Re Continental C & G Rubber Co Pty Ltd

[1919] HCA 62

27 CLR 194

IN RE THE CONTINENTAL C. AND G. RUBBER COMPANY

PROPRIETARY LIMITED. Contract-Effect of outbreak of war-Contract to supply goods-Progress payments-

Failure of consideration-Right to recover-Mistake of fact or of law-Trading with the Enemy Act 1914-1916 (No. 9 of 1914-No. 20 of 1916), secs. 8, 9H- MELBOURNE,

Enemy Contracts Annulment Act 1915 (No. 11 of 1915), sec. 3 (5)-Enemy Con. tracts Cancellation Act 1915 (Vict.) (No. 2603), sec. 3 (5). SYDNEY,

In April 1914 the A company entered into a contract to construct certain machinery for the B company, and to erect it on land of the B company. The contract provided for the completion, erection and delivery of the whole of the machinery by 1st December 1914, and for progress payments in respect of the construction of the machinery to be made from time to time on the

27 CLR 195

certificate of the B company's engineer. The A company proceeded with the construction of the machinery, and certain progress payments were made before 4th August 1914, and others on 11th August, 28th September and 22nd December 1914 respectively. None of the machinery was ever delivered to the B company or erected on its land. After the commencement of the War, it appearing that substantially the whole of the shares of the B company were RUBBER Co. held by, and that its business was carried on mainly for the benefit or on behalf of, enemy subjects, an order was, on 13th November 1914, made by the High Court, pursuant to sec. 8 of the Trading with the Enemy Act 1914, appointing C to be controller of the B company until the end of the War or until further order. That order remained in force until 13th June 1918, when an order was made by the Minister for Trade and Customs, under sec. 9H of the Trading with the Enemy Act 1914-1916, requiring the business of the B company to be wound up, and appointing C controller to conduct the winding up. After 22nd December 1914 nothing was done either by the A company, the company or C towards terminating or completing the performance of the

Held. that the contract became null and void as from the commencement of the War, and, therefore, that the A company was not entitled to prove in the winding up of the B company for any sum by way of com- pensation or damages for the failure of the latter company and C to perform the contract that neither the B company nor C was entitled to recover from the A company the whole or any portion of the sum paid as progress payments and that neither the B company nor C was entitled to the machinery constructed by the A company in pursuance of the contract. SUMMONS.

A summons was taken out in the High Court on behalf of the Continental C. and G. Rubber Co. Proprietary Ltd. and Frederick George Wilson, its controller, for the determination of certain questions arising in carrying out an order of 13th June 1918, whereby the Minister for Trade and Customs, pursuant to the Trading with the Enemy Act 1914-1916, required that the business of that Company carried on in Australia should be wound up, and appointed Wilson to be Controller to control and supervise the carry- ing out of the order, and to conduct the winding up of the business. The questions related to a contract dated 24th April 1914, made between the above-named Company and W. Anderson &Sons Proprietary Ltd., and are set out in the judgment of Knox C.J. hereunder, where also the other material facts are stated. The summons came on for hearing before Isaacs J., who referred it to the Full Court.

27 CLR 196

Starke, for the Continental C. and G. Rubber Co. and the Controller.

Sir Edward Mitchell K.C. (with him Lowe), for W. Anderson &Sons Proprietary Ltd.

During argument reference was made to Daimler Co. v. Con- tinental Tyre and Rubber Co. 1; Hirsch v. Zinc Corporation Ltd. 2; Appleby v. Myers 3; Civil Service Co-operative Society Ltd. V. General Steam Navigation Co. 4; Elliott v. Crutchley 5; Chandler V. Webster 6 Barber v. Brown 7; Cooper v. Phibbs 8; Chirnside V. Keating 9; Harse v. Pearl Life Assurance Co. 10; In re Bodega Co. 11; Clough v. Henry 12; St. Enoch Shipping Co. v. Phosphate Mining Co. 13; Herman v. Jeuchner 14; Hyams v. Stuart King 15; Wynn v. Shropshire Union Railways and Canal Co. (16): Henderson v. Folkestone Waterworks Co. 17; Rogers v. Ingham 18; Anglo-Egyptian Navigation Co. v. Rennie 19; Janson V. Driefontein Consolidated Mines Ltd. 20; Stevenson &Sons Ltd. V. Aktiengesellschaft fur Cartonnagen-Industrie 21; Rodriguez V. Speyer Brothers 22; Naylor, Benzon &Co. v. Krainische Industrie Gesellschaft 23.

