Maha-Ashi Pty Ltd v Innes - [2010] SADC 127

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MAHA-ASHI PTY LTD v INNES
[2010] SADC 127
Judgment of Her Honour Judge Davey
8 October 2010
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
Claim for debt arising from alleged oral contract for use of gym facilities - dispute that there was a contract in the terms alleged by the plaintiff and denial of liability to pay for use due to continuation of pre-existing mutual benefit arrangements.
Plaintiff's claim dismissed.
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40], considered.

MAHA-ASHI PTY LTD v INNES
[2010] SADC 127

The plaintiff operated a gym and this is a claim in respect of an alleged agreement for the use of the gym facilities. The defendant, a physiotherapist whose patients from her adjacent practice used the gym, admits that the facilities were used but says that, in the particular circumstances, the use did not arise out of any agreement with the plaintiff to pay for use of the facilities. The defendant denies the existence of any contract or indebtedness in the terms alleged by the plaintiff. The plaintiff also alleges that the common law implies a term of the agreement that the plaintiff receive reasonable remuneration for use of the facilities.
For the reasons set out herein, I dismiss the plaintiff’s claim.
Background
The plaintiff company, Maha-Ashi Pty Ltd carried on the business of the Mount Barker Gymnasium during the relevant periods in 2003 and 2004. Mr Mark Mahanets was the sole director and the effective day to day operator of the company. The defendant, Ms Annette Innes, is a physiotherapist who conducted a physiotherapy practice in an adjoining premises and whose patients and staff used the Mount Barker Gymnasium facilities from time to time.
Previous operation of gym by Mr Wegener and use by Ms Innes
The Mount Barker Gymnasium had been previously operated by Mr Stephen Wegener. He commenced operating the gym in about 1983. The plaintiff commenced negotiations to purchase that gymnasium business in late 2002/early 2003. During the time of Mr Wegener’s ownership of the gym, Ms Innes (and her physiotherapy practice) moved into the adjacent premises. Prior to Ms Innes, another physiotherapy practice had occupied those premises adjacent to the gym. Mr Wegener encouraged discussions between Ms Innes and the landlord of the premises (which included both the gym and the physiotherapy practice) to facilitate Ms Innes moving her physiotherapy practice to those premises. Mr Wegener was keen for Ms Innes to lease the vacant physiotherapy premises as there were benefits to his business in having that arrangement. Mr Wegener described the arrangement as providing a good “spin off” for his business as there were referrals to gym programs and gym memberships that would come to his business. Ms Innes also ran pregnancy and post-natal classes at the gym which introduced parents and children to the gym’s “Parents and Babies” classes and to swim classes. Mr Wegener did not charge Ms Innes for the use of the gym facilities and at some stage they had a Licence Agreement[1] (with a nominal consideration) prepared to reflect the arrangements. It was also a condition of Ms Innes’ lease with the landlord of the premises that, in the event that there was an end to the relationship with Mr Wegener, she could then terminate the lease. The gym facilities used by Ms Innes pursuant to these earlier arrangements with Mr Wegener were similar to those used when the plaintiff operated the gym. There was no dispute that these were the arrangements between Mr Wegener and Ms Innes prior to the plaintiff’s operation of the gym.
[1] Copy of the Licence Agreement is included in Exhibit P3
Issues
After the plaintiff purchased the equipment and plant in respect of the gym from Mr Wegener, the plaintiff operated the gym. Ms Innes and her clients continued to use the gym facilities in a similar fashion to the previous arrangement with Mr Wegener. The nature of and terms of any agreement or arrangement between the plaintiff and Ms Innes was the subject of dispute during the trial. The fundamental issues are whether the parties agreed that the defendant could continue to use the gym facilities and if so, what was the nature and terms of the agreement. Particularly, there was a dispute as to whether the parties agreed that the defendant should pay for the use. There was no written contract or agreement between the parties.
Evidence of Mr Mahanets
Mr Mahanets gave evidence of the various discussions and meetings between Ms Innes and himself. Ms Innes also gave evidence, materially different evidence, as to these discussions and meetings. Ms Innes also called Mr Wegener as to the pre-existing arrangements for use of the gym and his account of a particular discussion between Mr Mahanets and Ms Innes which was witnessed by him.
