Kyrwood & Ors v Drinkwater

[2001] HCATrans 170

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S229 of 2000

B e t w e e n -

TERRY KYRWOOD, GEOFFREY KYRWOOD, GEDROT PTY LIMITED and GAVROS PTY LIMITED

Applicants

and

PETER WESTGARTH DRINKWATER, JOHN FRANCIS DRINKWATER, LUSTRAY PTY LIMITED and CADDYRACK INC

Respondents

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 1 JUNE, 2001, AT 10.43 AM

Copyright in the High Court of Australia

MR R. W. WHITE, SC:   If the Court pleases, I appear with my learned friend, MR A.J. McINERNEY, for the applicants.  (instructed by Wood Roberts).

MR P.A. HEWITT:   If the Court pleases, I appear for the respondents.  Mr Ashurst, of counsel, was to appear.  Unfortunately weather conditions precluded him from getting back from Queensland, and I was not aware of that until late yesterday, and he apologises for any inconvenience to the Court.  (of Hewitts Commercial Lawyers).

GLEESON CJ:   Yes, Mr White.

MR WHITE:   Your Honours, in this matter neither the primary judge nor the Court of Appeal made a finding that the applicants’ repudiation, which they found, was of an essential term or otherwise went to the root of the contract.

The finding of repudiation which was made was that because of the attitude the applicants evinced to performing clause 6 of the agreement; that is to say, they would only discharge a security if the respondents performed their obligations under another term to exchange the Australian tool for the United States tool.

CALLINAN J:   Could I ask you this.  The breach committed by your client was the failure to replace the security, is that right?

MR WHITE:   Yes.

CALLINAN J:   Whilst your clients failed to replace the security, presumably the respondents’ property was at risk.  It was subject to a mortgage and there were obligations under the mortgage, is that right?

MR WHITE:   It secured the obligation of the company Caddyrack, yes.

CALLINAN J:   Did the settlement agreement require your clients to do that within 14 days of its execution?

MR WHITE:   That is what the Court of Appeal found, yes.

CALLINAN J:   In fact, the breach that was committed by the respondents occurred some considerable time – it was not only a question of whether it was interdependent, it occurred, did it not, some considerable time after your clients were in breach and remained in breach?  Is that right, though, what I ‑ ‑ ‑

MR WHITE:   Not entirely, no, your Honour, because the particular breach by the respondents was foreshadowed on the 29 August by a letter which is in the application book.

CALLINAN J:   What was the date of the deed of settlement?

MR WHITE:   The deed of settlement was the 26 July, but there were two conditions, in any event, to which it was subject, and there were arrangements made for settlement which was originally proposed to take place in early August on the 7th or the 8th.  Objections to settlement - and I should add, as part of the settlement there would be the discharge of the mortgage handed over or, at least, the letter procured from the bank confirming that it did not secure the obligations of Caddyrack.

Now, the objections were made to that settlement by the respondents, and Mr Justice Fitzgerald found that they - I think he put it in terms that it disrupted the settlement by raising matters which were outside the subject matter of the agreement.  Before those matters were resolved, the respondents then, we say, repudiated the contract by the letter of the 29 August for which they never resiled.

CALLINAN J:   Where do we find that letter?

MR WHITE:   The letter of the 29 August?  At page 103 of the application book.

CALLINAN J:   Now, your clients, subject to what you say about those conditions, should have replaced the security by about the 10 August, is that correct?

MR WHITE:   If the settlement occurred by then, which they were seeking to bring about, yes.

CALLINAN J:   The settlement you said was due to take place on the 7th, is that right?

MR WHITE:   It had sought to be arranged on the 8 or 9 August.

CALLINAN J:   8th or 9th.  And what was to be done on settlement?

MR WHITE:   What was proposed was transfer of shares and resignations of directors would be handed over.

CALLINAN J:   I am sorry.  Transfer of shares.  What else?

MR WHITE:   Transfer of shares in Caddyrack.  This is what was proposed in August.  Transfer of shares in Caddyrack, and the resignation of directors.  That is to say, the resignation of the directors, and also the procuring of the transfers of shares by Caddyrack and the Kyrwood interests in the American company, Caddyrack, Inc.

CALLINAN J:   That is so that each party would be left with the respective of United States and Australian operations, is that right?