The following judgments were read :- Knox C.J. AND BARTON J. In the month of April 1914 the Continental C. and G. Rubber Co. Proprietary Ltd. (hereinafter referred to as the Company) entered into a contract with W. Ander- son &Sons Proprietary Ltd. (hereinafter called the contractors)

1(1916) 2 A.C., 307. 224 C.L.R., 34. 3L.R. 2 C.P., 651. 4(1903) 2 K.B., 756. 5(1903) 2 K.B., 476 (1904) 1 K.B., 565. 6(1904) 1 K.B., 493. 71 C.B. (N.S.), 121. 8L.R. 2 H.L., 149. 915 V.L.R., 697; 11 A.L.T., 135. 10(1904) 1 K.B., 558. 11(1904) 1 Ch., 276, at p. 286. 1210 T.L.R., 603. 13(1916) 2 K.B., 624. 1415 Q.B.D., 561. 15(1908) 2 K.B., 696. 171 T.L.R., 329. 183 Ch. D., 351. 19L.R. 10 C.P., 271. 20(1902) A.C., 484, at p. 505. 21(1918) A.C., 239. 22(1919) A.C., 59. 23(1918) 1 K.B., 331, at p. 345. 27 CLR 197

for the construction of certain machinery and its erection at Marrick- ville, near Sydney, on land then belonging to the Company. The contract, which was made in Victoria, covered 101 pieces of machinery to be supplied at an estimated total cost exceeding £10,000, exclusive of cost of erection, and provided for the comple- tion, erection and delivery of the whole of the machinery by 1st December 1914 under a penalty. The general conditions of the contract included the following :-13. "The contractor shall repair all damages bear all risks of accidents happening to any machinery or any part of it from whatever cause shall at his own expense effect a policy of insurance against fire in the name of and for the benefit of the Company to the full amount of the money advanced and continue such policy and be liable for all risks until the final completion of the machinery and till the certificate of the engineer in writing to that effect shall be obtained and in default of his SO insuring same the Company may effect such policy and deduct the amount of the premium from any money due or to become due to the

22. 'Payments shall be made to the contractor at intervals during the progress of works at the discretion of the engineer upon certificates in writing under his hand at the rate of ninety per cent. on the value of the machinery in progress in sums of not less than one thousand pounds at a time and shall be paid after the engineer has signed a certificate that the contractor has executed or has in course of completion machinery of this value to his satisfaction and the balance ten per cent. shall be reserved for the period of three months from the date of the certificate of com- pletion in order to ensure the executing of any reinstating or repairs that may be required by the engineer during the above period and which work shall be done to the satisfaction of the engineer before the contractor shall be entitled to receive the said balance and the contractor shall not be entitled to receive any payment whatsoever whether progress or final except upon the certificate of the engineer." 25. " All approved materials brought upon the premises for the purpose of being used in the machinery shall become the property of the Company but the contractor shall be entitled to have returned to him such as shall remain unused at the completion of the works."

