Refaat v Barry (Ruling No. 1)
[2014] VCC 199
•11 March 2014
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-12-02108
| SAMEH REFAAT | Plaintiff |
| v | |
| MICHAEL BARRY | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5, 6, 7, 10, 11, 12, 13, 14, 17, 18, 19 February 2014 | |
DATE OF JUDGMENT: | 11 March 2014 | |
CASE MAY BE CITED AS: | Refaat v Barry (Ruling No. 1) | |
MEDIUM NEUTRAL CITATION: | [2014] VCC 199 | |
REASONS FOR JUDGMENT
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Subject: Alleged breach of contract
Catchwords: Partnership agreement; Termination of partnership; Buyout agreement; Whether buyer entitled to terminate buyout agreement; Alleged terms as to delivery of goods; Fitness for purpose; Statutory compliance; Freedom from encumbrances; Buyer entitled to terminate buyout agreement; Alleged trade secrets; Evidence not making out existence of relevant trade secrets; Relief for alleged breach of confidence refused; Counterclaim as to buyout agreement unsuccessful because seller not a party to proceeding; Relief granted with respect to partnership debts
Legislation Cited: Sections 6, 15, 16, 17, 18, 19, 55, 56 Goods Act 1958; Part 2.5 Personal Property Securities Act 2009; Sections 54, 55 Electrical Safety Act 1998;
Cases Cited: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Charles Rickards Ltd v Oppenheim [1950] 1 KB 616; BP Refinery (Westport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20; Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; Foss v Harbottle (1843) 67 ER 189; Cachia v Hanes (1994) 179 CLR 403; Faccenda Chicken Ltd v Fowler [1987] Ch 117; GSK Australia Pty Ltd v Ritchie (2008) 77 IPR 306;
Judgment: 1. The defendant/counterclaimant, within 14 days to bring in short minutes to give effect to these reasons. 2. Costs reserved
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | In Person | |
| For the Defendant | Mr J. Wilkinson | Brendan Hardiman & Associates |
HIS HONOUR:
1 The plaintiff, Dr Refaat, obtained a Degree in Bachelor of Engineering Science from Ain Shams University in Egypt in 1990. He later obtained Degrees in PhD in Control System Design from Monash University in 1997, and another Doctorate in Machine Design & Control from Deakin University in 2004. He is the sole Director of Simplex Factory Automation Pty Ltd (“Simplex”) and Granite Engineering Pty Ltd (“Granite Engineering”).
2 From 2002 onwards, he has designed and built for his company, Simplex, a number of Computer Numerical Control (“CNC”) machines.
3 Mr Barry is the principal of a company called Alive Graphics Pty Ltd (“Alive Graphics”) which operates in the printing industry and also makes signs. In the sign writing business, Mr Barry and his company are involved with a number of mediums, including stone.
4 Mr Barry and Dr Refaat have known one another for over a decade. Initially, they met when Mr Barry’s company undertook printing work for Dr Refaat’s enterprises. They found that they shared an interest in stonecutting. Mr Barry wanted to go into the business of cutting granite and other stone bench tops. The CNC machines constructed by Dr Refaat’s company would, according to him, perform this function.
5 They both executed a document styled “Formal Business Agreement” (“PA”) on 19 January 2010. According to Dr Refaat, this agreement was drawn by Mr Barry. Mr Barry said that he redrafted a document which had been prepared by Dr Refaat, namely, by removing certain linguistic irregularities. The agreement recited that Mr Barry and Dr Refaat had “agreed to form a Partnership known as Granite Engineering Pty Ltd”. It will be recalled that Granite Engineering is a company owned by Dr Refaat. He is the sole shareholder and director. The agreement continued:
“Ownership of the company is [my emphasis] divided by 100 shares with Sameh Refaat having 85 shares and Michael Barry having 15 shares.”
6 The agreement provided for the company to purchase a CNC granite cutting machine, “know (sic) as a Simjet from Simplex for the sum of $153,000 plus GST totalling $168,300”.
7 Dr Refaat was required “to pay Simplex the sum of $130,050 plus GST totalling $143,055 as his contribution for 85 shares in the company”. It was provided that Mr Barry would pay Simplex the sum of $22,950 plus GST, totalling $25,245 as his contribution.
8 Paragraph 4 stated, “All expenses and profits in the company are to be shared based on the same ratio as above. (85%:15%)” It was provided that the machine would be housed and operated from “Unit 1/59 Power Street, Bayswater, Vic” [these are the premises of Mr Barry’s company, Alive Graphics]. The clause provided for “the company”, that is, Granite Engineering, to rent space from Alive Graphics “of 32 square metres for the sum of $215 per month plus outgoings. (power and water)”
9 It was provided that the “formal…agreement” should be read in conjunction with the business outline dated 18 December 2009. That document stated that the partnership enterprise was:
“A project based on automating the production of stone bench tops using a CNC machine. The machine cuts the outline and then profiles the edge of these bench tops”.
10 The plan stipulated a price for the machine of $153,000. It assumed a five year life for the machine, though considered the machine would probably last longer. It would have a “full one year warranty”. The proposed business scenario was based on the premise “the machine is to start production before mid-April [viz 2010]”.
