Pegela Pty Ltd v Oates

[2010] NSWCA 186

New South Wales

Court of Appeal

CITATION:	Pegela Pty Ltd v Oates [2010] NSWCA 186
HEARING DATE(S):	27 April 2010
JUDGMENT DATE:	9 August 2010
JUDGMENT OF:	Allsop P at [1]; McColl JA at [22]; Young JA at [23]
DECISION:	(1) Appeal allowed. (2) Judgment of the primary judge set aside. (3) In lieu there be a verdict for the appellants for $91,000 plus interest. (4) The respondents to pay the appellants' costs both here and at first instance, but with respect to the costs of the appeal have a certificate under the Suitors' Fund Act 1951 if qualified.
CATCHWORDS:	Appeal- Civil- whether leave to appeal required- District Court Act 1973, s 127(2)(c)- whether appeal involves $100,000 or more- realistic prospect of success. Contract- Formation of Contract- variation- relevance of subsequent conduct to formation of contract- agreement between parties to share in costs of litigation- initial discussion that appellants bound to pay 12% of the total costs- whether subsequent communications referring to 1/12th rate varied original agreement- whether subsequent conduct further varied any variation back to 12%- relevance of failure of appellant to give oral evidence regarding further variation- whether primary judge erred in holding respondents had overpaid based on binding 1/12 agreement- whether finding as to original agreement glaringly improbable- implied terms- whether implied term obvious, or necessary for the reasonable or effective operation of the contract- whether implied term that agreement net of GST. Procedure- Civil- whether account stated pleaded- whether case run at trial so as to require its consideration.
LEGISLATION CITED:	District Court Act 1973, s 127(2)(c) Supreme Court Act 1970, s 101(2)
CATEGORY:	Principal judgment
CASES CITED:	Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; 205 CLR 588 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings [1977] UKPCHCA 1; 180 CLR 266 Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 Breen v Williams [1966] HCA 57; 186 CLR 71 Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410 Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 Federal Commissioner of Taxation v Sara Lee Household & Bodycare (Australia) Pty Ltd [2000] HCA 35; 201 CLR 520 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Fox v Percy [2003] HCA 22; 214 CLR 118 Gillard v Hunter Screen Products (No 2) [2001] NSWCA 450 Hawkins v Clayton [1988] HCA 15; 64 CLR 539 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 In re Stock; Ex parte Amos (1986) 66 LJQB 140 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 Jones v Dunkel [1959] HCA 8; 101 CLR 298 Joseph Evans & Co Limited v Heathcote [1918] 1 KB 418 Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; 202 CLR 351 Tallerman & Co Pty Ltd v Nathan's Merchandise Pty Ltd (Vict) [1957] HCA 10; 98 CLR 93 Thomas v Hawkes (1841) 8 M & W 140; 151 ER 983 Wrigley v Cornelius 44 NE 406 (1896) (162 Ill 92)
PARTIES:	Pegela Pty Limited (First Appellant) Garrick Hawkins (Second Appellant) Tom Michael Oates (First Respondent) Paul Oates (Second Respondent)
FILE NUMBER(S):	CA 2009/298568
COUNSEL:	M L Williams SC and J Darams (Appellants) A W Street SC and J Hewitt (Respondents)
SOLICITORS:	Eakin McCaffery Cox Solicitors (Appellants) Thompson Eslick Solicitors (Respondents)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 5539/07
LOWER COURT JUDICIAL OFFICER:	Rolfe DCJ
LOWER COURT DATE OF DECISION:	13 November 2009
LOWER COURT MEDIUM NEUTRAL CITATION:	Garrick Hawkins v Tom Oates [2009] NSWDC 258

2009/298568

ALLSOP P
McCOLL JA
YOUNG JA

Monday 9 August 2010

PEGELA PTY LIMITED v OATES

Headnote

The parties were plaintiffs in costly litigation in the Supreme Court of Victoria concerning certain insurance policies. There was an arrangement to share payment of the legal fees between (a) Pegela Pty Limited and Mr Garrick Hawkins, the appellants, and (b) Tom and Paul Oates, the respondents. Pegela paid the costs of the proceedings, subject to reimbursement by the respondents. The present dispute concerned whether the appellant’s were to pay 12% of the total bill, as the appellants contended, or 1/12 as the respondents asserted.

In proceedings before Rolfe DCJ, the appellants argued that the respondents had short paid by $91,000, had breached an agreement, were indebted to Pegela, and obliged to repay Pegela. The respondents argued and cross-claimed that the agreement was for 1/12 and that they had overpaid by $58,398.20, which ought to be repaid with interest. The primary judge found for the respondents and upheld the cross claim. He held that the parties’ agreement in March 2001 that the respondents would pay 12% was varied by agreement in a series of emails in October/November 2001 to a 1/12 rate. Rolfe DCJ rejected the appellants’ contention for a further variation of the varied agreement, based on demands and payments made between the parties, after October 2002, at the 12% rate. His Honour held that Mr Hawkins’ failure to give critical evidence regarding certain “discussions”, referred to in emails requesting payment, prevented the drawing of an inference supporting a variation. Rolfe DCJ held that there was an implied term in the agreement that the amount due by the respondents was the amount paid by Pegela on their behalf, less GST.

