Refaat v Barry

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2014 0066

SAMEH REFAAT	Appellant
v
MICHAEL BARRY	Respondent

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JUDGES:	WARREN CJ, ASHLEY and TATE JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	18 March 2015
DATE OF JUDGMENT:	20 August 2015
MEDIUM NEUTRAL CITATION:	[2015] VSCA 218
JUDGMENTS APPEALED FROM:	Refaat v Barry [2014] VCC 199 (Judge Macnamara) Refaat v Barry [2014] VCC 761 (Judge Macnamara) Refaat v Barry [2014] VCC 622 (Judge Macnamara)

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CONTRACT — Sale agreement — Claim for balance of purchase price — Termination for breach of implied conditions — Where seller not party to proceedings — No basis for ordering relief.

CONTRACT — Partnership agreement — Alleged implied agreement to repay partnership contributions — No basis for ordering relief.

CONTRACT — Partnership agreement — Claim for partnership expenses — Whether recovery barred by subsequent conduct or delay — Award of interest — Supreme Court Act 1986 s 58.

CONTRACT — Loan agreement — Identity of parties differed between agreements —Estoppel argument not advanced at trial — No error.

CONTRACT — Loan agreement — Terms — Interest — Relevance of parties’ subjective intentions — Substantive appeal dismissed.

CONFIDENTIALITY — Alleged verbal agreement at outset of partnership agreement — Insufficient evidence of agreement to restraints sought — Equitable obligation of confidence.

COSTS — Offer of compromise — Calderbank offer — Award of indemnity costs against plaintiff — Where defendant’s counterclaim amended substantially during trial — Where joinder of proper plaintiff impeded — Leave to appeal granted — Appeal allowed — New costs order made.

PRACTICE AND PROCEDURE — Re-opening of issue after judgment — Fresh evidence on appeal — No error in exercise of discretion to re-open issue and admit evidence — Procedural fairness accorded.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Dr S Refaat (in person)	---
For the Respondent	Mr J Wilkinson	DMAC Legal

WARREN CJ
ASHLEY JA
TATE JA:

Introduction

This appeal concerns a contractual dispute between Dr Sameh Refaat, a mechanical engineer, and Mr Michael Barry, the principal of printing and signwriting company Alive Graphics Pty Ltd (‘Alive Graphics’). The dispute relates to a Computer Numerical Control machine (‘the machine’), which was built by Dr Refaat for the purpose of cutting stone.

Initially, Dr Refaat and Mr Barry’s intention was that they would purchase the machine in partnership and house it at Alive Graphics’ premises. Following various delays and unforeseen cost increases during the construction of the machine, Mr Barry later sought to simplify matters by buying the machine in his own right. After further difficulties were encountered, Mr Barry sought to withdraw from the plan altogether and to abandon his purchase of the machine.

In the County Court, Dr Refaat unsuccessfully sought to enforce Mr Barry’s agreement to buy the machine and to restrain Mr Barry from using knowledge he had acquired in the course of the two men’s dealings. Mr Barry’s counterclaim, which was successful in part, alleged breaches of contract and of fiduciary duties, and sought the repayment of personal loans Mr Barry had made to Dr Refaat, as well as certain costs Mr Barry incurred in preparing a room for housing the machine.

Dr Refaat now appeals against the County Court’s decision and Mr Barry has filed a notice of contention. For the reasons that follow, we would grant leave to appeal against the trial judge’s costs order and would allow the appeal against that order. We would otherwise dismiss the appeal.

Factual background

The background to the parties’ dispute is complicated by the number of arrangements the two men entered into at different stages and the apparent lack of any involvement by lawyers until well after each party had invested substantially in the arrangements and a dispute had arisen. It is convenient to set out the chronology of events at the outset.

The parties and the partnership agreement

Dr Refaat is a mechanical engineer and the sole director and shareholder of both Simplex Factory Automation Pty Ltd (‘Simplex’) and Granite Engineering Pty Ltd (‘Granite Engineering’). He and Mr Barry have known one another for over 10 years.

Mr Barry’s company Alive Graphics is involved in signwriting in a number of mediums, including stone. In 2010, Mr Barry wanted to go into the business of cutting granite and other stone bench tops. It was proposed that the two men would form a partnership to buy a granite cutting machine that would be constructed by Dr Refaat.

On 19 January 2010, Dr Refaat and Mr Barry executed a document entitled ‘Formal Business Agreement’ (‘the partnership agreement’). This agreement:

(a) recited that the two men had ‘agreed to form a Partnership know[n] as Granite Engineering Pty Ltd’;[1]
[1]At all relevant times, Granite Engineering Pty Ltd was in fact an existing company of which Dr Refaat was the sole shareholder and director.

(b) provided that Granite Engineering would consist of 100 shares, of which Dr Refaat would own 85 and Mr Barry would own 15;

(c) provided that Granite Engineering would purchase a Simjet CNC machine from Simplex for $153,000 plus GST (i.e. $168,300 in total);

(d) provided that Dr Refaat was to pay Simplex $130,050 plus GST (i.e. $143,055) in consideration for his 85 shares in Granite Engineering, and that Mr Barry was to pay $22,950 plus GST (i.e. $25,245) for his 15 shares;[2]
[2]These figures total the $153,000 purchase price for the machine.

(e) provided that all profits and expenses of Granite Engineering would be shared by Dr Refaat and Mr Barry in the 85 per cent to 15 per cent proportion of their shareholdings;

(f) provided that the machine would be housed and operated from the premises of Mr Barry’s company Alive Graphics, and that Granite Engineering would rent 32 square metres of space from Alive Graphics for $215 per month plus outgoings;

(g) provided that the agreement should be read in conjunction with a ‘business outline’ dated 18 December 2009 — this document also stipulated a $153,000 price for the machine, assumed a five year life for the machine, stated that the machine would have a ‘full one year warranty’ and assumed that the machine would begin production by mid April 2010.

In pursuance of the partnership agreement, Mr Barry deposited $15,000 into Granite Engineering’s bank account on 22 January 2010. He deposited a further $5,000 on 29 January 2010, and a further $5,000 on 31 March 2010. This brought his total deposits to $25,000.

Although Dr Refaat did not make any direct payments to Simplex in pursuance of the partnership agreement, between 30 June 2010 and 30 June 2011 he reduced a loan owed to him by Simplex from $497,404 to $360,999. Dr Refaat’s evidence was that of this $136,405 loan reduction, his actual contribution pursuant to the partnership agreement was either $94,000 or $95,000. Dr Refaat agreed that he never made the full $143,055 contribution provided for in the partnership agreement. He also agreed that he never issued shares in Granite Engineering in the proportions foreshadowed by the partnership agreement, as he believed the mere entering of the agreement was sufficient to achieve that result.

Personal Loan 1

On 6 May 2010, Mr Barry lent Dr Refaat $30,000 for 100 days at ‘an annual interest rate of 40 per cent per annum compounding calculated daily until paid in full’ (‘Personal Loan 1’). This was repaid in full, although Mr Barry complained of late payment.

The cutting room, delays and cost increases

Also in about May 2010, Mr Barry began constructing a special room in the Alive Graphics factory to receive the machine (‘the cutting room’). He sought to segregate the machine from the printing operations in the factory to confine the dust and noise it would produce. Dr Refaat considered that it was unnecessary to house the machine in a separate room but was on site on at least one occasion while work was being done on the room’s construction.

At around this time, Mr Barry considered that the machine being built by Dr Refaat would be unable to cut granite slabs of the size required by the market. The two men agreed that a larger machine would need to be constructed and some 25 per cent of the components of the machine then under construction were taken and used in the new, larger machine.

Meanwhile, Simplex sought to raise money. Through its finance broker Interlease it made the machine the subject of a hire purchase agreement with Macquarie Leasing Pty Ltd (‘Macquarie’) in August 2010. Under this agreement, Simplex sold the machine to Macquarie for $132,000 (incl GST) and was required to purchase it back via 60 instalments. Title to the machine remains with Macquarie. Mr Barry claimed that he was not aware of this transaction until the relevant documentation was produced in the County Court proceeding.

Mr Barry claimed to have completed construction of the cutting room by December 2010. On 13 December 2010, Dr Refaat proposed to deliver the machine in two weeks’ time. Mr Barry considered this unrealistic given the Christmas/January closure of Alive Graphics. It is not clear whether any alternative delivery date was agreed, but in any event the machine was not delivered.

On 3 January 2011, the two men met and discussed technical aspects of the machine (including the provision of adjustable feet and the quality of the mounting screws). Mr Barry was concerned that the machine was being constructed to a budget rather than to achieve a satisfactory level of performance and durability.

In a further meeting on 13 January 2011, Dr Refaat told Mr Barry that he had incurred additional costs in upgrading the machine’s spindle, and he sought compensation for time he had spent changing the machine’s tabletop. He said the cost of the machine would increase by $51,700 to $220,000 (incl GST). Mr Barry’s 15 per cent share of the increase would be $7,755, to be rounded up to $8,000.[3] Mr Barry alleged that at the same meeting, he showed Dr Refaat invoices relating to his outlays on the cutting room.
[3]It would appear that this ‘rounding up’ addressed the $245 shortfall in Mr Barry’s original advance: see paras [8]–[9].

On 16 February 2011, Mr Barry paid $8,000 into Simplex’s bank account.

The shift to the machine buyout agreement

On 17 February 2011, Mr Barry’s diary recorded ‘Formal agreement closed’, although Mr Barry’s evidence was that this merely recorded his own thinking, and was not communicated to Dr Refaat by that date.

On 18 February 2011, a further meeting was held. Mr Barry tabled a document proposing three scenarios, in substance: (1) continuing with the existing arrangements, (2) Mr Barry buying the machine outright and operating the stonecutting business alone, and (3) Mr Barry’s withdrawing from all involvement with the machine.

Also at that meeting, Mr Barry tabled a document outlining concerns that he held about the operation of the partnership agreement. He sought a tax invoice for the machine and the issue of share certificates, and he wanted to become a director of Granite Engineering. He also wanted to prevent any one director of Granite Engineering from arranging ‘Loans, Borrowings or Charge[s] and the like against any capital or property of Granite Engineering’. Dr Refaat refused any arrangement which would have seen Mr Barry appointed a director of Granite Engineering. Following that discussion, Mr Barry opted for scenario 2, i.e. he decided that he wished to buy the machine outright.

Mr Barry claimed to have tabled a document at the same meeting recording the state of the accounts between the two men. At trial, Dr Refaat denied seeing this document, but admitted that his handwriting appeared on the reverse side. Mr Barry claimed that the handwritten side recorded the terms of what was described as the ‘machine buyout agreement’ entered into to give effect to scenario 2. Mr Barry claimed it was agreed the machine would be delivered in April 2011. He further claimed that Dr Refaat promised the specifications of the machine would accord with those set out in a document referred to as ‘the Simjet brochure’, although this was disputed by Dr Refaat.

The machine buyout agreement also incorporated a Loan Amortisation Table prepared by Mr Barry. It was agreed that Mr Barry would make payments of $8,800 per month (incl GST) until a total of $187,000 (incl GST) was paid. It was agreed that Mr Barry could defer up to three payments, save the first, the third and the last.

Mr Barry paid $5,000 into Simplex’s bank account on 25 March 2011, and a further $3,800 on 28 March 2011.

Personal Loan 2

In April 2011, Dr Refaat requested a personal loan of $30,000 from Mr Barry (‘Personal Loan 2’). Mr Barry sold shares on 14 April 2011 to raise funds and advanced $25,000 to Simplex’s bank account via multiple transfers between 14 April and 29 April. Mr Barry did not ultimately lend Dr Refaat the final $5,000.

Delays and disagreements

The machine was not delivered in April 2011. At that time, discussions continued regarding various problems which needed to be resolved in relation to the machine’s operation.

In late June 2011, Mr Barry paid $8,800 to Simplex in two instalments.[4]
[4]$5,000 on 25 June 2011 and $3,800 on 28 June 2011.

