr Jo was pointing to you and saying that you were going to give something, give what?---That I was going to put my property for the mortgage that he wanted, for the borrowing, for the 400, 450 for the borrowing that he asked me. He says, 'My friend has got land, Wanneroo' and all that.
Had that been discussed with you before you went to the bank?---No. I was blooming shocked to be honest with you. I just froze.
Why were you surprised by that?---Well, I thought I'm going to get some money out of him. Next minute, the bank wants my signature to put my property and my assets which ‑ I mean, I don't think any of those, how much money, I don't know, what he knows about me, but I have got nothing more or less left and this bloke wants me to put signature for my premises in Wangara as well. He doesn't know how much money owed to the bank, to my bank of National, never mind now with the Challenge now.
Did you tell the bank manager that you couldn't give any security for any loan?---Yes, I told him. I says, 'Listen,' I says, 'I can't afford another 20,000' ‑ '400,000.' I says, 'Well, you've got to be kidding.'"
After they left the bank the plaintiff and first defendant had a conversation outside and the evidence was as follows:
"What did you tell Mr Jo?---I said to him, I said, 'What the hell are you doing? I thought you a rich man.' I says, 'Why you want to borrow money? If you're rich, you got cash.' People don't borrow money unless you got nothing.
What did he say to that?---He says, 'You're not a businessman,' he says, 'like Chinese, you know and he went to his car and he just took off and I'm saying to myself, 'I don't believe this man.'
What was the state of the machine? Was it underway, the machine that was for Australia?---Yes. It was miles underway."
It is informative to note the extent to which the plaintiff had fulfilled his obligations under the agreement at this stage. He had only paid $66,000 by May of 1997 (statement of claim para 4). And yet he had agreed to pay 70 per cent of the contract price, ie $196,000 by "week 15" (exhibit 1), ie by the end of April or May. The plaintiff had not been making the agreed payments. This caused the first defendant concern during much of this project and was also a factor in the delay in completion.
Some time after May the plaintiff obtained the assistance of an accountant named George Xu who was a person of Chinese origin who originated from mainland China but who was working in Western Australia at the Wanneroo markets as an amateur sketch artist. With Mr Xu's assistance a business agreement was drawn up between the parties dated 4 July 1997. This was exhibit 7. This document was prepared by Mr Xu with the assistance of two other documents in the form of schedules of purchases and payments which were exhibits 5 and 6. Indeed these documents are incorporated in exhibit 7 on p4. Exhibit 7 refers to the incorporation of City Metal Door Frames Pty Ltd which was registered on 6 June 1997 and mentions the fact that both the plaintiff and the first defendant were appointed as directors of the company. Under the section "business management" the following appears:
"As the early stages business plan, the following has been reaccomplished;
·Nick Fudlovski will be responsible to finish the first door frame rolling machine for City Metal Door Frames.
·Jimmy Jo and Nick Fudlovski will together manage the company finance, administration and marketing.
·The company office and workshop will be located at 49 Buckingham Drive, Wangara, WA."
The business agreement was signed by the parties on 11 July 1997.
Under the section "financial agreement" the following appears:
"Due to both directors agreeing to acquire equal amount of company share, the agreement has been established.
·Jimmy Jo ready to pay Nick Fudlovski the total A$200,000 (as 50% of the door frame machine cost) to acquire 50% share of City Door Frames Pty Ltd.
·Jimmy Jo has already paid A$116,000 up front and, A$30,000 on 20 June 1997.
·The balance of A$54,000 will be completed by following project schedule."
The document then sets out a schedule which obviously reproduces the information contained on exhibits 5 and 6. The schedule sets out payments that have been made and sets a time for the payment for the sum of A$54,000 by the plaintiff.
On the last page of the agreement the following dot points appear:
·"Nick Fudlovski has personally agreed that Nix Sheet Metal Engineering Pty Ltd will produce the second machine at A$320,000 (CIF) for Jimmy Jo at the end of 4 months after the first machine has been completed and finished in well working order, the quality of the products are to be maintained satisfactory.