The contractors proceeded with the construction of the machinery,

27 CLR 198

and from time to time received progress payments in accordance with clause 22 of the general conditions. These payments amounted in all to the sum of £6,000, and were made on the dates and in the amounts following, viz., 26th May 1914, £1,500; 3rd July 1914, £1,500; 11th August 1914, £1,000 28th September 1914, £1,000; 22nd December 1914, £1,000. No part of the machinery was ever delivered to or erected on the premises of the Company. It appears that at the commencement of the War on 4th August 1914 sub- stantially the whole of the shares of the Company were held by enemy subjects, and the business of the Company was carried on mainly for the benefit or on behalf of enemy subjects. On 13th November an order was made by Isaacs J. under sec. 8 of the Trading with the Enemy Act 1914 appointing the applicant, F. G. Wilson, "Controller of the Company until the end of the present state of war or until further order," and declaring the powers to be exercised by the said Controller to be as follows, viz.: (a) to take possession of the real and personal property of the said Company now existing or which may hereafter arise in the course of the business of the said Company"; (b) " to control the business operations of the said Company SO far as may be necessary or proper to secure that none of the said property of the said Company shall pass directly or indirectly to the enemies of His Majesty the King", (c) "subject to the aforesaid powers the said Controller shall afford facilities to the said Company to carry on its lawful business in the ordinary course." This order remained in force until 13th June 1918, when it was terminated by an order made by the Minister for Trade and Customs under sec. 9H of the Trading with the Enemy Act 1914-1916, requiring the business of the Company to be wound up, and appointing the said F. G. Wilson Controller to conduct the winding up of the business.

After the date of the last progress payment, 22nd December 1914, apparently nothing was done for about four years by either the Company, the Controller, or the contractors in the direction of terminating or of completing the performance of the contract, and no declaration was made by the Attorney-General of the Common- wealth under either the Enemy Contracts Annuitment Act 1915 (Federal) or the Enemy Contracts Cancellation Act 1915 (Vict.),

27 CLR 199

either that the said contract should be deemed or should not be deemed to be an enemy contract.

In the month of December 1918 the contractors submitted to the Controller a claim stated to be for 'compensation and loss in the event of your cancelling the contract now existing between the Company and ourselves," and consisting of the following items :- " Balance due on contract, £898; Loss of profit, £1,500 Interest on the two foregoing items at 6 per cent., £575 10s. 4d. Storage, stack- ing and cartage of material at 6d. per ton per week, 221 weeks, £1,105; Loss occasioned through stoppage of work, £2,000: Total, £6,078 10s. 4d." Subsequently the contractors lodged with the Controller a proof of debt for £9,125 2s. 2d., made up of the following items "Date, 12th April 1919-Balance due under contract on work done at the foundry of W. Anderson &Sons Pty. Ltd., £898; Loss of profits by reason of non-completion of such contract, £1,265 Interest on the two preceding items, £2,163, from 1/12/14 to date, 4 years 4 months 7 days at 6 per cent.-to cover interest on overdraft, £564 17s. 2d.; Storage, stacking, cartage, insurance, 245 weeks, 200 tons at 6d. per week, £1,225 Loss through suspension of contract, £1,910; Ad- ditional war profits tax payable by W. Anderson &Sons Pty. Ltd. because of the said contract not being completed and the moneys due thereunder not being paid on the due contract dates-Estimate, £2,236 5s.; Do. Federal income tax at 2s. 6d., £732 17s. 2d.; Do. State income tax at 1s., £293 2s. 10d."

Correspondence, to which it is unnecessary to refer in detail, followed between the Controller and the contractors and on 26th September 1919 the Controller, on behalf of the Company and as Controller, took out a summons for the determination of the following questions: (1) Whether a certain contract dated about 24th April 1914 and made between the above-named Company and W. Anderson &Sons Proprietary Ltd. was dissolved by the outbreak of war with Germany and her Allies or by the Enemy Contracts Can- cellation) Acts 1915, No. 11 (Federal) and No. 2603 (Vict.) (2) "whether the Controller should admit the claim or proof of debt submitted by W. Anderson &Sons Proprietary Ltd. to him, or any and what part thereof (3) " whether the above-named

27 CLR 200

Company or the Controller is entitled to or should take proceed-

ings to obtain the delivery of certain plant and machinery now in or upon the works of W. Anderson &Sons Proprietary Ltd. or in its custody or possession."