At some stage in June or July 2011, the two men had a further meeting about their financial affairs. Dr Refaat proposed treating the Personal Loan 2 advances of $25,000 as payments under the machine buyout agreement. The parties disputed whether Mr Barry agreed to this proposal, but in the event Dr Refaat treated the $25,000 as converted to payments under the machine buyout agreement and credited a further $5,000 to Mr Barry under that agreement.

Also in June or July 2011, Dr Refaat proposed that if Mr Barry’s machine buyout agreement payments reached 50 per cent of the agreed price, he would reduce the payments to $4,400 per month rather than $8,800 and retain an interest in the machine. At trial, Mr Barry gave evidence that he did not accept this proposal.

On 4 August 2011, Dr Refaat asked when Mr Barry would bring his machine buyout agreement payments to 50 per cent of the agreed price. Although he did not consider that he had committed to do so, Mr Barry sought finance through Interlease, however this was declined.

Mr Barry claimed, and Dr Refaat denied, that at around this time Dr Refaat said that he would not deliver the machine until Mr Barry had paid 50 per cent of the machine buyout agreement payments.

In early August 2011, Mr Barry paid a further $8,800 to Simplex in two instalments.[5]
[5]$3,800 on 5 August 2011 and $5,000 on 8 August 2011.

On 26 August 2011, Dr Refaat sent Mr Barry an email stating that the machine price was $203,000 excl GST ‘as is’ and that Mr Barry had already made payments of ‘about $83,000 or so’. The email stated ‘You need payments also to get to 50% of the machine. I suggest that you make payments on 1/9/11, 1/10/11 and 1/11/11.’ Delivery ‘as is’ was proposed for 21 October, although there would be additional delays if spindle replacement or safety fencing was required. In a further email on 1 September 2011, Dr Refaat offered to include a vacuum pump for another $1,030.

At a meeting on 7 September 2011, Mr Barry called off the machine buyout agreement.

Personal Loan 3

Despite these events, on the very next day, 8 September 2011, Dr Refaat sought a loan of $17,600 from Mr Barry, to which Mr Barry agreed (‘Personal Loan 3’). The funds would be advanced in two instalments on 9 September and 8 October. Mr Barry proposed an interest rate of 13.45 per cent per annum and that the funds be repaid when the machine was sold, or on 8 March 2012, whichever occurred first.

Disputes at the conclusion of the machine buyout agreement

On 24 November 2011, Dr Refaat asked Mr Barry to agree not to buy another stonecutting machine or to enter the stone business or to build a stonecutting machine. Mr Barry refused to do so. The two men then discussed various scenarios for dealing with the machine.

On 28 November 2011, Dr Refaat sent Mr Barry an email seeking Mr Barry’s agreement that Mr Barry owned 40 per cent of the machine and that he would not be involved in the stone or machine businesses.

On 7 December 2011, Dr Refaat again asked whether Mr Barry would agree to the restraint arrangements he had proposed. Mr Barry refused and explained that he wanted the ability to use knife-cut stone in his business. Mr Barry demanded the return of his $85,000 of outlays in full; Dr Refaat refused.

On 24 January 2012, lawyers acting for Dr Refaat sent a letter of demand to Mr Barry demanding that he pay the full outstanding balance of $121,728 for the machine within 14 days, failing which Dr Refaat would use the machine to earn income to mitigate his losses while seeking to sell the machine.

In February 2012, there was an inspection of the machine at Simplex’s premises by Mr Barry and his lawyer. Dr Refaat did not allow Mr Barry to take photographs of the machine. Following the inspection, Mr Barry’s lawyers wrote a letter of demand on his behalf to Dr Refaat’s then solicitor.

Procedural background

Dr Refaat commenced the County Court proceeding on 7 May 2012. He wished to commence a proceeding in Simplex’s name or with Simplex as a co-plaintiff, but chose not to do so when he was informed that a company could only commence a proceeding through a lawyer. Dr Refaat represented himself both in the County Court and on this appeal.

In the course of the County Court proceeding, Dr Refaat applied for Simplex to be added as a plaintiff. This application was declined initially by Judge Lacava and later by Judge Anderson, principally because Dr Refaat had not explained the lateness of the application and had not provided a reformulated pleading.[6] His Honour was also not satisfied that it would have been proper to grant Dr Refaat leave to represent Simplex in the proceeding.[7]
[6]Refaat v Barry [2014] VCC 1, [11]–[12].
[7]Ibid [13].

Dr Refaat renewed his application to add Simplex as a plaintiff on the second day of the trial. Judge Macnamara considered that it was in the interests of justice to join Simplex as a plaintiff and that it was proper to grant leave to Dr Refaat to represent Simplex in the proceeding.[8] What then happened was described by his Honour as follows:

I was sceptical of the suggestions made in opposition by [Mr Barry’s counsel] that an entirely new round of interlocutory steps would be required if Simplex were added as a party. When I announced my ruling, [counsel] applied for an adjournment and directions that there would be new pleadings and supplementary discovery. Despite my scepticism, I did not feel sufficiently confident that I would not be doing an injustice to Mr Barry by forcing the matter on without adjournment. I indicated to Dr Refaat that the addition of the new party would require an adjournment and a new round of interlocutory directions. In the face of this, Dr Refaat withdrew his application to add Simplex. As I moved through the evidence in the course of the trial, I became more and more convinced that my scepticism was justified. Substantial material from the records of Simplex was already discovered and further material came forward in the course of the trial. In effect, Simplex was just an alter ego of Dr Refaat. As it was, however, the matter proceeded to its conclusion without Simplex as a party.[9]

[8]Refaat v Barry [2014] VCC 199, [82] (‘Reasons’).

[9]Reasons [83].

In the course of trial preparations, the machine was inspected at Simplex’s premises by two expert witnesses: Mr Paul Stanley on 17 May 2013 and Mr Lee Fletcher on 25 November 2013. Their reports were relied upon by Mr Barry.

The hearing took place over 11 days between 5 and 19 February 2014. Judge Macnamara delivered judgment on 11 March 2014. Two supplementary rulings were delivered on 10 April 2014 and 15 May 2014, principally in relation to the correct calculation of interest. Those rulings also raise issues that are live on this appeal.

The proceeding below

Claim and counterclaim

At trial, Dr Refaat’s principal allegation was that Mr Barry ‘failed to honour’ the machine buyout agreement by seeking to call it off. His amended statement of claim sought the following relief:

(a) Pay Outstanding Balance of $121,728.00;
(b) Pay Holding Cost of $4033/month starting 27^th of August 2011;
(c) Interest on the outstanding balance starting 27^th of August 2011;
(d) Costs;
(e) a declaration that the Plaintiff (sic) is to keep confidential all information about the Machine, its design and operation; and
(f) Injunction to prevent the Defendant from using or transferring the knowledge transferred to him as part of the three agreements above except as intended. The Defendant should not use or transfer the knowledge related to machine-building or retrofitting.

In relation to the declaration and injunction he sought, Dr Refaat alleged that he had spent countless hours training Mr Barry on a range of matters related to the construction and use of the machine. He alleged that Mr Barry had acquired extensive knowledge through this process, which might enable him to build or retrofit other stonecutting machines. He claimed it had never been intended that Mr Barry should be able to use that knowledge for any purpose other than to operate Simplex machines.

Mr Barry’s defence alleged that the machine was not finished and that Dr Refaat had withheld delivery. He generally put Dr Refaat to proof of various matters.

Mr Barry’s counterclaim alleged, in summary:

(h) that Dr Refaat had breached the partnership agreement by failing to issue shares in Granite Engineering, failing to pay Simplex the sum of $130,050 plus GST and failing to pay rent to Alive Graphics for the cutting room;

(i) that Dr Refaat had breached various fiduciary duties he owed under the partnership agreement;

(j) that Dr Refaat was liable for 85 per cent of the cost of the cutting room works;

(k) that Dr Refaat was liable for monies had and received in the form of Mr Barry’s payments for the machine under the partnership agreement, as the consideration for those payments had wholly failed; and

(l) that Dr Refaat had failed to repay both Personal Loans 2 and 3.

Mr Barry sought to recover a total of $167,235.54 in damages (in addition to interest and costs), comprising:

·$59,400.00, being payments he had made to Simplex for the machine;
·$2,588.50, being 85 per cent of rent he claimed to have paid to Alive Graphics;
·$10,976.02, being 85 per cent of his outlays on the cutting room works;
·$25,000 plus $48,776.02 interest for Personal Loan 2; and
·$17,600 plus $2,925.00 interest for Personal Loan 3.

In the course of the trial, Mr Barry was given leave to file an amended counterclaim, to bring his pleaded case into line with his case at the hearing. His amended counterclaim filed on 11 February 2014 included allegations that various terms formed part of the machine buyout agreement, in particular:

(m)a term that the machine would be ready for installation and operation and would be in Mr Barry’s possession in April 2011 (‘the delivery term’);

(n) a term that the machine would meet the technical specifications set out in the Simjet brochure (‘the specifications term’);

(o) terms to be implied pursuant to Part 1 of the Goods Act 1958 (‘the Goods Act implied terms’), namely:

(i) a term that the machine would be free from any encumbrance (‘the free from encumbrance term’);

(ii) a term that the machine would comply with the description in the Simjet brochure;

(iii) a term that the machine would be suitable and/or appropriate for use cutting granite and other materials;

(iv)a term that the machine would be reasonably fit for purpose (‘the fitness for purpose term’); and

(v) a term that the machine would be of merchantable quality (‘the merchantable quality term’); and

(p) a term that the machine would comply with all necessary electrical safety requirements prescribed by s 54 of the Electrical Safety Act 1998 and its associated regulations and standards (‘the electrical safety term’).

Mr Barry alleged that Dr Refaat had repudiated the machine buyout agreement by breaching each of those terms and by attempting to impose further terms requiring the payment of 50 per cent of the purchase price before delivery and requiring him to enter into confidentiality and restraint of trade agreements. In addition, Mr Barry amended his claim for monies had and received to include the payments he had made under the machine buyout agreement, Personal Loan 2 and Personal Loan 3.

Embedded in Mr Barry’s ultimate pleading of the machine buyout agreement was the proposition that the machine was Dr Refaat’s to sell. Dr Refaat was the only defendant to the counterclaim, and the terms that Mr Barry pleaded as being implied into the agreement are terms commonly implied into contracts for the sale of goods. Dr Refaat’s response to the counterclaim in that form was to repeatedly assert that ‘this [was] a claim against Simplex’.[10]
[10]See, eg, Defence to amended counterclaim dated 11 February 2014, [31], [35], [37]–[39], [55]–[58].

The trial judge’s judgment

The trial judge began his analysis by considering who the parties to the machine buyout agreement were. He found that while Mr Barry was undisputedly the buyer, the identity of the seller was disputed.[11] While Mr Barry had given evidence that he thought it was Granite Engineering, his counsel had contended it was Dr Refaat. Dr Refaat had contended it was Simplex. The trial judge considered that the parties’ subjective intentions were not determinative and that the relevant question was which party was ‘supposed, objectively, to have been the contracting party’.[12] His Honour concluded that in the absence of any convincing reason to believe title to the machine had been transferred to Granite Engineering or to Dr Refaat personally, the most obvious objective inference to draw was that title remained with Simplex and thus Simplex was the seller under the machine buyout agreement.[13]
[11]Reasons [85].
[12]Reasons [95].
[13]Reasons [86], [96].

Turning to Dr Refaat’s claim for the outstanding balance payable under the machine buyout agreement, the trial judge made the following observations:

The claim which Dr Refaat makes is for the balance of the monies payable under the agreement, that is, for the rest of the price of the machine. How, one may ask, in conformity with his case that the seller under the agreement and, therefore, the party entitled to payment of the price, was Simplex, could that give an entitlement to Dr Refaat to make the claim himself?
In his final written submission, Dr Refaat said, “Besides Simplex damage, the plaintiff suffered direct damage. He is unable to recover the money he paid to Simplex [$95,000]”. I will return to this issue presently. It is sufficient for present purposes, however, to note that the claim made by Dr Refaat personally appears to be derivative from what he alleges was Simplex’s entitlements against Mr Barry. The point of derivation is that he says he paid his contribution to Simplex and cannot now recover it. As a matter of logic, to make out such a derivative claim, he must first prove that the relevant amount was payable by Mr Barry to Simplex. In my view, he cannot make good this contention.[14]

[14]Reasons [97]–[98].

