Kerol Pty Ltd & Anor v Eldic & Ors No. Scciv-01-1399

KEROL PTY LTD & ANOR V ELDIC & ORS
[2002] SASC 181
Full Court: Doyle CJ, Mullighan and Williams JJ

DOYLE CJ: This is an appeal against a decision by the District Court dismissing claims made by the plaintiffs against the defendants. There are certain other claims in the proceedings that may yet be pursued by the plaintiffs against one defendant, but that aspect of the matter can be put to one side.
On appeal the plaintiffs submit that the Judge did not dispose of certain claims or causes of action against the first and second defendants. The plaintiffs submit that the action should be remitted to the District Court Judge for further hearing, to dispose of these claims or causes of action. The plaintiffs also submit that the Judge erred in dismissing the claim they made against the fourth defendant.
I have had the benefit of considering the reasons of Williams J. For the reasons given by him, I agree that the appeal against the dismissal of the claim against the fourth defendant, a firm of solicitors which acted in connection with the sale of a business, should be dismissed. For the reasons given by him I agree that the appeal against the order for costs in favour of the fourth defendant should be dismissed. Like all costs orders, the order involved the exercise of a broad discretion. The pre-trial offer by the fourth defendant, made well in advance of the trial, provided a basis for the order that the Judge made, even though I consider that the basis for an order for costs on a solicitor and client basis prior to the date of the letter is not strong.
The remaining issue is whether the Judge erred in failing to deal with certain claims or causes of action identified by Mr Wells QC on appeal, and whether the action should be remitted to the Judge to deal with those matters.
Facts
Williams J has outlined the facts. I will deal with them very briefly, and simplify them somewhat.
Mr Edge was interested in acquiring a business conducted by the third defendant, a company now in liquidation. Mr Eldic and Mr Vergelius were directors of the company, and actively involved in its business. In October 1994 a contract for the sale of the business was entered into. Details of how the sale was effected appear in the reasons of Williams J.
Before the contract was signed there were negotiations in April 1994 involving Mr Edge and his accountant Mr Donnelly, Mr Eldic and Mr Vergelius. Other people were present at different times. The negotiations centred on a letter prepared by Mr Donnelly which proposed, among other things, a restraint on Mr Eldic and Mr Vergelius competing with the new owner of the business. The initial negotiations were unsuccessful. They revived in September 1994, and centred around a second letter prepared by Mr Donnelly, which again proposed a restraint. This time the negotiations were successful, leading to a written contract dated 13 October 1994.
The contract is in a standard form. A feature of the contract is that the standard clause restraining the vendor from conducting a business of a like nature is struck out. Attached to the contract are “Special Conditions” which are not part of the printed form. Condition 6 imposes a limited restraint on the vendor, being limited to the “business of manufacture of mechanical conveyors.”
The case went to trial pursuant to an order made by a Master of the District Court for the determination of preliminary issues. The order provided that damages were not to be decided at that stage.
The Statement of Claim alleges that Mr Eldic and Mr Vergelius have competed directly with the business acquired by the plaintiffs. The plaintiffs claim that Condition 6 should be rectified so that it imposes a restraint relating to a wider range of business activities, and so that it binds Mr Eldic and Mr Vergelius.
The Statement of Claim also alleges that in the course of negotiations Mr Eldic and Mr Vergelius made statements, amounting to representations and warranties, that they would not compete with the business to be carried on by the plaintiffs or be involved with any other person in competition with that business. The central allegations are set out in the reasons of Williams J. The Statement of Claim alleges that these representations and warranties bind Mr Eldic and Mr Vergelius because the plaintiffs entered into the agreement relying on them: see pars 17 and 18. The Statement of Claim alleges in the alternative that the representations and warranties (referring to the statements alleged in pars 10 and 13 of the Statement of Claim):
“… created an understanding and/or belief on the part of the Plaintiffs that Eldic and Vergelius would not compete directly or indirectly …”
with the plaintiffs: par 19.
The Statement of Claim alleges that Mr Eldic and Mr Vergelius have competed with the business of the plaintiffs: par 22.
The Statement of Claim then alleges that Mr Eldic and Mr Vergelius are in breach of the warranties given by them, are estopped from departing from their representations that they would not compete, and have engaged in misleading and deceptive conduct, causing the plaintiffs to suffer loss: pars 23 and 25.
Order for trial of preliminary issues
The order made by the District Court Master identifies the issues to be tried as issues as to rectification, representations and warranties, and orders that damages be tried later.
On appeal Mr Wells submits that the Judge has not determined a claim based on estoppel by conduct nor a claim of misleading and deceptive conduct. I will elaborate on these claims shortly. He submits that findings adverse to the plaintiffs on issues decided by the Judge (which findings he did not challenge as I understand his argument) do not dispose of the claims based on estoppel by conduct and misleading and deceptive conduct.
It is clear that the trial was conducted on the basis that all causes of action or claims available to the plaintiff were to be considered at the first stage.
It is true that the Master’s order could be read narrowly, as restricted only to the claims or causes of action actually named. But it is clear that the trial was conducted on the broader basis. The trial was conducted on the basis that the entitlement to damages and the quantification of damages (and later issues) would be deferred, but that other issues relevant to liability would be determined at the outset. This very point was raised by the Judge during the plaintiffs’ opening. As a result of the Judge’s intervention, the parties agreed that the Judge was to deal with every cause of action “pleaded and available.” The Judge’s reasons record that “most aspects of liability arising on the pleadings” were to be decided by him.
The issues on appeal
Two issues arise on appeal, putting aside the issues on which I adopt the reasons of Williams J.
First, were there causes of action or claims pleaded or available to the plaintiffs that the Judge failed to deal with?
Second, do the findings made by the Judge necessarily amount to a dismissal of any such claim or cause of action?
The second issue
It is convenient to deal with the second issue first.
Mr Wells accepted that the Judge did not make findings that entitled the plaintiffs to succeed on the unresolved issues. (I use this term to refer to the claims which he said had not been disposed of.) In other words, Mr Wells does not submit that the plaintiffs are entitled to a determination in their favour. He accepts that if his submissions succeed the matter must be remitted for a further hearing before the trial judge.
Mr Blue QC, counsel at trial and on appeal for Mr Eldic and Mr Vergelius, submits that the Judge’s findings are inconsistent with a finding for the plaintiffs on the unresolved issues.
There is some force in this submission. In particular, the Judge found that Mr Edge’s evidence “lacks credibility”. Although the Judge accepted that in some significant aspects Mr Edge’s evidence was supported by the evidence of Mr Donnelly, the Judge described the support as “tenuous”. The Judge expressly accepted the evidence of Mr Eldic, Mr Vergelius and Mr Graeme Vergelius. On my reading of relevant parts of their evidence, that evidence could be seen as inconsistent with a finding for the plaintiffs on the unresolved issues.
However, while the Judge rejected the plaintiffs’ claim that the warranties and representations relied on by the plaintiffs were made, the Judge did not make comprehensive findings about the relevant events. To some extent his findings, rejecting the plaintiffs’ claim, were in terms of what did not occur. I am not satisfied that the findings made necessarily exclude findings for the plaintiffs on the unresolved issues, although I agree that his findings do not leave much room for such findings, and suggest that he would not find for the plaintiffs on the unresolved issues.
For that reason, if there are unresolved issues that should have been decided, those issues should be remitted for consideration by the trial judge.
The first issue
The submission advanced by Mr Wells is as follows.
The Judge rejected the plaintiffs’ claim that Mr Eldic and Mr Vergelius made the representations and warranties pleaded by the plaintiffs. He must have rejected much of Mr Edge’s evidence about what they said. The Judge rejected the claim that Mr Eldic or Mr Vergelius agreed to accept the restraint on which the plaintiffs relied. The Judge rejected the claim that they knew that Mr Edge “was proceeding on the mistaken belief that agreement had been reached in relation to the extent of the proposed restraint of trade clause.”
Mr Wells accepts that the Judge’s findings implicitly reject any submission that Mr Eldic or Mr Vergelius said to Mr Edge that they would not compete with the business to be conducted by the purchaser of the business. He also accepts (and I would decide in any event) that the Judge implicitly rejected any submission that what they said amounted to a representation to that effect, for example, by describing what they planned to do in such a limited way as to represent or imply that they would not compete.
But there was evidence that when the relevant discussions took place about what Mr Eldic and Mr Vergelius would do after they sold the business, Mr Edge made a statement or statements to the effect that what Mr Eldic and Mr Vergelius said they proposed to do would be alright or did not concern him because that meant they would not be competing with the business to be sold. Neither Mr Eldic nor Mr Vergelius gave evidence that they responded to or corrected that statement. But, the submission runs, on their own evidence they were not prepared to accept any restriction that bound them, and wished to be free to pursue their former business activities if they saw fit. In these circumstances, Mr Wells submits, their silence or omission was capable of amounting to misleading or deceptive conduct, or of amounting to a representation by conduct, giving rise to an estoppel if Mr Edge acted on the representation to his detriment. Also, their conduct contributed to Mr Edge’s assumption that they would not compete, and it was unconscionable for them now to act inconsistently with that assumption.
