McHattan v Saramoa Charters Pty Ltd

[1997] HCATrans 181

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B48 of 1996

B e t w e e n -

GEOFFREY JAMES McHATTAN

Applicant

and

SARAMOA CHARTERS PTY LTD

First Respondent

WILLIAM STUART HILL

Second Respondent

KAYE PATRICIA HILL

Third Respondent

Application for special leave to appeal

BRENNAN CJ

TOOHEY J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON THURSDAY, 26 JUNE 1997, AT 2.53 PM

Copyright in the High Court of Australia

MR G.J. McHATTAN:   I am Mr McHattan, your Honour.

BRENNAN CJ:   Yes.  It does not appear that the respondents wish to place any oral argument before the Court but you will have had a copy of the respondents’ summary of their submissions.

MR McHATTAN:   Yes, your Honour.  Firstly, I should thank you for changing the rules to allow me to be heard.  Thank you very much.  I think the facts - I will not run right through them, but in general terms I sold a business in 1993.  It was settled on a normal business contract.  After the contract was settled one of the parties determined that they wanted some of the goods that, by common ground, were not included in the contract.  From there a dispute has gone on for years.

BRENNAN CJ:   What were the goods that were, by common ground, not included?

MR McHATTAN:   Ultimately, there were three items actually finally not handed up:  a patented trailer, a tractor and a welder.  The tractor and the welder are just ordinary chattels.  The patented trailer I own the patent on and, you know, it is common ground again that the patent is valid and it covers the item and all of that.

TOOHEY J:   There is no suggestion, is there, that the respondents were seeking to make some use of the trailer in breach of your patent rights?

MR McHATTAN:   Yes, your Honour, that is right.  They constantly used the trailer in commerce.

TOOHEY J:   Yes, they used it, but there was no suggestion that they were going to manufacture or anything of that sort?

MR McHATTAN:   No, they did not manufacture one; they have got mine.

TOOHEY J:   But if, in fact, that was part of the contract, that they should get the trailer, then so be it.

MR McHATTAN:   I guess I am going to run out of time and run out of my draft, but having said that, yes, I fully understand that if I sell a patented item and do not attach any conditions to it at the time, for value or whatever or voluntarily sell my item, then you get an automaticly implied licence to use as an ordinary chattel, but as it turns out, I did not sell this item.

BRENNAN CJ:   Now, that is the point.  I think that is the problem that you have to address from our point of view, Mr McHattan.

MR McHATTAN:   Yes, your Honour.

BRENNAN CJ:   The findings of the court below are that you did and now you have got to satisfy us that something went wrong with the court below, so far as that finding is concerned.

MR McHATTAN:   Yes, your Honour.

BRENNAN CJ:   Now, what went wrong and how can you demonstrate that they were wrong?

MR McHATTAN:   Okay, I guess the first thing I would say is it is absolutely for sure that the item concerned was not included in the contract of sale.

BRENNAN CJ:   Not expressly contained in the contract of sale.

MR McHATTAN:   No, your Honour.  The items I spoke of, apart from the welder, the tractor is a registered road going, number plates, all of that, and the trailer is subject to all sorts of permits and things and they were definitely not a part of the contract.

KIRBY J:   Is the position that Justice Kiefel found that in fact the trailer was not included in the contract but that there was a mistake, that the purchaser thought it was included in the contract, and that this was a mistake that you stood by and allowed them to make.

MR McHATTAN:   That is the allegation, your Honour, yes.

KIRBY J:   And that was confirmed by the Full Court.  They said there was evidence on which her Honour could find that and that in finding that, she had to determine the conflict between you and the purchasers.  There was a conflict of what you both were saying in the trial court, was there not?

MR McHATTAN:   Absolutely, your Honour.  Everything was in conflict.  But having said that ‑ ‑ ‑

KIRBY J:   That often happens, of course, and somebody has to resolve it, and that falls to a judge.