·Jimmy Jo will personally loan the company an additional amount of A$50,000 for establish business use, the amount will be paid back in several instalment plus 10% pa interest from company's profit.
·The above agreement was made between Jimmy Jo and Nick Fudlovski to establish the business only, it will take no further liability after the agreement has been achieved."
It is quite clear that by this business agreement, exhibit 7, the parties wished to record significant variations to their original contract. It is also significant that in spite of the fact that the machine was not completed within 24 weeks from the "receipt of deposit" (exhibit 1) being 24 weeks from 20 December 1996 (exhibit 3) ‑ second payment of $28,000 which period expired on about 20 June 1997, the plaintiff was not so concerned about delay that termination was contemplated. By 11 July the plaintiff had paid $146,000 which was still significantly less than his original commitment. This is notable when bearing in mind Mr Fudlovski's evidence that the project was always short of money because of the plaintiff's delay in making payments.
It is difficult to be certain about what is meant in some of the clauses contained in the business agreement, exhibit 7. The section entitled "Financial Agreement" speaks of the plaintiff being "ready to pay" the defendants the sum of $200,000 and that this was in order to acquire a 50 per cent interest in City Door Frames Pty Ltd. The sum of $200,000 was also expressed to be "as 50 per cent of the door frame machine costs". Obviously the parties had varied their agreement so as to change the amount that each would have as an interest in the project. Originally the proportions were that the plaintiff was to have a 70 per cent interest and the defendants a 30 per cent interest. The first defendant was not able to take a greater interest because of his lack of ability to make a capital contribution.
However exhibit 7 indicates that the parties varied their agreement so that each would acquire a 50 per cent interest. The sum of $200,000 which the document speaks of the plaintiff as being "ready to pay", obviously includes the amount that the plaintiff had already paid. The second dot point speaks of the plaintiff having "already paid $116,000 up front and $30,000 on 20 June 1997". This is an accurate reflection of the payments that had been made when regard is had to the bundle of receipts comprising exhibit 3. By 2 July the plaintiff had paid $146,000.
On the same page as the section entitled Financial Agreement appears there is a schedule of payments which, as I have already mentioned, is derived from exhibits 5 and 6. The schedule sets out payments totalling $54,000 which when added to the amount already paid by the plaintiff prior to the date of this document equals the sum of $200,000. It can be seen from the schedule that the plaintiff was to make a payment of $30,000 on 14 July. By reference to exhibit 3 it is obvious that the plaintiff did not make that payment. On 17 July, three days later, he made a payment of $2,000 only.
The schedule to exhibit 7 refers to another payment on 30 July in the sum of $14,000. That payment was also not made. There is then a final payment of $10,000 expected to be made on 30 August. Exhibit 3 reveals that a payment of $10,000 was made on 18 August. That is the extent of the payments made by the plaintiff. It is quite clear that the plaintiff did not adhere to the schedule of payments contained in the financial agreement section of the business agreement. Because of the nature of the agreement and the enterprise the failure of the plaintiff to make payments caused delays in performance. The defendants needed regular funding to build the machine.
The last page of exhibit 7 refers to negotiations which had taken place between the parties concerning the construction of a second machine. This machine was to be built in Indonesia. The references to that second machine are conditional upon the first machine being completed and "finished in well working order" (sic). Exhibit 8 is a copy of a quotation dated 7 July 1997 for the construction of the second machine in the amount of $320,000. Exhibit 9 is another document entitled "Indonesian Party Investment" almost identical in its terms with exhibit 2 save for a different price in item 12. This document was dated 7 July 1997 and executed by the parties on 10 July prior to the execution of the business agreement, exhibit 7, which was signed on 11 July.
The next relevant document, chronologically, is exhibit 16 which is a letter dated 14 July 1997 from a man named Des Ryan addressed to the defendant. Mr Ryan is an expert in the marketing area and it appears that he was given a brief to advise on sales and marketing of the metal door frame. He put the project in a very positive light in his letter and then gave an estimate of his fees at $50,000 for 6 months involvement in the project.