On appeal, the appellants argued that the primary judge’s findings as to the agreement and as to mistake were glaringly improbable and contrary to incontrovertible facts. They argued further, that he had failed to give reasons for not finding that the parties agreed in September 2004 that the respondents were liable to pay $91,000, pursuant to either the March 2001 or the October 2002 agreement. The appellants challenged the judge’s adverse inference based on Mr Hawkins’ failure to give evidence; argued that the implication as to GST did not meet the tests as to implied terms; and put that his Honour erred in failing to find the respondents estopped by convention. The appellants put that the appeal was as of right because, if successful, it would change the wealth of his clients by more than $100,000. The respondents put by notice of contention that his Honour erred in finding a binding agreement in March 2001, because communication from November 2001 showed that earlier discussions were merely movements towards the later contractual agreement.

The appeal raised three principal issues:

(1) Whether leave to appeal was necessary or should be granted.

(2) Whether the trial judge erred in finding that the March agreement was finally varied in November 2001 to the 1/12 rate.

(3) Whether there was an implied agreement that the respondents’ share of the costs would be net of GST.

(1) As to whether leave to appeal was necessary or should be granted:

Young JA (Allsop P and McColl JA agreeing): Where there is a realistic prospect of success in an appeal that would change the wealth of the appealing party by more than $100,000, then an appeal involves a “matter at issue” satisfying District Court Act 1973, s 127(2)(c)(i). For the purposes of s 127(2)(c)(ii), it is the realistic worth of the claim that must exceed $100,000, rather than the property the subject of the claim.

Gillard v Hunter Screen Products (No 2)

[2001] NSWCA 450, applied.

(2) As to trial judge’s findings regarding the agreement:

Allsop P (McColl JA agreeing): The November 2001 communications referring to a 1/12 rate and the fact that after March 2001 the Oates brothers reduced their share in the worth of the litigation, were not considerations demonstrating such inconsistency to make the primary judge’s finding glaringly improbable.

Young JA (Allsop P and McColl JA agreeing): The trial judge failed to have regard to emails between the parties after December 2003 which showed the original 12% agreement continued, and that the 1/12 rate was a mistake. The emails were admissible as evidence of post-contractual behaviours to show that there is in fact and in law a contract; to identify the subject matter of the contract; and, to some extent, the terms of the contract. Alternatively, the behaviours would be admissible as post-contractual utterances that admit facts from which a conclusion of law may be drawn.

Integrated Computer Services Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251; Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317, applied; Wrigley v Cornelius 44 NE 406 (1896) (162 Ill. 92), considered; Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43, referred to.

Young JA: The trial judge erred in drawing an inference against the sufficiency of the appellants’ evidence for a further variation of the contract from 1/12 back to 12% based on Mr Hawkins’ failure to give evidence. An admission by Oates in cross-examination as to the agreed percentage that was the basis of certain payments and demands made was all the information Hawkins could have provided. Rather, the weight of admissions as to the correctness of the claim based on 12%, and the fact that the claim based on overpayment was only made on the first day of trial due to forgetfulness, made the primary judge’s decision that the agreement was for the 1/12 rate glaringly improbable. Therefore, the original 12% agreement continued and the respondents had short paid.

Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153, referred to.

Allsop P (McColl JA agreeing): Glaring improbability did not need to be demonstrated regarding the trial judge’s conclusion of a contractual variation in November 2001 because it was based on the documents and did not rely on the advantage of having seen witnesses. Based on the evidence as a whole and accepting the primary judge’s conclusions about the agreement in March 2001, the correct objective conclusion is that the parties agreed to 12% and that the November 2001 references to 1/12 contained a mistake. The parties neither evinced an intention to vary the March 2001 contract, nor discussed the 1/12 rate, and the respondents had no appreciation of the November documents or the variation until two weeks before the hearing.

(3) As to the implied agreement concerning GST:

Allsop P (McColl JA and Young JA agreeing): The trial judge erred in inferring or implying that the 12 % agreement was net of GST. The plain agreement was that the Oates brothers were obliged to others in a group of clients to a firm of solicitors to meet the fees and expenses of the litigation in a proportion of 12%. The fact that Pegela might claim the whole of the tax input credit arising out of GST payments and that it might ultimately obtain a benefit from this, did not make it obvious that the Oates’ liability was 12 % net of GST so as to infer a term. Nor was it necessary for the reasonable or effective operation of the agreement for Pegela to fund the whole of the GST component of the bill. Indeed, the relationship worked satisfactorily without the implied term until the parties began to fall out.

Breen v Williams [1996] HCA 57; 186 CLR 71; Hawkins v Clayton [1988] HCA 15; 64 CLR 539; Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410, applied; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; 205 CLR 588; BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings [1977] UKPCHCA 1; 180 CLR 266; Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41; Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; 202 CLR 351 referred to.

The Court also commented on the odd fact that there was no pleading by the appellants of account stated which appeared to have the most efficient course for the appellants to have taken.

2009/298568

ALLSOP P
McCOLL JA
YOUNG JA

Monday 9 August 2010

PEGELA PTY LIMITED v OATES

Judgment

1 ALLSOP P: I have read the reasons of Young JA. I agree with the orders that he proposes and, subject to what follows, with the reasoning that leads to them. What I wish to say assumes a familiarity with the facts from the reasons of Young JA.

2 This is a curious case. It highlights the frailty of human memory and the difficulty faced by trial judges, and appellate courts in appeals by way of rehearing, in ascertaining what in fact did happen years ago in the private communications between parties.