His Honour then proceeded to consider whether Simplex would have been able to sue Mr Barry for the outstanding balance under the machine buyout agreement. His Honour concluded:

(q) that pursuant to s 55 of the Goods Act, Simplex would not be able to do so unless title had passed to Mr Barry under the machine buyout agreement;[15] and

(r) that title never passed to Mr Barry, because (independently of the involvement of Macquarie) the machine buyout agreement had been terminated with the acceptance of Dr Refaat on behalf of Simplex.[16]

[15]Reasons [99].

[16]Ibid.

His Honour further considered whether Simplex would be entitled to damages for non-acceptance of the machine under s 56 of the Goods Act, notwithstanding that Dr Refaat’s claim had not been put in that way. He concluded that the fitness for purpose term and merchantable quality term alleged by Mr Barry were conditions forming part of the machine buyout agreement[17] and that they were breached by Simplex.[18] That is so although by his counterclaim Mr Barry alleged that the agreement was entered into between himself and Dr Refaat and was breached by the latter. His Honour’s conclusions that the conditions had been breached led his Honour to the conclusion that Mr Barry’s failure to take delivery of the machine would not be wrongful and, therefore, Simplex would not be entitled as against him to damages for non-acceptance.[19]
[17]Reasons [132], [141].
[18]His Honour found that the Machine was not fit for purpose because its wiring was deficient at the point of manufacture, even if it could be fixed by the time of installation: Reasons [138]. His Honour found that the Machine was not of merchantable quality in light of Mr Fletcher’s evidence that it could be sold but only under a different description and at a much lower price: Reasons [144].
[19]Reasons [145].

Resuming his consideration of Dr Refaat’s personal claim, his Honour stated:

The above analysis assumes that the party seeking to enforce the [machine buyout agreement] from the seller’s side is Simplex. As previously explained, Simplex is not a party to this proceeding. The sole plaintiff and defendant to the counterclaim is Dr Refaat.
Dr Refaat said that he had suffered a loss as a result of Mr Barry’s alleged default in his obligations to Simplex under the [machine buyout agreement] because he was now unable to recover the $95,000, which he said he outlaid by way of a cut in the face value of his loans to Simplex in part performance of his obligation under the terminated [partnership agreement] to pay Simplex $143,000 inclusive of GST, or a share in the machine.
Where an actionable wrong is done to a company, the proper plaintiff to seek redress for that actionable wrong is the company. So, if by reason of a breach of contract the value of the shares in a large listed public company decreases by 40 per cent, no individual shareholder can sue the wrongdoer for the decrease in the value of his or her individual shareholding. This is only commonsense. To hold otherwise might open the door to literally thousands of disparate pieces of litigation brought by different individuals. In addition, perhaps, to a suit brought by the company itself.
This principle does not apply merely at the macro level but also at the micro level in relation to companies such as Simplex. …
…
Here, Dr Refaat is in sole control of Simplex. The circumstances in which this proceeding went to trial without Simplex as a party has been described above. [Here, reference was to the circumstances described at paras [41]–[43] of this judgment.]
It follows from all this that, even if I were persuaded that Simplex did have a cause of action, that fact does not mean that Dr Refaat also has a cause of action relative to the [machine buyout agreement]. The claim brought by Dr Refaat, insofar as it relies on enforcement of the [machine buyout agreement], therefore fails.
This disposes of Dr Refaat’s claim in paragraph (a) of the prayer for relief of his Amended Statement of Claim for the payment of $121,728. Likewise, the claim for holding costs of the machine. The machine is owned by Simplex, and it is Simplex which has incurred the holding costs. What I have said already would suggest that Simplex would not have a cause of action for holding costs but Dr Refaat certainly does not. Likewise, the claim for interest, which is presumably interest on monies allegedly owed to Simplex.[20]

[20]Reasons [146]–[149], [152]–[154].

In relation to Dr Refaat’s claims for declarative and injunctive relief, the trial judge found that there was nothing in the machine buyout agreement that would have imposed the restraints Dr Refaat sought to impose on Mr Barry,[21] nor was there sufficient evidence that any such restraint arose under the partnership agreement or in equity.[22] Thus, Dr Refaat’s claims in this respect also failed.
[21]Reasons [157].
[22]Reasons [166].

The trial judge rejected Mr Barry’s counterclaim insofar as it alleged breaches of the machine buyout agreement and claimed monies had and received, again because Simplex, the proper defendant to those claims, was not a party to the proceeding.[23]
[23]Reasons [173]–[174], [191].

However, his Honour considered that that difficulty did not affect Mr Barry’s claims against Dr Refaat personally in relation to the cutting room costs, rent costs or personal loans. His Honour found that Dr Refaat was aware of the work Mr Barry was carrying out on the cutting room and he rejected Dr Refaat’s contention that there was no necessity for a separate room.[24] His Honour concluded that the cutting room costs were proper partnership outgoings, which had been implicitly approved by Dr Refaat even if he did not specifically authorise them.[25] Further, there was no evidence that any final settling of accounts had occurred which would preclude the bringing of any further claims under the partnership agreement.[26] In relation to the rent outlays, however, his Honour was not satisfied that Mr Barry had in fact made the outlays and held that absent such proof, Mr Barry would be entitled to an indemnity only.[27] His Honour did not otherwise deal with Mr Barry’s allegations that Dr Refaat had breached the partnership agreement or any fiduciary duties he owed under it.
[24]Reasons [180].
[25]Reasons [181].
[26]Reasons [185].
[27]Reasons [193].

The trial judge rejected Dr Refaat’s submission that Personal Loan 2 was converted into payments under the machine buyout agreement, accepting Mr Barry’s denial that he ever agreed to that course.[28] His Honour found that Personal Loan 3 was not disputed, and that the parties agreed the interest was to be based upon the interest charged on Mr Barry’s Westpac overdraft account.[29] His Honour rejected Mr Barry’s contention that the interest ought to compound on a daily basis, considering instead that simple interest should be awarded.[30]
[28]Reasons [188].
[29]Reasons [56], [187]
[30]Reasons [187].

His Honour directed Mr Barry to submit draft calculations (including interest) in respect of the outstanding personal loans and the reimbursement of monies under the partnership agreement.[31]
[31]Refaat v Barry (Ruling No. 2) [2014] VCC 761, [1]–[2].

Ruling No 2 — 10 April 2014

The matter came back before the trial judge on 10 April 2014 and the parties were heard on the questions of interest and costs.[32] His Honour delivered ex tempore reasons for judgment on those issues (‘Ruling No 2’).[33]
[32]The parties were also heard on whether a stay of the proceeding should be granted pending the determination of Dr Refaat’s proposed appeal. This was granted and was not in issue on the appeal.
[33]Refaat v Barry (Ruling No. 2) [2014] VCC 761.

Dealing first with the appropriate way to calculate interest, his Honour rejected the reiterated submission of counsel for Mr Barry that the interest on Mr Barry’s Westpac overdraft account compounded daily, because the facility letter Mr Barry relied upon showed the interest was ‘calculated on the daily balance and charged monthly’.[34] His Honour considered this meant the interest was not capitalised at all, but rather was payable monthly.[35]
[34]Ibid [5], [8], [11].
[35]Ibid [9].

In relation to the $5,000 which Dr Refaat purported to credit to Mr Barry in connection with Personal Loan 2,[36] his Honour rejected Dr Refaat’s contention that it was payable as consideration for converting the loan sum into early payments under the machine buyout agreement,[37] given his earlier finding that the parties had never agreed to such a conversion.[38] His Honour held that the $5,000 ‘was paid as some sort of commitment or procurement fee’ for Personal Loan 2,[39] but did not form part of the principal sum so as to attract interest before the entry of judgment.[40]
[36]See para 28 above.
[37]Refaat v Barry (Ruling No. 2) [2014] VCC 761, [14].
[38]See para 61 above.
[39]Refaat v Barry (Ruling No. 2) [2014] VCC 761, [15].
[40]Ibid [16].

As to the interest on monies owing under the partnership agreement, his Honour found that in the absence of any express agreement between the parties regarding the interest rate applicable to outstanding partnership monies, Mr Barry was entitled only to the interest rate stipulated by the Penalty Interest Rates Act 1983.[41] Dr Refaat contended that the Court should exercise its discretion to award interest at a lower rate, but his Honour was not persuaded to do so.[42]
[41]Ibid [18]–[19].
[42]Ibid [20]–[22].

His Honour once again directed the parties to recalculate the interest components of the judgment on counterclaim in accordance with his reasons.

In addition, his Honour awarded Mr Barry costs on a full indemnity basis from the first day of the trial on the basis of two settlement offers made to Dr Refaat two days before the commencement of the trial, finding that those offers were ‘well-weighted’ and were unreasonably rejected by Dr Refaat.[43]
[43]Ibid [30]–[32], [39]–[41].

Ruling No 3 — 15 May 2014

Following Ruling No 2, Mr Barry sought, without leave, to file a further supplementary affidavit and to re-agitate the question of whether interest on the personal loans ought to be compounded. The trial judge dealt with the issue on the papers, delivering reasons on 15 May 2014 (‘Ruling No 3’).[44]
[44]Refaat v Barry (Ruling No. 3) [2014] VCC 622.

His Honour considered whether leave ought to be granted to re-open the issue, observing that Mr Barry’s further evidence could have been produced at the trial and that Dr Refaat also sought to place further material in relation to the calculation of interest before the Court.[45] His Honour remarked that Mr Barry’s continued agitation of the interest issue was scarcely proportionate to the amount in dispute and was at odds with the overarching purpose of the Civil Procedure Act 2010.[46]
[45]Ibid [13]–[14].
[46]Ibid [16].

Nevertheless, his Honour considered that given the time and resources already expended on the issue, it would be contrary to the interests of justice to turn aside further evidence which could prove probative.[47] His Honour granted leave to reopen the issue and held that the new material put forward by Mr Barry, in the form of a letter from Westpac, supported monthly compounding of interest on Personal Loans 2 and 3.[48] However, his Honour found that there remained no basis for applying interest to the $5,000 procuration fee.[49]
[47]Ibid [17].
[48]Ibid [22].
[49]Ibid [21].

Final orders

On 2 June 2014, the trial judge made the following orders:

1.   The claim be dismissed.
2.   On the counterclaim there be judgment for the defendant in the sum of $81,497.64 (inclusive of interest).
3.   The plaintiff pay the defendant’s costs of the proceeding to be taxed on a standard or party/party basis until 3 February 2014 and thereafter on a full indemnity basis.
4.   Judgment stayed pending the hearing and determination of a proposed appeal by the plaintiff or further order.

Appeal grounds

Dr Refaat filed his notice of appeal on 11 June 2014. His appeal grounds are lengthy and, at times, take the form of submissions. Several grounds comprise numerous sub-grounds. For present purposes, it suffices to summarise Dr Refaat’s grounds of appeal as follows:

Grounds relating to the machine buyout agreement and its termination

(s) The trial judge erred in finding that the machine buyout agreement contained an implied condition of merchantable quality.

(t) The trial judge erred in finding that there was a breach of any implied conditions in the machine buyout agreement that the machine would be fit for purpose or of merchantable quality.

(u) The trial judge erred in allowing Mr Barry to rely on breaches of conditions as to fitness for purpose and merchantable quality as a basis for refusing delivery of the machine and/or terminating the machine buyout agreement, when the alleged breaches were not known or complained of at the time of the purported termination and were capable of remedy.

(v) The trial judge erred in finding that Simplex could not recover the balance due under the machine buyout agreement on the basis that the title to the machine had not passed to Mr Barry.