According to the first defendant Mr Ryan was referred to the plaintiff, because the plaintiff was in charge of marketing. The plaintiff found Mr Ryan's fees to be exorbitant and there was nothing further done. The first defendant complained that the plaintiff did little to fulfil his obligations under the agreement. He put little or no effort into marketing, or establishing premises or any of the other obligations that he undertook in the venture.
The first defendant gave evidence that following mid July matters did not improve. The plaintiff failed to make the payments required which imposed great financial stress upon the first defendant and the project. The plaintiff regularly attended at the factory but generally hung about making a pest of himself and not putting in any effort at all. More significantly he did not pay the moneys that he had agreed.
According to the first defendant relations started to deteriorate between the parties. The first defendant said the plaintiff began to query his expertise, to complain about the viability of the entire project, to raise queries about the first defendant's bona fides. There was a heated discussion over the cost of an electrical motor. The first defendant said the plaintiff implied the motor had been acquired for a price far in excess of that for which it was available in Indonesia and, according to the first defendant the plaintiff suggested he had been less than honest in the matter. The first defendant took offence at that suggestion.
On 25 August 1997 the first defendant wrote a letter to the plaintiff which was exhibit 10. Mr Fudlovski said his intention in writing this letter was to reassure the plaintiff of his honest intentions and good will. The last thing he wanted was to get into a dispute with the plaintiff especially considering the extent of his financial exposure. He did not think it appropriate to record complaints in the letter and therefore did not do so.
In the letter the plaintiff confirms:
"An absolute guarantee is given that this plant will function in a fully commercial manner and will be ready for trialing in approximately 4 weeks time.
Additionally a full 12 months warranty is given from the date at which the plant commences commercial production. This warranty covers the cost of material for the repair of any item which is deemed to have failed as a result of faulty material or workmanship. Nix Machinery Design reserves the right as sole arbiter in any claim. This warranty applies to a Perth based machine."
In conclusion the letter says:
"Should any dispute as to the quality of the finished product arise so as to cause Mr Jimmy Jo to refuse to accept this plant, Nix Machinery Design will undertake to on‑sell this item to a third party and will undertake to refund all moneys paid by Mr Jimmy Jo upon the receipt of the proceeds from any such sale."
There was no written response by the plaintiff. Significantly there was no written complaint about delay although it is probable that the plaintiff had been raising some concern orally.
The next relevant document tendered in evidence was a letter dated 16 November 1997, about 6 weeks later (exhibit 11), in which the plaintiff wrote to the first defendant. It is worthwhile setting out this short letter in full:
"Dear Nick,
The Door Frame Machine
We have been through a lot of difficulty to finish our door frame machine. You have promised me that the machine would be finished within 5 or 6 months. Unfortunately its already passed 12 months since 12 November 1996, the machine still has not been completed yet.
We have presumed this machine will be completed many times. I am filled with admiration for your ambitions. I do not want to waste your money, time and labour.
I think you will not hesitate to agree with me. To put 29 November 1997 as the deadline for this agreement about finishing off the door framing machine.
I have made two proposals considering the uncertain events that may occur at the end of this month.
•You will fund all my pre‑payment, which is one hundred and fifty eight thousand dollars ($158,000).
•Revalue the uncompleted door framing machine with other relevant equipment. To redeem my $158,000.
Yours sincerely,
Jimmy Jo" (sic)
This letter drew an immediate written response from Mr Fudlovski dated 21 November 1997 ‑ exhibit 12 which again I set out in full:
"Dear Mr Jimmy,
Re: Door Frame Machine
In reference to your letter dated 16 November 1997, I refer you to our Contractual agreement, in which progress payments were required at certain stages.
You are well aware that you have not complied with this agreement and have left me to fund far more than I ever considered.
While I can sympathise with your changed financial circumstances, this is no excuse for the manner in which you have treated this project.
Some of the lost time relates to a machine breakdown as you are well aware, but by far the biggest time loss relates to you changing the end requirement for this machine, i.e., from Djakarta based to Australian design. This has caused a great deal of re‑work as this is no simple swap.