3 Looking at the totality of the facts, as one must, to seek to divine when it was that the parties entered a binding contract and what were its terms, one is struck by the apparent changes to the arrangement as to the agreed proportion of costs that the Oates would bear: in November 2001 (1/12) from March 2001 (12 per cent) and in 2002 and following (12 per cent) from November 2001 (1/12). These changes, and the communications that embody them, are impossible to reconcile in any one coherent hypothesis of what happened, absent some mistake.

4 The case propounded by the respondents on the notice of contention was not without force. The primary judge found an oral contract in March 2001. That was based on his assessment of the oral evidence of Mr Tyne and Mr Tom Oates. The respondents submitted that that conclusion should be rejected in the face of the written communications of the parties in November 2001. These communications reflected, it was submitted, the movement towards contractual agreement, as the participation in the litigation was crystallising. The parties, it was submitted, can be taken in March 2001 to have discussed the Oates’ participation at 12 per cent, but without contractually agreeing to it. After March, and before November 2001, the Oates brothers sold down some of their policies so that by November their proportionate share in the worth of the litigation had been reduced. This would make rational, it was submitted, the reaching of agreement in November 2001 of a share lower than 12 per cent.

5 Whilst the above has some attraction, it has two irremovable difficulties. First, these are not considerations that demonstrate such inconsistency with what the judge found as to make his conclusions glaringly improbable. He was fully aware of the written communications in November in his conclusions on the evidence concerning March 2001. Secondly, the conduct from 2002, including written communications and other documents created by Mr Tom Oates, make it abundantly plain that the parties were of the view that the agreement was 12 per cent.

6 Looked at objectively, the correct conclusion, in particular in the light of the primary judge’s conclusion as to the agreement in March 2001, is that the parties agreed that the Oates brothers should share in the costs at a level of 12 per cent. The references in November 2001 to 1/12 or 8.3 per cent can be seen objectively to have arisen in Mr Tyne’s email of 11 November 2001, where he refers to contribution “at the original level, say 1/12”. The original level was 12 per cent, not 1/12. In the light of what occurred before and after November 2001, and viewed objectively, the communication can be seen to have contained a mistake which was carried forward, for a time, in the November documents.

7 The disagreement with the primary judge as to what occurred in November 2001 is based on an assessment of the evidence as a whole and accepting his findings about March 2001. It is not necessary to come to the view that the conclusion to which his Honour came about November 2001 was glaringly improbable because he did not base this conclusion on any advantage he had from seeing the witnesses. His view as to the variation of the March contract in November was based on the documents.

8 At no time in November 2001 did the parties evince an intention to vary the contract that had been made in March 2001. In the light of the earlier agreement, clearly performed from 2002 onwards, the documents in November 2001 can be viewed objectively as mistaken.

9 That there was no conversation as to 1/12, that all discussion was as to 12 per cent and that what was in substance and truly agreed was 12 per cent is reflected in the complete absence of appreciation in either Oates brother until two weeks before the hearing either that the November 2001 documents existed (or had existed) or that the contract was 1/12 not 12 per cent. Their subjective appreciation is irrelevant, but the fact of this lack of appreciation of any arrangement as to the share being 1/12 does assist in the objective conclusion that the communications between the parties – oral and written – must have been such as, objectively, would strike a reasonable person that the agreement was 12 per cent not 1/12.

GST

10 The primary judge found an implied term of the agreement that the 1/12 would be net of any GST in the solicitors’ accounts.

11 The primary judge dealt with this in [79]-[81] of his reasons as follows:

“[79] The parties agreed that the plaintiffs had paid GST in the amount of $239,282.72. The defendants submitted that this amount should be deducted from the total amount of fees and expenses paid by the plaintiffs in the sum of $2,662,540.53.

[80] The defendants plead that it was an express term of their agreement with the plaintiffs that the defendants would only be liable for a share of the costs after they were netted off for GST. Although I am not satisfied that this was an express term, I am satisfied it should be implied into the agreement because Tyne’s evidence was that, for record keeping purposes, Pegela became ‘the funder of record’ (Day 2, T 35.20). He also gave further evidence at T 48.15 as follows:

‘Q. And at the time of the agreement relating to the proportionate share of fees you knew didn’t you that if Pegela paid it would obtain a tax benefit in relation to GST correct?

A. I knew Pegela was registered for GST and would claim the input tax credit or however it works.

Q. And that was something that had been discussed between you and Hawkins wasn’t it?

A. No I mean I couldn’t claim the input tax credit so it didn’t bother me if Pegela paid.

Q. So you tell his Honour that at no stage did you discuss with Hawkins anything to do with a GST tax credit in respect of Pegela is that what you tell his Honour?

A. No. I was happy enough for Pegela to be the party who was invoiced on the basis that they were registered for GST.

Q. Mr Tyne did you have a discussion with Mr Hawkins about Pegela paying the GST?

A. Yes I just described it.

Q. You know don’t you that in your affidavit you refer to a conversation with Hawkins about GST and Pegela don’t you?

A. Yeah it’s that one.

Q. And you know don’t you that it was also communicated to Mr Oates that Pegela was going to pay because it would get a tax benefit in relation to GST correct?

A. You say a tax benefit I mean Pegela was registered for GST and it presumably claimed input tax credits.

Q. As far as you’re aware that was also a fact communicated to Mr Oates at the time of the agreement in relation to legal costs correct?