This is the factual basis upon which Mr Wells identifies what I have referred to as the unresolved issues, and these are the claims which he submits the Judge failed to decide.
I agree that the Judge did not deal with this submission. I did not understand Mr Blue to argue otherwise.
The trial
For the following reasons, I conclude that the unresolved issues were not part of the case at trial, and that the plaintiffs were not entitled to seek a finding in their favour on the case put this way.
The unresolved issues are not pleaded. A reading of the Statement of Claim indicates that what is pleaded are express representations or warranties that Mr Eldic and Mr Vergelius would not compete with the new owners of the business, and that they made statements indicating that their activities would be quite restricted. The pleading suggests that an inference is to be drawn from the restricted nature of the future activities indicated, but the pleading also alleges explicit statements that they would not compete: pars 10 and 13.
This is the claim that the Judge rejected. That is, a claim that Mr Eldic and Mr Vergelius said they would not compete, or described their proposed activities in such a limited fashion as to indicate or imply that they would not compete. This claim is inconsistent with the evidence of Mr Eldic, Mr Vergelius and other defence witnesses. They denied that their statements amounted to statements that they were going to withdraw from the relevant field of business, or that they would not compete. On their evidence, they made it clear that this was not so. The defence case succeeded on these points.
Granted, in par 17 there is a pleading that the statements “amounted to representations and warranties” that Mr Eldic and Mr Vergelius would not compete, but this pleading is to be read as no more than a statement of the legal effect of the statements relied upon.
There is no hint here of a claim along the lines of the unresolved issues. That is, a claim that Mr Edge’s response to statements made by Mr Eldic and Mr Vergelius about their proposed business activities indicated a belief on his part in circumstances such that Mr Eldic and Mr Vergelius could reasonably be expected to correct that belief, or at least to make a more complete disclosure of their plans.
This is quite a different claim. Its elements, and matters that could be expected to be pleaded, appear to be that Mr Eldic and Mr Vergelius intended to be free to compete if they saw fit, statements by them indicating that their future business activities would be limited, a statement by Mr Edge indicating that he thought they were indicating that they would not compete, failure by Mr Eldic or Mr Vergelius to correct that belief, and a duty in the circumstances to correct the belief, or a reasonable expectation that they would do so: cf Permanent Trustee Australia Co. Ltd v FAI General Insurance Co. Ltd [2001] NSWCA 20; (2002) 187 ALR 380 at [105]-[108]. This need not be fully or precisely pleaded, but one would expect to find at least a pleading of a duty to correct or a reasonable expectation that a correction would be made, having regard to a statement made by Mr Edge about his belief. This would in turn direct the attention of the defendants to the need to explore factors underlying the duty or expectation.
The closest that the Statement of Claim gets to the unresolved issues is in par 19 in which it is alleged that the “representations and warranties created an understanding and/or belief on the part of the Plaintiffs that Eldic and Vergelius would not compete …”. But this allegation also is founded on the allegation that statements were made by Mr Eldic and Mr Vergelius that they would not be involved in engineering work or would not compete, not on a failure by Mr Eldic and Mr Vergelius to react to a statement by Mr Edge as to his belief.
I do not suggest that the case made on the unresolved issues is necessarily inconsistent with the pleading. My point is that on a natural reading of the Statement of Claim one would not anticipate that the case to be advanced was a case in terms of the unresolved issues.
Significantly, there is nothing in the Statement of Claim to the effect that Mr Edge said, by reference to statements made by Mr Eldic or Mr Vergelius, that Mr Edge believed or was satisfied that they would not be competing, that the other two remained silent, that they knew or should have known of Mr Edge’s belief, and that they then had an intention to compete if they saw fit. There is no hint of such a case in the Statement of Claim. Nor is there any other allegation of conduct on the part of Mr Eldic or Mr Vergelius inducing a relevant belief in Mr Edge.
The distinction between the case pleaded and the unresolved issues may be said to be subtle. But legally and forensically the unresolved issues present quite distinct issues and matters for consideration. It is reasonable to expect the plaintiff to identify that these issues will arise. All the more so because of the tension between the case pleaded and rejected (statements amounting to representations) and the unresolved issues (no such statements, but things said that caused Mr Edge to respond in a manner calling for a further response from Mr Eldic and Mr Vergelius).
That is not the end of the matter. Sometimes the conduct of a trial is such that issues not pleaded, or not clearly pleaded, both arise and must be dealt with. But in my opinion it cannot be said that the unresolved issues were pleaded so as to call for an answer from the defendants.
We were referred by both counsel to the plaintiffs’ opening at trial. In the passages referred to I can find no adequate reference to a case in terms of the unresolved issues. This is despite some attention being given during the opening to the basis on which the trial was to proceed, and to the causes of action that were relied on.
We were also referred to parts of the evidence of the key witnesses.
As I read the relevant parts of Mr Edge’s evidence-in-chief, his evidence was not led on the basis of the unresolved issues. This is not to say that the case now made cannot be found at all. But the emphasis is on representations that Mr Eldic and Mr Vergelius would not compete, and on statements about their plans that implied they would not compete. The evidence of Mr Edge has been rejected by the Judge. There is reference by Mr Edge in cross-examination to his statement that what Mr Eldic and Mr Vergelius planned to do was not a problem so long as they did not compete. And there is no suggestion of them saying anything further. However, as a whole his evidence is a mix of claims that Mr Eldic and Mr Vergelius said they would not compete, expressly or by describing their plans for the future, and evidence that Mr Edge said that what they planned was alright because it would not be competition.
It is fair to say that if the unresolved issues were part of his evidence, they were very much in the background.
Aspects of the unresolved issues do emerge in other evidence. Mr Donnelly gave evidence that when Mr Vergelius talked about plans to do design and consultation work, either he or Mr Edge replied that there would be no problem if they were not competing. The evidence of Mr Vergelius, which the Judge accepted, was quite emphatic that he made the position clear – he intended to carry on business, and would not accept any restraint. It was put to him that he said he would not compete, or conveyed that impression. There is no sign of a case being put to him that Mr Edge indicated in response to answers given to him by Mr Eldic or Mr Vergelius that what they planned was alright as long as or because it was not going to be competing with the business of the plaintiffs. Similarly, in the cross-examination of Mr Eldic, which was quite brief, I could find no trace of the case based on the unresolved issues.
It is difficult for an appellate court to make a fair assessment of the overall course of a trial, and of the issues which can be regarded as live at trial. But my impression is that at trial Mr Blue could not reasonably have been expected to realise that an alternative case in terms of the unresolved issues was being put.
I also accept the submission by Mr Blue that if it had been apparent that such a case was being put, he could have explored certain aspects of it with his witnesses, and could have cross-examined Mr Edge in particular about it. Once again, it is not easy to be specific about this. But it seems to me that it is likely that he would have explored in more detail matters such as the significance of the signing of the contract (when the standard form clause was struck out), the significance of the limited nature of the clause that replaced it, the reliability of Mr Edge’s memory, how the case based on the unresolved issues fitted with the positive case being made at trial, and the question of reliance.

I consider that there is a risk of prejudice to the defendants, if the case is now to be decided on the basis of the unresolved issues.
We were also referred to the closing submissions made by counsel at the trial. Counsel for the defendants addressed first. The address of counsel for Mr Eldic and Mr Vergelius seems to have focused on a case in terms of affirmative representations and affirmative agreement that they would not compete.
Counsel for Mr Edge at trial addressed next and did raise the substance of the case now advanced as the unresolved issues. The Judge made no particular comment when he did so. In reply, Mr Blue protested that the case pleaded was based on a positive representation, that the trial had been conducted on that basis, and that he would have run it differently had the position been otherwise. He submitted that if Mr Edge now wished to run the unresolved issues, an application would have to be made to amend the pleadings.
In response to this, counsel for Mr Edge declined to amend, submitting that the evidence was before the Judge and these further issues had to be decided by the Judge.
The Judge made no comments about these submissions at the time. He said nothing about them in his reasons.
I accept that pleadings are not an end in themselves. Their purpose is to define issues in the interests of efficiency and fairness: Kien Dan Luu Pty Ltd v AMP Society Limited [1999] SASC 442; (1999) 75 SASR 345 at [55]. A departure from the pleadings may bind the parties, and in a case like this the Court must also consider how the trial was conducted: Kien Dan Luu at [61]. Nor is it necessary that the Statement of Claim identify the precise causes of action to be relied upon.
Subject to these comments, the present case depends upon what can fairly be regarded as having been identified by the pleadings as an issue to be fought at trial, and what can fairly be regarded as an issue raised at trial and, whatever the pleadings might have contained, accepted by the parties at trial as an issue to be determined by the Judge.