11 In pursuance of the agreement, Mr Barry deposited $15,000 into the Granite Engineering bank account on 22 January 2010, with a further $5,000 deposited on 29 January 2010. A further $5,000, making a total of $25,000, was deposited by Mr Barry on 31 March 2010.
12 Precisely what steps Dr Refaat made, to effect that his contribution was provided in the agreement, remains unclear. He produced an extract from the balance sheet of Simplex, showing that as at 30 June 2010, Simplex owed him $497,404 as a director’s loan, but that by 30 June 2011, that loan account had reduced to $360,999. In the course of his evidence and submission, Dr Refaat stated that the contribution he had actually made pursuant to the business agreement was variously at $94,000 or $95,000, which is an amount substantially less than the figure by which the director’s loan account was diminished in the financial year 2010-11.
13 Dr Refaat agreed that he never made the full contribution provided for in the agreement, nor did he issue the shares which would have vested 15 per cent of the share capital in Granite to Mr Barry and 85 per cent of the share capital in himself. He said that he thought that the agreement achieved this result in itself without any further legal or administrative step.
14 On 6 May 2010, the parties entered into a loan agreement whereby Mr Barry lent Dr Refaat some $30,000 for a period of 100 days at “an annual interest rate of 40 per cent per annum compounding calculated daily until paid in full”. This loan was repaid in full through Mr Barry complained as to late payment. Around this time, Mr Barry says he began constructing a special room to receive the machine in the area at the Alive Graphics factory, which the business agreement provided for the partnership to rent.
15 Mr Barry set about having a special room constructed. He said that since dust is the enemy of printing, it is essential that stonecutting operations be segregated from the printing operations in the factory. Moreover, the noise of the stonecutting would be so great that everyone in the entire factory would have had to wear earmuffs constantly unless a separate room was constructed.
16 Dr Refaat said that, in his view, it was unnecessary for a separate room to be constructed. The water used for cooling and related purposes in the cutting process damped down any dust. He was, however, aware of what Mr Barry was doing. On one occasion, he was on site and became involved in a debate with Mr Barry’s son, who was doing electrical work as part of the project, as to the appropriate output from one of the power points. Mr Barry says that Dr Refaat insisted upon there being a separate water meter and a separate electricity meter, so that the usage of power and water by the partnership could be separately measured. Dr Refaat denied making these stipulations.
17 Meanwhile, Mr Barry reflected on the size of the machine which he and Dr Refaat intended to be used for the partnership operation. Mr Barry said that granite tops up to the size of 3,000 millimetres by 2,000 millimetres were required by the market. The cutting surface to be provided by the partnership would not, in his view, be competitive in the market unless slabs of this size could be cut. He said he repeatedly made this point and eventually, for Dr Refaat, “the penny dropped”. The result was that a new and larger machine would need to be constructed.
18 The first machine was cannibalised to the tune that some 25 per cent of its components were taken and used in the new and larger machine.
19 Simplex, which it will be recalled was under the sole control of Dr Refaat, approached its finance/leasing broker, Interlease, to raise money. Interlease arranged for the new larger machines to be made the subject of a hire purchase agreement with Macquarie Leasing Pty Ltd (“Macquarie”). This transaction, according to material produced from Interlease upon subpoena, shows that Simplex sold one new CNC marble and granite machine (Simjet) together with control unit serial number 600810 manufactured 2010 with a delivery date of August 2010 to Macquarie for $132,000 inclusive of GST.
20 Macquarie let the machine back to Simplex under a hire purchase agreement. The agreement provided for the payment of some 60 instalments. The agreement remains current and so, on the face of it, title to the machine resides with Macquarie.
21 Mr Barry says that he was, at the time, unaware of this transaction. He became aware of it only when part of the documentation was produced in the discovery process and the whole of the Interlease file was produced eventually on subpoena.
22 Mr Barry says that he had completed the construction of the cutting room at Alive Graphic’s factory by December 2010. Mr Barry and Dr Refaat had a meeting on 13 December 2010. According to Mr Barry’s note, Dr Refaat said, “the new machine will take only another two weeks”. Mr Barry said that with the onset of Christmas, he regarded an immediate delivery as unrealistic. The stonecutting industry was already closing up for the Christmas and New Year break. He (Mr Barry) would be away on holiday “for the last two weeks of January”.
23 Dr Refaat suggested that the new machine could be installed at Alive Graphics in January and, according to his note, Mr Barry “mentioned that we will be closing from 22 December to 27 January 2011 and that he will not have enough time”. Mr Barry said that Dr Refaat assumed installation would take place in two days, which he (Mr Barry) thought was unrealistic. Mr Barry said he told Dr Refaat that installation would take “five days minimum, which only leaves one week for testing and running before January 13”.
24 Dr Refaat and Mr Barry met again on 3 January 2011. The discussion then was about the provision of adjustable feet on the machine. Mr Barry said that he concluded that the cutting top of the machine was planned to be three millimetre aluminium, which he regarded as insufficiently durable with zinc plated mounting screws. Mr Barry believed that a high quality machine, such as the one he assumed the partnership was buying, should have stainless steel screws in this application.
25 Mr Barry said he was becoming disenchanted, not only because of the delays in delivery of the machine, but also because he believed that it was being constructed to a budget rather than to a specification, that is, to save money rather than to achieve a satisfactory level of performance and durability.
