O & S Holdings (Vic) Pty Ltd v Husain

[2006] HCATrans 274

[2006] HCATrans 274

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M159 of 2005

B e t w e e n -

O & S HOLDINGS (VIC) PTY LTD

Applicant

and

IFTIKHAR HUSAIN

First Respondent

ZULFIQUAR HUSAIN

Second Respondent

ASHRAF HUSAIN

Third Respondent

REHANA MANSOOR

Fourth Respondent

SALEHA HUSAIN

Fifth Respondent

NABEEL HUSAIN

Sixth Respondent

Application for special leave to appeal

GLEESON CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 2 JUNE 2006, AT 2.57 PM

Copyright in the High Court of Australia

__________________

MR P.J. RIORDAN, SC:   If the Court pleases, I appear with my learned friend, MR D.W. BENNETT, for the applicant.  (instructed by Deacons)

MR D.M.B. DERHAM, QC:   I appear with MR J.D. WILSON for the respondents, if your Honours please.  (instructed by Aitken Walker & Strachan)

GLEESON CJ:   Yes, Mr Riordan.

MR RIORDAN:   Thank you, your Honours.  Your Honours, for many years the applicant and the respondent entered into numerous contracts under which there were purchases, in this case of goods being leather uppers, which were supplied to the applicant and the applicant used in the manufacture of shoes.

However, when the parties fell out in April 2003 and the applicant ceased purchasing from the respondent, the respondent brought this claim alleging that in fact there had been an overarching contract, in particular under which the applicant was required to give some six months of notice of intention to terminate.  Therefore the claim for damages was that the applicant had failed to continue ordering and the respondent had lost the benefit of what ultimately was held - and there is no contest about this - six months of orders that my client was compelled by the contract to make.

It is our submission that as the claim was pleaded the claim was doomed to fail because it was never pleaded, proved or contended that there was any agreement as to quality or any agreement as to the price for which the goods would be purchased during this termination period and neither was it ever pleaded or contended for that there was any mechanism agreed between the parties for establishing such.

GLEESON CJ:   Was that an issue at the trial?

MR RIORDAN:   Yes, your Honour, very much so.  At the trial in fact the trial judge dismissed the claim on a different basis although he made reference to that question but Justice Byrne substantially dismissed it on the grounds that he did not find the overarching agreement essentially as pleaded had been made out, that the conversations had been made out, et cetera.

However, before the Court of Appeal it was found that there was an overarching agreement and that that agreement was limited to the supply and purchase of what was known as “20 Series” leather uppers.  This was a new series of leather uppers that had been the subject of discussions.  It was common ground in late 1998 or early 1999.

The issue, in particular, as to quantity and price – on quantity Justice Nettle found that it was a term of the agreement that Oliver was to purchase – Oliver being the applicant – was to purchase all of its requirements of that particular series pursuant to this overarching agreement, although this had never been pleaded or was subject of evidence or contended for at trial.  In fact, the evidence contradicted that and the exclusivity, such as it was, was simply that the respondent would only supply the applicant leather uppers in Australia.  This did in fact result – we do not – on our reading of the respondent’s summary we do not understand that to be a matter of contest.

GLEESON CJ:   What do you say about what appears on page 105, line 20 of the application book?

MR RIORDAN:   There being:

no evidence at trial of any disagreement on price or quantity during the subsistence ‑ ‑ ‑

GLEESON CJ:   No, you see:

There was no argument before the Court of Appeal as to the matters now sought to be canvassed ‑ ‑ ‑

MR RIORDAN:   It is simply wrong, your Honour, and it is shown to be wrong by the outline in both the trial and the Court of Appeal which refers to these matters.  There was argument about this.  There was argument.  There is no doubt that there was – the basis upon which it was dealt with at trial was there was a factual contest and it was said that if the facts were found against the applicant that then in any event there was no enforceable contract because it lacked certainty as to quantity and price and other matters.