As I have said, I consider that the Statement of Claim cannot be regarded as raising a case based on the unresolved issues. There was no reason for the defendants to anticipate that that case would be run at trial. Nothing said in the opening for the plaintiffs alters that. In the course of evidence one can find passages of evidence on which a case in terms of the unresolved issues can be constructed. One can find questions put to witnesses which bear on such a case. But doing my best with the difficult task of assessing what should reasonably have been understood as the issues raised at trial, I accept that the case at trial was focused on affirmative representations or statements made by Mr Eldic and Mr Vergelius that they would not compete with the purchaser. A case in terms of the unresolved issues is far removed from the case that seemed to be presented at trial. There is also some tension as between the two cases. As I have already said, I consider that there is a risk of unfairness to the defendants if the Judge were now asked to make findings on the unresolved issues. Nor, I consider, would it be satisfactory now to reopen the whole case.
It is not easy to know what to make of the fact that the Judge made no reference to the unresolved issues, or to the conflicting submissions that arose so late in the trial, when Mr Blue made his reply and when counsel for Mr Edge made a response to that reply. But the Judge’s approach is consistent with the view that he considered that the unresolved issues were not fairly before him.
Under all the circumstances, I consider that a case in terms of the unresolved issues was not pleaded or advanced at trial with sufficient clarity to entitle the plaintiffs to complain of the fact that the Judge made no findings on it.
For those reasons I would dismiss the appeal.
MULLIGHAN J: I would dismiss the appeal for the reasons given by Doyle CJ and I am in general agreement with the reasons given by Williams J.
WILLIAMS J The plaintiffs appeal against judgment given in the District Court upon the trial of preliminary issues in this action; the reasons of the Trial Judge were delivered on 21 September 2001. The plaintiffs also appeal against an order for costs made on 1 November 2001.
1. The nature of the dispute
The second plaintiff Edge is a director of the first plaintiff Kerol Pty Ltd. The third plaintiff was formerly called JM Fitch Sales Pty Ltd but on 25 November 1994 changed its name to Adelaide Conveyor Company Pty Ltd; the third plaintiff is the nominee of the first and second plaintiffs for the purposes of an agreement relating to the purchase of the machinery manufacturing business of the third defendant. The first and second defendants Eldic and Vergelius are directors of the third defendant Vergeld Engineering Pty Ltd which until the sale of its business on 21 November 1994 was called Adelaide Conveyor Company Pty Ltd and carried on business under that name.
Mr Edge contends that he negotiated the purchase of the business (including goodwill) upon the understanding that Eldic and Vergelius (the two directors of the vendor company with whom he had negotiated) would refrain from competing with the business after it had changed hands. However Messrs Eldic and Vergelius refuse to recognise any restraint upon their continuing business activities.
The plaintiffs seek damages against the first and second defendants Eldic and Vergelius based on a breach of s 52 and s 75B of the Trade Practices Act 1974 (Cth) and s 56 of the Fair Trading Act 1987 (SA) with respect to representations (as to future conduct) allegedly made during the negotiation of the agreement for the sale and purchase of the business; in the alternative the plaintiffs rely upon an estoppel by conduct (which is also alleged to give rise to a collateral contract or warranty) arising out of the negotiations. In a further claim the plaintiffs seek damages against the fourth defendant Low and Partners (a firm of solicitors) with respect to an allegation of professional negligence in connection with the preparation of the contract document. It is unnecessary for the purposes of the appeal to refer to other causes of action.
In terms of a written agreement for sale and purchase (called “a business contract note”) executed during October 1994 and completed on 21 November 1994 the plaintiff Kerol Pty Ltd acquired the plant and equipment of the business formerly operated by the third defendant at South Road, St Marys and the plaintiff Adelaide Conveyor Company (then called JM Fitch Sales) acquired the business name, goodwill and stock. The parties to the business contract note were Vergeld Engineering (as it is now called) as vendor and Kerol and Edge (and/or nominees) as purchasers; JM Fitch Sales Pty Ltd became the purchasers’ nominee. The purchase price was fixed at $160,000 of which $42,950 was attributed to goodwill. The business contract note (cl 6 to Appendix A) contained a restraint expressed as follows:
“The Vendor will not carry on or be engaged, concerned or interest (sic) directly or indirectly in the capacity of sole trader, partner, director or shareholder, manager, employee, agent or consultant in the business of manufacture of mechanical conveyors for a period of five (5) years from the settlement date hereof within a radius of forty (40) kilometres from the business premises.”
Following discussions between Mr Edge and Messrs Eldic and Vergelius the business contract note was prepared in October 1994 by Mr Stevens, a landbroker employed by the fourth defendants Low and Partners, solicitors. Low and Partners were instructed on behalf of the vendor but there is an issue as to whether they had a responsibility (which they deny) also to protect the plaintiffs’ interests.
It is apparent that cl 6 (quoted above) does not purport to impose a personal restraint upon either Eldic or Vergelius but only binds the vendor company. However, the question at issue concerns the effect of the exchanges between Mr Edge and Messrs Eldic and Vergelius (either personally or by their respective representatives). The plaintiffs allege that Mr Edge was misled by the verbal responses of Messrs Eldic and Vergelius in the course of negotiations of the agreement in April and October 1994 and that Mr Edge was entitled to treat Messrs Eldic and Vergelius as themselves giving an undertaking against competition. The Trial Judge dismissed the plaintiffs’ claim in this behalf; the Trial Judge was not satisfied on the balance of probabilities that the alleged promises or representations were made or that the conduct of Eldic and Vergelius should have led Mr Edge to make an assumption that Eldic and Vergelius would not compete.
The Trial Judge also dismissed the claim in negligence against the solicitors Low and Partners for failing properly to protect the interests of the purchasers (by omitting from the document a restraint upon competition by Messrs Eldic and Vergelius personally). The Trial Judge decided that the solicitors were not engaged to act in the purchasers’ interests in the drawing of the document; in the course of reaching this conclusion His Honour decided that instructions were not given by Mr Edge to Mr Stevens and that a meeting to provide these instructions (as deposed to by Mr Edge) did not take place. The Trial Judge ordered the plaintiffs to pay the costs of the fourth defendant to be taxed on a solicitor/client basis. The Trial Judge made this order upon the footing that the claim against the solicitors was “akin to the making of an allegation knowing it to be false” and based upon groundless contentions; the Trial Judge also considered that the plaintiffs’ refusal of a settlement offer was “imprudent”; this offer which was made by letter dated 28 November 2000 (some eight months before trial) pointed out some apparent weaknesses in the case against Low and Partners and offered the plaintiffs the opportunity to discontinue without paying costs.
2. The Background
Preliminary witness statements were filed and treated as evidence in chief for the purposes of trial. These depositions provide a useful background although the Trial Judge found it unnecessary to refer in his reasons to much of this material. However, for a better appreciation of the nature of the dispute (see pt 1) and the points argued on appeal (see pt 3) it is now convenient by reference to the depositions to identify how the parties came together in business and how Mr Edge claims to have eventually discovered the activities of the defendants of which he now complains. The history of the parties’ involvement in business before 1994 is not contentious but the circumstances in which Mr Edge claims to have uncovered alleged breaches of contract forms part of the question reserved for a later trial.
In 1983 the respondents Ralph Vergelius and Tom Eldic formed the respondent company (then called Adelaide Conveyor Company Pty Ltd) to undertake engineering work and in particular the design and manufacture of materials handling equipment. Vergelius had experience and formal qualifications in mechanical design; Eldic, a boilermaker/welder by trade had manufacturing experience with respect to light industrial work in a business which he was then conducting from premises at 12 Dennis Street, St Marys. In 1983 Eldic brought his manufacturing equipment and employees into the new business of Adelaide Conveyor Company whilst Vergelius contributed design equipment and draftsmen; the new business was conducted from the Dennis Street premises. Thereafter, Vergelius claims to have specialised in the “design/consulting side” of the business whilst Eldic concentrated on the “manufacturing/installation side”.
In July 1992 (according to Vergelius) Eldic and Vergelius formed T & R Consulting Services Pty Ltd to carry out design and drawing and site supervision work in relation to light engineering projects and to prepare tenders. Vergelius asserts that after this Adelaide Conveyor Company did not carry out this type of work but confined itself to manufacturing and site installation. In his preliminary statement Vergelius says that:
“Nearly all of the manufacturing jobs obtained by Adelaide Conveyor Company were the result of tenders. Our success rate on tenders was approximately 15-20%.”
The implication is that T & R Consulting Services must have worked closely in conjunction with Adelaide Conveyor Company.
Adelaide Conveyor Company carried out work in the Adelaide metropolitan area but was also involved in some interstate and overseas projects - in particular relating to the provision of equipment for use in abattoirs.