Grounds relating to the relief Dr Refaat claimed

(w) The trial judge erred in finding that Dr Refaat could not recover the $95,000 he outlaid in part performance of his obligations under the partnership agreement, and ought to have found that Mr Barry breached an implied agreement to repay that money.

(x) The trial judge erred in failing to restrain Mr Barry from using knowledge he gained from his dealings with Dr Refaat, and ought to have found that Dr Refaat only agreed to the termination of the machine buyout agreement on the condition that Mr Barry not go into the stone business subsequently.

Grounds relating to Personal Loan 2

(y) The trial judge erred in finding that Personal Loan 2 was not converted into machine buyout agreement payments, and should have found that Mr Barry implicitly agreed to the conversion.

(z) The trial judge erred in awarding Mr Barry a further $5,000 in respect of Personal Loan 2 in circumstances where that sum had been credited to him by Simplex in consideration of bringing forward his machine buyout agreement payments.

(aa) The trial judge erred in awarding interest on Personal Loan 2 in circumstances where the money was ‘frozen’ in the machine, and in relying on evidence in relation to Personal Loan 3 to determine the interest rate for Personal Loan 2.

(bb) The trial judge erred in re-opening the case after judgment and in considering new evidence as to the interest rate applicable to Personal Loans 2 and 3, and failed to accord procedural fairness to Dr Refaat by failing to provide him with notice of the re-opening or an opportunity to put his case.

Grounds relating to the cutting room costs

(cc) The trial judge erred in finding that Mr Barry was entitled to recover costs incurred in constructing the cutting room, and ought to have found that Mr Barry was prevented from seeking those costs by his admission that he was not entitled to them and by his delay in seeking them.

(dd)The trial judge erred in awarding interest on the cutting room costs in circumstances where Mr Barry had the benefit of the room.

Grounds relating to costs

(ee) The trial judge erred in finding that Dr Refaat unreasonably rejected Mr Barry’s offers of compromise in circumstances where the basis of the offers differed from the basis of the Court’s judgment.

(ff) The trial judge erred in awarding indemnity costs for the full period of the trial in circumstances where the bulk of the trial time was spent on Mr Barry’s unsuccessful arguments.

In addition, Dr Refaat has appeal grounds of a more general nature, which complain of failures by the trial judge to consider his evidence and failures to describe aspects of the factual background or evidence accurately or in sufficient detail. It will be convenient to address those issues in the course of dealing with the more substantive grounds we have listed.

Notice of Contention

By his notice of contention dated 14 July 2014, Mr Barry contends that the decision of the trial judge should be affirmed on grounds which may be summarised as follows:

(gg) The trial judge erred in finding that the vendor of the machine under the machine buyout agreement was Simplex and failed to give sufficient weight to evidence that Granite Engineering was in fact the vendor.

(hh) The trial judge erred in finding that there was no term in the machine buyout agreement regarding the specifications of the machine and failed to give sufficient weight to evidence that Mr Barry relied upon detailed technical specifications ‘such as those contained in the Simjet Brochure’.

(ii) If there was a specifications term, it was open to the trial judge to find that the machine was not fit for purpose by reason of not complying with the specifications.

(jj) The trial judge erred in failing to make a determination under section 54 of the Electrical Safety Act 1998 that the machine did not comply with the minimum standards set out in AS/NZS 3820, and erred in failing to find that the machine was also not fit for purpose by reason of such non-compliance.

(kk) The trial judge erred in failing to make findings as to whether Dr Refaat breached fiduciary duties he owed to Mr Barry and as to whether such breaches caused loss and damage to Mr Barry.

(ll) The trial judge failed to find that Dr Refaat breached his obligations under the partnership agreement, or alternatively failed to give sufficient weight to evidence that he did so.

(mm) The trial judge erred in not awarding Mr Barry interest on the ‘$5,000 procuration fee’ for Personal Loan 2, and failed to give sufficient weight to evidence that Dr Refaat agreed to pay the amount to procure Personal Loan 2 at short notice.

Applications to adduce fresh evidence

Each of Dr Refaat and Mr Barry sought to adduce fresh evidence on this appeal. The Court has power to receive further evidence on questions of fact pursuant to r 64.22(3) of the Supreme Court (General Civil Procedure) Rules 2005. In Clark v Stingel,[50] the Court described the applicable principles in the following way:

The principles upon which the Court will give leave to introduce fresh evidence upon an appeal are not in doubt. Leave should be given only if:
·By the exercise of reasonable diligence such evidence could not have been discovered in time to be used in the original trial.
·It is reasonably clear that if the evidence had been available at the trial, and had been adduced, an opposite result would have been produced.
·The evidence proposed to be adduced is reasonably credible.[51]

[50][2007] VSCA 292.

[51]Ibid [25] (Warren CJ, Chernov and Kellam JJA), citing Orr v Holmes (1948) 76 CLR 632, 635 (Latham CJ); Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435, 444 (Dixon CJ).

In Commonwealth Bank of Australia v Quade,[52] the High Court observed that ‘[s]uch a stringent rule … is supported by considerations of both justice and public interest’,[53] specifically the public interest in the ‘finality of litigation in other than the truly exceptional case’.[54]
[52](1991) 178 CLR 134.
[53]Ibid 141 (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ).
[54]Ibid 142.

Dr Refaat’s application

Dr Refaat’s application to adduce fresh evidence on the appeal was filed on 9 December 2014. It was supported by his affidavit of the same date and an ‘amended affidavit’ filed on 15 February 2015. Dr Refaat filed submissions in support of his application on 9 December 2014 and amended submissions on 15 February 2015. Mr Barry filed submissions opposing the application on 6 March 2015.

At the hearing of the appeal on 18 March 2015, Dr Refaat indicated that he did not wish to add to his written submissions in relation to his application. The Court refused the application, and indicated that it would provide its reasons subsequently. We set out our reasons in the following paragraphs.

Dr Refaat’s application sought to adduce fresh evidence regarding:

(nn) the machine’s compliance with the fitness for purpose term and merchantable quality term — in the form of evidence going to what Dr Refaat described as the ‘minor’ nature of the wiring problems and Simplex’s capacity to fix the problems;

(oo) Dr Refaat’s loss — in the form of evidence seeking to show that Simplex paid tax on the payments it received under the machine buyout agreement, including on the Personal Loan 2 sum;

(pp) confidentiality and restraint of trade issues — in the form of evidence from Dr Refaat as to the time Mr Barry spent with him learning about the machine and the matters they discussed; and

(qq) the specifications of the machine — in the form of an extract from the affidavit of Mr Barry filed in support of his own application to adduce fresh evidence.

In addition, Dr Refaat’s amended affidavit made reference to an ‘Inspector Sample’, being a cutting of stone taken (it appears) by Mr Fletcher. Dr Refaat described this as evidence that was before the trial judge but explained that it was not included on the formal exhibit list, for reasons unknown to him. Dr Refaat sought to rely on the piece of stone as evidence of the machine’s ability to cut stone to a particular standard.

Dr Refaat’s written submissions explained that his reasons for seeking to adduce the fresh evidence at the appeal stage were that:

(rr) the issue of the machine’s quality was not raised until late in the trial;

(ss)Mr Fletcher’s report was not served on him until three and a half days before the hearing;

(tt) he had not realised that he had to make arguments regarding Simplex’s rights; and

(uu) he did not know the stone sample was not treated as an exhibit by the trial judge.

Mr Barry opposed Dr Refaat’s application. He submitted that it did not introduce substantially new evidence and that any fresh evidence could have been submitted before the trial if Dr Refaat had acted with reasonable diligence, even allowing for the fact that he was a self-represented litigant. Mr Barry further submitted that the evidence was not reasonably credible or relevant, and did not falsify any basic assumption common to the parties or the trial judge. In particular, Mr Barry maintained that the machine could be held to be defective on the basis of its wiring alone, irrespective of its accuracy in cutting stone. Mr Barry also averred that Dr Refaat had been on notice of his argument that the machine was defective.

In our view, Dr Refaat failed to establish that the fresh evidence he sought to adduce would have produced a different result if it had been adduced at the trial.

The evidence seeking to show that Simplex had exported goods, had conducted research and had been involved in various projects could do no more than support an inference that it was within Simplex’s capacity to remedy the machine’s wiring problems before the machine was delivered. That issue was irrelevant, for two reasons. First, and fundamentally, the trial judge found that whether or not Simplex had a cause of action against Mr Barry, that did not entitle Dr Refaat to sue upon the machine buyout agreement.[55] Secondly, his Honour found that in any event the relevant regulations would have required the wiring to be appropriately rendered at the time of manufacture as well as at the time of installation,[56] thus a breach would have been established even if the problems could be corrected before installation. The ‘Inspector Sample’ is irrelevant for similar reasons: it goes only to Simplex’s rights, and in any case the trial judge’s conclusions regarding the standard of the machine were not based upon any finding that it could not accurately cut stone.
[55]Reasons [153].
[56]Reasons [138].

The tax return evidence showed only gross figures and did not include any evidence of payment. It is far from clear that it would be capable of establishing that Simplex paid tax specifically on the Personal Loan 2 sum or on payments received under the machine buyout agreement. At any rate, inasmuch as Dr Refaat sought to use the evidence to show that he treated Personal Loan 2 as converted into machine buyout agreement payments, that would not establish whether the parties had agreed he could do that, which is the relevant issue. Insofar as Dr Refaat sought to use the evidence to establish that Simplex paid tax on his own $95,000 contribution, that is a matter between Dr Refaat and Simplex which does not concern Mr Barry.

The evidence regarding confidentiality had, as Dr Refaat’s written submissions conceded, largely been stated at trial; he merely sought to restate it for ease of analysis by the Court. Since the trial judge found there was no evidence that any confidentiality or restraint of trade terms formed part of the machine buyout agreement or arose under the partnership agreement or in equity, it was incumbent on Dr Refaat to show how his evidence (to the extent it was new) would have proven otherwise. Yet the evidence did not bear upon whether any confidentiality or restraint of trade terms were agreed or what they involved, rather, it went for the most part to the nature of the matters Mr Barry learned about from Dr Refaat. This was relevant only to whether any equitable duty arose to maintain the confidence of trade secrets. The matters identified by Dr Refaat were general in nature (e.g. ‘Types of marble and granite’, ‘Pneumatic system and how it is used within stone machines’) and while they may appear specialist in nature to a lay person, it was not clear that those matters went beyond general knowledge for persons in the stone machine industry. The fact that Mr Barry’s business normally operated in another industry was beside the point, as was Dr Refaat’s submission that no other stonecutting machines were made in the Australian market. Crucially, Dr Refaat failed to establish (a) how Mr Barry was said to have agreed to maintain the confidentiality of information he acquired, or to any restraint of trade; or (b) how any particular information Mr Barry acquired had the nature of a trade secret.

Dr Refaat also sought to adduce an extract from an affidavit of Mr Barry deposing that the Simplex brochure and a page on Simplex’s website ‘were the only places where the machine’s technical specifications were available to me in writing’ and that Dr Refaat had refused to put anything else in writing. Dr Refaat submitted that this showed he had refused to make those specifications part of the machine buyout agreement. Plainly, it could do no such thing. Indeed, Mr Barry’s case was that the specifications set out in the brochure were incorporated into the agreement by reference in the parties’ discussions. In any event, the trial judge found that the specifications term did not form part of the machine buyout agreement; the question of whether it did is now raised only by Mr Barry’s notice of contention and it need not be considered.

These conclusions render it unnecessary to consider whether Dr Refaat was able to discover his further evidence in time to adduce it at trial. Nevertheless, it should be observed that while some difficulty was occasioned by the late amendment of Mr Barry’s counterclaim, Dr Refaat can hardly be said to have been caught by surprise. He had been present during several inspections of the machine at Simplex’s premises in the months leading up to the trial and he was, in that way, on notice that the suitability of the machine for sale was in issue. Moreover, since it had always been his case that Simplex was the seller of the machine and that Mr Barry should be required to pay for and accept delivery of it, he was very much on notice that the dispute raised questions about Simplex’s rights.