Mr Mahanets is an engineer who became interested in the business venture of running the Mount Barker Gymnasium. Mr Mahanets said that he was not told of the previous arrangements between Mr Wegener and Ms Innes and notwithstanding that the Business Sale Agreement[2] included a copy of the Licence Agreement between Ms Innes and Mr Wegener, he denied knowledge of it.[3] Mr Mahanets said that the first time that there were discussions with Mr Wegener and Ms Innes with respect to the use of the gym by the physiotherapy practice is when they were introduced by the swimming pool during the “due diligence” phase of the negotiations between the plaintiff and Mr Wegener.[4] This conversation (in whatever terms) must have occurred in about January – March 2003. Mr Mahanets said that Mr Wegener was present and that he, Mahanets, told Ms Innes to keep the arrangements as she had had them before and that they would sort things out later.[5] Mr Mahanets said that at that time, he thought that Ms Innes was paying $550 per month to Mr Wegener and that this figure had been referred to by Ms Innes in the presence of Mr Wegener.[6] I observe that Mr Mahanets gave varying accounts of this incident and conversation during his evidence. I will comment further on this matter later in these reasons.
[2]    Exhibit P3
[3]    Transcript pp40-43, 225-233
[4]    Transcript pp45-47
[5]    Transcript p45
[6]    Transcript pp47-48
Mr Mahanets said that there was another meeting with Ms Innes towards the end of March 2003 in his office and there was some further discussion about the $550 fee per month being the ongoing situation.[7] Mr Mahanets also described two other occasions where he and Ms Innes met to discuss promotion for the gym and sharing of advertising in relation to both businesses. Those meetings or discussions occurred in July and October 2003.[8] Mr Mahanets also said that prior to meeting in July 2003 he spoke with Ms Innes about the casual visits for WorkCover and Allianz claimants whereby he said that he would charge her $6.60 per visit and he said that she clearly agreed with that amount.[9] This alleged agreement as to the amount to be charged for casual visits formed a substantial part of the plaintiff’s claim.
[7]    Transcript pp52-53
[8]    Transcript pp68-69
[9]    Transcript pp68-70
Mr Mahanets also said that he and Ms Innes met in his office in November 2003 and that he queried her about falling behind in payments but he had not, at that stage, sent her any invoices. He said that he assumed that she would pay based on what she had ‘booked out’.[10] He gave evidence of detailed discussions about the various payments that he expected her to make but had not made. He said that there were some phone calls, probably during December 2003, where the issue was discussed again.[11] He said that in January 2004 he locked the communicating door between the premises as he had received no payment[12] and in February 2004 he demanded payment from the defendant of $550 per month plus the WorkCover and Allianz fees and other fees for aerobics.[13] He said that the first time that any invoice to Ms Innes was sent was in February 2004 and that was an invoice for $550 per month for a period of 11 months.[14] It was agreed during Mr Mahanets’ evidence that the documents being the schedules annexed to the Statement of Claim were not invoices sent to Ms Innes prior to the commencement of the proceedings before the District Court.[15]
[10] Transcript pp77-78
[11] Transcript pp81-82
[12] Transcript p83
[13] Transcript pp85-86
[14] Transcript pp87-89
[15] Transcript pp88, 99-100
During cross examination in support of his assertion that there was a meeting in early 2003 as to the fees to be paid, including in respect of the use of the pool, Mr Mahanets referred to a copy of a document[16] which he said were the notes made by Ms Innes during the meeting in March 2003 when the figure of $550 was discussed and agreed on but other matters remained outstanding.[17] Mr Mahanets’ evidence about the timing and purpose of that document and the contents of the various conversations was disputed by Ms Innes. I do not accept Mr Mahanets’ evidence in this regard and will say more about this later in this judgment.
[16] Exhibit D12
[17] Transcript pp116-118
Knowledge of Mr Mahanets of arrangements between Ms Innes and Mr Wegener
I do not accept Mr Mahanets’ evidence that he was unaware of the arrangements between Ms Innes and Mr Wegener for use of the gym facilities. I accept the evidence of Mr Wegener to the effect that he told Mr Mahanets of the arrangement that he had with Ms Innes for use of the facilities and that he did so on more than one occasion.[18] Mr Wegener explained the reasoning behind that arrangement to Mr Mahanets.[19] Nothing in the cross examination of Mr Wegener or other evidence damaged the reliability of that important evidence from Mr Wegener.
[18] Transcript pp386-387
[19] Transcript p387
I also note that the Licence Agreement was included in the bundle of documents in relation to the sale of the gym to the plaintiff.[20] Ms Innes did not believe that the Licence Agreement applied to the plaintiff but the plaintiff’s knowledge of the existence of that agreement is important. In addition to the evidence of Mr Wegener in this regard, there is other evidence capable of supporting the plaintiff’s knowledge of the arrangements between Mr Wegener and Ms Innes. The inclusion of a copy of the Licence Agreement[21] amongst the documents relevant to the sale of the gym which were initialled by Mr Mahanets, (although he denied noticing or reading it) tends to support his knowledge. I also note the evidence of Ms Innes in respect of that document wherein she said she recognised the handwritten date on the copy of the Licence Agreement (contained in Exhibit P3) saying it ‘looks like (that of) Mark Mahanets.’[22]
[20] Exhibit P3
[21] Included in Exhibit P3
[22] Transcript pp350-351
Findings in respect of Mr Mahanets’ and Ms Innes’ credibility
Mr Mahanets was an unsatisfactory witness and I do not accept his evidence wherever it is in conflict with other evidence nor do I accept his evidence as to the alleged agreement with the defendant and the terms thereof.