In 1993 Vergelius says that faced with Eldic’s deteriorating health, Eldic and himself decided to put the business of Adelaide Conveyor Company on the market. In March 1994 an agent Mr Peter Smith expressed an interest on behalf of Mr Edge (who had previously worked for CA Patterson & Sons - a competitor of Adelaide Conveyor Company). Mr Edge gave evidence (as noted by the Trial Judge) that he was a qualified panel beater who in 1987 had become interested in farming and investment funds management. By 1994 he was looking to buy and manage an established business in which he could draw upon his previous experience in light metal fabrication. Mr Donnelly a certified practising accountant followed up Mr Smith’s overtures; on 6 April 1994 acting on the instructions of Mr Edge, Mr Donnelly wrote to the directors of Adelaide Conveyor Company offering $150,000 for the business. This led to discussions during April 1994 which came to nothing. (It appears that Eldic’s state of health had temporarily improved).
In September 1994 Eldic and Vergelius sought to re-open negotiations as a result of which Mr Donnelly put forward a further proposition by letter dated 30 September 1994. The proposition in many respects resembled that in the earlier letter but the price was increased to $160,000. Again the parties met and negotiated. The details and effect of the negotiations in April and October 1994 are contentious and are at the heart of the dispute. (These details are dealt with in pts 4 and 5 of my reasons).
Eventually Low and Partners were instructed to prepare a contract for sale and purchase of the business. The circumstances in which Low and Partners took their instructions are also contentious; this aspect of the matter is dealt with in pt 6 of my reasons. As Mr Edge was not interested in buying the freehold at Dennis Street it was necessary for Low and Partners to prepare leases of the Dennis Street land and two neighbouring sites and these were incorporated into the transaction.
According to Mr Edge, on 5 December 1996 he attended a pre-auction inspection of the assets of a business called DPE Engineering. He claims to have seen in the design room bundles of engineering drawings upon which the name Adelaide Conveyor Company had been “whitened out” and the name DPE substituted. Edge claims that these drawings matched originals which he found in the records of Adelaide Conveyor Company. The plaintiffs complain that the restraint imposed by cl 6 to Appendix A of the business interest note has been breached. In terms of par 22 of the statement of claim they allege:
“Following the completion of the said sale and purchase Vergeld, Eldic and Vergelius have worked in competition with the Plaintiffs within 40 kilometres of its conduct of the ACC business.
(a)On or about the 10^th day of May 1995 the incorporation of DPE Industry Pty Ltd was registered. The principal activity was stated to be Engineering Services. The directors were David Paul Eldic and Mary Eldic who are respectively the son and wife of Eldic. The registered office and principal place of business was 28 Matthew Street Bedford Park which is also the residence of Eldic and within 40 kilometres of St Mary’s. Eldic has since approached customer’s (sic) of ACC and DPE has received substantial payments from them. Eldic has received payments from DPE both directly and through T & R, and further is trustee of the DPE Industry Superannuation fund.
(b)Vergeld has performed work in competition with Kerol in respect of which Eldic and Vergelius have received distributions as shareholders of Vergeld.
(c)Between 1995 and 1996 Vergelius (either through himself personally, through T & R Consulting, or through Vergelius Engineering Services) was involved in design work and preparation of engineering drawings for DPE in relation to former clients of ACC, including, Pekway, E-Mail, JWP Project Services Pty Ltd, and Meramist.
(d)Vergelius has performed work through Vergelius Engineering Services in competition with the ACC, including performing work for Mannesmann Demag, a former customer of the ACC. This work has been ongoing since the sale of the business of the ACC.
(e)Vergelius has performed design work for Bolnar Engineering, a company in competition with the Plaintiffs. This work has been ongoing since the sale of the business of the ACC.
(f)Vergelius has received payment for design work performed for DPE by way of distributions from T & R, Vergeld, and Vergelius Engineering Services.
(g)Vergeld had performed work for DPE in competition with the ACC business.
(h)DPE performed work for the customers of ACC including inter alia:
Meramist Pty Ltd
Mannesman Demag
JWP Project Services
E-Mail
SAMCOR
Pekway
(i) DPE also performed work for potential customers of ACC.”
(Vergelius Engineering Services Pty Ltd referred to in the statement of claim is admitted by Mr Vergelius to be a company of which he was a shareholder and sole director).
Issue has been joined as to the alleged breaches although Vergelius acknowledges having undertaken some design work for DPE. These issues have not yet been tried but form part of the case which has been reserved for a later trial as a result of a Master’s order (see pt 4 of these reasons).
3. The points argued upon appeal
Counsel for the appellants did not pursue all issues raised in the appeal notices. Having regard to the way in which Mr Wells QC of counsel chose to shape his argument for the appellants, I have found it convenient to reduce the appellants’ arguments to the expression of two complaints; I have then referred to selected extracts from the notices of appeal and the written outline of arguments in order to draw together the formal threads of argument. To complete this exercise I have then identified four questions (as argued by the appellants) which require analysis in order to deal with these appeal points.
The appellants’ complaints in terms of their argument upon this appeal may be restated as follows:
Complaint 1:
(a)That as the trial was confined to preliminary issues, the plaintiffs should still be at liberty to litigate (as an issue reserved by a Master’s pre-trial order) a question whether the defendants Eldic and Vergelius made representations by conduct as to their intended future business activities in terms of competition. Therefore, the order dismissing the plaintiffs’ claim should be set aside.
(b)That in the alternative to 1(a) the Trial Judge failed to deal with a case which relied upon conduct involving the silence of Eldic and Vergelius in response to Mr Edge’s proposals and questions in the course of the negotiations.
The appellants contend that the conduct of which they complain amounts to misleading or deceptive conduct or alternatively gives rise to an estoppel by virtue of an assumption made by Mr Edge and induced by the conduct of Messrs Eldic and Vergelius.
Complaint 2:
(a)That the Trial Judge’s finding that Low and Partners were retained only by Vergeld to prepare the contract for sale and purchase was against the weight of the evidence. The contemporaneous documents of Low and Partners establish that Stevens was retained by the plaintiffs to whom he owed a duty of care (which was breached) notwithstanding the Trial Judge’s finding that the meeting with Stevens as alleged by Edge did not occur. The Trial Judge did not consider the effect of the documents in the file of Low and Partners.
(b)That the order for costs was not justified.

The question raised as to whether an issue has been reserved (as contended by the appellants in complaint 1(a) above) involves the construction of a Master’s pre-trial order and I have dealt with this as a separate topic.
The Court has before it a notice of appeal dated 14 November 2001 and a supplementary notice filed under Supreme Court Rule 95.06, but the appeal was argued substantially by reference to selected paragraphs in the latter document and after the appellants had abandoned a number of appeal grounds. Neither the appeal notice nor its supplement draws the distinction which can be identified in the arguments of the appellants’ counsel which I have summarised above as giving rise to the alternative arguments (a) and (b) in complaint 1.
Mr Edge (by his accountant Mr Donnelly) put forward offers in writing to treat for the purchase of the business; two separate proposals were contained in letters dated 6 April 1994 and 30 September 1994. Although there were differences on each occasion in the proposed terms (including the proposed price) each letter was set out in the form of a series of “dot points” (sometimes called “bullet points”). Each of these dot points by way of emphatic punctuation introduces a draft clause for a proposed agreement. Each of the two letters (but in slightly different context) included a dot point which suggested the following term:
“The present owners will not be involved directly or indirectly in competition with the new owners for a period of five years.”
This clause in each letter has been referred to during the trial as “the dot point”.
On 15 April 1994 (sometimes incorrectly mentioned in evidence and in the statement of claim as 23 April 1994) and on 5 October 1994 there were discussions involving Mr Edge and Messrs Eldic and Vergelius; others were also present. Arising out of the Trial Judge’s treatment of these discussions the appellants in a written Outline of Argument now make the following submissions:
“1.1The evidence which the learned trial judge accepted as credible establishes that the first respondent, Eldic and the second respondent Vergelius had engaged in misleading and deceptive conduct.
The learned trial judge did not consider that issue, and limited himself to determining whether Edge’s evidence established that Eldic and Vergelius had made promises or representations.
Or alternatively
1.2The evidence which the learned trial judge accepted as credible establishes that Eldic and Vergelius had so contributed to the plaintiff Edge’s assumption that they would not be involved in competing that it would be unconscionable for them now to deny that.
Commonwealth v Verwayen (1990) 170 CLR 394 at 440, 444.
The learned trial judge did not consider that issue and confined his consideration to whether Eldic and Vergelius had made promises or representations.”
The case as pleaded by the plaintiffs against Eldic and Vergelius was summarised by the appellants’ counsel for the purposes of the appeal as follows:
“1Misleading and deceptive conduct
The plaintiffs alleged that they made offers to the directors of a company to purchase its business. The bases of the offers were set out in two letters. The letters of offer were the subject of discussion with the directors. When the proposal in the letters that they not compete was raised with the directors, (Eldic and Vergelius), the nature and extent of their responses in the circumstances led the plaintiff Edge to believe that they would not compete with the plaintiffs after the sale of the business.