A. Yeah I believe so.’

[81] Based on this evidence, together with Pegela’s failure to produce relevant financial records in answer to the Notice to Produce (exhibit 13), the Court infers that Pegela took advantage of the input tax credits arising out of the GST payments. Accordingly, the amount the defendants were required to contribute must be calculated by deducting the amount of agreed GST of $239,282.72 from the agreed amount of the costs of the litigation, $2,662,540.53.”

12 The appellants criticised his Honour’s conclusion on the basis that the implication did not meet the well-known tests in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings [1977] UKPCHCA 1; 180 CLR 266 at 283. These five tests are relevant in full when there is an agreement in writing complete upon its face: Deane J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 at 121, approved in Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410 at 422 (Brennan CJ, Dawson and Toohey JJ) and at 442 (McHugh and Gummow JJ).

13 Where there is no formal contract, the actual terms of the contract must be first ascertained and, if necessary, inferred from all the circumstances, before any question of implication arises: Byrne at 422. Once the actual objective intention of the parties is ascertained, there may be a need to consider imputed or presumed intention: Byrne at 422.

14 In circumstances of an informal contract where the parties have not sought to spell out the full terms of their contract, the appropriate approach to imputing or implying a term is as described by Deane J in Hawkins v Clayton [1988] HCA 15; 64 CLR 539 at 573 (approved in Byrne at 422 and at 442): “if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case.” Deane J went on to say that this was subject to implication by mercantile usage, professional practice or past course of dealing between the parties.

15 The above approach has also been approved in the High Court in Breen v Williams [1996] HCA 57; 186 CLR 71 at 90-91 by Dawson and Toohey JJ, (where their Honours also noted if a term were obvious, no question of implication will arise because it will have been already established as a term by inference) and at 123-124 by Gummow J; in Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; 202 CLR 351 at 374 [80] by Gummow J; and in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; 202 CLR 588 at 610 [46] by Gaudron, McHugh, Gummow and Hayne JJ.

16 Thus, one must approach the evidence recognising that the task is to ascertain what the parties agreed were the terms of the contract: expressed, inferred and imputed or implied.

17 Mr Tom Oates gave evidence that there were direct conversations between him, Mr Hawkins and Mr Tyne that Pegela would claim the GST and that the obligations of the parties to contribute was net of GST, not gross. This was denied by Mr Tyne. Mr Oates was not considered by the primary judge to be a reliable witness. It was for that reason, no doubt, that the primary judge refused to find an express term.

18 The evidence from Mr Tyne quoted by the primary judge is not of a character that leads either to the inference or implication that the 12 per cent was net of GST.

19 The Oates brothers, Mr Hawkins, Mr Tyne and Pegela were clients of Verekers. They were obliged to pay legal fees. Amongst themselves the parties agreed the percentage share of the fees. That Pegela would or did pay the fees in the first instance was a funding issue to the benefit of the Oates brothers in that they were effectively given credit by Pegela. The arrangement was for them to pay their share (12 per cent) of Verekers’ legal fees. That necessarily included GST. How each client would deal with GST was a matter for it or him. By Pegela paying the bills in the first instance (and thus the whole GST) did not mean that it was entitled to the whole GST as a tax input. Under the arrangements with the solicitors, Mr Hawkins, Mr Tyne and the Oates brothers, it was paying its share of the bills and the shares of the others. That it might rightly or wrongly claim the whole of the tax input credit and that it may or may not obtain an ultimate benefit from this, and in whatever amount, did not make it obvious that the Oates’ liability was 12 per cent net, so as to infer such a term.

20 Nor is there any occasion to think that it was necessary for the reasonable or effective operation of the costs sharing agreement that Pegela fund the whole of the GST component of the bill. That it was not necessary for the reasonable and effective working of the agreement can be seen by the satisfactory working of the relationship without the term until the parties began to fall out. It was only then that the Oates began asking for a GST invoice from Mr Hawkins or Pegela. That misstated the plain agreement. They, as two of a group of clients of a firm of solicitors, were obliged to the others in the group to meet the fees and expenses of the litigation in a proportion of 12 per cent. Neither Pegela nor Mr Hawkins was providing services to the Oates so as to require it or him to raise a fresh tax invoice to the Oates brothers.

21 I see no basis for implying a term that the 12 per cent would be net of GST.

22 McCOLL JA: I agree with Allsop P.

23 YOUNG JA: This is an appeal from the District Court in an action between two sets of former friends and business associates over the question as to whether the respondents owe the appellants money to reimburse the appellants for legal fees it paid on behalf of parties to a suit in the Supreme Court of Victoria, or whether, as the District Court Judge held, the respondents have overpaid and are entitled to a refund.

24 The amount at issue is relatively small, but the angst is high. In due course, I will need to examine whether the appeal involves more than $100,000 or whether leave to appeal is required.

25 The basal facts are that all the parties were plaintiffs (by themselves, their controllers or their corporate vehicles) in litigation in the Supreme Court of Victoria over some special type of insurance policies. That litigation was expensive, apparently the costs for the plaintiffs’ side were some $2,600,000 and that was at a stage before any decision was made by the court.

26 Although as I will show, the facts are far more complicated than the following brief summary, the arrangement between the sets of parties was that the appellants would pay 12% (appellants’ version) or one-twelfth (respondents’ version) of the total bill. The appellants say that the respondents have short paid $91,000, the respondents say they have already overpaid. The primary judge found a verdict for the respondents for $85,847.59.