MR McHATTAN:   But it has to be - my position is this, your Honour, that I went to court for nothing but patent infringement; no property rights, none of that, all I went to court for was patent infringement.  Their defence to my patent infringement, as pleaded, was that they had by a mistake left this article out of the schedule attached to the contract.

KIRBY J:   You left the article with them, did you not?  You sold the business and left the trailer there ‑ ‑ ‑

MR McHATTAN:   And when I went to pick the item up some weeks later they say, “No, it’s ours; it’s part of the deal.”

KIRBY J:   Yes.  They thought it was theirs, you said it was not, and the judge found, I think, that if it was not, then that was a result of a unilateral mistake - a mistake on their part ‑ ‑ ‑

MR McHATTAN:   Yes, I think - I do not want to put a spin on it but yes, they made a mistake in assuming that the sale included numerous items, but this particular item for which I started a patent infringement action.  Now, my problem ‑ ‑ ‑

KIRBY J:   Is it right they returned the item to you and offered to pay you $7,000 or something.  That came up on the question of costs later.

MR McHATTAN:   Yes - well they did not actually, no, your Honour.  They offered to return the tractor and pay me $7,000 and keep the trailer.  They did not talk about the patent.

KIRBY J:   I misunderstood that.

MR McHATTAN:   And they actually did not mention the trailer either.  They virtually just said, “We’ll give you $7,000 and the tractor if you go away.”

KIRBY J:   Was that after the case or before the case?

MR McHATTAN:   It was before the trial.

KIRBY J:   I follow.

MR McHATTAN:   It was an open letter.  When the appeal court obviously felt that that did not constitute anything other than a letter saying, “If you call this off we’ll give you back the tractor and $7,000.”  It did not even say in it anything about the trailer, not a word.

KIRBY J:   I think the Full Court only considered that on the question of the indemnity costs.  You won on that point.  They reversed the judge’s order in that respect.

MR McHATTAN:   I have got this problem, first of all, with the declaration itself, your Honours.  Notwithstanding that I say that the Federal Court only has power to make declarations - or jurisdiction, power, to make declarations over things for which it has primary and original jurisdiction, but notwithstanding that I say that, and I still say that, the problem I have got is that if the Federal Court does have this power to make declarations, everybody’s property is now at risk.  You know, there is no process of law applied here.

TOOHEY J:   The only declaration the court made was to give effect to its finding that the contract between you and the respondents included the trailer.

MR McHATTAN:   With respect, your Honour, the court never said that.  They just declared that from a certain date they became the owners of it.

TOOHEY J:   Let us have a look.

KIRBY J:   Page 28 of the book,  They said that as and from a certain date the respondent was the owner of a boat trailer the subject of the patent.

MR McHATTAN:   Yes, your Honour, they just declared they became the owners.  The did not rectify the contract.  This is my problem.  There is no contract, there is no process of law been followed, there is no flow of title, none of that, there is just from a certain date they have just unilaterally declared that somebody became the owners of my property.

TOOHEY J:   But that was really in lieu of rectifying the contract.  The trial judge said she could make an order rectifying the contract but, in the circumstances, so long as she made a declaration of title, that was all that need be done.

MR McHATTAN:   If the contract, as a matter of law, was rectifiable, then by all means rectify it.  But, of course, no one has yet started rectifying long-settled contracts.

KIRBY J:   The trouble was you were asserting the contract was one thing; they were asserting the contract was another and included the trailer, and the judge preferred their version.

MR McHATTAN:   No, the judge did not, with respect, your Honour.  The judge never said that the contract included the trailer or the tractor or any of the - I mean, if the judge had said that, then we have a normal application of the law where the courts make decisions and say, look, here is an interpretation of the contract and we are declaring, by virtue of the contract, you have lost the title to your goods.  But there is none of that.  What we have got here is the trial judge, backed up by the Full Bench of the Federal Court, now saying to the populous at large, “If we determine, we can just declare that you no longer own your property.”  Now, with the greatest of respect, I say that is beyond their power and jurisdiction.  But even if it is not, and they do have such a power, it has to be applied judicially, not just as a bland order that from a certain date I no longer own my property.