2Estoppel
The plaintiffs also alleged that the nature and extent of the responses of the directors Eldic and Vergelius gave rise in the circumstances to an understanding on the part of the plaintiffs that Eldic and Vergelius would not compete directly or indirectly with the plaintiffs.”
In the supplementary notice of appeal the appellants summarise the conduct and circumstances relied upon to support these allegations; the appellants now argue:
“The learned Judge ought to have held that the following, inter alia, amounted to representations by the defendants Eldic and Vergelius that they would not compete:
(1)their silence or prevarication in the face of the statements of others as to competing;
(2)when the dot point as to competing was being discussed no objection was made to its contents;
(3)the express statement by the defendant Eldic that he would retire;
(4)the express statements by the defendant Vergelius that he would do only independent consulting work and would not compete with the plaintiffs.
The learned Judge erred in considering that an estoppel had not been made out and ought to have held that the plaintiff Edge had relied upon an assumption as to a future state of affairs which he was induced to hold by the conduct of the first and second defendants.”
(The facts upon which the appellants rely to support these contentions are set out in the extract from the statement of claim quoted below).
The following questions were identified and argued upon the appeal:
(a)The construction of the pre-trial order of the Master and the course of trial. (See pt 4 of these reasons).
(b)The effect of the responses of Eldic and Vergelius to Mr Edge’s proposals and his enquiries in the course of negotiation as to the future plans of Messrs Eldic and Vergelius in terms of competition. (See pt 5 of these reasons).
(c)The inferences which ought to be drawn from documents so as to prove that Low and Partners were acting as solicitors for the plaintiffs. (See pt 6 of these reasons).
(d)The justification for the costs order. (See pt 7 of these reasons).
I will deal with each of these four last-mentioned topics in turn.
4. The Master’s pre-trial order and the course of trial
On 6 June 2001 a District Court Master ordered that certain specified questions be determined as a preliminary issue pursuant to District Court Rule 75.02(2); on 8 June 2001 the Master slightly amended his order so as to better define the issues to be tried firstly as between the plaintiffs and the first, second and third defendants and secondly as between the plaintiffs and the fourth defendant (Low and Partners). In each instance the question of damages was reserved by a form of order: “That the question of damages will not be tried until further”.
The questions to be tried as a preliminary issue were set out in par 3 of the order as follows:
“A. As against the first, second and third defendants:
1.1Whether or not the defendants made the representations and/or warranties prior to the agreement as alleged by the plaintiffs in the Statement of Claim;
1.2Whether or not the plaintiffs entered into the agreement to purchase the business in reliance upon the representations and/or warranties allegedly made by the defendants to the plaintiffs (or any of them) as pleaded in SOC1;
1.3The true construction of clause 6 of the special conditions annexed to the contract note (‘the Agreement’) pleaded in paragraph 15 of the second further amended consolidated Statement of Claim dated the 9 April 2001 (‘the Statement of Claim’);
1.4Whether the plaintiffs are entitled to rectification of the Agreement as pleaded in paragraph 16C of the Statement of Claim and the Prayer for Relief.
B. As against the fourth defendants:
2.1Whether the fourth defendant was retained and instructed by the plaintiffs to prepare an agreement entitled ‘business contract’ between ACC as vendor and Kerol as trustee of Kerol Trust and Edge and/or nominees as purchasers, as alleged in paragraph 14 of the further amended consolidated Statement of Claim herein;
2.2What instructions if any, did the plaintiffs give to the fourth defendant in relation to the preparation of the business contract note;
2.3Whether the fourth defendants were in breach of their fiduciary duty and their duty of care to the plaintiffs or any of them or in breach of their retainer to the plaintiffs as pleaded in paragraphs 27-30 of the Statement of Claim.”
(The issues raised in cl 1.3 and 1.4 of par 3, as to the construction and rectification of the agreement, are of only historical interest for the purposes of the appeal).
The appellants now argue that the significance of the absence of response by Eldic and Vergelius during negotiations is not mentioned in cl 1.1 and 1.2 of par 3 of the order (as quoted above); accordingly the appellants submit that a case as to the misleading character of such conduct has been reserved - apparently to be dealt with before or at the same time as the question of damages.
The form of order may be criticised in that it does not state that only the question of damages has been reserved and that otherwise all issues will be dealt with in the first instance as preliminary issues. On the other hand the second, third and fourth defendants (who sought the orders) appear to have particularised all issues as they fairly appeared on the pleadings and selected only the question of damages to be reserved. (The first defendant (Mr Eldic) represented himself throughout the case and did not attend when the District Court Master made his order). As I will later mention the parties apparently intended (or had accepted by the conclusion of the trial) that a question as to whether in fact Eldic and Vergelius (through Vergeld Engineering) “worked in competition with the plaintiffs within 40 km of St Marys” (see cl 22 of the statement of claim) was a question to be determined as part of the “question of damages”; the Trial Judge by his reasons specifically treated the questions of “breach of obligations and damages” as the topics which were to be deferred.
The statement of claim alleges “statements” amounting to acts, misrepresentations and warranties by Eldic and Vergelius (par 17), or alternatively creating an understanding on the part of Edge that Eldic and Vergelius would not compete (par 19). These statements (being positive responses to questions) constitute the “conduct” upon which the plaintiffs now rely; insofar as the alleged conduct constitutes a representation as to future events the plaintiffs plead the effect of s 51A of the Trade Practices Act so as to assert that the representation was made without reasonable grounds and is to “be taken to be misleading”.
Section 51A of the Trade Practices Act reads as follows:
“(1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.”
The relevant conduct is said to be particularised in pars 9, 10 and 13 of the statement of claim. It is necessary to refer to pars 8-13 of the statement of claim to understand these allegations in their context:
“8      On the 6^th April 1994 Edge’s accountant Alex Donnelly (‘Donnelly’) wrote to the directors of ACC offering the sum of $150,000.00 and setting out a number of proposals to be discussed with a view to the acquisition of the ACC business by Kerol and/or another entity to be nominated by kind.
Which included:
·       ‘The present owners of the business will work in the business free of charge for one month immediately after settlement to assist Mr Edge in taking over the business.
·       For the following six months the present owners will both work in the business on a contract basis of $20.00 per hour and will assist Mr Edge as best possibly can.
·       Should the existing owners wish to continue after this time and should their services be required a separate basis for remuneration will need to be determined.
·       The present owners will not be involved directly or indirectly in competition with the new owners for a period of five years.
·       Present employee benefits are to be paid out by the current owners. We would be pleased if you would contact us to arrange a time to discuss these and any other matters you consider relevant.
Our client is a genuine buyer and it is hoped that discussions will form the basis of a contract being entered into.’
9Following the receipt of the letter a meeting was held on the 23^rd of April 1994 at the premises of ACC at St Mary’s. The meeting was attended by Edge, Smith, Donnelly, Eldic, Vergelius and his brother Graeme Vergelius who was a Licensed Business Agent.
10During the meeting, amongst other matters, each of the dot points referred to in paragraph 8 hereof was in turn referred to by Donnelly as a proposal for acceptance by Eldic and Vergelius. Both Eldic and Vergelius, in the presence of the others, acknowledged that they would not compete with the new owners of the business for a period of five years. Eldic said words to the effect that he would farm at his Nairne property and would not be involved in engineering except for making an odd trailer. Vergelius said words to the effect that he intended to do some independent consulting work but would not be competing with Kerol if it purchased the ACC business. He said he intended to do calculations for some of T & R’s present customers which was known by Edge to be a company that Eldic and Vergelius controlled that performed engineering design services. Following the meeting Edge was told by Smith that the purchase price was too low, but that otherwise the proposal was acceptable to Eldic and Vergelius.
11About a week later Edge spoke to Smith and increased the purchase price to $180,000.00. Smith told him that the offer would be accepted, but advised him the next day that Eldic had had a change of heart and would not proceed with the sale.
12In early September Edge was approached by Smith enquiring if he was still interested in the business.
12A On the 30^th September 1994 Donnelly wrote to Graeme Vergelius C/- Elders Real Estate Stirling in similar terms to the letter dated 6^th April 1994 to the Directors, offering to purchase the ACC business for the sum of $160,000.00 including the term that the present owners would not be involved directly or indirectly in competition with the new owners for a period of five years.
13At a further meeting attended by Edge, Donnelly, Eldic and Vergelius at St Mary’s the proposals set out in the letter of 30^th September 1998, were discussed. When the dot point relating to non competition was reached Vergelius said words to the effect that it had already been discussed and that they accepted it in principle. Edge said to Eldic words to the effect:
‘You said that you would make an odd trailer. How many do you call odd?’
Eldic responded in words to the effect:
‘I might not make any. I am a diabetic and have not been well lately. I think I might just tend my cows.