27 On the appeal, Mr M L Williams SC and Mr J Darams of counsel appeared for the appellants and Mr A W Street SC and Mr J Hewitt of counsel appeared for the respondents.

28 Mr Williams put that the primary judge committed serious errors, the trial miscarried and the primary judge’s conclusion that the parties had agreed that the respondents had agreed to pay only one-twelfth was glaringly improbable.

29 In order to deal with that submission, it is necessary to analyse the primary judge’s reasons and examine the facts behind those reasons with some care.

30 The relevant actors are Garrick Hawkins (Hawkins), the key figure in Pegela Pty Ltd (Pegela) and his associate Scott Francis Tyne (Tyne) on the appellants’ side of the record and Tom Oates (Oates) and Paul Oates (Oates’ brother) on the respondents’ side.

31 There is no doubt that in the first half of 2001, Hawkins and Tyne who are investors and advisors in the finance industry were extremely upset over the conduct of a company then known as AXA which had issued a financial product tagged a Prosperity Bond policy, a type of insurance policy. It would seem that Hawkins and Tyne had acquired about 10.5 million dollars worth of these policies. The respondents had also invested in them to the tune of one million dollars.

32 Hawkins and Tyne gave instructions to sue AXA via Pegela as a corporate vehicle. They asked Oates whether he and his brother wished to join in the action: they agreed. There is no doubt that all parties expected that Oates and his brother would fund some part of the legal costs. The problem which gave rise to the present litigation is the extent to which the respondents agreed to contribute to such funding.

33 In Pegela’s further amended statement of claim (FASC) it pleaded its case per the following summary (using the actual paragraph numbers of the FASC):

5. In about March 2001, Hawkins and the Oates brothers entered into an oral Funding Agreement pursuant to which Hawkins would pay Pegela the attributable cost of the litigation.

5A. Alternatively the agreement was partly oral and partly written.

5B. If it be held that that funding agreement was that the defendants would pay one twelfth of the attributable costs, the parties agreed about 15 October 2002 that they would enter into an amended agreement.
6. Under the funding agreement, the Oates brothers agreed to pay 12% of the attributable costs.

7. Hawkins contracted as Pegela’s agent.


8-10. Alternatively to everything else the final arrangement between the parties was that the respondents would pay 12% of the costs and they have not done so.

11. The funding agreement was terminated by a Termination Agreement between the parties made on 23 August 2004.
13-4. In August/September 2004, the defendants acknowledged their debt.
26. The defendants have breached the Termination Agreement and are indebted to Pegela.
28-36. The defendants must pay the second plaintiff under principles of the law of restitution.
37. There should be a verdict for the second plaintiff for $91,000, interest and costs.

34 The defence and cross claim essentially put that the agreement was for one-twelfth of the attributable costs, not 12%, and that by mistake, there had been an overpayment of $58,398.20 and this sum should be repaid with interest. This cross claim succeeded.

35 It must be noted that the FASC did not contain an indebitatus count for money due on an account stated; though, before us, appellants’ counsel endeavoured to say that the implication was there. As it would seem that such a count had a very good chance of success, close examination of the trial process is necessary to see if that submission is justified.

36 The primary judge thoroughly reviewed the evidence. He considered that Oates was not a satisfactory witness and said at [26] that he did not accept Oates’ denial that he did not have a conversation with either Hawkins or Tyne to the effect that he and his brother would contribute 12% of the costs of the AXA litigation.

37 The judge said at [27] that he was comfortably satisfied that the plaintiffs had made out their case pleaded in paragraph 5 FASC that in March 2001 the parties agreed that Oates and Oates’ brother would pay 12% of the costs. However, he noted that that was not the end of the matter as he needed to see whether, after March 2001, the term with respect to 12% was replaced.

38 The primary judge set out a series of emails that passed between the parties or the solicitors handling the AXA litigation in October/November 2001. In one of these, sent 12 November 2001, Tyne wrote to Oates, “If you…are hell bent on suing them and are prepared to contribute at the original level, say 1/12, and are not going to cave if the going gets tough then we can talk.” The primary judge remarked at [39] that, in cross-examination, Tyne was not prepared to conjecture why he had moved from 12% to 1/12^th.

39 Oates replied to Tyne on the same day noting that he was prepared “to stick it, out even on the 1/12 (8.3%) cost sharing basis you mentioned”.

40 Later the same day, Hawkins sent an email to Oates and Tyne which commenced “The one-twelfth basis you suggest seems OK to me.” The email went on to voice concern that some of the parties might want not to “bat on” and to suggest that that matter be determined by 2 out of 3 agreeing. Oates agreed to majority rule.

41 The primary judge concluded at [45] that having regard to the emails, the parties had agreed to substitute 1/12^th for 12% and that the earlier agreement had been varied accordingly.

42 The judge remarked that no submission had been put that the variation was not supported by consideration, but, in any event, there was consideration in the promise that the defendants would “stick it out” or “bat on” if the majority so wished whereas, previously, they were at liberty to withdraw at will.

43 The primary judge then reviewed the emails, the demands for payment and the actual payments made from October 2002. He noted that the demands and payments were made on the basis of 12%, not 1/12^th and that, apart from asserting cash flow difficulties, the respondents made no demur to the demands at 12% and, indeed, paid some of them.

44 The appellants submitted below and to us that what happened on and after October 2002 showed that either the original agreement had not been varied or that if it had been varied then it was subsequently further varied to make the rate of contribution 12%.