Mr Barry’s application

Given that, as it will be seen, the issues raised by Mr Barry’s notice of contention do not arise, it is not necessary to determine Mr Barry’s application to adduce fresh evidence on this appeal.

Consideration of appeal grounds

Grounds (a)–(d): the machine buyout agreement and its termination

Dr Refaat’s appeal grounds (a) to (d) challenge the trial judge’s findings about whether the machine buyout agreement contained particular terms, whether those terms were breached, and whether those breaches gave Mr Barry the right to terminate the agreement or to refuse to accept delivery of the machine, or if not, whether Mr Barry could otherwise resist paying the outstanding balance under the agreement. Dr Refaat’s written submissions identified in some detail the errors he alleged the trial judge made, which need not be set out for present purposes.

At the hearing of the appeal, it was put to Dr Refaat that these questions, while addressed by the trial judge,[57] were unnecessary given his Honour’s finding that the vendor under the machine buyout agreement was Simplex rather than Dr Refaat in his personal capacity. Dr Refaat agreed, but asserted that he was now ‘haunted’ in his business dealings by the trial judge’s findings that the machine was neither fit for purpose nor of merchantable quality in any event. He invited the Court to review those findings and to conclude that they were not only unnecessary, but wrong.
[57]See paras [55]–[56].

Counsel for Mr Barry submitted that there was no error in the findings and that setting them aside could result in all the relevant evidence having to be adduced and evaluated again in future proceedings. In that regard, Dr Refaat indicated that subject to the outcome of this appeal, he may seek to bring a further proceeding in Simplex’s name.

The identity of the parties to the machine buyout agreement is a matter of critical significance to Dr Refaat’s appeal grounds (a) to (d). As we described earlier, the trial judge found that the vendor and purchaser under that agreement were Simplex and Mr Barry respectively.[58] We are not satisfied that there was any error in that conclusion, which, it should be recalled, accorded with Dr Refaat’s argument both at trial and on this appeal.
[58]See para [53].

The machine buyout agreement represented an end to the aborted plan, outlined in the partnership agreement, for the two men to purchase the machine in partnership from Simplex. That in itself provided a strong objective basis for an inference that Simplex was intended to be the vendor under the machine buyout agreement. The positions of Macquarie and Granite Engineering may be left to one side; at the very least, neither Dr Refaat nor Mr Barry contended on the appeal that title in the machine had ever passed to Dr Refaat personally and there would have been no proper basis on the evidence to conclude that that had occurred. Thus, it is clear that Dr Refaat was not the vendor of the machine in his personal capacity.

That matter alone is sufficient to dispose of grounds (a) to (d) of Dr Refaat’s appeal. The terms of the machine buyout agreement, whether they were breached, and whether any breaches could be relied upon by Mr Barry as the basis for terminating the agreement are all issues that are ultimately irrelevant to whether Dr Refaat is personally entitled to any relief as against Mr Barry. The same is true for the question of whether Simplex is entitled to the balance owing under s 55 of the Goods Act. All are controversies between Simplex and Mr Barry. However they might be resolved, they would provide no basis for ordering the relief claimed by Dr Refaat in this proceeding.

It is not unusual for courts to express views on matters not strictly necessary for the ultimate decision. Often, this is done in circumstances where the parties have made detailed submissions on those matters and the making of alternative findings would allow any appeal to be conducted more efficiently. In this case, the trial judge’s findings regarding Simplex’s rights,[59] necessarily obiter dicta, were reached in the context of a self-represented litigant making a somewhat abstruse claim for personal loss consequent upon Mr Barry’s alleged default in his obligations to Simplex. There had been some confusion and debate among the parties to the proceeding as to who the parties to the machine buyout agreement were and both Dr Refaat and Mr Barry had made submissions and put on evidence on a broad range of issues. As we have observed,[60] Dr Refaat withdrew his renewed joinder application on the second day of the trial in circumstances where Mr Barry had maintained that a new round of pleadings and supplementary discovery would be required if Simplex were joined, though as the trial progressed, the judge became increasingly satisfied that in fact there would have been no such need. Mr Barry’s closing submissions at trial relied upon Dr Refaat’s withdrawal of the joinder application and contended that since Simplex was not a party, it could not claim the price of the machine or damages for non-acceptance. It appears that his Honour considered Simplex’s entitlements with the intention of giving Dr Refaat as fair a hearing as possible, so that technical deficiencies in his pleadings would not prevent him from obtaining any relief to which he was entitled.[61] Had his Honour not set out his findings on those issues, Dr Refaat may have formed the view that his claim failed solely because Simplex ought to have been the plaintiff and then caused Simplex to bring its own claim unaware of the difficulties such a claim could face.
[59]See paras [54]–[57].
[60]See para [43].
[61]See, eg, Reasons [102].

In light of those matters, we would hesitate to criticise the trial judge’s approach in expressing views about the rights Simplex might have. Nevertheless, his Honour’s attempt to deal with Dr Refaat’s personal claim by treating it as derivative of Simplex’s rights could not ultimately solve the problem posed by Simplex not being joined to the proceeding; as his Honour acknowledged,[62] Dr Refaat would not acquire a cause of action merely because of any entitlement Simplex might have to relief. This Court, in exercising its powers on the appeal, must seek to give effect to the overarching purpose of the Civil Procedure Act, namely ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.[63] Plainly, the issues raised by appeal grounds (a) to (d) cannot be the real issues in dispute between the parties to the appeal because Simplex is not formally a party to the proceeding. It would therefore be inappropriate for this Court to reach concluded views on those matters, particularly in circumstances where the issues involved are technically and legally complex. In any event, any conclusive determination of Simplex’s rights would require that Simplex be heard and bound by the decision that is made. It follows that the merits of the trial judge’s findings put in issue by appeal grounds (a) to (d) ought not to be decided in this proceeding. It is unnecessary to consider those appeal grounds any further, save to say that it is regrettable that the dispute between Simplex and Mr Barry could not be resolved in this proceeding. The joinder of Simplex, had it not been frustrated, in substance, by Mr Barry, would have enabled a much simplified resolution of the dispute between the parties. It would have eliminated the prospect of any fresh proceeding in which Simplex would be the plaintiff. This is a factor that will be relevant to the costs orders to be made in this proceeding.

Grounds (e)–(f): relief claimed by Dr Refaat

[62]Reasons [148]–[153].

[63]Sections 7(1), 8(1).

Ground (e): Dr Refaat’s claim for personal loss

As described earlier, the trial judge dealt with Dr Refaat’s personal claim on the basis that it would have to be derivative from any entitlements Simplex had under the machine buyout agreement. On this appeal, Dr Refaat sought to distance his claim for personal loss of $95,000 from that agreement. He submitted that the judge erred in rejecting his claim for that money because Mr Barry had breached an implied agreement to repay him the money he had outlaid in part performance of his obligations under the partnership agreement.

A difficulty for this aspect of Dr Refaat’s appeal is the vagueness with which his claim for $95,000 was put before the trial judge.

Dr Refaat pleaded a claim for relief in the sum of $121,728 from Mr Barry,[64] being the alleged outstanding balance of the price of the machine. His statement of claim did not articulate any claim for personal loss of $94,000 or $95,000, although in the course of the trial it appeared that he sought, alternatively, to recover from Mr Barry money that he was unable to recover from Simplex.[65]
[64]Dr Refaat’s Amended Statement of Claim dated 19 November 2012, 5.
[65]See paragraph 106 ff.

On this appeal, Dr Refaat submitted that the trial judge properly understood that he was only ever claiming $95,000 for himself. He contended that the balance of the $121,728 referred to in his statement of claim would be recoverable by either Simplex or the partnership of himself and Mr Barry; he put both alternatives at different times.

In oral argument, Dr Refaat was unable to identify precisely how he had articulated his claim to $94,000 or $95,000 in personal losses before the trial judge. He relied upon a statement of issues he filed at the outset of the trial, which asserted:

The plaintiff paid Simplex about $94,000 and Simplex then paid GST and taxes on all payments from both parties. The plaintiff is unable to recover his money because of the defendant[’s] termination.[66]

[66]Dr Refaat’s Statement of Issues dated 4 February 2014, [7].

Later in the same document, Dr Refaat set out what he alleged to be Mr Barry’s liability as follows:[67]
[67]Ibid [11].

Machine Purchase Price $223,300.00 in[cl] GST

Less payments under the “buyout agreement” ($84,400.00) in[cl] GST

Less Loan 3 ($17,600.00)

Total Liability $121,300.00 (plus damages and interest)

It will be readily seen that Dr Refaat’s calculation of Mr Barry’s liability included no reference to any sum of $94,000 or $95,000 for personal loss of Dr Refaat. Dr Refaat submitted that the Court should read that sum as being impliedly included in those figures.

The Court allowed both parties to file a list of transcript references following the hearing to show how Dr Refaat’s claim for personal loss had been articulated at trial. The following exchange occurred on the first day of the trial:

HIS HONOUR: If we could just scroll back for a moment to Issue Number 1. Can you tell me what payment you say, what damages or debt or whatever it is, what should the defendant give you relative to Issue 1?
DR REFAAT: There are two options really. The first one is to give me my money back plus —
HIS HONOUR: How much is that?
DR REFAAT: That’s close to $97,000, that’s without — and plus damage — plus interest.
HIS HONOUR: What interest do you seek?
DR REFAAT: Well, I seek interest on the money, on the period. The courts can determine interest rate.
HIS HONOUR: So there isn’t a particular agreed rate of interest?
DR REFAAT: No.
HIS HONOUR: There is a provision in statute for the payment of interest plus statutory interest. So that’s one way of meeting your concerns in Issue 1. What’s the alternative?
DR REFAAT: The alternative, if he does that he gets no machine because he hasn’t resolved his problem with Simplex. He just give me my money and my (indistinct). But the other option that he pays what he owes Simplex and what he agreed on with Simplex, and in that case Simplex will pay me my money and he gets his machine.

During his cross-examination, Dr Refaat elaborated upon the basis of his personal claim in the following way:

HIS HONOUR: … Where is the amended statement of claim? … Perhaps we’ll go to it now. … So, “Pay outstanding balance of $121,728”, what does that represent? --- I said that the first day, Your Honour, and I’ll try to say it again.
Yes?---What happened is there is agreement for the defendant to buy a machine from Simplex.
Yes?---For $200,000.
Yes?---He paid 80.
Yes?---So the remaining is 120.
But that’s —?---That’s the 120.
So that’s exactly what I thought —?---No, no, but – but I am not suing for that, Your Honour. What I explained the first day —
Yes?---That this doesn’t represent damage to me, the 120.
Yes?---But what’s represent damage to me, that I paid $95,000 to Simplex and I cannot get that.
Yes. Well, I understand that. But I’m just looking at what your claim — and holding costs of $433 per month?---That’s Simplex claim.
Yes, well of course Simplex isn’t a party to the proceeding, as we well know?

---Yes.
…
Interest, costs, declarations. … We’re suing for what purport to be liquidated sums.
[COUNSEL FOR MR BARRY]: Yes. And the plaintiff says he’s claiming the $95,000 that he’s paid to Simplex.
HIS HONOUR: Yes.

It appears from that extract that the trial judge and counsel for Mr Barry understood Dr Refaat to be claiming the $95,000 he said he had paid to Simplex, notwithstanding that no such claim was made explicit in the statement of claim.

Rule 13.02(1)(c) of the County Court Civil Procedure Rules 2008 provides that a pleading must state specifically any relief or remedy that a party claims. It is clear on the authorities that where a plaintiff has not sought particular relief in his statement of claim, a court will not grant that relief unless it is consistent with the case that has been made out on the pleadings.[68]
[68]Wicks v Bennett (1921) 30 CLR 80; Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279.

We do not consider that Dr Refaat ever made a proper claim against Mr Barry for $95,000 in personal losses that was distinct from his broader claim for the $121,728 sum said to be the outstanding purchase price of the machine. To the extent that any claim for $95,000 could be ‘implied’ in that sum, it was necessarily made on the same basis. Dr Refaat’s pleading simply did not articulate any alternative basis for such relief. In those circumstances, it is unsurprising that the trial judge considered Dr Refaat’s claim for $95,000 on the basis that it turned upon any right he had to the outstanding purchase price.