I am sick of engineering after 45 years. I am looking forward to something different.’
Eldic added words to the effect that he agreed not to be involved directly or indirectly in competition for a period of five years.
At this meeting Edge, Eldic and Vergelius agreed upon the terms of the sale and purchase of ACC’s business set out in the letter of 30^th September 1994.”
In my opinion as now relevant, the only “conduct” alleged against Eldic and Vergelius is that which has been identified in pars 9, 10 and 13 of the statement of claim. No further or separate allegation is put forward complaining about the conduct of Eldic and Vergelius insofar as they respectively remained silent or failed to speak or respond sufficiently when circumstances so demanded. Clauses 1.1 and 1.2 of par 3 of the Master’s order appear comprehensively to require the issues of fact raised by pars 9, 10 and 13 of the statement of claim to be determined at the first trial. A comparison of the order and the statement of claim discloses no residuary questions (beyond “damages” etc already identified) as remaining for later determination.
Depending upon the identification of a promise by Eldic or Vergelius not to compete (or misleading conduct to the similar effect) the pleadings then required the Court to deal with a question as to whether the actions of Eldic or Vergelius or Vergeld Engineering breached an obligation so as to give rise to a right to damages. The Trial Judge’s interpretation of the order and the manner in which he consequently conducted the trial appear from his reasons:
“Prior to and at the commencement of the trial, various orders were made, the effect of which, in broad terms, was that most aspects of liability arising on the pleadings were to be heard and determined before the remainder of the issues raised in the pleadings. By virtue of these orders, the questions of breach of obligations and damages were to be deferred …”.
During the course of final addresses at trial counsel for the second and third defendants complained that the plaintiffs at this late stage were attempting to put forward a case (which had not been expressly pleaded) based upon conduct involving alleged representations by “silence” - to be distinguished from the allegation of representations by conduct as particularised in the pleading. The plaintiffs’ counsel at this point declined to amend the statement of claim but contended that the allegations of the statement of claim were sufficient to require the court to bring to account all aspects of the conduct of Eldic and Vergelius during negotiations. In final address at trial counsel for the plaintiffs said:
“It’s therefore not to the point, as my friend Mr Blue would urge you to accept, that you have to find a conversation that was uttered by Mr Edge or Mr Donnelly, or indeed by Mr Vergelius or Mr Eldic. It’s a question of what occurred at that meeting. A representation for all purposes, but I suppose particularly under the Trade Practices legislation, can be established merely by a party’s silence.”
Counsel for Eldic and Vergelius (Mr Blue QC) responded:
“It is not pleaded that there was any representation or warranty or grounds for rectification by reason of silence, rather the pleading is quite express in saying that there was a positive representation.”
In my opinion although significance of silence by Eldic and Vergelius was not part of the plaintiffs’ case as opened nor did Mr Edge give evidence of having relied upon “silence”, the Trial Judge was required to consider all evidence within the framework of the pleaded case; positive but limited disclosure by Eldic and Vergelius is pleaded together with the circumstances in which Eldic and Vergelius responded to questions after Mr Edge had submitted his written proposals. These statements are alleged to be misleading. That is the case which the Trial Judge was required to consider. However, the Trial Judge was not required to deal with a view of the evidence which did not form part of the plaintiffs’ case (except as an afterthought) and of which the defendants did not have notice. Even so, the plaintiffs upon this appeal are entitled to contend that the responses of Eldic and Vergelius must be considered in context. Therefore, silence or prevarication is not irrelevant to the extent that it establishes or supports the positive case of the communication of a representation for the purposes of the Trade Practices Act and the Fair Trading Act. The question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence there is conduct which is or is likely to be misleading or deceptive (see Demagogue Pty Ltd v Ramensky & Anor (1992) 110 ALR 608 at 618 per Gummow J referring to Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83).

The plaintiffs framed their case around the terms of the letters of 6 April and 30 September 1994 and the subsequent exchanges in the course of negotiation; arguably upon bare facts alleged in the statement of claim, the responses of Eldic and Vergelius gave rise to an “expectation” that “the present owners will not be involved in competition with the new owners.” Within the framework of the facts alleged in the statement of claim (including the contents of Mr Donnelly’s correspondence) the plaintiffs were entitled to argue that the defendants were obliged to make a more complete disclosure of their plans. Of course, as the evidence unfolded the bare facts as pleaded did not stand alone.
It was in this context that counsel for the plaintiffs at trial referred to “silence” and coupled with it a reference to Henjo v Collins Marrickville (supra). The point was fairly arguable that Eldic and Vergelius had an obligation to be more forthcoming than was the case. However, I would not describe the impugned conduct as “silence”. Upon this appeal the appellants’ counsel more aptly expressed the question to be “whether in all of the circumstances the defendants’ conduct induced an erroneous assumption or belief on the part of Mr Edge.” (The question will be slightly restated for estoppel purposes).
In Demagogue, at 618-619, Gummow J quoted with approval the remarks of French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193:
“If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, s 52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure. The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.”
To the same effect, Black CJ in Demagogue said at 609-610:
“Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of ‘mere silence’ or of a duty of disclosure can divert attention from that primary question. Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.”
These passages suggest to me that for present purposes the more useful enquiry is whether the letters of 6 April and 30 September 1994 (and the questions asked during negotiations) gave rise to the reasonable expectation that a full statement of the future intentions of Eldic and Vergelius would be provided. This is the relevant question; standing alone the absence of comprehensive disclosure (loosely referred to as “silence”) is of limited significance. In my opinion within the framework of the statement of claim the plaintiffs were entitled to pursue an argument as to an unfulfilled reasonable expectation of more complete disclosure. I have discussed this in pt 5 of these reasons.
Upon this appeal counsel for the appellants placed some emphasis upon the terms of the written proposals and in particular the fact that Mr Edge was looking for a legal restraint of trade as expressed in “the dot point”. Mr Wells QC for the plaintiffs now argues that Eldic and Vergelius in light of Donnelly’s correspondence should have thereupon in conference with Edge “put their cards on the table” by describing fully their future intentions so as to clear the air.
In my opinion an unsatisfied obligation arising simply from the receipt of letters is not the case with which the Trial Judge was required to deal. That is a case based upon “silence” whereas the statement of claim is based upon the effect of “statements”. In my opinion the plaintiffs (except as a properly pleaded alternative) cannot reasonably advance such a case by ignoring the positive statements made by Eldic and Vergelius. Such an alternative case was not raised except as an afterthought. There was no opportunity for it to be explored in evidence by defence counsel. The plaintiffs declined to seek to amend their statement of claim and the Trial Judge properly did not deal with the unpleaded alternative.
The principle to be applied is that subject to the Court’s direction a party must bring forward the whole of its case at the one time:
“…the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case….” (Sir James Wigram VC in Henderson v Henderson (1843) 67 ER 313 at 319).
The appellants rely on Dare v Pulham (1982) 148 CLR 658 and Leotta v PTC (1976) 50 ALJR 666 to argue (i) that the court may bring the pleadings into conformity with the evidence and (ii) that a failure to amend particulars does not necessarily preclude a plaintiff from obtaining a judgment on the cause of action in reliance on facts established by the evidence.
However, pleadings and particulars must furnish “a statement of the case sufficiently clearly to allow the other party a fair opportunity to meet it.” (See Dare at 664).
The plaintiffs were required to bring forward the whole of their case at the one time upon proper notice to the defendants. The trial judge was not required to deal with the case as to “silence” beyond that which was pleaded without proper notice to the defendants. However, the essential facts are pleaded to raise the question in this trial as to whether or not in the context of the pleaded exchanges the circumstances gave rise to a reasonable expectation of disclosure which was in fact not forthcoming. Counsel for the appellants is entitled to rely upon conduct which includes a lack of response - if it be established - to the extent to which it forms part of the surrounding circumstances which accompanied the conduct pleaded in pars 10 and 13 of the statement of claim. The significance of Mr Donnelly’s letters and the responses to questions stand to be considered upon their merits within the framework of this appeal but I reject the contention that the effect of one permutation of this combination of facts was (or ought to have been) reserved for a later trial.
In my opinion the Trial Judge was required to consider all aspects of the plaintiffs’ case of misleading and deceptive conduct which relies upon the circumstances identified in pars 9, 10 and 13 of the statement of claim. The Trial Judge was also required to consider all aspects of an alternative case (as pleaded) based upon an estoppel allegedly arising from the conduct thus identified. The Trial Judge rejected the plaintiffs’ case upon the footing that he was not satisfied that the version of events put forward by the plaintiffs’ witnesses should be accepted. The Trial Judge decided that upon the facts the plaintiffs had failed to establish essential ingredients of those pleaded causes of action. The promises and representations essential to the plaintiffs’ case were not proved. The question remains as to whether upon an analysis of his findings of fact the Trial Judge’s conclusions can be shown to be in error. That topic is the subject of the next section of these reasons.