45 The primary judge ruled that neither a party’s subjective belief nor post-contractual conduct was admissible on the meaning of a contract, but post-contractual conduct was relevant to the question of whether a contract or a variation was formed.

46 The judge said at [62] that, although he did not generally regard Oates as a reliable witness he accepted his evidence that he forgot about the November 2001 emails until he re-read them “recently” seemingly as part of the discovery process. The judge said the examination of the progress of the pleadings reinforced that view.

47 At [63]-[64], the primary judge said that whilst there was force in the plaintiffs’ submissions that the 12% was restored, that inference was displaced by the critical factor that Hawkins did not give evidence even after arrangement had been put in place for him to give evidence by video link from London.

48 The judge said that his evidence was critical as in the email of 15 October 2002 in which Hawkins asked Oates to send 12% of $118,441.82, Hawkins used the words “as discussed”. It was vital for the plaintiffs’ case for the court to know what was discussed, but Hawkins was not called.

49 Taking into account the rule in Jones v Dunkel [1959] HCA 8; 101 CLR 298 the trial court was not prepared to draw the inference which the plaintiffs invited it to draw.

50 He thus held that the original contract at 12% was varied to reduce the contribution to 1/12^th and that the appellants had failed to prove that it was subsequently varied yet again to restore the 12%.

51 The result was thus that the contract was for the respondents to pay at the rate of 1/12^th, they had overpaid and they were entitled to a refund subject to the defence of change of position on the part of the plaintiffs.

52 The primary judge then dealt with that defence and rejected it. He did not mention the defence posed before us that the payment was made for good consideration.

53 The amount due by the defendants under the contract was held to be the amount paid by Pegela to fund the litigation less GST. The parties then calculated the refund due and the judge made the final order accordingly.

54 The notice of appeal contained 13 grounds. Most of these merely submit that the primary judge made errors in fact finding. However, in grounds 8 and 9 they submit that the primary judge failed to give reasons for not finding that either pursuant to the March 2001 agreement or the October 2002 agreement the respondents were liable to pay $91,000. Ground 9 attacks the judge’s reliance on the significance of Mr Hawkins not giving evidence. Ground 10 attacks the decision re GST.

55 Ground 11 sums up the attack on fact finding by putting that the primary judge’s finding that the respondents made over payments by mistake and that they were only liable to pay 1/12^th was glaringly improbable and contrary to incontrovertible facts.

56 It is most convenient to deal with the issues raised under the following heads:

1. Is leave to appeal necessary and, if so, should it be granted?

2. Matters going to the primary judge’s findings of fact:

(a) the failure to plead account stated;

(b) the admissibility and relevance of post contractual behaviour;

(c) the law as to variation of contract;

(d) the significance of Mr Hawkins’ failure to give evidence;

(e) the Fox v Percy test;

(f) generally;

(g) conclusion.

3. Matters of estoppel.

4. The GST question.

5. The result of the appeal.

57 1. It can be seen from the forgoing that the verdict for the respondents below was for under $100,000 and that, if successful in the appeal, the verdict for the appellants would probably be $91,000 plus interest, either just under or just over $100,000.

58 The applicable legislation is set s 127(2)(c) of the District Court Act 1973 which provides for appeals to this court from the District Court. Paragraph 2(c) is as follows:

“The following appeals lie only by leave of the Supreme Court:
(c) an appeal from a final judgment or order, other than an appeal:
(i) that involves a matter at issue amounting to or of the value of $100,000 or more; or
(ii) that involves (directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more.”

59 An identical provision appears in the Supreme Court Act 1970 s 101(2).

60 As to paragraph (c)(i) Mr Williams says that, if the appeal succeeds it will change the wealth of his client by more than $100,000.

61 In Gillard v Hunter Screen Products (No 2) [2001] NSWCA 450, the Court said at [11] and [12]:

“[11] What then is meant by ‘at issue’ on appeal? The legislature cannot have meant whatever variation from the judgment below might be claimed on appeal. Were that so, an appellant appealing against quantum of damages would have an appeal as of right merely by claiming $100,000 more or less (as the case may be) than the damages assessed below, irrespective of merit. The phrase "at issue" must be construed as meaning truly at issue or, inversely, not unrealistically at issue.

[12] It follows that an appellant, appealing against quantum of damages, has an appeal as of right if there is a realistic prospect of changing the result by $100,000 or more. Otherwise leave is required.”

62 Although that case was one where the damages awarded were increased by over $100,000 on appeal and hence there was a realistic prospect of that occurring when the appeal was filed, it probably is sufficient authority for Mr Williams’ proposition.

63 Accordingly we do not need to consider paragraph (c)(ii) apart from saying that we must reject the proposition that just because the parties are focussing on a share in a property worth over $100,000 the appeal is to be classed as a “claim in respect of property amounting to $100,000 or more”. It is the realistic worth of the claim that must exceed $100,000.

64 2(a) An account stated is an admission of a sum of money being due from the defendant to the plaintiff and may be the subject of a distinct cause of action under the appropriate indebitatus or common money count: In re Stock; Ex parte Amos (1896) 66 LJQB 140; Joseph Evans & Co Limited v Heathcote [1918] 1 KB 418.

65 One might have thought that, had this cause of action been pleaded, the respondents would have had difficulty in meeting it. However, it was not explicitly pleaded.