You have not kept your part of our arrangement and have adopted the stand that when it is finished and functional you will pay outstanding moneys. This is totally unacceptable and therefore I have to advise that unless your account is paid as agreed within 7 days, this company will sell this machine to another interested party to recover the moneys outstanding by you.
As you have indicated your wish to continue with the ownership of City Metal Door Frames, I also expect that full payment for my shares will be made on your acceptance of this machine at the agreed value of $250,000, at which time I will tender my letter of resignation as a director of City Metal Door Frames.
Yours faithfully,"
It is apparent that by his letter of 16 November 1997 the plaintiff purported to make time of the essence of the agreement. Without prior written notice of his intention to do so, he gave the defendant 13 days within which to complete the machine.
It is to be noted that although the original quotation, exhibit 1, referred to a completion date of 24 weeks from the date of receipt of deposit, being a date on or about 20 June 1997, the date passed without the plaintiff having expressed any concern. I think the plaintiff waived that condition. That conclusion is supported by the defendant's account of conversations that he had with the plaintiff in the period that followed.
It is of some significance however that by exhibit 11 the plaintiff purported to make time of the essence of this contract without having given any warning, that he fixed a mere 13 days for completion, and that this was in respect of a project that had been on foot for 11 months.
By exhibit 12 the defendant rejected the suggestion that he was at fault for the delay, blamed the plaintiff's change of place of delivery but also significantly attributed the problem of delay to the plaintiff's failure to make payments of outstanding funds.
After having received the defendant's letter dated 21 November 1997 the plaintiff appears not to have taken any action until he saw his solicitors, James McManus & Associates, who wrote a letter on his instructions, dated 8 January 1998, which was exhibit 13.
The letter is in the nature of a letter of demand for the return of $158,000 paid by the plaintiff to the defendant: "pursuant to the terms and conditions of a contract made in or about October 1996".
The letter makes no reference to the variation of the agreement which was effected by the business agreement, exhibit 7.
The letter asserts the machine was not completed by the time stipulated "under the contract as being at the latest the end of May 1997". It also asserts that the machine was not of merchantable quality in breach of an implied warranty that it would be. The defendant was then advised that should he "not remedy the breach of the contract comprised by the matter set forth above within 14 days, our client will accept that as repudiatory conduct and terminate the contract and accordingly will seek damages..."
Exhibit 13 then mentions the defendant's letter dated 21 November 1997, exhibit 12, and asserts that it "completely misrepresents the true contractual position". It then states:
"These letters between yourself and our client, and the failure to have had designed and constructed a door frame rolling and punching mill in accordance with the terms and conditions of the contract, thereby entitling our client to terminate the contract upon your failure to remedy the breach within a period of 14 days from the date hereof." (sic)
The defendant in due course sought legal advice and a letter dated 20 January 1998 from Arms & Associates was sent to the plaintiff's solicitors (exhibit E).
The letter contained the first defendant's account of events as instructed to his solicitor. Broadly speaking the first defendant gave evidence in accordance with what his solicitor wrote. He was cross‑examined however on the contents of the fourth paragraph on the first page of exhibit E which read as follows:
"We are further instructed by Mr Fudlovski that in approximately January 1997 he was approached by your client who expressed concern about his capacity to pay for the machine consequent upon the devaluation of the Indonesian Rupiah against the Australian dollar. Mr Jo indicated that he intended to abandon plans to establish a factory in Indonesia. He proposed to Mr Fudlovski a joint venture in Perth involving the manufacture of door frames. He proposed that the parties become 50/50 partners in the venture.
Our client agreed in principle to the proposal and the parties subsequently engaged an accountant who prepared a financial agreement recording the terms of the agreement."
It was put to Mr Fudlovski that the solicitors' letter reflected instructions he had given to the effect that it was in January that the plaintiff had indicated "he intended to abandon plans to establish a factory in Indonesia". Counsel for the plaintiff asserted that this was a true statement, that it was in January the decision was made, which was before substantial work had commenced. Thus, according to the plaintiff, the first defendant's assertion that the change in venue produced great delay because of the need to re‑work complex metal parts comprising the machine was a false assertion. In other words counsel attacked the first defendant's credibility based upon what was contained in this paragraph.