His Honour Justice Byrne made reference to that matter in judgement, although he determined the matter undoubtedly on the first question which was there was no agreement as pleaded.  It was then revived and your Honours will find in the outline, the outline being included in the book to rebut that proposition.  Then, before the Court of Appeal, likewise, it was again picked up.  I think that is at page 40 - my learned junior supplies it to me – in the outline that there was, “No Intention to Create Legal Relations” and there was not sufficient certainty in the contract because there was:

c.        No agreement was reached as to price . . . 

d.        No agreement was reached as to the volume –

Your Honour, we say that it is specifically wrong, it was always part of the case but as a matter of law that this contract, as it was pleaded and as it has turned out as being – to the extent that it has been proved – did not satisfy those requirements.  On the same page as your Honour the Chief Justice just took me to, page 105, there is reference there to – I am sorry, page 107 in paragraphs 16 and 17 there is reference there to the proposition about this finding as to quantity and at paragraph 17 our learned friends say:

Even if the basis for this finding is lacking –

and no basis for the findings pointed to:

there was nevertheless a clear mechanism for fixing quantities from time to time by reference to the forecasts provided, and the pattern of orders made in the past –

We say that that conduct, that subsequent conduct, could never form the basis for establishing the quantities or the minimum quantities at the time of entering into the contract and therefore we say – and neither was it either pleaded or contended for or found either by the trial judge or the Court of Appeal and so we say it is not a matter that can be relied upon, but we do not say that is the principal matter that makes this application worthy of consideration by this Court.

Whilst we say that is an error, with respect, of Justice Nettle and with whom the other judges agreed, we say that the matter which – it is the manner in which the court resolved the absence of any agreement about the essential term as to price which gives rise to this application and gives merit for it to be considered by this Court.

At page 72 his Honour Justice Nettle deals with the submissions with respect to price, again confirms that the matter was very much in the forefront of submissions – where he confirms that:

Counsel for the respondent –

now the applicant, of course –

contended that apart from the particular orders which were placed and filled, any overarching arrangement between Oliver and Zazman for the supply and purchase of leather uppers for the 20 series boot was so lacking in certainty as to be unenforceable, and he pointed in particular to the absence of any agreement as to the price or prices at which the uppers would be sold and purchased and the absence of any mechanism by which the price might be set.  I do not think that is a problem.

Then his Honour goes on and makes the finding with respect to mechanism:

As the arrangement worked in fact, the prices were quoted from time to time and either agreed or negotiated and then agreed.  There was in effect a commitment from the outset to purchase at the prices established at the outset and as thereafter as they might be adjusted from time to time, and a long course of dealing which enabled each side to determine the elements which went to make up the prices in terms of costs and mark‑up and when and to what extent changes would be acceptable.  While there was no detailed examination of the matter at trial – presumably because it really did not emerge as an issue until the hearing of the appeal –

I interpolate, because it was never a contention –

there is I think enough evidence to conclude that the parties understood the way in which prices would be worked out, and what and when adjustments would be acceptable, and it is plain that they operated very satisfactorily on that basis for a number of years until the agr3eement was determined.

Interestingly, his Honour then continues:

Perhaps if there had been a radical alteration in prices or a departure from what appears to be the understood basis of computing prices, one or the other side might have refused to deal.  But evidently no such thing occurred.

Your Honours, we contend that his Honour in that paragraph, whilst asserting there is a mechanism, does not identify any such mechanism beyond – and, mind you, with respect, because there was no evidence of any such mechanism, but simply concluded that there must have been one.  Because he had been so successful in negotiating terms for so many years he concluded one could infer the mechanism.  We say, with respect, that is in error but further, we say that you can so draw that inference.  The fact that parties are able to reach agreement from time to time at some prices without exception does not mean there must be a mechanism but that is not ‑ ‑ ‑

GLEESON CJ:   That seems to be very fact specific argument.  Your argument might be right but this is a question, is it not, of the – you only have to look at the authorities mentioned in the footnotes at the bottom of that page.  This is, as it were, law school stuff.

MR RIORDAN:   Yes.

GLEESON CJ:   A possible point of view is that whether Justice Nettle was right or wrong on this point his decision turned on the application of established principles to the particular facts.