We reject Dr Refaat’s contention that the trial judge erred in failing to find that Mr Barry breached an implied agreement to repay any monies Dr Refaat contributed to the partnership. Aside from the fact that no such agreement was pleaded and the fact that no such argument appears to have been advanced before the trial judge, the Court has not been taken to any evidence that would suggest any such agreement existed. Neither the partnership agreement nor the machine buyout agreement contained any provision to that effect, and it does not appear that any such agreement was entered upon the termination of the machine buyout agreement, or was a condition of its termination.

We also reject Dr Refaat’s assertion that the trial judge erred in accepting Mr Barry’s partnership agreement outlays as having been credited to him under the machine buyout agreement while failing to accept that Dr Refaat’s outlays were ‘credited to’ (or recoverable by) him. The short answer to this confused submission is that Dr Refaat agreed to treat Mr Barry’s advances to his company as payments towards the machine. As the machine was never delivered, any benefit Mr Barry obtained from such a credit remains abstract. On the other hand, Dr Refaat seeks concrete monetary compensation from Mr Barry for his own contributions to the partnership in circumstances where Mr Barry never agreed to treat Dr Refaat’s partnership contributions as anything other than that; their treatment remains a matter for the settlement of the partnership accounts.

A further difficulty with Dr Refaat’s claim for personal loss of $95,000 lies in the evidence upon which he based his claim for relief. He relied upon Simplex’s financial statements for the year ended 30 June 2011 as evidence both that he had reduced his loan to Simplex by $136,405, and that Simplex had reported income of $120,000 under ‘Other income (Granite Machine)’. No breakdown of the latter sum was shown on the documents, but Dr Refaat asserted that it consisted of $25,000 received from Mr Barry and $95,000 referable to the reduction in his own loan to Simplex, the remainder of the loan reduction being attributable to other matters.

We leave to one side the problem of the opacity and inconsistency of these amounts, though we observe that Dr Refaat gave varying figures for both the machine’s price and for his loss, sometimes within the same documents. The more fundamental difficulty for Dr Refaat is this: at best, the evidence on which he relied shows that he reduced Simplex’s debt to him in part performance of his obligation to contribute to the purchase of the machine from Simplex. Since Mr Barry made no promise to indemnify Dr Refaat in respect of his dealings with Simplex, it is to Simplex that Dr Refaat has to turn if he seeks the return of his funds or if he seeks to have the debt he was owed restored to its previous level.

It is implicit in Dr Refaat’s argument that he cannot obtain his funds back from Simplex because it has invested them in constructing the machine which Mr Barry agreed to purchase. Thus, Dr Refaat seeks relief from Mr Barry because he attributes his inability to recover his funds to Mr Barry’s refusal to proceed with the purchase of the machine. However, in the absence of evidence that Simplex ever had any capacity to repay its debt to Dr Refaat, his loss was only theoretical and could not form an adequate basis for the tangible relief he sought. Leaving that issue to one side, even if it be assumed that Dr Refaat would have recovered his funds had the purchase been completed, it is ultimately for Simplex to pursue any rights it has against Mr Barry. As explained earlier, on no view of the evidence was Dr Refaat the vendor of the machine; it was therefore not for him to seek to enforce the contract for its sale.

Finally in connection with Dr Refaat’s claim for personal loss, we observe that his notice of appeal contended that the trial judge erred in failing to take account of the income he had lost both in preparing for this proceeding and due to his lack of capital while the proceeding remained unresolved. While these are understandably matters of concern to Dr Refaat, they neither provide a separate basis for awarding the relief he sought under the agreements he entered with Mr Barry, nor were they pleaded as a separate basis for awarding relief. The trial judge did not fall into any relevant error.

Ground (e) must be rejected.

Ground (f): confidentiality and restraint of trade matters

As we described earlier,[69] at trial Dr Refaat also sought a declaration regarding the confidentiality of information about the machine and an injunction to restrain Mr Barry from ‘using or transferring’ knowledge he had acquired from Dr Refaat ‘except as intended’.
[69]See paragraph [46].

The trial judge described each party’s submissions on this issue as follows:

Dr Refaat asserted an entitlement to the declarations and injunctive relief which I set out earlier in these reasons. He said that, in his view, Mr Barry had been “in his factory” for 18 months and had, in substance, acted as an industrial spy. In closing address, he was somewhat uneasy with that expression but it seemed to me to sum up the effect of his case. He obtained admissions in cross-examination of Mr Barry that Mr Barry had spent extensive time working with Dr Refaat principally on a smaller machine than the one in dispute in this proceeding. Mr Barry said that he devoted himself assiduously to this work so that he would be better able to do the work assigned to him under the [partnership agreement] and, later, under the [machine buyout agreement]. He agreed that he was, over and beyond these matters, intrinsically curious and asked Dr Refaat many questions.
I put it to Dr Refaat that when he entered into the [machine buyout agreement] he could scarcely have conceived that Mr Barry would buy the stonecutting machine on terms that he be excluded from the stonecutting or machine industries, whatever those industries might be. He agreed. He said that he sought to impose those restraints of trade solely as a result of the matters which occurred “in December”. I took this to be a reference to the breakdown in relations and negotiations in December 2011 following the cancellation of the [machine buyout agreement] in September of that year. This amounts, in my view, to a concession on the part of Dr Refaat that there was nothing in the [machine buyout agreement] that would have imposed the restraints which he now seeks to impose on Mr Barry.
It follows, therefore, that to the extent that Mr Barry is bound to respect some form of confidentiality, that obligation must derive either from the [partnership agreement] or from some general equitable principle. The demand for the relief relative to confidentiality was simply bald and not otherwise developed.
The response from [counsel for Mr Barry] was balder still. He simply said “there is no obligation” and provided no analysis beyond the simple denial.[70]

[70]Reasons [156]–[159].

His Honour analysed Dr Refaat’s confidentiality claim in the following way:

The right to obtain protection of secrets based on an alleged breach of confidence derives principally from the rules of equity rather than solely from contractual obligations, though they may also form a basis.
In the context of the duties of a former employee, duties which would, it seems, be in no way greater than those of a former partner, it was held in Faccenda Chicken Ltd v Fowler [1987] Ch 117, that information gained by an employee in the course of employment could be classed into three categories, namely, trivial information, knowhow, and trade secrets. Trivial information was not entitled to any protection. Knowhow could be protected by a valid restraint of trade covenant, that is, the employer would have to obtain a contractual promise from the employee or former employee. Finally, trade secrets, which would be protected from injunction even in the absence of some contractual covenant in accordance with the principles of equity. Since the contractual covenants are, by their nature, consensual, they cannot be imposed by the court. If they have not been voluntarily undertaken by Mr Barry already, then he is under no contractual obligation to keep anything secret.
It would seem, therefore, that Dr Refaat would be entitled to protection only if I was satisfied that what had been imparted to Mr Barry, and what was the subject matter of the proposed protection, fell within the definition of “trade secrets”.
…
Very extensive evidence would be necessary, in my view, to make out the requirements of [the definition of “trade secrets” used in GSK Australia Pty Ltd v Ritchie (2008) 77 IPR 306 at [49]]. All that I have been told is set out in the paragraphs above. The evidence that I have also received in the case indicates that stonecutting machines are not unique. There are many others on the market. There are no patents held by Dr Refaat or any of his company. Nothing convinces me that whatever was gathered by Mr Barry amounts to other than ordinary knowhow, which would fall within category two of Faccenda classification, which could be protected, if at all, by a contractual tie, which Mr Barry has never undertaken. It may be that if further evidence had been put on, it might have been proven that there are trade secrets in play here. The burden to adduce that evidence was on Dr Refaat and, in my view, he simply failed to discharge it.[71]

[71]Reasons [162]–[164], [166].

On appeal, Dr Refaat contended that his Honour erred in failing to restrain Mr Barry from using the knowledge he had gained from Dr Refaat while the partnership agreement and machine buyout agreement were on foot. In particular, his notice of appeal contended that the trial judge erred in four respects:

(vv) in failing to give sufficient weight to Mr Barry’s admission that there was repeated verbal agreement on confidentiality from outset of the partnership agreement;

(ww) in failing to give sufficient weight to Mr Barry’s admission that Dr Refaat spent over 450 hours teaching him how to use the machine and how to run a stonecutting business as part of the process of selling him the machine;

(xx) in failing to find that it was a condition of termination of the machine buyout agreement that Mr Barry would not subsequently go into the stone business; and

(yy) in failing to find that the information Mr Barry acquired was distinct from ‘the knowhow of [Mr Barry] who operates as a printer’ and would be useful to competitors.

Dr Refaat’s written submissions asserted, without developing the point, that throughout the relevant dealings the parties had an understanding that Mr Barry would not use the knowledge he gained about the machine other than for the purposes of the partnership. In addition, Dr Refaat submitted that he only assented to the termination of the machine buyout agreement on the condition that Mr Barry would not participate in the stone or the machine businesses, and that Mr Barry did not object to that condition. He further alleged that the information Mr Barry gained through the parties’ dealings was unlikely to be arrived at by independent enquiry and would cause harm to Simplex if disclosed to a competitor.

[99]Refaat v Barry (Ruling No. 3) [2014] VCC 622, [4] (emphasis added).

His Honour later continued:

Regrettably, counsel for Mr Barry did not submit any calculations relative to the two personal loans based on my determination that simple interest only was recoverable. He submitted calculations based on daily compounding at what was said to be the rate of interest charged by Westpac.

Taking the reasons and rulings together, it appears that the judge considered the terms of the Westpac overdraft account applied to both Personal Loans 2 and 3. Although that link was clearest in respect of Personal Loan 3, it must be recalled that there was a broader lack of clarity about the interest rate applicable to Personal Loan 2. There was agreement on $5,000 interest for the period to 4 August 2011, but no evidence as to the rate to apply subsequently. Dr Refaat submitted that he would never have agreed to a 60 per cent per annum rate if he had thought Personal Loan 2 would be anything but short term. In the absence of other evidence as to the rate to apply to Personal Loan 2, the September 2011 email regarding Personal Loan 3 is pertinent, contemporaneous evidence of the parties’ intentions regarding the interest rate to apply to personal loans between them at that time and the rationale for that rate. Dr Refaat did not establish that the judge erred in relying upon that evidence, nor did he point to any better evidence regarding the rate to apply to Personal Loan 2 after 4 August 2011. Ground (i) must be rejected.

Ground (j): the re-opening of the interest issue

Dr Refaat’s final challenge to the judge’s treatment of Personal Loan 2 alleged that his Honour erred in re-opening the issue of the method of interest calculation after judgment and in relying on new evidence to conclude that the interest compounded monthly. He alleged that he was not accorded procedural fairness because he was not given notice the issue would be re-opened or an opportunity to put his case. We interpret ground (j) to also challenge the trial judge’s decision regarding the calculation of interest on Personal Loan 3.

In Ruling No 3, the trial judge referred to the principles set out in Smith v New South Wales Bar Association[100] regarding the circumstances in which it may be proper for a court to grant leave to a party to reopen an issue following the conclusion of a trial.[101] His Honour identified that the case before him was one where judgment had already been delivered and where the principles regarding the admission of further evidence were relevant.[102] He considered that Mr Barry’s evidence as to how interest compounded on his overdraft account was evidence that could have been adduced at the trial, and expressed an ‘initial inclination simply to refuse to entertain further argument on the matter’.[103] Nevertheless, his Honour took the view that it would be contrary to the interests of justice to turn aside further evidence which might prove probative given the time and resources the parties had expended on the question.[104]
[100](1992) 176 CLR 256.
[101]Refaat v Barry (Ruling No. 3) [2014] VCC 622, [11]–[12].
[102]Ibid [13].
[103]Ibid [13], [16].
[104]Ibid [17].