26 There was a further meeting on 13 January. Dr Refaat raised an issue of additional costs which he said he had incurred relative to the upgrade of the spindle from 5.6kw to 11kw. The tabletop had gone through a number of changes and Dr Refaat’s time needed to be compensated.
27 The result, according to Dr Refaat, was that the original cost of $168,000 had increased to $220,000, that is, some $51,700 extra ($47,000 + GST), and Mr Barry’s 15 per cent share of that amount was $7,755, rounded up to $8,000.
28 Mr Barry says he produced documents relative to the outlays that he had made preparing the cutting room at Alive Graphic’s premises. He said he showed a number of invoices to Dr Refaat.
29 On 16 February 2011, there were a series of payments - $5,000, $1,000, $2,000 totalling $8,000 – into the account of Simplex. Mr Barry says that these payments represented his contribution to the additional costs which were raised by Dr Refaat at the meeting in January 2011. Dr Refaat says that these payments were made in pursuance of an agreement made between the parties shortly thereafter and known as the “Machine Buyout Agreement” (“MBA”), to which the narrative will come shortly.
30 A page from Mr Barry’s diary dated 17 February 2011 reads, “Formal agreement closed”. Mr Barry says this was a memorandum to his own diary recording a decision in principle which he had made but had not, at that stage, communicated to Dr Refaat.
31 Mr Barry said that he and Dr Refaat had a further meeting on 18 February at which he (Mr Barry) tabled a document headed “Scenario’s (sic) for M Barry with Granite Engineering”. This document examined some three scenarios. The first was “continue on with Sameh”. The second was “buy the machine outright”. The third was “pull the pin on machine”.
32 In substance, these three scenarios appeared to entail, first, continuing with the PA, secondly, purchasing Mr Barry’s machine outright and operating the stonecutting business on his own or, thirdly, “pulling the pin”, that is, withdrawing from all involvement with Dr Refaat and the machine.
33 Another document which Mr Barry says he tabled at the meeting was one which set out a series of concerns which he had, which he sought to have remedied as to the operation of the PA. It may be inferred, though Mr Barry did not give evidence precisely to this effect, that had he received satisfactory responses as to these concerns, he would have elected to continue with the Partnership Agreement (“PA”). This second set of concerns called for Simplex to issue a tax invoice for the machine, “noting receipt of payment” and “that the machine is Granite Engineering’s property”. He complained that no share certificates had been issued to him. He said that he wanted to become a director of Granite Engineering. Further, he submitted that the constitution of Granite Engineering should be changed, “so that only shareholders can be appointed a director of Granite Engineering”. Finally, he wanted the provision in the constitution, “so that no one director of Granite Engineering can arrange loans, borrowings or charge and the like against any capital or property of Granite Engineering”.
34 Mr Barry said, and I did not understand Dr Refaat to deny, that Dr Refaat refused any arrangement which would have Mr Barry appointed a director of Granite. As a matter of logic, one would imagine that Dr Refaat would have opposed and refused the final suggestion as to a limitation on the powers of a single director, but Mr Barry said nothing about this in his evidence. It was, one imagines, the impasse over the directorship of Granite Engineering which led Mr Barry to elect to follow scenario two. According to his notes, this would allow him to be “the master of one’s destiny”. One of the negative elements would be “will need to commit to 100 per cent time”.
35 Another document which Mr Barry says he tabled at the meeting was headed “Sheet 1”. This purported to record the state of accounts between the parties and recorded, amongst other things, the $8,000 which Mr Barry paid, and which he says were outlays in pursuance of the PA for additional costs. It also showed those outlays, or liabilities, for the partnership, $11,000 for the costs of the cutting room floor, and $2,128.50 representing rent of $215 per month plus GST.
36 Dr Refaat says that he never saw this document, though he admitted that his handwriting appeared on the reverse of the page. The handwriting on the reverse of the page began with “220,000 plus GST”. Dr Refaat, as I understood his evidence, admitted that the writing was his, except the figures 220,000. Below this heading appeared:
“1 year - 2 day init Bench Top Cut – Maintain every 2 month – Software upgrade for the life of the machine – Safety side – Upgrade to overcome the crowded cables that resulted from new spindle”.
37 There then appeared certain calculations:
“220 + 1.1 – 33 = ……..
193 +
200,000”
38 Mr Barry said that the handwritten document was prepared by Dr Refaat at Mr Barry’s insistence as a record of the terms of what is known in this dispute as the MBA. Mr Barry added that he requested Dr Refaat to provide a set of specifications for the machine which he was now proposing to buy as his sole property. Dr Refaat said that the specifications were as per the “Simjet brochure”. Dr Refaat, the previous year, had given a brochure for Simjet machines to Mr Barry as the principal of Alive Graphics for the purposes of having it scanned to enable it to be colour printed. Mr Refaat agreed that he gave the brochure to Mr Barry for this purpose but denied that at the meeting on 18 February, he had adopted the specifications for the machine.
39 To give effect to scenario two, the parties entered into the MBA. This was structured by reference to a document prepared by Mr Barry and headed “Loan Amortisation Table”. The agreement was that Mr Barry would make payments of $8,800 per month (incl GST) until some $167,000 (excl GST) was paid. It was agreed that in case of need, Mr Barry could defer up to three of these payments, as long as the deferred payments were not either the first or the last.