I would also, because I have left my draft now, throw in that even if that is right, which I say it cannot be, otherwise everybody’s property in Australia is now at risk from these just unilateral declarations, if that is right it can have no impact on the Patents Act.  The Patents Act gives a certain power to the Federal Court to issue licences in very limited circumstances upon application.  I put to you that because of that it is a reasonable implication that outside of those circumstances the Federal Court has no blanket power to issue patent licences or anything to do with patents other than what is specified in the Act.

TOOHEY J:   Could I just ask you to look at the foot of page 23 and the top of page 24 where the trial judge says:

Were it necessary to order rectification of the contract, I would do so.  The contract does not however involve any further performance and rectification would serve no practical end, save to identify that the chattels were to pass into the ownership of the first respondent.  In these circumstances I consider a declaration as to the present ownership of the chattels will suffice.

Then her Honour continues:

The Hills’ purchase of the trailer would be understood as carrying with it a licence to use it in the conduct of business, for the purpose of conveying boats but not so as to otherwise infringe Mr McHattan’s rights as patentee.

It is clear that the order as to declaration of ownership was made as a practical means of giving effect to what the trial judge had found concerning the contract between you and the respondents.

MR McHATTAN:   Again, with respect, your Honour, that is not right.  There is absolutely not one zot of evidence here of a common intention by the parties, not even a unilateral intention, there is not one zot of evidence - and if you read the judgment you will find that none of the judgments allege that there is any evidence of a common intention by the parties to include the tractor or the trailer or the other ‑ ‑ ‑

TOOHEY J:   That is another question.  I was simply taking you to that part of the judgment so that you could see the reasoning which led the trial judge, instead of rectifying the contract, to make a simple declaration of ownership.

MR McHATTAN:   Going back to the section you have led me to, your Honour, it finishes up with, “The Hills’ purchase of the trailer”.  There is no purchase of the trailer.

BRENNAN CJ:   I think perhaps the problem lies in this:  if you go back to that page 23, and if you start at the beginning of the page you will see what the trial judge is saying.  What she is saying is not that there was a common intention, what she says is that one party had the intention and that the other party, you, stood by and let them purchase under this misunderstanding.  Now, you contest that, I understand, but that is what she found against you.

MR McHATTAN:   That is right.

BRENNAN CJ:   What she is saying is that in law, the consequences are the same as if there had been a common intention.

MR McHATTAN:   Can I put to you then, your Honour, that let us say those facts are as found.  In law, that is not the outcome.

BRENNAN CJ:   Is it not?

MR McHATTAN:   No, your Honour.  If I could possibly - all of the cases she quotes there, Leicestershire County Council, Johnstone v Commerce, Thomas Bates, Riverlate Properties, the whole lot of them, down to just above - well, the last one is Johnstone v Arnaboldi, each and every one of those cases, the first thing that happened was there was an expressed common intention by the parties, as you have said very clearly in Pukallus v Cameron, there was an express common intention by the parties that the contract say a certain thing.  I say “say” because I am quite happy to concede that it has to be an expressed intention, maybe that it just achieves a certain thing, but I am not saying it has to achieve the exact words.  But the first thing that happened in each and every one of those cases - and they are in the precedent book and I have highlighted the actual bits of the findings where it happens - I do not have time, but if we have time I can show you that each and every one of them, the Court found an expressed intention ‑ ‑ ‑

BRENNAN CJ:   Go ahead.  Not too long, but do it as quickly as you can.

MR McHATTAN:   Pukallus v Cameron is my understanding of the state of the law of rectification in Australia at the moment.  It is the last of the High Court cases that I can find.  It is pages 1 to 8.  I have gone through with highlighter pen, your Honours, but in general terms, to get rectification you have to show a common intention of what the parties’ intentions were.  The evidence has to be in the clearest and strongest terms.  What I am putting to you is that we do not even get to that here.  At no time did the respondents ever express an intention that they were to include these items in the sale, let alone the contract.  After the settlement, of course, they did.  Up until the signing obviously they did not, but even during all the settlement process and sending - it is not as if they sent transfers for registration and we did not sign them or something, they never sent them.