The summons, having come before Isaacs J. in Chambers, was referred by him to the Full Bench, and on the hearing the summons was amended by striking out in question 3 the words or should take proceedings to," and by adding as question 4 the follow- ing, viz., (4) "whether the above-named Company or the Controller is entitled to recover £6,000 paid to W. Anderson &Sons Proprietary Ltd. or any part thereof."

It was admitted that only an insignificant portion of the machinery contracted for had been completely finished SO as to be ready for erection, and that the land at Marrickville on which the machinery was to have been erected had been sold. It is apparent that the contract was an entire indivisible contract for the manufacture and supply of the whole of the machinery specified.

The substantial questions for decision between the parties are: (1) whether the contractors are entitled to prove in the winding-up of the Company for any sum by way of compensation or damages for the failure of the Company and the Controller to perform the contract; (2) whether the Company or the Controller is entitled to recover from the contractors any, and if SO what, portion of the sum of £6,000 paid to the contractors as above mentioned; and (3) is the Company or the Controller entitled to the machinery constructed by the contractors for the purpose of ful- filling the contract ?

It is not disputed that the contract was an " enemy contract" within the meaning of sec. 3 of the Enemy Contracts Annuiment Act 1915. This being so, it was by sec. 3 (5) of that Act declared to be and to have been null and void, as from the commencement of the War, as regards all rights and obligations thereunder, except such rights and obligations as related to goods which had already been delivered, or acts which had already been performed at that time, or such as arose out of or in consideration for such delivery or performance.

It is, in our opinion, immaterial to the decision of the present

27 CLR 201

case whether the contract became void by force of the common law immediately on the outbreak of war, or was rendered void as from that time by the operation of the Statute. In either case the contract became void as from the date of the commencement of the War, and the rights and liabilities of the parties are to be decided on that footing. We do not think the words of exception in sec. 3 (5) of the Act in any way affect the rights of the parties in this case. We proceed to consider in detail the questions suggested above as the substantial questions between the parties.

1 It is clear that under the contract the right of the contractors to payment of any money thereunder could only accrue upon a certificate having been given by the engineer (see clause 22 of general conditions). No certificate was ever given by the engineer except in respect of the sums which make up the £6,000 already paid. When it became, to the knowledge of the parties, impossible further to perform the contract, no right had accrued to the contractors under the contract to be paid any sum of money in addition to the £6,000 which has been paid to them. In these circumstances the ordinary rule applies, viz., that where the further performance of d contract has become impossible, then, in the absence of pecial provisions in the contract, both parties are excused from further performance of the contract (see Chandler v. Webster (:); Elliott v. Crutchley 2 ) and as regards further liability-i.e., liability not then actually accrued and inforceable-the contract is at an end. This disposes of the claim of the contractors to prove in the liquidation.

(2) The grounds upon which it was suggested that the Controller was entitled to recover from the contractors the whole or part of the £6000 which had been paid to them were (a) total failure of consideration, and (b) that the payments made after the outbreak of war were made under mistake, and might be recovered as money received by the contractors for the use of the Company.

As to (a) it is sufficient to say that the case is covered by the principle of the decisions in Appleby v. Myers 3 and Civil Service Co-operative Society v. General Steam Navigation Co. 4. As to (b) the mistake relied on is that the parties believed or assumed

1(1904) 1 K.B., 493. 2(1904) 1 K.B., 565. 3L.R. 2 C.P., 651. 4(1903) 2 K.B., 756. 27 CLR 202

OF A, that the contract was still a valid subsisting contract after the

outbreak of war, and it is said that the payments made after that date were made on that footing. In our opinion there was in this case no mistake of fact on which to found a claim to recover the money SO paid. Both parties knew the fact that a state of war existed, and the Company must be taken to have known the national- ity of its controlling shareholders. It may be assumed that the parties did not know that contracts made by a company incorpor- ated in the British Dominions but controlled by alien enemies would or might become void on the outbreak of war. This was a mistake of law, not of fact, and comes within the rule laid down in Rogers v. Ingham 1, that an action to recover back money paid with knowledge of all the facts cannot be maintained merely because the claim of the person to whom the money was paid was not well founded in law.