Nevertheless, I reject the appellants’ submission (complaint No 1(a)) that there remains a question of representation by conduct which has been (or ought to have been) reserved to a later trial. I reject the appellants’ submission that on this account the order dismissing the claim should be set aside.
5.The responses of Eldic and Vergelius - their effect in relation to the evidence and the case as pleaded.
In their alternative argument (complaint No 1(b)) the appellants submit that the Trial Judge has failed to recognise and deal with the plaintiffs’ case of misleading conduct based upon the absence of disclosure by Eldic and Vergelius as to their future intentions in response to the written proposals and the questions put forward in negotiation by Mr Edge or by his accountant Mr Donnelly.
Although I have already considered (in pt 4 of these reasons) the effect of the plaintiffs’ pleading, it is convenient to revisit this material and to apply it to the alternative argument.
The exchanges relied upon by the plaintiffs as the foundation for a claim of misleading conduct are set out in pars 10 and 13 of the statement of claim. The statements allegedly made by Eldic and Vergelius took place against the background of the proposals in the correspondence which initiated negotiations.
It is alleged in the statement of claim that the statements referred to in pars 10 and 13 amounted to representations (and warranties) that Eldic and Vergelius would not themselves compete with the business which was to be sold. There is no allegation that the conduct of Eldic and Vergelius gave rise to a reasonable expectation in the circumstances of the case that they would make full disclosure of their future plans but failed to make that disclosure (cf Black CJ in Demagogue quoted above).
The nearest that the statement of claim comes to such an allegation is as set out in par 19 of the statement of claim that the “said representations” (ie the “statements” amounting to representations identified in par 17 as those referred to in pars 10 and 13) created an understanding or belief on the part of the plaintiffs that Eldic and Vergelius would not compete. In summary, the statement of claim relies upon:
(i)express statements by Eldic and Vergelius as to future intention (pars 10 and 13);
(ii)proof of subsequent conduct inconsistent with that expression of intention (par 22); and
(iii)the effect of s 51A of the Trade Practices Act (par 21).
It is true that the statement of claim also recites extracts from the letters of 6 April and 30 September 1994 and the text of questions asked on behalf of the potential purchaser. Until final addresses there is no hint that the plaintiffs rely upon an omission to provide information.
The appellants’ oral submission upon this appeal placed emphasis on (i) the responsibilities of disclosure attaching to Eldic and Vergelius upon receipt of the correspondence and (ii) the inadequacy of their responses to subsequent questions. This submission was made as part of a more general argument by the appellants’ counsel which called in question the conduct of Eldic and Vergelius which “in all of the circumstances” allegedly induced an erroneous assumption or belief on the part of Edge; those circumstances are those which I have identified upon the appellants’ oral argument, namely the requests for information made in the course of negotiations following written proposals.
In response to these submissions Mr Blue QC, counsel for Eldic and Vergelius, upon the appeal placed emphasis upon the difference (as abovementioned) between the plaintiffs’ case as pleaded and opened at trial and the plaintiffs’ case which is sought to be advanced for the purposes of the appeal. In any event, based upon the findings made at trial Eldic and Vergelius contend that the plaintiffs are not able to establish a case based on “silence” (as Mr Blue chose to describe the appellants’ case). The consequences of this submission now require examination.
It is clear that the Trial Judge did not identify upon the evidence or upon the pleadings the case which the plaintiffs now assert is available. Accordingly, it is necessary to look at the Trial Judge’s findings, the evidence and the course of the trial in order to assess whether the Trial Judge has satisfactorily disposed of the plaintiffs’ case as to misleading conduct (and estoppel).
There are particular difficulties now facing the plaintiffs, namely:
1.The Trial Judge was not prepared to accept the evidence of Mr Edge where it conflicts with other evidence; the plaintiffs therefore fall back on “other credible evidence” to provide support for the case upon appeal. (See Outline of Argument quoted in pt 3 of these reasons).
2.According to the Trial Judge the recollection of the various witnesses was seriously affected by the effluxion of time from April 1994 until the trial in August 2001. This has created a serious evidentiary difficulty for the plaintiffs in a case where a gesture or silence might be of importance. The plaintiffs face the further problem that their case (as Mr Blue QC expressed it) was “antipathetic to silence” constituting misleading conduct because Eldic and Vergelius in negotiation positively rejected the proposals for restraint upon competition.
3.In a case where the witnesses have strained to recall the gist of conversations to the extent to which these are relevant, the infirmities in the written witness statements (treated as evidence in chief) were exposed by cross-examination. The Trial Judge made specific reference to this topic and to the criticisms which could be made of the evidence in chief. Nevertheless, the appellants have sought to rely upon this material in support of their case upon appeal. The witness statement of Mr Donnolly referred to an alleged statement by Vergelius that he would not compete; however, Mr Donnolly (according to the Trial Judge) was “sometimes understandably vague” in cross-examination. The caveat which the Trial Judge attaches to reliability of Mr Donnolly’s witness statement undermines the foundations for the appellants’ argument which relies so heavily upon Mr Donnelly’s version of events.
4.Edge gave evidence of a meeting between Vergelius and his brother Graeme, Mr Stevens (of Low and Partners) and Mr Edge himself in which Edge claimed to outline his understanding of the proposed sale by reference to the correspondence which he used in the presence of the others to give instructions for the preparation of a contract. The Trial Judge found such a meeting did not occur and made an adverse finding as to the credit of Mr Edge. In the face of this finding it is difficult for Mr Edge to maintain a case as to his assumptions and beliefs with respect to the future plans of Eldic and Vergelius. I do not consider that there is sufficient foundation for a case based upon an estoppel.
It is not in dispute that a meeting for the purposes of negotiation occurred on 15 April 1994 with respect to the proposals in Mr Donnelly’s letter of 6 April 1994. Mr Donnelly’s version of the crucial point in negotiation is noted by the Trial Judge as follows:
“At the time we reached the dot point dealing with non-competition, Noel [Edge] looked at both Eldic and Vergelius and asked words to the effect:
‘What are you going to do if you sell the business?’
Eldic replied with words to the effect:
‘I am going to my farm and I may build the odd trailer.’
Vergelius replied with words to the effect:
‘I will do some design and consulting work, but I will not be competing with any work Adelaide Conveyor would be doing.’”
There was another discussion on 5 October 1994 following Mr Donnelly’s letter of 30 September 1994. Mr Donnelly’s version of this meeting is recorded by the Trial Judge as follows:
“…When I came to the non-competition point there were further questions asked by Noel as to what Tom [Eldic] would do after the sale.
Noel asked Tom words to the effect:
‘Tom, what do you mean by the odd trailer?’
Tom said words to the effect:
‘I might not build any trailers, as I have not been well lately’.
I cannot now recall if Ralph’s words to the effect:
‘I will work doing design and drawing for someone else, in the field of steel fabrication, but will not compete against the work that Noel will go after. I will not be involved in the kind of work that the Adelaide Conveyor Company would tender for’ were in response to a question from Noel or me, but they were said at the same part of the discussion.”
It is claimed by the appellants that Eldic and Vergelius, who were present at each of these meetings, had a duty to be more responsive in disclosure of their own plans for the future.
The evidence of Mr Donnelly which I have quoted is capable - standing alone - of supporting an argument as to misleading conduct based on lack of disclosure. However, Mr Donnelly’s evidence (although treated by the Trial Judge as credible) does not stand alone. The Trial Judge expressly found that Eldic and Vergelius “consistently and convincingly denied that they promised or represented that they would not compete with the plaintiffs after settlement. They also stated that they did not agree on behalf of the third defendant to a restraint of trade clause as alleged by the plaintiffs….” There is evidence that at a meeting held after Mr Stevens had prepared a form of contract, Mr Vergelius’ brother (Graeme) in the presence of Mr Edge struck out a restraint of trade clause and substituted another. This substitution is apparent upon the face of the business contract note in which clause 17 has been deleted and a special condition as to restraint included by way of an annexed special condition. The clause which was deleted reads as follows:
“17THE VENDOR will not carry on or be interested directly or indirectly (whether as proprietor partner manager servant agent or beneficiary or otherwise) in any business of a like nature within a radius of 40 kilometres from the said premises for a period of FIVE (5) years from the date of possession and upon breach of this Clause the Vendor shall pay to the Purchaser the sum of TEN THOUSAND DOLLARS ($10,000) as and for liquidated damages and not by way of penalty.”
The substituted clause (which was then included as a special condition) appears as Clause 6 to Appendix A and is reproduced in pt 1 of these reasons. This substitution in itself provides notice that Eldic and Vergelius were not prepared to restrict themselves in the manner proposed by Donnelly’s correspondence.