40 Mr Barry made payments through the internet banking system to Simplex in the sum of $5,000 on 25 March, and $3,800 on 28 March, constituting the first payment under the MBA.
41 Mr Barry says it was “agreed” that delivery of the machine would take place in April 2011.
42 The following month, according to Mr Barry, Dr Refaat attended his factory stating that he urgently needed a $30,000 loan. He could not obtain it through orthodox financial sources because of an unpaid telecommunications bill which led to a negative entry on his credit record.
43 According to Mr Barry, he told Dr Refaat that he would see what he could do. He sold certain shares on 14 April 2011, at a slight loss, to raise money, and the amounts were advanced in instalments of $5,000 on 14 April, $3,000 on 15 April, $2,000 on 15 April, $5,000 on 20 April, and a further $5,000 on 24 April 2011.
44 Mr Barry says he neglected to make the final advance of $5,000 because of the intercession of his financial controller who drew his attention to a $5,000 tax instalment which had fallen due. The process of advancing funds and instalments arose out of the regime of limitation on withdrawals operating on the internet banking arrangements of Mr Barry, his family and their company.
45 The machine was not delivered in April 2011.
46 Following Dr Refaat’s return from overseas, discussions continued relative to various problems which needed to be resolved relative to the machine’s operation.
47 By 28 June 2011, Mr Barry had made further payment under the MBA making a total of $17,600. According to Mr Barry, at some stage in June or July 2011 there was a meeting between the parties as to their financial affairs. According to Dr Refaat, at that meeting or at some time thereabout, Mr Barry agreed to a conversion of the second personal loan which had been requested by Dr Refaat of $30,000 but ultimately turned out to be $25,000 in two instalments paid by Mr Barry under the MBA. This would be far more financially advantageous for Dr Refaat, who was in need of working capital to construct another machine for a different customer. Mr Barry said he heard the request, but, according to Dr Refaat, the proposal was agreed to. The monies advanced as the second personal loan were converted to payments under the MBA, and some $5,000 was credited to Mr Barry in consideration of the bringing forward of those payments.
48 On Thursday evening 4 August 2011, the parties had a further meeting. According to an extract from Mr Barry’s diary, Dr Refaat presented a statement of accounts between them which embodied the conversion of the personal loan to payments under the MBA. This statement of account was transcribed into Mr Barry’s diary but with the side note “All of this is as per Sam’s accounts. I still need to check for confirmation”.
49 A further element of the financial relationship, which had been discussed at the meeting or meetings in June or July, was that if the payments of the MBA brought Mr Barry’s equity in the machine according to the agreed price, up to 50 per cent, then the term could be extended with the payments thereafter cut to $4,400 per month in lieu of the previous $8,800. This proposal was offered as an option. Mr Barry says he did not accept it, though I do not understand him to say that he distinctly rejected it.
50 At the meeting on 4 August, according to Mr Barry’s note, Dr Refaat asked:
“When I would be paying the remainder ($25,000) inferring that I had made a promise to do that last month – This was a shock to me as I didn’t recall making any such commitment back then. Sam was most insistent that I had made this commitment and that he was relying on that money. I told him that I was sorry but I cannot remember making any such commitment and said I would reflect on it and we would discuss it on next Sunday arvo …”
51 His note continued:
“Upon reflection of the events to the above, I now remember the prospect being put forward to me by Sam that if I raised my payments to 50 per cent of machine cost Sam would remain 50-50 partner in the machine thus reducing the payments to half of $8,800 being $4,400 per month with no involvement from day to day buy (sic) Sam.”
52 The note said that Mr Barry was:
“Most receptive, however I was aware that I wouldn’t be able to fund the additional money (at that stage this amount was $40,000). I knew I didn’t have that so I can’t see how I would have committed to do it”.
53 Around the same time, Dr Refaat had referred Mr Barry to Interlease to see if he could raise the money through that brokerage to pay out the whole of the MBA price. The finance proposal was declined. Mr Barry said that he now realises that he was seeking to raise finance on a machine which had already been sold by Granite Engineering to Macquarie Leasing Pty Ltd and hired back by Simplex from Macquarie. He considered that this may have been the reason for the refusal of the finance. Dr Refaat said that he spoke to the broker, Mr Russell, who told him the finance had been declined simply because of Mr Barry’s lack of financial substance.
54 Around this time, though it is not recorded in any diary note, Mr Barry said that Dr Refaat said to him, “You don’t get the machine if you don’t pay for it”. Mr Barry says he understood that by this statement Dr Refaat had imposed unilaterally a new requirement in the MBA so that delivery of the machine would not take place until Mr Barry had paid 50 per cent of the amount payable under the agreement. Dr Refaat sent an email to Mr Barry on 26 August. He sought to summarise the position as follows:
· The price of the machine as is, is $203,000
· $5,420 extra to replace the spindle with one that has through coolant (this includes some freight costs)
· $3,940 extra to add safety fencing around the gantry and the spindle
· I owe you two tool holders and two pumps
· $110 for any additional tool holder. You need to advise me of the tool holders models you need within 3-4 days
· Also ex GST
· You already made payments of about $83,000 or so.