Whether the unsatisfactory nature of Mr Mahanets’ evidence is as a result of the effluxion of time, his confusion about events, a poor memory, wishful reconstruction or dishonesty I cannot say. However, Mr Mahanets’ evidence lacked reliability and credibility. On the other hand, I have no reservation about substantially accepting the evidence of Ms Innes. She was both reliable and credible. Ms Innes appeared to be endeavouring to accurately recount events. She was a careful witness and she made appropriate concessions as to memory. I found her to be an impressive witness. I also note that her account of the initial conversation with Mr Mahanets is supported by Mr Wegener. Her account of the meeting/conversation with Mr Mahanets which she said occurred in early 2004 and which gave rise to the notes on Exhibits D12 and D13 is supported by the rear of Exhibit D13.
Examples of unsatisfactory evidence of Mr Mahanets
Mr Mahanets said that during the first conversation with Ms Innes she referred to paying $550 per month to Mr Wegener. His evidence in respect of this conversation and topic was confused and confusing.[23] It is also contradicted by Ms Innes and Mr Wegener both as to place and content.
[23] Transcript pp45-48, 50, 53, 151, 155
The evidence given by Mr Mahanets as to Exhibits D12 and D13 and how and when they came to be created was unreliable and inconsistent with the evidence of Ms Innes. Importantly his evidence about the timing of the meeting must be wrong having regard to the rear of D13 being the copy of the SA Water invoice with a pay by date of 31 December 2003.[24] Mr Mahanets steadfastly maintained that the meeting wherein the notes in Exhibits D12 and D13 were used or made occurred in 2003. The rear of the original notes, D13, clearly suggests that the notes were made on or after December 2003. The timing of the alleged meeting was important to Mr Mahanets’ credibility generally and also as to the nature of the discussions which he said occurred in early 2003. I do not accept his evidence in this regard.
[24] Transcript pp166-177, 180, 248-249
Mr Mahanets gave varying accounts about alleged telephone conversations with Ms Innes which he said occurred in December 2003.[25] Under cross examination his evidence was different and he conceded that he was guessing or could not remember if the conversations were by telephone.[26]
[25] Transcript pp81-82
[26] Transcript pp162-163
Mr Mahanets’ evidence about his alleged lack of knowledge of the Licence Agreement between Mr Wegener and Ms Innes (contained in Exhibit P3) lacked credibility.[27] His evidence about his inattention to this information is inconsistent with other evidence, particularly from Mr Wegener.[28]
[27] Transcript pp40-44, 225-233
[28] Transcript pp386, 387, 396
Mr Mahanets’ evidence as to how he calculated the amounts claimed was also unsatisfactory. The original claim made in the Magistrates Court (Civil Division) was a total claim of $6,930.[29] Yet the claim ultimately made before me was for $37,037.20.[30] I accept that the difference in the claims was based on legal advice but I struggle to understand or accept Mr Mahanets’ accounts of discussions with Ms Innes and the amounts ultimately claimed. I also note that the basis of some aspects of the quantum claimed by the plaintiff in these proceedings demonstrates Mr Mahanets’ unreliability. For example, a claim was made for use of crèche facilities for a period after the crèche no longer existed.
[29] Exhibit D16
[30] Transcript p519
These examples are illustrative but not exhaustive of all of the unsatisfactory aspects of Mr Mahanets’ evidence.
Findings
The first important issue that I must decide is what was the nature of the agreement between the parties that the defendant continue to use the facilities? There is no doubt that the defendant was permitted to use the facilities for some time. As I have already said, I do not accept the plaintiff’s evidence in this regard. I find that the arrangement was as described by Ms Innes; that she was to continue to use the facilities at the gym on the same basis that she had used the facilities with the prior owner, Mr Wegener, unless and until she entered into a new arrangement or agreement with Mr Mahanets.[31]
[31] Transcript pp286, 295, 354, 357 and 360
For the reasons that I have already stated, I do not accept Mr Mahanets’ evidence as to discussions about payment or the terms of use where they vary from that of Ms Innes.
In submissions to me, counsel for the plaintiff has posed questions as to the agreement between the parties as to payment for use.[32] The argument advanced on behalf of the plaintiff seems to contrast the two options of gratuitous use or payment. This argument overlooks the nature of the previous arrangements between the defendant and Mr Wegener and that they were not gratuitous in nature. Each of them was receiving some benefit from the arrangement. I accept the defendant’s evidence to the effect that she expected those arrangements to continue with the plaintiff in like manner to the arrangements with Mr Wegener unless and until there was some discussion about an alternative arrangement.