MR RIORDAN:   With respect, that is where we would say that is not correct because ‑ ‑ ‑

GLEESON CJ:   What principle would you be inviting us to establish contrary to anything that is said in any of those cases there referred to?

MR RIORDAN:   That the agreement to agree we say cannot found – the basis for a finding of an essential term so as to make a contract.  What his Honour found was that the mechanism in this case was that the parties were able to agree when they came together to discuss prices and therefore they were – that obligation to agree solved the problem and was the mechanism – was as he described it.  That is, we say, which is what leads into the conflict on the authorities all of which he has quoted and what we say is far from established principles because rather than established principles we have direct conflict on authority, unresolved, which has been – both sides of which have some academic support and of which presently we contend there is just absolutely no method of resolving for anybody wanting to advise a client.

GLEESON CJ:   What are the two competing points of view?

MR RIORDAN:   The two competing points of view are the ones which Justice Nettle adopted and they are Sykes v Fine Fare, Foley, Hillas, Upper Hunter Country District Council v Australian Chilling and Freezing which are cases which say that in effect that if there is no agreement as to price or agreement as to agree as to price the Court may imply a reasonable price.  The Court may in fact determine that reasonable price if it is unable to be otherwise determined to provide the mechanism to complete the contract.  We say that is in direct conflict, an undeniable conflict with the decision of the High Court in this case in Hall v Busst.

GLEESON CJ:   You were going to tell us the two competing points of view.  You have told us one.  What is the other one?

MR RIORDAN:   I am sorry, yes.  In Hall v Busst we say and also in May & Butcher and in ANZ v Frost we say they say you cannot imply a term of reasonableness to complete an otherwise unenforceable agreement.  They also say that a contract for determination of – the contract which provides for the agreement to agree cannot be enforceable and neither in those contracts are you able to imply an inconsistent term which is an agreement to buy at a reasonable price because it is inconsistent.

Also, it was said by Sir Owen Dixon in Hall v Busst, a contract which requires the Court to determine what in that case was value – the value of improvements less the value of depreciation on the price of a product – on the basis of an agreed price of a property but which was subject to increase if an option was exercised for the value of improvements, less the value of depreciation, Sir Owen Dixon said you cannot expect that people of commerce will have the court determine what the value is.  That seems in direct conflict with what was found certainly in the decisions in the Court of Appeal in Sykes v Fine Fare and also in Foley v Classique Coaches.

GLEESON CJ:   Is it in the passage from Lord Justice Scrutton at footnote 17 there?

MR RIORDAN:   Yes.

GLEESON CJ:   Do you have that available?

MR RIORDAN:   I do.

GLEESON CJ:   Could you just read out the key part of that?

MR RIORDAN:   Certainly.  The passage at 512 and 513 would appear to be – on 17, yes, in Foley.

GLEESON CJ:   Footnote 17.

MR RIORDAN:   My apologies.  I have gone to the wrong entry.  There his Honour at page 8:

Thereafter the respondent brought his action claiming damages for breach of the agreement, a declaration that the agreement is binding ‑ ‑ ‑

GLEESON CJ:   No, the statement of principle, please.

MR RIORDAN:   Yes.  On page 9 he continues, your Honour:

A good deal of the case turns upon the effect of two decisions of the House of Lords which are not easy to fit in with each other.  The first of these cases is May & Butcher v. The King, which related to a claim in respect of a purchase of surplus stores from a Government department.  In the Court of Appeal two members of the Court took the view that inasmuch as there was a provision that the price of the stores which were to be offered from time to time was to be agreed there was no binding contract because an agreement to make an agreement does not constitute a contract, and that the language of clause 10 that any dispute as to the construction of the agreement was to be submitted to arbitration was irrelevant, because there was not an agreement, although the parties thought there was.  In the second case, Hillas & Co. v Arcos, there was an agreement between Hillas & Co. and the Russian authorities under which Hillas & Co. were to take in one year 22,000 standards of Russian timber, and in the same agreement they had an option to take in the next year 100,000 standards, with no particulars as to the kind of timber or as to the terms of shipment or any of the other matters one expects to find dealt with on a sale of a large quantity of Russian timber over a period.  The Court of Appeal, which included Greer L.J. and myself, both having a very large experience in these timber cases, came to the conclusion that as the House of Lords in May & Butcher v. The King considered that where a detail had to be agreed upon there was no agreement until that detail was agreed, we were bound to follow the decision in May & Butcher v. The King and hold that there was no effective agreement in respect of the option, because the terms had not been agreed.  It was, however, held by the House of Lords in Hillas & Co. v Arcos that we were wrong in so deciding and that we had misunderstood the decision in May & Butcher v. The King.  The House took this line:  it is quite true that there seems to be considerable vagueness about the agreement but the parties contrived to get through it on the contract for 22,000 standards, and so the House thought there was an agreement as to the option which the parties would be able to get through also despite the absence of details.  It is true that in the first year the parties got through quite satisfactorily; that was because –

there was a great deal, et cetera.  Your Honour, we would suggest that passage really highlights the unresolved difference between the two lines which exists to this day and has continued with further decisions of both the Court of Appeal in Victoria and what was then the Full Court in New South Wales in Wenning where there is a distinct difference as to the attention between what the courts see as their role in upholding commercial agreements and the tension with the principle that in fact the courts are not to impose a term for the purpose of completing a contract.

They, your Honours are, we say, the competing principles and we say that his Honour - in terms of the error we say his Honour Justice Nettle and the Court of Appeal, with respect, were in error in finding that the line represented by Sykes v Fine Fare and Foley v Classique Coaches and the like in fact provided support for the decision in this case because there is, we contend, little doubt that this case goes further.  In each of those cases there was formal and undoubted agreement – written agreements – intention to agree.

At least in Hillas and Upper Hunter County there were the – the Court was involved in the interpretation of words, albeit vague words as to what is fair quality and what might be cost price or price changes if costs vary and there were, because of the formal agreements, in fact arbitration agreements which prompted in all of Foley, Sykes and Upper Hunter County.  None of those existed in this case.  Therefore, we say that his Honour, having relied upon that series of authorities to support that proposition, significantly came into conflict with and is inconsistent with the decision of this Court in Hall v Busst, the decision of the House of Lords in May & Butcher and the decision of the Full Court of Victoria in ANZ v Frost.

In the outline, your Honours, there are notes in respect of the reconsideration of each of these conflicting lines and I was only going to mention them.  At page 97 of the book at note 29 there is the criticism, academic criticism of May & Butcher line which is the line that says that one has to – one cannot imply the term and, likewise, in criticism of Sykes on the next page at note 31.  On the other hand, in Hall v Busst at note 21, I

think, the learned authors Greig & Davis say that that is a matter that is due for reconsideration by the High Court.

So it is submitted that it is this state of the law, that is that when a contract is silent or defers an essential term which requires clarification, in particular, can a term of reasonable price be implied if there is a plain intention of contract effectively to save the contract from otherwise what would be unenforceability and does such a term to be enforceable require a mechanism and, in particular, if there is no mechanism supplied will the court infer or take on the responsibility of determining it.

We say it is the uncertain state of the law and we contend that this case, as it does, provides a good vehicle for the Court to consider this area of the law.  We say that the inadequacy of the decision is underlined by the fact that it was sent to the Master for determination.  Having said there was a mechanism, without identifying what it was, the Master in assessing the damages will be required to determine the quantity of goods, and more importantly, the price, which these parties would have agreed and we say that really is an impossible task because of the manner in which his Honour ultimately determined the mechanism without identifying what it was other than agreement to agree.

GLEESON CJ:   Yes, thank you, Mr Riordan.  We do not need to hear you, Mr Derham.

The decision of the Court of Appeal of this case turned upon the application of well‑established principles of contract law to the particular facts and circumstances of the case.  The case does not give rise to an issue suitable to a grant of special leave to appeal.  The application is dismissed with costs.

We will adjourn until 10.15 on Tuesday, 13 June 2006 in Canberra.

AT 3.20 PM THE MATTER WAS CONCLUDED