Powercell Pty Limited v Cuzeno Pty Limited

[2005] HCATrans 94

[2005] HCATrans 094

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S135 of 2004

B e t w e e n -

POWERCELL PTY LIMITED

Applicant

and

CUZENO PTY LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 MARCH 2005, AT 10.19 AM

Copyright in the High Court of Australia

MR J.M. IRELAND, QC:   If the Court pleases, I appear with my learned friend, MR C.M. HARRIS, on behalf of the applicant.  (instructed by Willis & Bowring)

MR  D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR R.E. STEELE, for the respondent.  (instructed by Michie Shehadie & Co)

GLEESON CJ:   Yes, Mr Ireland.

MR IRELAND:   If the Court pleases.  This case raises a general question about the way in which the Statute of Frauds operates to protect the sanctity, as the courts have identified it, of dispositions of interest in land.

McHUGH J:   As usual, you use your language very precisely when you use the term, “general”, because it was not an issue at the trial, was it?  Is this not part of the problem, that the point you are now seeking to raise, the issue, was not pleaded at trial?

MR IRELAND:   It was, your Honour, as I will seek to develop.  I understand that, and face up immediately to the point that the pleading was treated by the Court of Appeal as the fence at which we fell, but I hope to develop the case in a way which exposes some wrong application of principle by the Court of Appeal and, in particular, by its adoption of the approach of the House of Lords in the Actionstrength decision in the United Kingdom. 

Your Honours do not need reminding of the facts, but in essence it was this.  There was an arrangement between a builder and a developer whereby each would pool their efforts, one the land, and the other – it was working resources – to put up a block of 18 units.  The original arrangement was that each would own nine of those units at the end of the exercise.  My client, the builder, on the faith of that, sold to nine purchasers off the plan, his nine units.  The parties then reached, about four months later, a crossroads, in which they decided they would make a fundamental change to that arrangement. 

The change was this, that my client, the builder, would give up its interest in the land, which existed under, effectively, a contract of purchase, and that an orthodox building contract would then be written between the parties so that the builder was remunerated on commercial terms, rather than on joint venture terms, and, critically, that because of the problem that existed for my client in no longer being able to make title to the nine units which it had already sold from the plan, the developer would, as it was put, “take over” such of the nine contracts as proved a problem, in other words, take over those purchasers on the same terms where they insisted that they wished to have those properties. 

The critical aspect of that agreement was that it had three facets, and they were instantaneous and interdependent.  One element or facet of that agreement was the promise by the developer to take over such of the nine contracts as would be a problem.  All of the facts as to the existence of that agreement and as to the promise by the developer in that regard were found in favour of my client at trial and the judge even went so far as to assess the damages in case he was wrong in the ultimate result. 

The critical ruling against us was that the developer was entitled to invoke the Statute of Frauds to prevent the enforceability of one of the three elements of the agreement.  The riposte that came from us at trial was that, in the nature of the agreement being Hydra-headed, it was unconscionable to take the benefits of the agreement, get the property back, on the one hand, and not honour that other element of the agreement, which was the promise to effectively indemnify us from claims which later arose from our own purchasers.

GLEESON CJ:   Where do we find Justice Campbell dealing with that argument?

MR IRELAND:   His Honour said that the estoppel argument was not one he could understand, which was an unpromising start.

GLEESON CJ:   Where do we find it?

MR IRELAND:   I am sorry – in the trial judge’s own judgment, it is at page 69.  It culminates at 73.

GLEESON CJ:   The pleading is at 69. 

MR IRELAND:   Yes.  The pleading of the estoppel is found at line 37, roughly, and this is important, critical, really, for the purposes of my argument, that the pleading went in this way.  An agreement was pleaded as to the July 1996 arrangement which had, as I have put, these three elements.  There was a denial in point of fact that that agreement had been made, but then there was a pleading of the Statute of Frauds.  The plea in reply is that which is extracted at 69, line 22 and following, and the critical words were, “the defendant took the benefit of the July agreement”, which was the reorganisation of these affairs: 

and it would now be inequitable or unconscionable for the defendant to rely on” the statute. 

The particulars were that the plaintiff, that is, the builder, terminated the joint venture agreement and thereby gave up his interest in the land and the defendant ceased to be bound by its terms, including the term requiring the transfer of title. 