As the decision to re-open the interest issue and admit the further evidence was an exercise of the trial judge’s discretion on a matter of practice and procedure, Dr Refaat bore a heavy onus in seeking to appeal it. He had to show an error in the exercise of his Honour’s discretion; it would not be enough for this Court to be satisfied that it would have reached a different conclusion.[105]
[105]House v The King (1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ).

Dr Refaat’s submissions did not discharge that onus. His principal complaint was that there was no reason Mr Barry could not have put forward the evidence regarding the compounding of interest on his overdraft account at the trial. The judge clearly took that matter into account. The letter from Westpac was a discrete piece of evidence going to a narrow issue that had not been the focus of argument at trial and that had been the subject of some ambiguity. We are not satisfied that his Honour erred in the exercise of his discretion, in the House v The King sense, to re-open the issue and admit the evidence.

Dr Refaat did not develop his assertions that he was not notified of the re-opening of the interest issue or given an opportunity to put his case. While neither party explored the subject in any detail, this Court had access to the file of the proceeding below. The County Court file indicates that Mr Barry’s further supplementary affidavit was sworn and filed on 30 April 2014. That afternoon, Dr Refaat emailed the Court stating that he had just received that affidavit and the exhibits and he requested until 7 May 2014 to review those materials. That request was granted. On 6 May 2014, Dr Refaat wrote to the Court and Mr Barry disputing Mr Barry’s calculations on the basis that they did not comply with Ruling No 2; he attached his own set of calculations. On 9 May 2014, Mr Barry’s lawyers emailed the Court and Dr Refaat, describing those calculations as ‘littered with errors’ and proposing a number of corrections. On 12 May 2014, Dr Refaat replied by sending the following email to the judge’s associate:

Dear Ms Lawson
I do not accept many of the contents and calculations of the attached letter. I leave it in his honour (sic) hands to find the truth between the two calculations.
Please advise when is the final order is to be issued as I need it to send the Notice of Appeal.
Regards

Sameh Refaat

Ruling No 3 was delivered three days later, on 15 May 2014.

Hence, it is clear that Dr Refaat was aware that Mr Barry sought to re-agitate the issue of how interest should be calculated. He was given ample opportunity to respond and put his case. He did so by expressing his disagreement with Mr Barry’s calculations and by providing his own calculations. He then made it clear he wished to ‘leave it in his Honour’s hands’. In all the circumstances, we would reject his submission that he was denied procedural fairness. It follows that ground (j) fails.

Grounds (k)–(l): the cutting room costs

At trial, Mr Barry sought to recover a sum of $10,976.02 representing 85 per cent of the outlays which he had made towards the cutting room. Dr Refaat argued that the cutting room was unnecessary and that he had never authorised the outlays. At least initially, he asserted that he had little or no knowledge of the expenses and that he considered the cutting room to be solely Mr Barry’s business. However, he subsequently admitted that he had been at the Alive Graphics factory on at least one occasion while the works were being conducted and had demanded changes to the power outlets to be installed in the room.[106]
[106]Reasons [177]–[178].

The trial judge concluded:

In my view, the admission made by Dr Refaat of his involvement on site of the construction of the cutting room comprehensively rebuts his earlier denials of knowledge of the process and the expenditure. If it be necessary for me to reach a conclusion as to whether the works were, in all the circumstances, necessary to accommodate the cutting operations in the Alive Graphics factory, which is clearly what was provided for in the [partnership agreement], I have no hesitation in accepting the rationales in this regard given by Mr Barry. I reject as unrealistic the contention put by Dr Refaat that the room was unnecessary.
These expenditures, which have not individually been called into question and which were from time-to-time brought to Dr Refaat’s attention as in a meeting of January 2011, are proper partnership outgoings. Even if they were not specifically authorised by Dr Refaat, since he stood by and saw the expenditures incurred without dissent, I believe that constituted an implicit approval.[107]

[107]Reasons [180]–[181].

In Ruling No 2, the judge determined that interest on the cutting room costs should be awarded at the full rate laid down by the Penalty Interest Rates Act.[108]
[108]Refaat v Barry (Ruling No. 2) [2014] VCC 761, [22].

Dr Refaat appeals against the trial judge’s award of 85 per cent of the cutting room costs on two grounds. By ground (k), he argues that the judge ought to have found that Mr Barry was prevented from recovering the costs because he had admitted he was not entitled to them and because of his delay in seeking them. By ground (l), he contends that the judge erred in awarding interest on the costs because Mr Barry was the ‘sole beneficiary’ of the cutting room and Dr Refaat did not have the benefit of the money.

Ground (k): entitlement to cutting room costs

Dr Refaat’s written submissions set out a number of arguments why he ought not to have to pay the cutting room costs. First, he contended that Mr Barry had disclaimed any entitlement to the costs in the ‘three scenarios’ document he presented to Dr Refaat on 18 February 2011. In particular, Dr Refaat relied upon Mr Barry’s statement that if he chose scenario 3 (abandoning involvement with the machine) he would ‘lose on building costs 11K’. At the hearing of the appeal, Dr Refaat argued that Mr Barry would never have said that if he had been promised the room costs. This was a submission he also made to the trial judge, who relevantly stated:

As to the scenario 3 “pull pin”, Mr Barry made no explanation as to why he conceived that he would lose on the building costs. It occurs to me that, since he did not, as at 18 February, understand that he necessarily had a unilateral right to withdraw from all arrangements relative to the machine, he may simply have been conceding as a matter of commercial reality that to extricate himself by negotiation from further involvement with Dr Refaat would necessarily entail abandonment of any claim for the costs of the cutting room. As we know, this was not the course which he followed. So, the line in scenario 3 is of no direct relevance.[109]

[109]Reasons [183].

Dr Refaat did not establish any error in the trial judge’s treatment of his argument. We would adopt his Honour’s analysis, and would add that the ‘three scenarios’ document was plainly intended to guide the discussion of various alternatives and was a working document bearing numerous handwritten annotations. It could scarcely be considered to amount to a binding promise or representation to Dr Refaat, particularly in relation to an option which was not the option settled upon at the meeting at which it was discussed.

Secondly, Dr Refaat contended that Mr Barry could not recover the cutting room costs because he had not sought them in the period between incurring the costs in 2010 and filing his counterclaim on 19 December 2012. The trial judge considered a similar argument, and made the following observations:

… Dr Refaat noted that during the term of the [machine buyout agreement], Mr Barry made no claim to recover the building costs. Mr Barry’s response, which I thought was a plausible one, was that since he would be the sole proprietor of the stonecutting business, he would be deriving the benefit of those works and, whatever the legal position might be, as a matter of general morality, it would be inappropriate to seek to recover that cost.[110]

[110]Reasons [182].

Dr Refaat contended that if Mr Barry’s claim for the cutting room costs had any validity it ought to have been made prior to the filing of the counterclaim. He sought to rely on Eastern Pearl Corporation v Groundhog Sales and Rentals Pty Ltd.[111] That case concerned a contract for the sale of equipment on an ‘as is’ basis where difficulties arising with particular pieces of equipment were dealt with in the best interests of a long term commercial relationship between the parties. Marshall J rejected an alleged breach of the contract, considering that there was no credible evidence that the cross-claimant had ever articulated a claim for compensation for faulty machinery when making excuses for failing to pay for a particular piece of equipment. Eastern Pearl does not assist Dr Refaat because it relates to the specific way in which machine defects were to be dealt with under the contract in that particular case. In the present case, Mr Barry’s claim to the cutting room costs is made under the partnership agreement, which is subject to the Partnership Act 1958. Section 13 of that Act makes Dr Refaat jointly liable with Mr Barry for all debts and obligations of the partnership incurred while he was a partner.
[111][2012] FCA 406 (‘Eastern Pearl’).

The trial judge stated:

Ultimately, the only basis left for Dr Refaat to deny liability for these expenses is that the arrangements made on 18 February 2014, which terminated the partnership, entailed a final settling of accounts which would preclude the bringing of any further claims under the terms of the partnership. Where an account is settled as between [partners] upon a dissolution, death, etc., the settled account constitutes a good defence to the pressing of any further claim — Lindley & Banks on Partnership 19^th Edition, 735 [23-109].
No evidence was given by either of the parties as to any final taking of accounts. When they terminated the partnership on 18 February 2011, there was nothing in writing, though it may be that writing a signed deed or subscribed accounts is not essential for the creation of a settled account. In those circumstances, I am not persuaded that anything has happened which would cut off the ability of Mr Barry to bring the claim for the costs of the cutting room.[112]

[112]Reasons [184]–[185].

We consider that there was no error in his Honour’s conclusion. Mr Barry’s evidence explained his delay in seeking the cutting room costs while the machine buyout agreement was on foot, and given the quantum of the costs it is perhaps understandable that he did not actively pursue them until he was sued by Dr Refaat and turned to formulate his counterclaim. In the absence of a final settlement of the partnership accounts, Mr Barry was entitled to be reimbursed for Dr Refaat’s share of the cutting room costs, notwithstanding his delay.

Dr Refaat’s third argument against his liability for the cutting room costs was that Mr Barry had admitted he had not discussed the details of the costs with Dr Refaat before or after the construction of the room. The implication of this submission appeared to be that, as Dr Refaat had argued at trial, he ought not to have to pay the costs as he had never specifically authorised them.

It is correct that Mr Barry conceded in cross-examination that when he and Dr Refaat entered the partnership agreement in early 2010, they did not discuss the cutting room costs ‘whatsoever’. He also conceded that he did not discuss individual costs with Dr Refaat before incurring them in the course of constructing the room. Nevertheless, it was Mr Barry’s submission at trial that while Dr Refaat had never expressly agreed to the expenditures, he had implicitly agreed to them in standing by while the works were conducted. That submission was accepted by the trial judge. To show error in his Honour’s finding, Dr Refaat had to do more than show that he had not specifically approved the costs; he had to show error in the finding that he had implicitly agreed to the costs being incurred.

At the hearing of the appeal, Dr Refaat accepted that while he did not like the works being carried out on the room, he was aware of what was occurring and was present while some of the works were underway. It appeared that he did not seek to challenge the trial judge’s finding to that effect. His submission was that he stood by because he considered that the construction of the cutting room in the Alive Graphics factory was entirely a matter for Mr Barry and that the associated costs were not a legitimate partnership expense.

The trial judge considered that the cutting room costs were a partnership expense because the partnership agreement specifically provided for the machine to be housed in a space of a particular size at the Alive Graphics factory.[113] His Honour accepted Mr Barry’s evidence that a separate room was necessary to isolate the dust and noise from the printing works conducted at the factory, and rejected Dr Refaat’s contention to the contrary.[114] His Honour also preferred Mr Barry’s evidence that Dr Refaat insisted upon separate water and electricity meters for the room so that the partnership’s usage could be separately measured.
[113]Reasons [180].
[114]Ibid.

It was unclear to what degree Dr Refaat sought to challenge these findings, although his written submissions made a broad allegation that the trial judge did not grasp the ‘essence’ of his evidence. Mr Barry submitted that the trial judge did not err in preferring his evidence on these matters, given that Dr Refaat had initially given uncandid answers about the extent of his knowledge of the works on the room. Mr Barry further submitted that the judge enjoyed advantages in assessing the witnesses’ demeanour, candour and credibility which the Court should take into account on appeal.[115]
[115]Relying on Warren v Coombes (1979) 142 CLR 531.

We accept Mr Barry’s submissions in this regard. The trial judge was well placed to assess the credibility of each witness and there was, objectively, some inconsistency in Dr Refaat’s account of his knowledge of the cutting room works. We are not satisfied that his Honour erred in accepting Mr Barry’s evidence to the effect that Dr Refaat made particular requests in relation to how the room should be constructed, including requests directed at preparing the cutting room for the ongoing conduct of partnership business. It follows that we would reject Dr Refaat’s submission that he believed the cutting room was solely a matter for Mr Barry. There was no error in the finding that the cutting room costs were legitimate partnership expenses. Ground (k) does not succeed.