It can be seen that the paragraph refers to a proposal for "a joint venture in Perth" where "the parties become 50/50 partners". There is also reference to the preparation of a financial agreement. There is no doubt in my mind that the reference there is to exhibit 7 which was the business agreement executed by the parties in July 1997. I do not think the letter proves that the defendant told his solicitors that the change of venue decision was made in January. I think the solicitors misconstrued their instructions. This was not evidence of a prior inconsistent statement of the defendant. I am inclined to accept the defendant's evidence that the decision to change venue from Indonesia to Australia was made by the plaintiff in or about June 1997. Obviously, given the passage of time, the defendant had completed a significant degree of work by that date. I accept that the change of venue was productive of great delay in the project. There is no doubt that it was the plaintiff who, unilaterally, made the decision which changed the venue. Whether he did it because of the political situation in Indonesia or because of the economic situation matters little.
"The plaintiff's claim"
The plaintiff's case was opened on the basis that it was a claim in contract in which there was delay in performance which "brought about" a breach. In addition the plaintiff relied on the provisions of the Trade Practices Act, alleging misleading and deceptive conduct by the defendants entitling the plaintiff to damages. I shall refer to the claim under the Trade Practices Act first because it can be dealt with quite briefly.
Claim under the Trade Practices Act
In para 5 of the statement of claim the plaintiff alleged that the second defendant, by the first defendant, orally represented to the plaintiff that:
· it was able and in a position to undertake the design and manufacture of the (door frame rolling and punching) mill;
· the second defendant had previously successfully designed, manufactured and sold mills of a similar nature;
· the second defendant possessed the necessary technical and manufacturing skills to construct a mill of merchantable quality.
It was then pleaded that these representations were made prior to the formation of the contract between the parties and that the plaintiff acted on the representations. It was then pleaded that the plaintiff "has since discovered that the facts that comprise the representations pleaded in para 5 hereof were untrue and the said warranties pleaded in para 5 hereof have been broken in that:
"8(a)Neither the first nor second defendant had previously designed, manufactured or sold such a mill and
(b)'it was represented to the plaintiff that the design, construction and sale of the mill would be undertaken by the second defendant and not by an associated company Pantera Holdings Pty Ltd'(sic)."
The assertion pleaded in para 8(b) was not the subject of detailed submissions and it can be put to one side. I have difficulty in making sense of it in any event.
The claim relies on alleged oral statements made by Mr Fudlovski being a director of the second defendant, to the plaintiff during pre‑contractual conversations and negotiations. It is a question of fact whether statements made by Mr Fudlovski on behalf of the second defendant were misleading or deceptive. In order to succeed the plaintiff must prove that statements made by Mr Fudlovski contained or conveyed a misrepresentation. The plaintiff asserts that the statements were made as to existing facts concerning previous experience in manufacturing a door frame rolling machine.
There is no doubt that prior to the defendant's involvement with the construction of the rolling mill machine neither the first nor second defendant had had any experience in the design, manufacture or construction of such a machine.
The only prior experience the defendants had of manufacturing a machine that produced door frames was that gained in the manufacture of the press breaker form of machine referred to earlier. Mr Fudlovski gave evidence that he explained to the plaintiff that his only prior experience was with a press breaking form of machine and that he had no previous experience in the door frame rolling mill. Mr Fudlovski tendered in evidence photographs of a press breaking machine with which he had had previous involvement and which he showed to the plaintiff during discussions. That machine was in operation in Malaysia.
For the reasons I have previously expressed I accept that Mr Fudlovski did not represent to the plaintiff that he had previous experience in the design, manufacture and construction of a door frame rolling mill machine. It is quite conceivable that the plaintiff misunderstood what Mr Fudlovski was saying on this issue. The plaintiff may well have believed the defendants did have relevant prior experience. But Mr Fudlovski made no representation to that effect. Indeed his lack of expertise must have become apparent when he hired an outside expert to advise on the construction of the rolling mill machine. Putting that to one side however not only am I not satisfied that the first defendant on behalf of the second defendant has engaged in misleading and deceptive conduct but I am convinced that they did not do so.