66 The appellants say that a fair reading of the FASC shows that implicitly and impliedly, there was a pleading of account stated. I disagree. The pleading seems cast as a case in breach of contract or alternatively in restitution, rather than on the admission of the debt.

67 One then has to look at the Black Appeal Book and examine the way the case was presented below to see whether, despite the form of the pleadings, the case was run with the count of case stated being posed for decision by the court.

68 The Black Book shows that the case got off to a strange start in the District Court. On the first day, the opening address of plaintiffs’ counsel show that the plaintiffs were relying on documents and did not intend to call oral evidence. Although the words “account stated” were never uttered, counsel frequently said that the plaintiffs were claiming $91,000 and that the defendants had admitted that debt on a number of occasions.

69 However, on that day, the defendants applied, successfully, to amend their defence. Essentially they said that only very recently had they come across copy documents including emails which showed that the agreement had not been that they pay 12%, but rather 1/12^th.

70 The primary judge expressed some surprise saying that he thought he was to try a case where the sticking points were that Pegela was the wrong plaintiff and the effect of the GST laws on the transaction and now the matter was quite different. Nonetheless, he considered that he had to allow the amendment. The matter was then adjourned to the next day.

71 On the next day, senior counsel announced his appearance for the defendants. The amended defence and cross claim were filed and the plaintiffs amended their statement of claim.

72 Plaintiffs’ counsel announced that he would now call witnesses and that he intended to call both Mr Hawkins (by video link from London) and Mr Tyne.

73 The case virtually recommenced with a short opening address during which counsel never uttered the words “account stated” and, indeed, focused on a case in contract or rather in several alternative possible contracts. The presentation of evidence followed the same course.

74 This material shows that the trial did not proceed requiring the consideration of a case on account sated.

75 If it had, the judge would have had to consider questions such as whether forgetfulness at the time of the admissions of the account could be a defence (even, again, though it was not pleaded). This might be a defence see Thomas v Hawkes (1841) 8 M & W 140; 151 ER 983.

76 Thus, the possibility of the plaintiffs/appellants succeeding on an account stated may be put aside.

77 2(b) The admissibility and relevance of post contractual behaviour depends to a large degree on why it is that the person presenting the evidence convinces the court of its relevance. It is clear that such evidence is not receivable on the interpretation of the contract; see eg Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570, 582 para [35] where Gummow, Hayne and Kiefel JJ, with the concurrence of Heydon J summarized the law by quoting Lord Reid in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583, 603, who said:

“… it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made.”

78 However, it is admissible to show that there is in fact and in law a contract (see eg Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251) identifying the subject matter of the contract (and, at least to some extent), the terms of the contract.

79 Perhaps the starkest example of the latter situation is the American case of Wrigley v Cornelius 44 NE 406 (1896) (162 Ill 92 SC) where the fact that the purchaser of art prints ordered 10,000 frames to fit them from another source showed that his contract with the seller of the prints was indeed for 10,000 as claimed rather than for 5,000 pleaded by the defence.

80 Further, post contractual utterances may be admissible because they admit facts from which a conclusion of law may be drawn, Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317, 340 [69] –[71] approving a passage from the decision of the Full Federal Court in Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43, 68 that:

“an informal admission as to a matter of fact, by words or conduct which is made by a party or a privy, is admissible evidence against that party of the truth of its contents.”

81 On either of the bases referred to in the previous three paragraphs, the evidence was properly admitted.

82 2(c) The law as to variation of contract was briefly mentioned during argument. Paragraph 24 of the appellants’ written submissions put that it is trite law that where a contract is varied by the parties they have in fact entered into a new contract. That statement may be correct in some situations, but not most. It is often vital to distinguish between a variation of contract and a discharge and the entering into a fresh contract because of the Statute of Frauds; see eg Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vict) Pty Ltd [1957] HCA 10; 98 CLR 93, 144; Federal Commissioner of Taxation v Sara Lee Household & Bodycare (Australia) Pty Ltd [2000] HCA 35; 201 CLR 520, 534.

83 Indeed, in a number of commercial situations these days, there is an underlying contract but the actual working out of the contractual regime may mean substantial variations occur without at any time there being a fresh contract made, see the classic statement by McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-8.

84 However, whilst the point should be made, it really does not affect the core dispute in the present appeal.

85 2(d) As noted earlier, the primary judge attached considerable significance to Mr Hawkins’ failure to give evidence.

86 It is clear that there was a deliberate decision not to call Mr Hawkins as preliminary arrangements appear to have been made for him to give evidence by video link.

87 Paragraphs [65] and [66] of his reasons show that the primary judge considered this failure to be significant for two reasons: (a) without his evidence as to what he had discussed referred to in his email of 15 October 2002, the plaintiff who was seeking to prove a variation of contract from 1/12^th back to 12%, did not proffer sufficient evidence to make out that case; and (b) he could infer that Mr Hawkins’ evidence would not assist the appellants’ case on this issue.

88 Mr Williams says, particularly as to (a) that there was no need to call Mr Hawkins as Oates admitted it.

89 The relevant passage of Oates’ cross examination on this matter is at Black 155 and is relevantly as follows:

“Q. Now at the bottom of the page is an email from Garrick Hawkins to you on 15 October and it says ‘As discussed, please sent [sic] $14,213’. You had a discussion with Hawkins at that stage, didn’t you?