In my opinion whatever Eldic and Vergelius may have said on the occasions to which Mr Donnelly deposed (the effect of which is far from clear) there is a body of evidence pointing to the fact that Mr Edge was on notice that Eldic and Vergelius were not prepared as part of the business deal to give up their personal rights to compete. It seems to me that this is a stumbling block in the path of Mr Edge’s argument on appeal. Moreover, his argument is not helped by the Judge’s further finding with respect to the evidence of Mr Chilton:
“I have not as yet mentioned the evidence of Mr D Chilton. He was called by the defendants. He was in business with Mr Graeme Vergelius as land and business agents. He recalled attending a meeting at which Mr Edge and Mr Donnelly were present relating to the proposed sale of the business. He gave evidence about the discussion of a restraint of trade clause which had both a temporal and a geographical limit. His recollection was that Mr Ralph Vergelius said at that meeting that he would continue engineering consulting work if the business was sold. He did not recollect that it was suggested that Mr Ralph Vergelius would not compete with the business after settlement. I have not taken his evidence into account on the question of whether or not I should accept the evidence of Mr Edge because I think Mr Chilton’s evidence was too general. It was apparent that his recollection of the relevant events had faded considerably over the years.”

Mr Blue QC contends that for the purposes of the trial his clients were not on notice of a case of misleading conduct based on silence or a failure to respond. In my opinion the foundations for such a case (as the appellants now advance) depend upon a selective approach to the evidence and one which ignores firstly the adverse finding of the Trial Judge as to credit of Mr Edge and secondly His Honour’s finding as to the persistent refusal of Eldic and Vergelius to agree to restrictions.
In my opinion the Trial Judge was not required to consider such a case. I reject the appellants’ submission (complaint No 1(b)) that the Trial Judge failed to deal with an aspect of the case.
6. The inferences to be drawn from Low and Partners’ documents
The plaintiffs allege that the fourth defendant (Low and Partners) was instructed and retained jointly by the plaintiffs and the first, second and third defendants.
Mr Edge gave evidence that in October 1994 he met with the defendant Vergelius and his brother Graeme and Mr Stevens at the business premises at St Marys; according to Mr Edge Mr Graeme Vergelius in his presence provided instructions to Stevens which were then supplemented by his own instructions in terms of a restraint of trade clause.
The defendants denied that such a meeting occurred and the Trial Judge rejected the evidence of Mr Edge. Nevertheless the plaintiffs contend that the documentary evidence establishes by inference that Mr Stevens was acting on behalf of the plaintiffs.
The appellants rely upon the fact (as disclosed by the documents) that Low and Partners took the following steps, namely:
(1)They prepared the “Special Conditions” in the Contract containing the restraint of trade clause and Lease.
(2)They prepared both the Vendor and Purchaser Settlement statements.
(3)They attended to the payment and refund of stamp duty on behalf of “our client” (as the plaintiffs were described by Low and Partners in a letter to the Stamp Duties Office on 14 December 1994).
(4)They received money from the plaintiffs into trust, applied that money in payment of all disbursements associated with the preparation and execution of the Contract and provided a Trust Account Statement to the purchaser.
(5)They did some work “solely for the benefit of the plaintiffs” in that Low and Partners:
(a)    reserved the business name at ASC and sought fee ($100) from Mr Donnelly on 23 November 1994 for lodgement fee and subsequently attended to lodgement of form 410;
(b)    prepared and submitted to Mr Edge for execution a lease and Minutes of Meeting of JN Fitch Sales under cover of letter dated 17 November 1994;
(c)    informed Mr Edge that motor vehicle registration transfers were unnecessary and reported regarding steps regarding Workcover registration in terms of a letter dated 25 November 1994.
(6)They charged the plaintiffs for professional services in relation to the Contract.
In my opinion this evidence is equivocal and must be considered together with other evidence which led to the finding and the decision of the Trial Judge as follows:
“…I find that the fourth defendant was retained only by the vendor, the third defendant, to prepare the contract for the sale and purchase of the business. In arriving at that conclusion I take into account that the first two plaintiffs paid some of the legal costs in relation to the preparation of the contract and the lease which was entered into whereby the first two plaintiffs were to occupy the business premises after settlement. That, in my view, does not indicate that there was a contractual arrangement between any of the plaintiffs and the fourth defendant relating to the preparation of the contract and lease and attending settlement. It merely means, as the documents disclose, that there was an agreement to share some of the legal expenses of the preparation of the documentation.
To succeed in their claim against the fourth defendant, the plaintiffs had to establish that the fourth defendant was retained by them (or some of them) jointly with the third defendant. They have failed to do this. They therefore cannot succeed in their claim for damages for breach of the retainer. Similarly, they cannot succeed in relation to their claim that the contract was prepared negligently and contrary to instructions given by the first and second defendants. In particular, I find that no meeting took place between Mr Edge and Mr Stevens whereby Mr Edge gave instructions as to how the restraint of trade clause was to be worded. The fourth defendant was under no duty, either tortious or fiduciary, to the plaintiffs….”
Mr Stevens gave evidence that he was retained by Mr Graeme Vergelius and “asked to act in relation to the sale”. His evidence was supported by his own file notes (although the Trial Judge did not refer to them) of instructions from Graeme Vergelius. It is not in dispute that Mr Donnelly provided certain information to Mr Stevens and that Mr Stevens prepared the settlement statements.
I consider that the Trial Judge was entitled to reach his conclusion as abovementioned. The documentary evidence is consistent with that conclusion. The fact that each of the parties by agreement bore part of the solicitor’s costs was a matter calling for explanation, but an arrangement whereby parties agree to share the costs incurred by one side is not unusual. The documentary evidence stands to be assessed alongside the oral evidence. The fact that Low and Partners undertook some mainly routine tasks in the interests of the purchaser in the course of settlement does not show that Mr Stevens had a responsibility to the purchaser at an earlier time when the agreement was being prepared. No basis has been shown for interfering with the findings of the Trial Judge that Low and Partners did not act for the plaintiffs.
The appellants contend that the Trial Judge did not consider the effect of the documents in the file of Low and Partners. His Honour’s reasons (which refer to what “the documents disclose”) do not support that submission and I reject it.
Counsel for the appellants made an alternative submission that a solicitor acting for one party in a transaction owes a duty of care to the other party where work is undertaken for the benefit of that other party. It was submitted that this principle particularly applies when that second party is unrepresented in the transaction. We were referred to Jackson & Powell on Professional Negligence (4^th ed) at 433-436 which identifies circumstances in which a solicitor may owe a duty of care to the other side in respect of non-contentious business. According to Jackson & Powell, a duty may arise in special circumstances where (i) the purchaser is intended to and does rely on information provided by the vendor’s solicitor and (ii) such reliance is reasonable (see par 4-39). The cases cited are typically those where the solicitor provides some form of certificate (for example Allied Finance v Haddow [1983] NZLR 22). However, I do not consider that the appellants’ counsel has identified such a duty of care which might be applicable to the facts of this case. I can see no basis upon which the appellants might have expected that Low and Partners would do otherwise than prepare a contract which conformed to their clients’ instructions; there was nothing which might lead the unrepresented party to an expectation that the solicitors for the other party would draft the contract in the interest of the unrepresented party.
In my opinion it has not been demonstrated that the Trial Judge was in error to dismiss the claim against Low and Partners for professional negligence.
7. Award of solicitor/client costs to fourth defendant
On 1 November 2001 the Trial Judge dealt with the question of costs and delivered reasons for his decision. The appellants accept that the Trial Judge was entitled to award party and party costs against the plaintiffs (as the unsuccessful party) in favour of Low and Partners. However, the appellants contend that costs should not have been awarded on a solicitor and client basis.
By letter dated 28 November 2000 the solicitors for Low and Partners invited the plaintiffs to discontinue the claim against the fourth defendant without being subject to a claim for costs. The letter outlined the case for Low and Partners and denied a meeting between Stevens with Mr Edge to take instructions (as alleged in the statement of claim). The letter pointed out that the files of Low and Partners (including the time ledger) appeared to confirm that the meeting had not occurred. The Trial Judge said:
“In this matter I did not accept the second plaintiff’s evidence that the meeting referred to in the letter of 28 November 2000 took place. The referral of such of(sic) meeting in the pleadings and in the evidence of Mr Edge was akin to the making of an allegation knowing it to be false and the continuance of the proceedings by the plaintiffs against the fourth defendant after the letter of 28 November 2000 was a continuance in wilful disregard of known facts. Similarly, the prosecution of the case against the fourth defendant consisted of the making of allegations that ought never to have been made because they were based on groundless contentions.
In addition, I consider that the plaintiffs’ refusal of the offer made by the fourth defendant in the letter of 28 November 2000 was imprudent.”
In my opinion the order represented a proper exercise of discretion with respect to a claim which ought not to have been made.
8. Conclusion
In pt 3 of these reasons I identified four questions which required examination and I summarised the appellants’ complaints. I would resolve each of the points of appeal against the appellants.
I would dismiss the appeal.

[2002] SASC 181

25 June 2002