· 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.
· The tool holders need to be paid separately.
Delivery Time:
· If you want the machine as is this will be on 21 Oct.
· If you want the spindle I need extra one week.
· If you want safety fencing I need extra two weeks.
· Please respond to me as soon as you have time.
55 On 1 September Dr Refaat sent a further email stating:
“I can get you a vacuum pump for $1,030. It is 800L/min. It is at cost and obviously I have not used them before so I cannot guarantee anything about it. There will be freight saving for you as I am getting few things from overseas.
You need to tell me asap about the tool holders and the vacuum pump.”
56 At a meeting on 7 September, Mr Barry said he called off the MBA. According to Dr Refaat Mr Barry was apologetic saying, “I leave it in your hands”. This amounted to a commercial divorce. One might have expected that at this point both parties would be embittered in their relations. Certainly the vigour with which this case has been fought since it was issued exhibits the sort of bitterness that one expects from divorces, commercial and personal. Nevertheless, on 8 September Dr Refaat sought a loan of $17,600 from Mr Barry to which Mr Barry agreed. In an email of 8 September he said:
“As I said last night, I am happy to lend you $8,800 on 9 September and a further lot of $8,800 on 8 Oct.
The only problem is the year loan period.
To lend you this money I will need to go into an overdraft loan and we both know what interest rates they charge.
Could I suggest that:
1. When the machine sells the loan becomes repayable at pro rata; and/or
2. On 8 March the loan becomes repayable, whenever is first;
3. Interest rate should be 13.45% pa which = 0.03685% per day, therefore -
$8,800 at 0.3685% x 182 days = $ 590.19 and
$8,800 at 0.3685% x 151 days = $ 489.66
A loan amount $17,600.00
Total$19,039.85 (When loan is at full term on March 9)”
57 The email concluded:
“We need to develop a statement as to the status of the machine at present which should be done over the next couple of days.”
58 Mr Barry’s diary records on 24 November 2011 that “Sam called”. The note records that Dr Refaat said he was entering into arrangements with a new investor:
“Sam then asked me if I would sign an agreement that I wouldn’t buy another machine and that I was not to enter the stone business or build a machine. I again explained to Sam that I had no intention of buying another machine or work within the stone business but I made it clear that I wouldn’t sign any restraint agreement with regards to what I can work at or what I may do in the future. I then made it clear that I had no intention at this point in time to buy a machine and work in stone. Sam then made a remark along the line that he now thought he wouldn’t or that this is a condition I must agree to, to end machine buying deal. (I didn’t respond to this as I didn’t want argument over this point.)”
59 Mr Barry asked Dr Refaat what was happening about selling the machine. The scenarios discussed were:
“1. Sell the machine at a loss.
2. Use it for a sales demo in the hope of a sale.
3. That I should sell the machine for Sam – This I explained that I couldn’t sell the machine. Firstly, any interest I developed would be diminished by Simplex involvement.
4. That both of us sell the machine together, I again explained that would be impossible for the same reason above and that his new machine would be his focus and any customer developed could be taken by him!
5. Consult a solicitor if I didn’t sign the work restraint.”
60 Dr Refaat sent an email to Mr Barry on 28 November 2011 in which he said that he wanted to formalise an agreement “to terminate your commitment”. The conditions were:
· You own 40% of the machine. Details of that were sent to you in Sept 2011.
· You are not to be involved in the stone business.
· You are not to be involved in the machine business.
61 There was a further meeting at the Alive Graphics premises on 7 December. Dr Refaat asked if Mr Barry was going to sign the restraint arrangements. Mr Barry refused. He said he “pointed out the latest aspects of the stone industry was thin sheet stone that could be cut by knife and saw for the sign industry and that’s the reason I will not sign such a restraint”. Mr Barry said that his $85,000 of outlays had been available to Dr Refaat to finance his business. Mr Barry demanded return of his $85,000 in full which Dr Refaat refused. Dr Refaat sent a follow-up email stating that, “if we do not manage to reach an agreement based on your next email I will take the matter to a solicitor on this coming Monday”. Mr Barry responded with an Excel spreadsheet sent by email on 8 December at 7.37pm setting out what he said the financial situation was. Dr Refaat sent an email dated 10 December saying that he needed a response “before the end of Monday 12 December 2011”. Mr Barry retransmitted the Excel spreadsheet.
62 On 24 January 2012, RNG Lawyers sent a letter of demand to Mr Barry on behalf of “Dr Sameh Refaat of Simplex CNC Systems Pty Ltd”. The letter demanded that Mr Barry “pay the full balance outstanding of $121,728 for the Simjet machine (within 14 days of the date of this letter)”. The letter said that failing that payment “our client will commence to use the Simjet machine to earn income from it, in order to mitigate his losses whilst at the same time still endeavouring to sell the machine”. The machine would not be used according to the letter if Mr Barry were to “pay to them their holding costs for the machine which they have incurred to date and that you continue to pay the holding cost monthly until the machine is sold”.