If the invalidity of the contract in this case was caused by the Statute alone, there was no mistake either of fact or of law when the payments were made, for they were all made before the passing of the Act. If, on the other hand, the contract became void on the outbreak of war by force of the common law, the payments in question were made and received in pursuance of an illegal contract which both parties believed to be binding, and such payments cannot be recovered back (see Harse v. Pearl Life Assurance Co. 2.

(3) The machinery remains where it has always been-in the possession of the contractors. The Company could only become entitled to the property in or possession of the machinery upon performance of its obligations under the contract. These obliga- tions have not been and cannot be fully performed consequently neither the Company nor the Controller has any claim in law to the machinery in question.

The questions asked in the summons should, in our opinion, be answered as follows: (1) The contract became null and void as from the commencement of the War; (2) No; (3) No; (4) No.

ISAACS AND RICH JJ. Substantially two questions remain for determination. Our answer to the first of these, namely, whether

13 Ch. D., 351. 2(1904) 1 K.B., 558. 27 CLR 203

the Company or the Controller is entitled to obtain the delivery H. C. of the plant and machinery, is in the negative. The contract was an entire one, and delivery was to be made within forty weeks from about April 1914, at all events long after the outbreak of war. Assuming, for the sake of argument, that until the Enemy Contracts Annulment Act 1915 (No. 11 of 1915) the contract was subsisting, still upon the facts it falls within sec. 3 of that Act, and by sub-sec. 5 of that section is avoided as from 4th August 1914, subject to the exception stated. The excrption is from "rights and obligations thereunder," that is, under the contract, and therefore the excepted rights and obligations are such as apart from the Act would arise upon the provisions of the contract itself. The sub-section draws a line at 4th August 1914, and leaves the contractual rights of the parties to be determined rebus sic stantibus. The future performance of the contract SO far as is necessary to create, or complete, rights and obligations is arrested. The progress payments were made under clause 22 in performance of the express conditions of the contract, and may be said, at all events up to the 90 per cent., to have been in performance of the obligation of the Company in consideration for the performance of the acts of the contractor up to the com- mencement of the War. But the completion of the machinery and its delivery cross the line drawn by the Act, and any obligation to deliver, if it exists, must arise out of some new agreement express or implied. No such new agreement is set up, and the very conten- tion made by the Company and the Controller that the payments were made under the mistaken belief of liability under the written contract, and were without consideration, is destructive of any sug- gestion of an implied contract subsequent to the annulment of the written contract. But if a new agreement were suggested, sub-sec. 6 of sec. 3 would avoid it. There is, therefore, no right to delivery of the machinery.

The other question is whether the Company or the Controller is entitled to recover back the progress payments and some excess payments intended as part payment of the machinery. We emphasize the fact before adverted to, that no new implied contract is set up or could be validly made. The matter must rest upon the grounds

27 CLR 204

set up, namely, 1 mistake and 2 failure of consideration. As to mistake, the argument for the Company proceeded on a wrong interpretation of what Farwell J. said in the Bodega Co.'s Case (1). The learned Judge by no means intended, nor do his words in any way convey, that the first essential of a mistake entitling a party to recover back money paid is that it must be one of fact. There are exceptional cases not relevant here (see Daniell v. Sinclair (2) and Ex parte Simmonds; In re Carnac 3 and other cases), but, apart from them, it is elementary that a mistake of law is not sufficient for the purpose. Not merely are the previous decisions clear (see Bilbie V. Lumley 4 ) but the case of Sinclair v. Brougham 5 is decisive. There Lord Sumner states as one of the difficulties of the claim the following: " There was no mistake of fact. The facts were fully known SO far as was material. The rules and objects of the society were accessible to all. The only mistake made was a mistake as to the law, or that mistake of conduct to which all of us are prone, of doing as others do and chancing the law." The mistake of law there was as to the power to borrow the money.