So at one moment, as I have said, three things happened.  One was, we gave up our equity in the land.  The second thing was, we entered a conventional building contract.  The third thing was that we got this promise, as has been found, of course, at both levels to exist.  The critical issue in the case was whether that estoppel, that is, taking the good bit of the agreement and repudiating the bad, by insisting on a plea under section 54A of the Conveyancing Act, was per se inequitable.  That was the issue.

McHUGH J:   But the Court of Appeal rejected your argument, did it not, on the basis that something more was required?  There had to be behaviour that led your client to believe that it would honour the agreement, notwithstanding the invalidity or unenforceability.

MR IRELAND:   Your Honour, that is why the matter turns on an in principle understanding of why these writing requirements exist.  The Court of Appeal applied the English case of Actionstrength.  At application book 123, paragraph 71, Justice Giles, who wrote the leading judgment in the Court of Appeal, said:

In my respectful opinion, the reasoning of their Lordships in Actionstrength…is conclusive against the appellant. 

And the reasoning in Actionstrength was this.  Actionstrength was not a land case, it was not a memorandum in writing case as it affected the disposition of an interest in land.  Actionstrength was a case about guarantees, and, as your Honours know, in this country but not in all States, there is still in part some requirement of writing for guarantees.  What the House of Lords said was this, that where someone gave a guarantee otherwise than in writing, the mere assertion of the statute could not of itself constitute an unconscionable conduct supporting an estoppel.  In other words, the law was there to say that a guarantor had to have his commitment in writing.  To take the point and plead the statute could not, without more, constitute an estoppel. 

Their Honours in the Court of Appeal simply applied that principle, there must be something more.  But this was not a case about a guarantee, this was a case about the disposition of an interest in land, where the promise to dispose of the interest in land in favour of my client’s purchasers was interdependent with, as I have said, part of a three-element agreement. 

GLEESON CJ:   Is the logical consequence of your argument that any time an agreement for the sale of an interest in land is part of a wider agreement, section 54A does not apply?

MR IRELAND:   No, there is room for an estoppel against it.

GLEESON CJ:   Why will not the estoppel automatically flow, on your argument, because ‑ ‑ ‑

MR IRELAND:   It would depend on the nature of the other terms.

GLEESON CJ:   Let me put it slightly differently.  Any time an agreement for the sale of an interest in land is part of a wider agreement, which has consideration flowing to and from the parties to the agreement in relation to other aspects of it, then section 54A just will not operate.

MR IRELAND:   No, there is then a potential for an estoppel to arise perforce of the nature of the agreement.  What the Court of Appeal has said is that it rejects, as a matter of principle, that the mere reliance on the true nature of the agreement can constitute the estopped.  Your Honour then says, well, does that mean if there are any other terms to the agreement, is there an automatic estoppel?   My answer, obviously, is no.  That will depend upon the criticality of the terms and the unfairness it may rain upon the opposite party by the repudiation of the land arrangement and the acceptance of the other benefits under the agreement.  That will be a question of fact, and in this case, we would say, once that is examined on the facts, there can only be one answer.

McHUGH J:   Is this a suitable vehicle to raise this point, because, having regard to your pleading, the Court of Appeal took the view that it alleged an estoppel specifically directed at reliance on section 54A. 

MR IRELAND:   No, your Honour, that could not be right, with respect.

McHUGH J:   That is what they said, did they not?  Did they not say that in paragraph 78 of their reasons?

MR IRELAND:   If that is what they were saying, they were very misguided.  Can I give an example?  It said in Actionstrength that nothing, really, short of a promise not to invoke the statute will do.  If you have that and then you have the statutory defence, you may have an estoppel, but, your Honour, in this case, the implication of the Statute of Frauds by the defendant in the action, by the developer, was contemporaneous with these other benefits.

McHUGH J:   I know, but the history of the pleading suggests that you had abandoned a more general case of estoppel.  After all, your original pleading had an allegation that the defendant was estopped from denying the existence of the contract and then, when the amended statement of claim put in paragraph (c), it was specifically directed towards section 54A.