Ground (l): interest on cutting room costs

Dr Refaat contended that he should not have to pay interest on the cutting room costs. He submitted that the objective of the award of interest under the Supreme Court Act is to compensate a judgment creditor for the loss of use of funds. He argued that ordering him to pay interest would not meet that objective because he never had the use of the money Mr Barry spent on the cutting room and because Mr Barry was not kept out of his funds, in that he was able to use the room.

Clearly, the objective identified by Dr Refaat is one objective of the statutory interest entitlement. It is, however, not the only objective. In Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3),[116] Gillard J stated:

There are three main objectives of the award of interest. First, as compensation to the judgment creditor for being out of the funds from the date of commencement of the proceeding until judgment; secondly, to deter judgment debtors from delaying proceedings and thereby having the use of the money for a longer period; and finally, to encourage defendants to make realistic assessments of their liability in a case and to take bona fide steps to compromise the claim.[117]

[116][2003] VSC 244.

[117]Ibid [61].

Dr Refaat’s submissions misconceived the nature of a judgment debt and overlooked the third main objective of the award of interest identified by Gillard J. Inasmuch as Dr Refaat was liable to Mr Barry for his share of the cutting room costs, it was entirely proper that interest be awarded on that liability from the time it became payable. It was a sum which Mr Barry was entitled to receive from Dr Refaat and in that sense Dr Refaat was in possession of Mr Barry’s money. That the room was in the Alive Graphics factory is beside the point; Mr Barry was entitled to Dr Refaat’s share of legitimate partnership expenses and the treatment of the room upon the termination of the partnership was a matter for the two men to resolve in their settlement of the partnership accounts. If Dr Refaat had accurately assessed his liability to Mr Barry for the cutting room costs and had settled that aspect of Mr Barry’s counterclaim with him at an earlier juncture, his interest liability would quite properly have been lesser. While Dr Refaat was entitled to contest his liability for the costs, he did so at the risk he would fail and be liable to Mr Barry for the added time he was out of his money.

On the rate of interest to be awarded on the cutting room costs, the trial judge stated:

In my view, interest should be awarded at the full rate laid down by the Penalty Interest Rates Act. Section 58 of the Supreme Court Act specifically so provides. The rationale for it is that there should be an obligation to pay interest at not a usurious rate but a solid rate, to provide debtors with an incentive to pay their debts. It is in the public interest that debtors pay their debts, rather than delay paying them until ordered to do so by a court. The scarce resources of the legal system are conserved if debtors pay without being sued. That is the rationale for the Supreme Court Act laying down a relatively high interest rate rather than a low or nominal one as payable in these circumstances.[118]

[118]Reasons [22].

We agree entirely in his Honour’s reasoning and consider that it discloses no error. Ground (l) must be dismissed.

Grounds (m)–(n): costs and the offer of compromise

Dr Refaat purported to appeal against the trial judge’s order that he pay Mr Barry’s costs of the proceeding on a standard basis until 3 February 2014 and thereafter on an indemnity basis. Strictly speaking, he requires leave to appeal against that order, since it is an order as to costs within the discretion of the trial judge.[119] We have interpreted his arguments as to why the appeal should be allowed to be his arguments also as to why leave to appeal ought to be granted.
[119]County Court Act 1958 s 74(2E), as in force at the time of filing of Dr Refaat’s notice of appeal on 11 June 2014.

The basis of the trial judge’s costs order was two ‘without prejudice save as to costs’ offers (we will describe them simply as ‘the offer of compromise’ except where there is a need to differentiate them) made to Dr Refaat on 3 February 2014, two days before the trial began.[120] The first was an Offer of Compromise made under Order 26 of the County Court Civil Procedure Rules 2008 offering to settle the matter upon the payment of $80,000 to Mr Barry, excluding costs. The second was a Calderbank offer to settle the matter upon the payment of $100,000 to Mr Barry, including costs. His Honour held:

It is difficult to apply Order 26 directly because the precise outcome of this case as to the award of liquidated sums still hangs in the balance, with some final calculations to be made. I am satisfied, however, from what I have heard so far, that the offer which was made, both in the form of a formal Offer of Compromise under Order 26 of the Rules, and a Calderbank letter … represented a very fair compromise in light of the findings that I have ultimately made and a compromise which should have been accepted by Dr Refaat in the circumstances.
It was unreasonable for him not to have accepted that offer put in the two different forms, and the result has been a very lengthy trial extending over 11 days.[121]

[120]Refaat v Barry (Ruling No 2) [2014] VCC 761, [30]–[31], [39].

[121]Ibid [39]–[40].

By ground (m), Dr Refaat contended that the trial judge erred in finding that he had unreasonably rejected Mr Barry’s offers of compromise in circumstances where the basis of the offers differed from the basis of the Court’s judgment, a fact which the trial judge acknowledged.[122] By ground (n), he further contended that the trial judge erred in awarding indemnity costs for the full period of the trial when, in his submission, the majority of the trial time was spent on Mr Barry’s unsuccessful arguments. At the hearing of the appeal, Dr Refaat indicated that he relied on his written submissions in relation to these grounds. We will consider them together.
[122]Ibid [32].

In his written submissions, Dr Refaat asserted that seven days of the 11 day trial were spent on Mr Barry’s unsuccessful arguments, which he identified specifically as:

(eee) Mr Barry’s contentions that the seller of the machine was either Granite Engineering or Dr Refaat personally;

(fff) the elements of Mr Barry’s counterclaim directed towards the delivery term, the specifications term, the electrical safety term and the free from encumbrance term;

(ggg) the elements of Mr Barry’s counterclaim seeking to establish Dr Refaat’s liability for money had and received; and

(hhh) the elements of Mr Barry’s counterclaim alleging breaches of the partnership agreement and related fiduciary duties.

Dr Refaat contended that as Mr Barry failed on those issues he ought to be deprived of those costs.

In addition, Dr Refaat submitted that Mr Barry’s successful arguments as to the merchantable quality term and fitness for purpose term were not part of Mr Barry’s counterclaim at the time the offers of compromise were made. He argued that this was a further basis for refusing to award indemnity costs for the entirety of the trial.

Finally, Dr Refaat asserted that Mr Barry had sought deliberately to inflate his legal costs, both by refusing to sign a settlement agreement negotiated at a mediation and by running arguments over at least eight days of the trial which Dr Refaat described as ‘doomed to fail’. He did not develop that submission further. In the absence of any evidence that would support that serious allegation, it may be dismissed without further consideration.

Dr Refaat contended that this Court should re-exercise the trial judge’s discretion and require each party to bear his own costs for both the trial and the appeal.

Mr Barry submitted that the only relevant question was how the offer of compromise compared to the judgment sum ultimately awarded. He submitted that Dr Refaat’s refusal of the offer of compromise was unreasonable in all of the circumstances and inflicted substantial avoidable cost on him and on the courts. He maintained that Dr Refaat lost on every issue he agitated at trial.

In order to obtain leave to appeal against the trial judge’s costs order, Dr Refaat had to persuade this Court that the trial judge failed to exercise his discretion on reasonable grounds, applied wrong principle or took a manifestly erroneous view of the facts.[123]
[123]Peet Ltd v Richmond [2010] VSCA 71, [4] (Nettle JA).

There was a regulatory presumption in favour of an order for indemnity costs so far as it rested on the offer of compromise made under the Rules. That presumption is not easily displaced. In the case of the Calderbank offer, no such presumption arose, but the reasonableness or otherwise of Dr Refaat’s refusal of the offer was pertinent to whether an order for indemnity costs should have been made.

In determining whether to award indemnity costs — this including consideration whether the regulatory presumption has been displaced — the offeree’s prospects should be considered as at the time when the offer is made. It is pertinent to consider whether, at that time, there was any significant level of uncertainty as to issues in dispute, this making it difficult to properly evaluate the offer.

Against that background of principle, we would grant leave to appeal against the order for indemnity costs, and we would allow the appeal against that order. It may be accepted, as his Honour observed in the passage we set out earlier,[124] that the offers represented ‘a very fair compromise in light of the findings [his Honour] ultimately made’, however those findings also revealed the substantial changes that were made to Mr Barry’s case in the course of the trial. In particular, Mr Barry’s counterclaim was amended on 11 February 2014, the fifth day of the trial, to plead the delivery term, the specifications term, the Goods Act implied terms and the electrical safety term, and to allege that Dr Refaat had repudiated the machine buyout agreement.[125] Those additional arguments largely failed, save that the judge accepted that the fitness for purpose term and merchantable quality term formed part of the machine buyout agreement. As we have observed, those matters did not strictly fall for decision in any event. Dr Refaat is correct to assert that these developments, given their scale, ought to have been factored in to the costs order made by the judge.
[124]See para [199].
[125]See further para [51].

A further issue that does not appear to have formed part of the judge’s reasoning on costs was the fact that the conduct of Mr Barry’s case had effectively frustrated the advancement of Dr Refaat’s claim on behalf of Simplex in the proceeding.[126] While the judge would have found against Simplex had it been a party, the fact that it was not meant that his Honour’s conclusions in that regard were reached in an artificial setting and there remains a prospect of further litigation.
[126]See paras [43], [97]–[98].

These matters — the change in Mr Barry’s case during the trial and the thwarting of Dr Refaat’s ability to fully pursue the case he sought to run — could not have been known to Dr Refaat at the time the offer of compromise was made to him on 3 February 2014. Moreover, the amendment of Mr Barry’s counterclaim prolonged the trial in a way Dr Refaat could not have foreseen when the offer was made. We would not place undue emphasis on the differences between the basis for the offer and the basis of the trial judge’s decision, given that Mr Barry’s ultimate success was not the result of the re-articulation of his case. Dr Refaat remained on notice of significant deficiencies in his claim. Nevertheless, the offer of compromise could not give carte blanche to the conduct of Mr Barry’s case.

Dr Refaat contended that each party ought to bear his own costs for the trial. We consider that such an approach would be an overcorrection, having regard to the failure of the bulk of Dr Refaat’s arguments and, importantly, his claims for relief. As we have explained earlier in these reasons, there were significant problems with his case. A successful litigant will generally receive his or her costs, even if he or she does not succeed on every argument or head of claim.[127] Mr Barry enjoyed substantial success in this proceeding, even though his counterclaim was only partly successful. His case for the costs of the trial is strengthened by the offer of compromise but weakened by the manner in which his case was subsequently run. To conduct a minute analysis of the trial time spent on each issue raised by the counterclaim would be to miss the point that those issues fairly arose out of the factual matrix Dr Refaat’s claim had put in issue. While certain aspects of the counterclaim fell away in light of the finding that Simplex was the vendor of the machine, that too had been a real question in dispute. In our view, the appropriate order in all of the circumstances is that Dr Refaat should pay the costs of the trial on a standard basis for its full duration.
[127]Ritter v Godfrey [1920] 2 KB 47; Oshlack v Richmond River Council (1998) 193 CLR 72, 97–8 (McHugh J); 121 (Kirby J).

It follows that we would grant leave to appeal in relation to what we have described as appeal ground (n) and we would allow the appeal against the award of costs on an indemnity basis from 3 February 2014. We would instead order that Dr Refaat pay the costs of the proceeding below on a standard basis. This conclusion renders it unnecessary to grant leave to appeal in respect of appeal ground (m), and we would not do so.

The notice of contention

In view of our conclusions regarding the appellant’s appeal grounds, it is not necessary to determine the issues raised by the respondent’s notice of contention. Dr Refaat has succeeded only in his challenge to the award of costs on an indemnity basis, and none of the notice of contention grounds relate to the costs order made by the trial judge.

Orders

For the reasons we have given, we would grant leave to appeal in respect of Dr Refaat’s challenge to the trial judge’s costs order and would allow the appeal against that order. We would instead order that the plaintiff pay the defendant’s costs of the proceeding below, to be taxed on a standard basis. We would otherwise dismiss the appeal. We would hear the parties in relation to what orders should be made with respect to the costs of the appeal.

Machine Purchase Price	$223,300.00 in[cl] GST
Less payments under the “buyout agreement”	($84,400.00) in[cl] GST
Less Loan 3	($17,600.00)
Total Liability	$121,300.00 (plus damages and interest)

[2015] VSCA 218

20 August 2015