63 By February 2012, Mr Sgro, solicitor, was acting for Dr Refaat. Mr Barry’s current solicitors were then acting and had apparently made a proposal by telephone to arrange a meeting to discuss the dispute and “sight the machine at our client’s premises”. Mr Sgro stated that before considering the request, Dr Refaat required Mr Barry to “put in writing his response to [Dr Refaat’s] demand for payment”. There were further disputes about the use of the machine by Dr Refaat or his companies “to mitigate his losses”. Following a further communication by Gmail from Mr Sgro, there was an inspection of the machine at Simplex’s premises by Mr Barry and his solicitor. Mr Barry noted a number of problems with the machine’s condition. He sought to take photographs of the machine but Dr Refaat prohibited this.
64 Following the inspection, Mr Barry’s solicitors wrote a letter of demand on behalf of Mr Barry directed to Mr Sgro. This letter of demand gave a very truncated account of the state of affairs between the parties which it is difficult to square with the narrative which I have already given. The summary was as follows:
“1. A plan was originally entered into between our respective clients whereby this particular machine was to be developed.
2. For reasons unknown your client was unable to meet the various time commitments that he himself had set.
3. Our client endeavoured to assist by advancing funds in the hope that the matter could proceed and we note that the total sum advanced by way of loans to your client to 10 October was $107,246. In addition, your client agreed to pay a rental in respect of space to be occupied and taken by your client, your client then defaulted and this amount is still outstanding to this time and has not been factored in, in relation to the monies lent as noted above.”
The letter stated further:
“The fundamental point is that the monies advanced by our client were by way of a loan …”
Proceeding
65 Dr Refaat commenced the present proceeding on 7 May 2012. He told me in the course of his evidence that he desired initially to commence a proceeding either solely in the name of Simplex or with Simplex as a co-plaintiff, but that he was informed by the Court Registry that the proceeding with Simplex’s plaintiff could only be commenced by a solicitor. As a result, this proceeding has been commenced in his name alone.
Plaintiff’s claim
66 Dr Refaat’s Amended Statement of Claim filed pursuant to an order of His Honour Judge Anderson, made 14 November 2012, alleged an original agreement made in January 2010 whereby it was said Dr Refaat and Mr Barry agreed to form a partnership to purchase a machine from Simplex for $153,000 plus GST.
67 It was said that there was a revised agreement “in or about June 2010” revising the cost of the machine to $204,000 plus GST. Then, Dr Refaat alleged what he described as “the Last Agreement” made in January 2011 whereby it was alleged Mr Barry “offered to purchase the machine by way of instalments of $8,000 plus GST per month for 24 months”. It was alleged that Mr Barry “failed to honour” this agreement by seeking to call it off on 27 August 2011. It was said that because Mr Barry following the cancellation of the last agreement, Mr Barry did not agree to the machine being used for one hour a week to demonstrate its capacities, the machine could not be sold. It was said, “It is the plaintiff’s view that it is the defendant’s responsibility to sell the machine”. Further, it was said that during the years 2010 and 2011, Mr Barry “obtained unlimited access to the plaintiff’s factory and used un-accountable unpaid number of hours of plaintiff’s time”. Therefore, it was alleged “merely paying outstanding balance and costs is not adequate remedy. The knowledge gained should then only be used to operate the company machines as agreed, and not to replicate the company machines or retrofit similar machines”. The plaintiff sought orders that Mr Barry:
“1. Pay outstanding balance of $121,728.
2. Pay holding costs $4,033/month starting 27 August 2011.
3. Interest on the outstanding balance starting 27 August 2011.
4. Declaration that the plaintiff is to keep confidential all information about the machine, its design and operation.
5. 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.”
Defence and counterclaim
68 Mr Barry’s defence and counterclaim dated 19 December 2012 admitted some things and denied others. In some cases, it simply put the plaintiff to proof. It alleged inter alia “that the machine referred to by [Dr Refaat] has not, to [Mr Barry’s] knowledge, been finished and is not capable of being used for ordinary commercial operations”. It alleged that the machine was not able to process any material. It was alleged that Dr Refaat withheld delivery and then stipulated that 50 per cent of the purchase price had to be paid before delivery was made. The defence contended there were other machines of similar description in Australia.
69 Mr Barry sought generally to put Dr Refaat to proof various matters.
Counterclaim
70 The counterclaim alleged breach by Dr Refaat of the PA by a failure to allocate the share capital of Granite Engineering Pty Ltd as provided in the agreement. Further, it alleged a failure to pay Simplex the sum of $130,050 plus GST, and a failure to pay rent to Alive Graphics for 14 months at $215 per month, equalling $3,010. It was said that Mr Barry therefore suffered loss of $33,000 “being costs of the machine paid to Simplex, without receiving a registered shareholding in Granite Engineering (which was the purchaser of the machine pursuant to Clause 1 of the PA)”. It also alleged that Mr Barry “has suffered loss and damage of $3,010 being rental paid…without receiving any benefit or payment from the defendant to counterclaim as to his 85% liability for the expenses of the company”.
71 Next, it alleged that Dr Refaat came under fiduciary duties by reason of the PA. It was said he breached those duties of good faith by failing to make the payments which he had agreed to make to Simplex. It was said he used the property of the partnership “by taking the funds from [Mr Barry] without accounting for those funds or providing the machine in the interests of the partnership”. It was said he had placed himself in the position of conflict, taken advantage of the partnership relationship and failed to make full disclosure inter alia by refusing to provide access to the machine for valuation “or certify that any funds were paid by Sam Refaat to Simplex for the benefit of the partnership”. Further, it was said that since the machine was not delivered and $33,000 was “paid by [Mr Barry] to Simplex”, the consideration for that payment had wholly failed and the monies were payable as monies had and received.