MR WHITE:   Yes.  At that point there would be no threat by the applicants not to discharge the security.  That threat only emerged on 5 September after the receipt of the letter of 29 August.

CALLINAN J:   What is your client’s excuse for not replacing the security?

MR WHITE:   Because they were faced with the real probability that they would never receive the superior American tool.  That is why they acted.  It has been found that it was not a proper reason for acting, but that is why they acted as they did.

CALLINAN J:   What was the basis for their belief that they would not receive the American tool?

MR WHITE:   Well, the first is the letter of 29 August.

CALLINAN J:   But that is a long time after the proposed settlement date.  That is what I do not understand.  I still do not understand why the matter was not settled on or about 8 or 9 August.

MR WHITE:   Your Honour, it was because of a – well, it starts with the letter on the 9th.  Could I take your Honour back to the application book to page 96.  That sets out McDonald Johnson’s proposal, and they provided a letter which is over on page 97.  Then over on page 97 there is a letter on 9 August from Hansens who acted for the Drinkwaters, the respondents, saying that various things had not been attended to.

CALLINAN J:   What date is that?

MR WHITE:   That is on 9 August.

CALLINAN J:   That is the letter on the second-half of page 97, is it not?

MR WHITE:   Correct.

MR WHITE:   McDonald Johnson for the applicants responded also on the same day at 98 proposing settlement that afternoon.  Your Honours will see that at about line 35, and responding to the objections which the respondents had raised.  That is at the foot of page 98 and over to page 99.

CALLINAN J:   What is the date of this letter on page 98, then?

MR WHITE:   It is 9 August.

CALLINAN J:   Was there evidence that your clients were in a position to settle that afternoon.  How could they have replaced the mortgage on that afternoon?

MR WHITE:   They could not actually replace the mortgage because the National Bank refused to replace the mortgage because it secured obligations other than those of Caddyrack, but they had obtained the letter from the National Bank, which is at the top of page 97, under which it was prepared to confirm that the mortgage did not secure the obligations of Caddyrack, and said that - your Honours will see this at 97 at the top of line 10 - that would take effect on:

all the conditions have been ratified relative to the agreement to be finalised today between Terence and Geoffrey Kyrwood and Peter and John Drinkwater.

Your Honours, at page 161 of the application book at line 5 Justice Fitzgerald accurately said, we submit:

three letters of 9 August from the Drinkwater interests’ solicitors indtroduced new obstructions to performance.

Then we got the threat on 29 August.  So, your Honours, we submit there was no question of a repudiation or we would even say a breach of clause 6 prior to 5 September, but from 5 September onwards they certainly took the position that they would only discharge if they received the American tool.  What the courts below have found was that that was repudiation because it evinced an intention only to perform the contract in a certain way and in no other way, which was substantially inconsistent with the other parties’ obligations, without also addressing the question as to whether the term, that is to say, clause 6, which was thus repudiated, was essential, or whether the conduct otherwise was so fundamental that it went to the root of the contract.

Their Honours appear to have done so by the reliance on well-known passages of Chief Justice Gibbs in Shevill’s Case and Chief Justice Mason in Capalaba v Laurinda in which they seet out, which, we submit, were not intended to displace the fundamental proposition that repudiation has to go to the root of the contract.  Because, after all, what one is talking about by repudiation is an anticipation of a breach, which, if it occurred, would justify termination.

CALLINAN J:   It was found that your breach – it was clause 6, was it not?

MR WHITE:   Yes.

CALLINAN J:   It did go to a fundamental matter, was it not?

MR WHITE:   With respect, not.  The finding of breach is at page 139 at the foot of the page, and by the three matters which Mr Justice Powell refers to there, his Honour concluded that the applicants:

evinced an intention on their part to fulfil the agreement only if and when it suited them.  This being so, I conclude that Young J was correct.

Now, the matters to which his Honour referred ‑ ‑ ‑

CALLINAN J:   Why should we not treat the finding at lines 38 and 39 as findings of a fundamental breach?

MR WHITE:   That is a finding of a breach.

CALLINAN J:   Of a breach, yes.

MR WHITE:   Of a breach, and all of the judges in the court below accepted the term was not essential for the performance of clause 6.  So the breach, as such, did not justify termination, nor was it conduct that amounted to repudiation.  Nor is it obvious, we submit, although it might be arguable, that clause 3.6 let alone the time for its performance was fundamental because even if the mortgage were discharged, Peter Drinkwater still had to leave the property available as security, and there was, indeed, at the attempted settlement on 10 October the threat by his solicitor that - well, rather, his solicitor said that it was required in order to provide security for other advances, which would seem to be inconsistent with his obligations also under clause 6.