MR IRELAND:   But, your Honour, as we would see it, with great respect, and the passage in Justice Giles’ judgment which, I think, deals with the matter that your Honour is alluding to is at application book 119, paragraph 61.  That is where his Honour drew the distinction I think your Honour is mentioning now:

It is necessary to recall the pleaded estoppel, an estoppel against reliance on s 54A.  It was distinct from the estopped deleted in the further amended statement of claim, an estoppel against denying the existence –

We would say, your Honour, that is a fundamental misunderstanding of the way in which we put the case, because the way in which we put the case was that the nature of the agreement itself, with these three important interdependent elements, given the gravity of the consequences for us which did flow, made the taking of the benefit of that agreement and the repudiation of the obligation of indemnity or to take over the purchasers, entirely and inevitably unconscionable on the facts of this case.

GLEESON CJ:   Was part performance an issue?

MR IRELAND:   Your Honour, the case has already been up here once on part performance.  Originally, we pleaded part performance and it was pointed out, but not until the Court of Appeal, that you cannot get damages for a contract which only is actionable on the basis of the equitable doctrine of part performance.  There was a special leave application on that.

McHUGH J:   Justice Kirby and I sat on it.

MR IRELAND:   This is a well travelled case in the system

McHUGH J:   It certainly is.

MR IRELAND:   But it now does, your Honour, we would say, crucially raise this point.  Can I just make it good, and I do not want to say much more than this, show you the pleading, because it is nowhere to be found in the papers.  Could I have permission to do that?  It will only take a second.  You will just see how the pleading itself, in so far as it survived – and we did delete another claim, as your Honour said.  Could you please go to page 2 of the document I have handed up which deals with the changed arrangement.  It says: 

On or about 19 July 1996, [the plaintiff] and [the defendant] agreed –

so it is a single agreement –

that, in consideration of the Joint Venture Agreement being terminated –

the plaintiff would enter into a contract to construct the home units, and the defendant would take over the plaintiff’s obligations under the contract with the purchasers and indemnify the plaintiff.  So that is the way in which it was pleaded.  It was an oral agreement made between Mr Ward and Mr Jabbour, and so on. 

The agreement was always an omnibus agreement and we say here that in the circumstances of that multi-faceted agreement, the insistence upon the statute in the context of that agreement was necessarily an unconscionable exercise.  The right way to plead this was as we did ultimately, which was when the statute was raised – it did not need to be raised, it was a matter of election – just as in Verwayen it was a matter of election whether the limitation period was pleaded – the right thing to do is to reply and say, “On this agreement you cannot raise a lack of writings”, so that was the way we put it.  We say that their Honours, in applying the English position, which, we would argue, has no application here in point of policy ‑ ‑ ‑

GLEESON CJ:   That is another way of saying, is it not, that the very nature of the agreement was such that it would be unconscionable to insist on the application of section 54A?

MR IRELAND:   Yes, that is all I had.  That was the case we had and the judge said he did not understand that and the Court of Appeal said no, you have to have something more, because Actionstrength tells us that the insistence on the statute itself cannot be enough, pleading the statute itself cannot be enough.  We say, in the particular circumstances of this case, the result could only follow in the other direction if that Actionstrength approach was not applicable, and that is a point of general principle, as we would see it. 

GLEESON CJ:   That is another way of saying that there are some kinds of agreement involving disposition of an interest in land which, of their nature, are such that you cannot invoke section 54A.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, may I say first of all that this well travelled case is, in our submission, not a suitable vehicle or does not provide a suitable vehicle for the remainder of the journey.  Could I say in relation to that three things.  The first is that the pristine issue which it sought to get before the Court is one that the applicants have not been able to make entirely intelligible to the courts below.  Your Honours will see that if I could go to two passages.  The first is in Justice Campbell’s reasons at page 69, paragraphs 130 to 138, and, in particular, paragraph 138.  Your Honours will see what the judge said in that paragraph about it.  If one then goes to the Court of Appeal at page 117, one sees in paragraphs 56 through to 58 what the Court of Appeal thought and, in particular, in paragraph 58 said:

It has still not been easy to understand the argument for an estoppel against reliance on s 54A.

My learned friend’s submission today said that the Court of Appeal had misunderstood the argument that was being put.  Your Honours, it is possible, of course, for courts not to get right the argument that is being put, but it seems unlikely, and the judgments are very carefully written judgments – they may be right, they may be wrong, of course – but it is very difficult for this Court then to come upon the matter, in effect, afresh, because the argument has not been understood by the courts below in the way in which it is sought to be put.  That is the first thing, your Honours. 