72 He claimed the cost of the works on the cutting room as 85 per cent of the total cost of $12,070.68 equalling $10,976.02. As to the MBA, it was alleged that there had been delays in delivery of the machine. It was said that in total Mr Barry had outlaid $117,080.68 “and received nothing in return for his outlay”.
73 The counterclaim was for $167,235.54 made up of:
· $25,245 for a 15 per cent PA contribution;
· $7,755 for a 15 per cent upgrade to spindle and cutting table;
· $26,400 for MBA payments;
· $25,000 for Personal Loan 2;
· $48,776.02 for Personal Loan 2 interest;
· $17,600 for Personal Loan 3;
· $2,925 for Personal Loan 3 interest;
· $10,976.02 for 85 per cent of the cutting room works; and
· $2,558.50 for cutting room rent.
74 The whole of the $167,235.54 was characterised as “damages” in gross.
75 In the course of the trial, I put it to counsel for Mr Barry (Mr Wilkinson) that a number of the matters which were being pursued in evidence did not appear to have been pleaded in the defence or counterclaim. As a result, he provided an amended counterclaim which sought to bring the pleaded defences and causes of action into line with the evidence and the manner in which Mr Barry’s case was being conducted. Dr Refaat objected to this repleading so late. For reasons which I gave, I granted leave to amend and overruled the objection, principally this was because it was clear to me that the parties had joined issue on the matters which the amendments to the pleadings raised and the amendments did no more than bring the pleaded case into conformity with the one which was in the course of being made at trial.
76 The amended counterclaim deleted the initial reference to monies had and received. The next substantive amendment alleged a term of the MBA that the machine would be ready for installation and operation in April 2011. This was characterised as the “delivery term”. It was further alleged that the machine would meet the specifications set out in a document known as the “Simjet brochure”. In certain respects this was described as the specifications term and various technical specifications were said to form part of that alleged term.
77 Next, reliance was placed on Part 1 of the Goods Act 1958. As set out in s17(c) – implied undertaking that the goods are free from encumbrance; s18 – that goods sold by description must comply with the description; s19 – that the goods be fit for the purpose disclosed and that they be of merchantable quality. It was said that title had not passed to the machine and therefore it was not competent for the plaintiff to make a claim for the price of the machine, and that the plaintiff was entitled to refuse delivery of the machine because it did not comply with “the delivery term” of the “specifications term” or the Goods Act implied terms, or the “Electrical Safety Standards”. The Electrical Safety Standards were said to derive from an implied term that the machine would comply with all necessary electrical standards as laid down by s54 of the Electrical Safety Act 1998, which required compliance with the Electrical Safety (Equipment) Regulations 2009, Regulation 7, and by reference the AS/NZS Standards 3020 and 3000.
78 It was alleged that Dr Refaat had breached the terms of the MBA by not complying with the delivery term or the specifications term or the Goods Act terms. Thereby it was said Dr Refaat had repudiated the MBA and it was also said that he had repudiated the MBA by purporting to introduce a new term into the MBA requiring payment of 50 per cent of the price prior to delivery of the machine described as the “50 per cent ownership term” and attempting to introduce a proposed Confidentiality and Restraint Agreement. The cause of action for monies had and received was reintroduced at the conclusion of the amended counterclaim. It was alleged that payments totalling $102,000 had been made upon a consideration that had totally failed, and that Dr Refaat had received those monies to his own use. The prayer for relief was amended so as to seek $167,235.54 as a liquidated sum, as well as seeking the same amount by way of damages. Interests and costs were also sought.
Dr Refaat’s defence to the amended counterclaim
79 Dr Refaat added extensive text to his defence to the original counterclaim. Much of that additional text is argumentative, making the correct observation that the amended matters raised in the counterclaim were raised only at a late stage and were not originally pleaded. He also made reference to the situation of Simplex, a matter to which I will return presently.
Simplex
80 As the narrative so far indicates, Simplex is not a party to this proceeding. Dr Refaat, in his evidence, explained the circumstances in which it was omitted as a party. He made application to the court for orders, adding it as an additional plaintiff. This order was declined initially by His Honour Judge Lacava and, immediately prior to trial, by His Honour Judge Anderson.
81 His Honour Judge Anderson declined to make the order for a number of reasons. First, he said there was no explanation of why the application was made so late and no reformulated pleading was provided to accommodate the involvement of Simplex as a co-plaintiff. He noted a statement by Dr Refaat that Dr Refaat did not intend to change his Statement of Claim after adding Simplex. His Honour was not satisfied, having regard to the principles stated by the Court of Appeal in Worldwide Enterprises Pty Ltd v Silberman [2010] VSCA 17, that it would be proper to grant Dr Refaat leave as a non-legally qualified person to represent Simplex in the proceeding. His Honour observed that it remained open to Dr Refaat to renew his application at the commencement of trial.