KIRBY J:   But the problem is that her Honour found that you knew that the respondents thought that they were purchasing the business, lock stock and barrel.  I realise that you fix yourself on the wording of the written contract but what the judge found was that they thought they were getting this trailer.  It would not be an unreasonable sort of thing for you to think, if you are buying a business and there is a business with boats and there is this trailer, you said that you specifically told them that they were not getting the trailer, but the judge rejected your evidence; therefore you have got to put that out of the equation.

MR McHATTAN:   I am happy with that, your Honour.

KIRBY J:   Then the judge said, well, I find that you knew that they believed they were getting the trailer and the tractor and that you just left quietly by, let the contract go ahead, be settled, and that that is what fixes you with ‑ ‑ ‑

MR McHATTAN:   Your Honour, if I was to tell you, and I tell you to your face now, there is not one zot of evidence in any of the transcripts or any of the written evidence that the respondents ever said they thought they were buying the business, lock stock and barrel; not one bit.  I have searched electronically and I have had independent people go through manually.  In this day and age ‑ ‑ ‑

KIRBY J:   Well, lock stock and barrel is a term of art.

MR McHATTAN:   It was a turn of phrase I may have used in the very early negotiations.  Since then there were two draft contracts - I say three, but the trial judge found two - but that is okay.  There were two draft contracts, then there was a final contract that we entered into and settled, and settled.  Then after all of that, they come back and say, “Look, I’m not happy with the outcome and I’m just keeping your goods.”  They accept that there is no title, they accept that there is no licence under the patent, they are just keeping them.  After five months of the solicitors toing and froing, I commenced an action for a patent infringement.  Now, the Federal Court then effectively says, we cannot rectify this contract because - I say they cannot rectify it because there is no common intention of what the parties intended the contract to say.  Then after that, if there was a unilateral mistake, then let her Honour’s findings against me have their way.  But you still need a common intention.  And each and every one of those precedents that her Honour quotes, each and every one of them, your Honours, has a common intention backed up by a unilateral mistake and the other party remains silent.  But you still have to have, for rectification, a common intention expressed.  And it is just not expressed.

Then I have to go on to the fact that I say, look, if the Federal Court is just going to go around declaring that people are becoming owners, with no rule of law anymore, then we are all at risk of the Federal Court declaring ‑ ‑ ‑

BRENNAN CJ:   Just to save you time, that point is not worth following, for this reason:  if you are right in saying that this contract could not be rectified, then everything else may follow in your favour.  If you are wrong about that, then you are in real trouble.

MR McHATTAN:   This contract could not be rectified, your Honour, because there is absolutely no found, even in the judgments, no found expressed common intention.

BRENNAN CJ:   The question was never that, as the trial judge put it.  It was that there was a belief on the part of the purchasers and that you let them enter into the contract and that they did so under that mistaken belief to their detriment, believing they were getting the tractor and trailer.  That is the problem you have to face.  Is that good enough for rectification or not?

MR McHATTAN:   No, your Honour, because there is no common intention by the mistaken party, the respondents, that they ever intended ‑ ‑ ‑

KIRBY J:   But in the nature of mistake, there are going to be differences as to what parties are believing.  That is the whole point of mistake.

MR McHATTAN:   Then may I go on to say that they pleaded that their mistake at all times was that they left these items out of the standard schedule of chattels that go with the sale.  At all times that was what was pleaded.  Then under cross-examination at the end of a five-day trial, the managing director of the respondents says, “Oh, at all times I knew they were not included in the schedule and at all times I was fully aware that they weren’t.”

KIRBY J:   He knew they were not in the schedule, but he thought they were part of the deal.  I mean, the schedule speaks for itself.