As to failure of consideration, it is based on the assumption that either the common law on the outbreak of war made the delivery impossible or the Statute, subsequently but retrospectively, did so. One answer to the 90 per cent. is that the 22nd clause disposes of the want of consideration, though leaving open the question of illegality of subsequent payment. But apart from that, the doctrine that, when the common law or a Statute annuls or declares void an agreement under which money is paid under a mistaken belief that there is a liability to pay it, it may be recovered back as on a failure of consideration, is unsound. Mistake as to the general law, not induced by the other party, must be endured by the party paying. In Evanson v. Crooks 6 Lord Sumner (then Hamilton J.) said " "Sums of money recovered as money had and received to a plain- tiff's use, that is to say received ex aquo et bono, a defendant ought to pay back whether the ground of it is that the sums were paid under a mistake of fact or whether the ground of it is that they were

1(1904) 1 Ch., at p. 286. 26 App. Cas., 181, at p. 190. 316 Q.B.D., 308. 42 East, 469, at p. 472. 5(1914) A.C., 398, at p. 452. 6106 L.T., 264, at p. 269. 27 CLR 205

paid in view of a consideration which has wholly failed; and I think these different ways of stating the ground-which are merely differing circumstances--to support the cause of action for money IN had and received are not mutually independent of one another; but the action for money had and received can only be maintained where upon the whole view of the circumstances there is an obliga- tion ex aquo et bono upon the defendant to repay the money, and a defendant is not under any obligation to repay the money ex (Equo et bono where an Act of Parliament has said that the transaction shall be void." The same learned Lord, in Sinclair v. Brougham 1, said there was no failure of consideration in that case, and the quotation he made from In re Guardian Permanent Building Society 2 is much in point here.

The Company, therefore, in our opinion, fails on both questions.

GAVAN DUFFY J. I have had an opportunity of reading the joint judgment of the Chief Justice and my brother Barton, and I concur in the answers which they propose to make to the questions submitted for our consideration. I also concur in their reasons, except that

I do not think that they have attributed sufficient importance to the provisions of the Acts of 1915, No. 11 (Commonwealth) and No. 2603 (Victoria). These Acts are practically identical, and in con- sidering their operation I shall refer only to the Commonwealth Act No. 11 of 1915, known as the Enemy Contracts Annulment Act 1915. Sec. 3 (5) of that Statute is as follows Every enemy contract made before the commencement of the present war is hereby declared to be and to have been null and void, as from the commencement of the present war, as regards all rights and obligations thereunder except such rights and obligations as relate to goods which had already been delivered or acts which had already been performed at that time or such as arise out of or in consideration for such delivery or performance." In my opinion the effect of this sub-section was to stop the operation of the contract as from the commencement of the War, except that it preserved to and against the parties such rights and obligations as the contract purported to give or impose either in relation to acts which had already been performed at that

1(1914) A.C., at p. 452. 223 Ch. D., 440, at p. 470. 27 CLR 206

time, or as arising at any time out of or in consideration for per-

formance before the commencement of the War. The 22nd clause of the contract entitled the contractors to progress payments on the engineer's certificate, and the sub-section preserved their right to these progress payments in respect of any work done before the commencement of the War, no matter when such certificate was received; it preserved no other right relevant to the present inquiry.

Declare that (1) the contract mentioned in the

summons became null and void as from 4th August 1914; (2) the Controller should not admit the proof of debt submitted by W. Anderson &Sons Proprietary Ltd., or any part thereof; (3) neither the Company nor the Controller is entitled to obtain delivery of the plant and machinery mentioned in the sum- mons; (4) neither the Company nor the Controller is entitled to recover the sum of £6,000 paid to W. Anderson &Sons Pro- prietary Ltd., or any part thereof. Costs of both parties to be paid by the Controller out of the assets of the Company, those of the Controller as between solicitor and client. Solicitors for the Continental C. and G. Rubber Co. Proprietary Ltd. and the Controller, Davies &Campbell.

Solicitor for W. Anderson &Sons Proprietary Ltd., A. Glen. Roberts.