GLEESON CJ:   Where is the finding by Justice Powell in relation to the breach by your client which entitled the other side to take the attitude they did?

MR WHITE:   Breach by our client that entitled ‑ ‑ ‑

GLEESON CJ:   Yes.  Where is the finding of repudiation?

MR WHITE:   At page 139 over to the top of page 140.

CALLINAN J:   Which appears to be a straight application of Laurinda.

MR WHITE:   Straight application of the words of Laurinda, yes, but without considering whether in applying the words of Laurinda what is being evinced is something that is so fundamental that it evinces an intention not just to fulfil the contract – I will start again.

Laurinda talks about conduct which evinces an intention not to fulfil the contract, as distinct in this case there is an intention not to fulfil a particular obligation under the contract.

CALLINAN J:   But was Laurinda different?  It was something about registration in Laurinda, was there not?

MR WHITE:   Absolutely.  The conduct in question was the obligation to provide the lease, which was the very fundamental obligation under an agreement for lease, and their Honours in Laurinda so found.

CALLINAN J:   Did the tenants, the appellants successful – the appellants there, they were in possession, were they not?

MR WHITE:   They were.

CALLINAN J:   They were enjoying all the benefits as lessees and paying rent, is that not right?

MR WHITE:   That was right, your Honour, but, nonetheless, the Justices in this Court held the obligation to provide the lease was a fundamental obligation which was breached by that conduct.

CALLINAN J:   It does not look any less or more fundamental to me, I must say, at first sight, than a failure to provide replacement security.

MR WHITE:   However, your Honour, one of the difficulties ‑ ‑ ‑

CALLINAN J:   My view might be coloured because I was on the side that succeeded in Laurinda, although I did not appear in this Court.

MR WHITE:   Well, we have made our submission, your Honour, in our summary and argument at paragraph 24 and also in footnote 22, though

paragraph 24 in particular, as to why the repudiation should not be regarded as fundamental in this case.

Your Honours, there are two other important matters which arise on the application.  One is the question of principle, which is the proposition that a party can be precluded from rescinding from another’s repudiation if there is a causal relationship between the first party’s breach and the other party’s repudiation, a matter to which the Court of Appeal adverted in Roadshow.  That was resolved against the applicants simply on the basis that the two clauses in question were independent not dependent promises.

There was no real question, in our submission, that the reason, in that sense the cause, of the repudiation of clause 6 was the refusal by the respondents not to perform clause 12, not to supply the superior tool.  That was a matter which is discussed by Mr Justice Fitzgerald, and, in our submission, his Honour’s reasons are not addressed in the reasoning of Mr Justice Powell. 

The other matter, your Honour, is that considering the significance of the conduct of my client and in considering whether the respondent was ready and willing to perform its contract, neither Mr Justice Powell nor the primary judge addressed at all the threat not to exchange the tools.  Mr Justice Powell found that by the time of termination the respondents had, although belatedly, accepted an obligation to pay for the upgrade of the Australian tool, but the whole purpose of exchange was not to have an upgraded Australian tool within the perspective of the applicants, to have the superior American tool.  It was the only tool which was capable of manufacturing left-handed caddyracks.  It was that refusal which caused my clients to not replace the security and that refusal was never withdrawn, but those are matters which Mr Justice Fitzgerald found amounted to repudiation of the agreement by the respondents and which precluded their termination, and which provided a causal relationship between the two breaches.  But it was a fact which is simply not addressed in the judgments of Mr Justice Powell and Mr Justice Meagher.

Otherwise, your Honours, the matters which we have raised are set out in our written summary.

GLEESON CJ:   Thank you, Mr White.  Yes, we do not need to hear you Mr Hewitt.

This case turned upon the application of well‑established general principles to the rather complex facts and circumstances of a particular case.  The difference of opinion in the Court of Appeal appears to have turned, not upon matters of principle, but upon matters of application of principle to the facts.  The case does not raise an issue of law suitable for the grant of special leave and the application is refused with costs.

AT 11.09 AM THE MATTER WAS CONCLUDED