A. Yes.

Q. You can’t remember the conversation that he refers to there, can you?

A. No.

Q. But it looks very clear, doesn’t it, when you look over the page as you’re doing now, that he was asking you to pay 12 per cent of the costs of $118,000 that had been incurred to that point in the National Mutual litigation. Isn’t that right?


A. Yes.

Q. And you agreed to that, didn’t you?

A. Yes I believe that’s the percentage.

Q. And you agreed to it on behalf of yourself and your brother, didn’t you?

A. Yes.”

90 This does seem to give the court as much information about what was discussed as could have been provided by Mr Hawkins himself.

91 In my view Mr Williams’ submission should be accepted.

92 2(e) The decision of the primary judge was a decision on a question of fact and thus may only be set aside if the test in Fox v Percy [2003] HCA 22; 214 CLR 118 is satisfied. Before it can interfere, the appellate court must find incontrovertible facts or uncontested testimony which demonstrate that the primary judge’s conclusions are erroneous or that his decision was glaringly improbable or contrary to compelling inferences.

93 Mr Williams’ principal attack on the judgment was to submit that the primary judge appeared completely to overlook a series of emails from December 2003 and continuing through a large part of 2004.

94 It is correct that the reasons of the primary judge contain no reference to any emails after 16 December 2003. These are in the Blue Book pp 119-159.

95 The submission is that the primary judge accepted that the original contract was for 12%. This material points incontrovertibly either to the fact that there was no variation from this contract or, if that be wrong, that there was a further variation to restore the 12%.

96 Mr Williams took us though this material. Perhaps the most significant of the emails was the email of 21 August 2004 with its attachment in which 12% is mentioned and Oates’ reply of 23 August 2004. This of course was the time when the termination Agreement was executed.

97 The 23 August email contains the following: “AXA The deal was that you (Pegela) would pay the costs for AXA, and Paul and I (together) would reimburse you for 12% of such costs… . As to the current amount I owe Pegela in relation to costs incurred to date, you have quite reasonably said you require my share to be met forthwith…. Accordingly, I am making arrangements to do so as soon as possible and will remit same to Pegela’s bank account.”

98 The 12% agreement meant that $91,000 was due subject to objections concerning GST. On 5 October, 2004, Hawkins emailed Oates asking him to honour his obligation to pay the $91,000. Oates replied by email of 6 October: “I am not unwilling to pay: I am seeking to settle so as to be able to pay.”

99 Mr Williams says that here the original level of contribution was 12%. When considering whether that was adjusted or, if it was, whether it was readjusted, the emails between the parties of 2004 were most material. To have reached the view the primary judge did required the judge to disregard all these emails as mistaken over a considerable period of time. By not considering them, the judge was deprived of taking their significance into account as to whether the earlier communications specifying 1/12th in fact contained the mistake.

100 Mr Williams put that when one looked at the whole of the emails, one could see that there was correspondence between two intelligent competent and experienced commercial people where except for a brief time in 2001 in communications that no-one acted upon, there is a consistent reference to 12%.

101 It would seem that the primary judge did not consider the impact of the 2004 emails by oversight, but rather because he read Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 as precluding him from doing so. For the reasons set out earlier, this was an error.

102 Mr Williams also submitted that in the light of the fact that there were so many admissions as to the correctness of the claim based on 12% and that it was only at the first day of trial that the claim was made of overpayment because of forgetfulness, the primary judge’s decision is glaringly improbable.

103 The respondents’ position is that the primary judge properly disregarded the later emails and found facts within his mandate as to what the contract was between the parties at the time of its termination.

104 In my view, Mr Williams’ submissions must be upheld. The 2004 emails were admissible and, when they are read together with the rest of the material show that if there was a mistake it was in the 2001 communications.

105 Thus, the proper finding should have been that the original 12% agreement continued and the respondents were liable for the $91,000 less any GST adjustment and the verdict on the cross-claim must be set aside.

106 2(f) Generally. A series of lesser issues were raised including those in the notice of contention that the primary judge was in error in regarding Oates’ evidence as being in the main unreliable. In my view it is unnecessary to explore these matters as whatever the significance of Oates’ evidence, the case really stands or falls on the written evidence.

107 2(g) The conclusion follows that the primary judge’s finding should be set aside.

108 The question is whether the matter should be remitted for new trial or whether this court should substitute its own view. I consider that as the case is made out on the admitted exchange of emails, this court is justified in making its own decision.

109 3. The appellants complain that the primary judge almost summarily dismissed their alternative case on conventional estoppel without adequate reasons.

110 In view of my finding on the principal matter, it is unnecessary to deal with the grounds of appeal focused on estoppel. It is inappropriate to venture into this topic in any detail, not least because there is some doubt as to the ability of a District Court to deal with equitable estoppels (if the estoppel were seen to be equitable in character).

111 If I am wrong in my view that the material does not reveal an objective contractual intention that Oates and his brother would pay 12%, I am far from persuaded that Pegela, Hawkins or Tyne relevantly changed their position on the faith of any of any representation of Oates or his brother or that it would be in any way inequitable to allow them to maintain (on this hypothesis) the 1/12^th share.

112 4. The GST question. All I need say on this question is that I have read the reasons of Allsop P on this issue and agree with them.

113 5. The result is in my view that the appeal should be allowed, the judgment of the primary judge set aside and in lieu there be a verdict for the appellants for $91,000.00 plus interest. The respondents should pay the appellants’ costs both here and below, but with respect to the costs of the appeal have a certificate under the Suitors’ Fund Act 1951 if qualified.

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