The claim in contract
By para 3 of the statement of claim the plaintiff pleads an agreement and by para 4 he sets out the payments that he made in part payment of the purchase price for the mill. By para 11 the plaintiff alleges that the second defendant, in breach of the agreement, "has failed to design, construct and deliver the mill to the plaintiff within the terms and conditions of the contract…and despite demand having been made has failed to remedy the breach."
Nowhere is it pleaded, not was there any evidence that the plaintiff was ready, willing and able to perform his obligations under the contract when he made his "demand" save that he had made the part payments that are pleaded in paragraph 4.
Paragraph 12 then pleads that by reason of the breach the plaintiff has suffered damages and then para 13 states that particulars will be provided.
At trial it was common ground between the parties that the machine had been completed and was capable of producing acceptable product. The Court was advised by counsel that it was no longer in dispute that the rolling mill machine was of acceptable design and of merchantable quality. The alleged breach relied on by the plaintiff was delay in performance.
As I have described, exhibit 1, which was a quotation accepted by the plaintiff, referred to delivery of the completed machine being "24 weeks from the date of order and receipt of deposit".
It appeared to be common ground that the deposit was paid in two instalments of $A28,000 the last being paid on 20 December 1996. By reference to exhibit 1 delivery was agreed to be 24 weeks later which fixes it at some time in May or June 1997. June "came and went" without the plaintiff registering any written concern. The plaintiff stated that he expressed oral concerns as time passed which I accept. However when June arrived and the 24 week period from 20 December passed, the plaintiff did not elect to terminate the contract. Thus even if it could be said that time for performance was an essential term of the contract, about which I have some doubts considering the documentation, the plaintiff waived that condition. This resulted in time ceasing to be of the essence and consequently the plaintiff lost the right to terminate without prior notice.
Time not being of the essence, at least after June 1997, then the plaintiff could not terminate the contract because of delay in performance without giving a reasonable time for the defendants to perform their obligations. Furthermore in giving the notice the plaintiff must be ready and willing to perform.
Although delay can sometimes amount to repudiation or breach of a contract that does to the root of the contract where the circumstances are that there has been procrastination to such a gross extent as to amount to repudiation, that does not seem to me to be the case here.
Exhibit 11 was a letter written by the plaintiff on 16 November 1997, some 5 months after the approximate original date upon which it was expected the machine would be completed. The letter amounts in effect to a notice to complete within 13 days. The letter drew an immediate response from Mr Fudlovski as I have already described.
Nothing further was done by the plaintiff at that time and specifically he did not terminate the contract on 29 November. The next relevant event, as I have described, was that the plaintiff obtained legal advice which resulted in a letter dated 8 January 1998, exhibit 13, which purports to be a notice of an intention to terminate the contract within 14 days.
It is implicit from the above that the plaintiff's advice was that the condition as to time for performance had been waived and notice making time of the essence was required before the plaintiff could terminate the contract.
The question arises whether the time allowed by the plaintiff was reasonable in all the circumstances of the case. I have detailed the circumstances of this unfortunate affair and already concluded that a major cause of delay and difficulty in this matter was the plaintiff's unilateral decision to change the place where the machine would operate from Indonesia to Australia. The parties were having dealings about this matter for more than 12 months prior to the issue of this notice. The machine being constructed was complicated, large and expensive. The plaintiff never fulfilled his financial obligations which was also a contributory factor to delay.
Considering the length of time the parties had been in this commercial relationship I think that it was unreasonable to expect completion of the machine within a period of a mere 14 days. I think the time allowed for remedy of the breach was not reasonable and that the plaintiff therefore did not have the right to terminate and further that the defendants are not in breach of the contract. In the result the plaintiff is not entitled to reimbursement of moneys paid or to damages. The plaintiff has repudiated the contract which, as is pleaded in the defence and counterclaim, was accepted by the defendants who have themselves terminated the contract. It is the plaintiff who has breached the contract which may result in the defendants having a claim for damages. The plaintiff's claim will be dismissed.
11
1