[32] Plaintiff's Outline of Closing Submissions (written) particularly at paras 12-22
I accept that the terms of any contract between the parties is to be determined objectively. As the High Court has said:
‘This Court, in Pacific Carriers Ltd v BNP Paribas[33], has recently re-affirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and objection of the transaction.’[34]
[33] (2004) 218 CLR 451
[34] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40].
Whilst that case concerned a written contract, the observations of the High Court as to the need to consider not only the text but also the surrounding circumstances known to the parties are relevant to this case. Thus the issue of Mr Mahanets’ knowledge (or lack thereof) of the previous arrangements between Ms Innes and Mr Wegener is important in determining what a reasonable person would have understood the agreement to mean.
As I have said, I do not accept the evidence of Mr Mahanets in regard to the alleged discussion and agreement or the terms thereof and I do accept the evidence of the defendant in this regard. I further find that a reasonable person in the position of either the plaintiff or the defendant engaging in the behaviour and discussions as described by Ms Innes would have understood that the arrangements that had existed for use, based on mutual benefit with Mr Wegener, would continue unless and until there was to be some agreement as to actual payment. I observe that, even if Ms Innes considered the possibility or likelihood that Mr Mahanets may wish to change the arrangements and want payment in the future, did not mean that the ongoing arrangement or agreement included actual payment.
Counsel for the plaintiff asserts that, properly considered, Ms Innes’ evidence supports the plaintiff’s case. He submitted that Ms Innes’ evidence supports, inter alia, that the defendant agreed that she would pay for the use of the facilities and that was so on an objective construction. I do not accept those arguments.
There was no agreement that there be payment during the relevant period and in the circumstances, I find that there should be no implied contractual obligation to pay a reasonable price or otherwise. In light of my findings, it is unnecessary for me to consider a basis for a reasonable price or reasonable remuneration. In arriving at this view I have considered all of the arguments put to me for and on behalf of the plaintiff, including the specific submissions made about the evidence of Ms Innes, together with all of the evidence.

No issue of quantum meruit, claim for restitution or reasonable remuneration arises in this case because in my view there was no expectation of actual payment being made for the use of the gym unless and until the further discussions or agreement occurred. Even if such a claim were open, there are a number of deficiencies in the proof of the restitution or reasonable remuneration due, but in the circumstances, it is unnecessary for me to deal with those issues.
Estoppel
Because of my findings thus far, I do not need to deal, in detail, with the issue of estoppel. However, I do observe that in light of my findings of credibility and as to the reliability of Ms Innes as a witness, if I am in error as to the proper construction of her evidence and the agreement for use of the facilities (such that there could be a claim for restitution or payment) then the claim would be defeated by an estoppel. I agree with the defendant’s submission that the estoppel would be founded on an assumption on the part of the defendant based on the conduct of the plaintiff to the effect that there would be no payment unless and until an agreement was reached. The defendant relied, to her detriment, on that conduct by not bringing the matter to a head or not terminating her lease as she was entitled to do so. It is clear from the defendant’s evidence, which I accept, that if there was to be money to be paid, then she wanted to consider her options about whether to continue the arrangement at all and that this was a serious matter of concern, not a hypothetical possibility. Ms Innes’ assumption in this regard was reasonable. The fact that Ms Innes did terminate her lease when the arrangements with the plaintiff broke down (and for other reasons), tends to support this.[35]
[35] Transcript p313-314
Allegation that referral of memberships not pleaded
It was argued on behalf of the plaintiff that the referral of memberships (either directly or indirectly) by patients or clients of the physiotherapy practice to the gym was a benefit that had not been pleaded in the Defence. In my view this is a misunderstanding of the defence case. The issue of the referral of patients or clients for memberships is relevant to the nature of the ongoing relationship between the plaintiff and defendant and to an assessment of whether or not the evidence in that regard is cogent and reliable. It would be difficult to imagine how or why the plaintiff would have continued to allow the use of the gym for such a lengthy period, in the absence of some agreement for payment, if there was no benefit at all to the gym. That there was a benefit to the gym by way of referred memberships (which Mr Mahanets was aware of) explains why he did nothing about the matter for so long. It may be that with the benefit of hindsight, Mr Mahanets didn’t think that was a ‘good deal’ or sufficient compensation, but that is not the point. The pre-existing relationship between Ms Innes and Mr Wegener and Mr Mahanets’ knowledge of that arrangement explains, at least in part, why he let the situation continue as it did.
Conclusion
In conclusion therefore, in light of my findings the plaintiff has not established, on the balance of probabilities, that there was an agreement in the terms alleged. Accordingly I dismiss the plaintiff’s claim. I will hear the parties as to costs.