The second thing is that, in our submission, the course of pleading in the case did not leave the issue open, with the consequence that not all the aspects of it have been examined.  The position was that the only case on estoppel before the courts below was that referred to at page 116, paragraphs 52 and 53.  Your Honours will see the pleading of the paragraph of the reply that is there referred to and could I take your Honours to the top of page 117.  You will see that in paragraph 53, ultimately, particular (ii) was not relied on.  That issue was raised in the reply.  There had been an earlier pleading of estoppel in the statement of claim, but it was deleted.  Your Honours will see that referred to in paragraph 61 at page 119.  The terms of the earlier estoppel can be seen in the primary judge’s reasons at page 70, paragraph 132. 

All that went, the estoppel and the statement of claim.  The only estoppel remaining was that in the reply to which I have referred.  That is why one sees the Court of Appeal saying, at page 119, paragraph 62, that whilst the appellant’s argument, in effect – and I am paraphrasing what their Honours have said – it is page 119, paragraph 62 and at the top of page 120 – that is why the Court of Appeal said that the argument perhaps may have supported some estoppel, but it was not the one that was pleaded in reply and, if anything, was the one originally pleaded but deleted from the statement of claim. 

Your Honours, this is not a pure academic matter and could I, in that regard, refer to our submissions at page 143 and 144 and, in particular, paragraphs 10 and 11 and, in particular, again, the last few lines on page 143 and the top of page 144.  That is elaborated upon in paragraph 11.

Could I just say, your Honours, in summary, the case would come before the Court where the issue was not, in our submission, pleaded, where all the facts germane to its resolution had not been determined, and where the issue is one which the applicants have not been able to make entirely intelligible to the courts below. 

Could I come to the second aspect, your Honours, and that is the extent to which there is any difference between the House of Lords’ observations in Actionstrength and this Court.  The position, really, in our submission, is that the cases use almost exactly the same language.  Could I go for a moment to Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 406 in the joint reasons of Chief Justice Mason and Justice Wilson. The passage to which I wish to refer your Honours commences immediately after the quotation on the page, about point two, and it goes on for about 10 lines. Your Honours will see, immediately before the first references to Humphreys Estate, the expression, “something more would be required”. 

Now, if I could just take your Honours to the passages from Actionstrength that are quoted by the Court of Appeal in this case, your Honours will see, if I could go to page 121, the paragraph commencing about line 27, Lord Clyde says, “The short answer” in the first sentence and then says:

The only assurance given to Actionstrength was the promise itself.  In order to be estopped from invoking the Statute there must be something more –

a phrase one sees in Walton Stores –

such as some additional encouragement, inducement or assurance.

Lord Bingham, on the preceding page in paragraph 64, about the fourth line of that quotation:

Actionstrength can rely on nothing beyond the oral agreement of St‑Gobain which, in the absence of writing, is rendered unenforceable by section 4.  There was no representation by

St‑Gobain that it would honour the agreement despite the absence of writing –

And to the same effect, Lord Walker, page 122, the paragraph commencing about line 17 going on for about five lines, and then also about line 39 in the sentence commencing:

But in the absence of any assurance (other than the bare oral promise itself) the degree of detrimental reliance on the part of Actionstrength is irrelevant.

Your Honours, finally, in relation to that aspect, if one goes to the applicant’s submissions in reply at page 148, the last paragraph of them, your Honours will see – and I am looking about line 19, the sentence going to the end of it – if one looks at what is set out there, they demonstrate, in our submission, that the case really does come down on this point to, if I can use the expression, a “no more than the contract” case.  Your Honours, our submission is that, for those reasons, the case is not a suitable matter for the grant of special leave.

GLEESON CJ:   Yes, Mr Ireland.

MR IRELAND:   Your Honour, I would only add in reply that it is wrong to say that the matter is inadequately pleaded if the point we make is right.  The agreement in this aspect, having these dimensions, will constitute the estoppel without further facts, if the agreement as found and as pleaded includes these interdependent obligations.  It was not open to the respondent to raise the statute to immunise itself from its positive obligations, whilst it walked away with the fruits of the arrangement. 

GLEESON CJ:   Having regard to the form and history of the pleadings in this matter and the way in which the case in relation to estoppel was conducted, including the nature of the evidence that was and was not adduced, we are of the view that this is not a suitable vehicle for the agitation of the issues that the applicant now seeks to raise and we consider that the application should be dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 10.46 AM THE MATTER WAS CONCLUDED