MR McHATTAN:   He thought - and obviously had not said to me because he thought he was getting a good deal - the transcript section is there if it is worth having a look at.

BRENNAN CJ:   Whereabouts?

MR McHATTAN:   Pages 2 to 4, your Honours.  So I go to court with pleadings that the schedule, by a mistake, does not include these items.  All of my witnesses, people standing around when the schedule was made up and all that sort of stuff, they have all been cross-examined and it is all finished.  Their final witness comes out with at all times he knew that that was how it was.  But he actually thought that clause 17 - clause 17 is the, you know, goodwill - it is the division of the - the standard contract clause, and as you can see, notwithstanding that I pressed him, but when he said he had read it, I thought he must have thought clause 1.  But he did not.  He has corrected me and said, “No, clause 17.”

BRENNAN CJ:   He said he considered the tractor and trailer were covered by the plant and equipment side of it.

MR McHATTAN:   Yes, in clause 17.  So what he is saying is, if he gets up and says, “Oh, that was my opinion.”, it is clearly wrong as a matter of law, then that is just too bad.  The problem with that is, the problem with him changing his position on what the real mistake was, contrary to the pleading, was how could I possibly know.  What we had was constant evidence that the schedule contained this mistake.  When I put in evidence that, you know, we both made up the schedule, he put in evidence saying I was not even there.

TOOHEY J:   But the schedule does not identify particular items, does it?

MR McHATTAN:   It lists every item that - clause 1 says you are buying the business and you are getting everything in the schedule and that is all you are getting.

KIRBY J:   Part of your case was its omission was what was significant, that it was not in the schedule.

MR McHATTAN:   It was not in the schedule by mutual agreement by the parties, as you can see from that piece of transcript.  Now, at the last witness, he then says, “Oh, no, that isn’t my real mistake.”  I get up and say, “Well, look, that wasn’t what” - I say in submissions that was not what was pleaded.  I say that to the Full Court who then, after the close of the appeal, ex parte, call back the respondents and invite them to amend their pleadings.  That transcript is on pages 38 to 65.

BRENNAN CJ:   Mr McHattan, I think your time has probably now expired.  These are the reasons for the order that I am about to make.

The courts below found that the respondents understood that the contract should convey title to the tractor and trailer and that, by his conduct, the applicant could not resist rectification of the contract to give effect to the respondents’ understanding.  Although no formal order of rectification was made, the declaration gave effect to the equitable rights of the respondents as though the contract had been rectified.  In making such an order there was no error of principle warranting a grant of special leave to this Court.  In the light of the concurrent findings relevant to rectification, an appeal to this Court would enjoy no prospects of success.  Accordingly, special leave is refused.

I am just looking at the respondents’ submissions in respect of costs, Mr McHattan.  It simply says “No special order as to costs has been sought by the respondents.”  I am not sure what “special order” means. 

KIRBY J:   I suppose it is fair to say a general order that would be made for costs would be that you pay the costs of the failed application.  They have, after all, put in written submissions which would cost them something but they have not turned up, so at least you have been spared that.  But perhaps our rule or the instruction says to identify any special orders for costs.

BRENNAN CJ:   Do you have anything to say about the question of costs, Mr McHattan?

MR McHATTAN:   I guess you would expect me to say, your Honour, they have not requested costs.  They have not asked for costs.  They have certainly - I would accept Justice Kirby’s comment that they have spent some costs in the three page submission but I would have thought it is a three page submission and they have not arrived, I would be putting to you they have not requested costs.

BRENNAN CJ:   Mr McHattan, the Court is of the opinion that special leave should be refused with costs but, of course, those costs are limited costs, having regard to the way in which the proceedings have been conducted and the non-appearance of the respondents.  But for what it is worth, we think that the order should be made refusing special leave with costs and that will be the order that is made.

Adjourn the Court to a date to be fixed.

AT 3.26 PM THE MATTER WAS CONCLUDED