82 Dr Refaat did renew his application. I considered that, in the circumstances, Simplex was a party of such significance in the narrative underlying this proceeding that it was in the interests of justice that it be joined as a plaintiff. I also considered that, whether one would have regarded Dr Refaat as appropriately qualified to represent Simplex in a proceeding brought by Simplex alone in the context of a proceeding where Dr Refaat had an absolute right to represent himself, it was proper to grant him leave to represent a company in the same interests of which he was the sole director where, in effect, he would be making the same general case for that company as he was entitled unconditionally to make for himself.
83 I was sceptical of the suggestions made in opposition by Mr Wilkinson that an entirely new round of interlocutory steps would be required if Simplex were added as a party. When I announced my ruling, Mr Wilkinson 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.
Consideration of plaintiff’s claims
First item
84 In Dr Refaat’s prayer for relief is the claim for “outstanding balance of $121,728”. As I understand it this represents what he says is the balance unpaid under the MBA; in substance, therefore, the remaining balance is the outstanding price of the machine.
85 An immediate question which needs to be answered is, who are the parties to the MBA? There is no dispute that the buyer under the MBA was Mr Barry. There is, however, debate and uncertainty as to who is the seller. In his closing submissions, Mr Wilkinson, on behalf of Mr Barry, submitted that I should regard the seller as being Dr Refaat. Mr Barry, in his evidence said that he understood that he was contracting with Granite Engineering. Dr Refaat, however, contended that the seller under the MBA was Simplex. Needless to say, it is difficult to resolve these matters, first because the MBA was wholly oral or implied, and, secondly, because the various candidates for the role of seller are all Dr Refaat under one guise or another. There may be legal distinctions to draw but there is, in substance, no practical difference.
86 When I enquired of Mr Barry as to why he believed he was purchasing the machine from Granite Engineering, he said that it was because according to the PA, Granite was the party intended to take title to the machine. Granite itself is not a party to the PA. It cannot be said, therefore, that Granite promised Mr Barry, much less Dr Refaat, that it would acquire title to the machine. The circumstances in which the MBA was formulated are subverting Mr Barry’s reasoning. Amongst the concerns that he had leading to his seeking successfully to terminate the PA or PA, were that its terms had not been carried into effect. He had not received the shares in the capital of Granite Engineering which the agreement said he should. He called for and did not receive a tax invoice from Simplex to Granite. This was one of the items on his list of concerns. Mr Barry agreed with me that the issue of a tax invoice was a manner in which a sale of plant and equipment would be evidenced. I put it to him that that was his experience in obtaining lease or hire purchase finance and he did not dissent. This was the manner in which Macquarie Leasing Pty Ltd sought to evidence the transfer of title in the machine to it as owner under the hire purchase agreement in 2010. In the result therefore, whilst everyone accepted that the machine, which was manufactured under the Simplex mark was originally owned by Simplex, there was no convincing reason to believe that title had been transferred to Granite. Therefore, objectively, as High Court authority requires us to analyse contracts, one would suppose that Simplex would be the seller under the MBA.
87 In support of his contention that Dr Refaat should be regarded as the seller under the MBA, Mr Wilkinson said:
(a)The plaintiff made no representation that the machine was to be purchased from Simplex under the MBA.
(b)The PA required the parties to contribute 85 per cent and 15 per cent respectively to Granite so that it would purchase the machine from Simplex.
(c)The plaintiff was obliged to fulfil his obligation under Clause 2.
(d)The plaintiff’s evidence was that he paid $94,000 or $95,000 to Granite in partial fulfilment of those obligations.
(e)Although there was not a written assignment of the title in the machine to Granite, had the plaintiff complied with his partnership obligations in the 13 months between 19 January 2010 and 17 February 2011, the machine ought to have been owned by Granite.
(f)Alternatively, Granite had an interest in the machine.
(g)The defendant was never advised that the plaintiff had breached his partnership obligations nor that Granite did not own the machine pursuant to any written transfer of title.
(h)While the PA was in force, the plaintiff breached it terms and “sold” the machine to Macquarie Leasing on 31 August 2010 pursuant to the hire purchase agreement. The plaintiff did this without advising the defendant, thereby preventing the machine from becoming Granite’s property until the hire purchase agreement was discharged.
(i)The plaintiff should not be rewarded for breaching his partnership obligations.
(j)Upon termination of the PA by agreement on 17 February 2011, the machine was rightly the property of Granite.
88 In his closing submissions, Dr Refaat included a section 4 under the bold heading “The Defendant Bought the Machine from Simplex Not Anyone Else”. First, he noted that Mr Barry had written a reference letter addressed “To Whom It May Concern” as to the standing of Dr Refaat which stated:
“I have known Dr Sameh Refaat for 10 years now. In that time my company has been providing printing services for Simplex Factory Automation Pty Ltd. Now I have become a customer to Simplex as we have just ordered a system from them.”
89 The reference to a “system” is a reference to the machine and Mr Barry did not suggest otherwise. Mr Barry said that this letter was framed by Dr Refaat but he did not deny that he signed it.
90 Next, the monies paid under the MBA were paid into the account of Simplex. Dr Refaat noted that monies paid under the PA were paid to Granite Engineering but after the MBA commenced, payment was made to Simplex. The force of this argument might depend to some degree on the characterisation of one $8,000 payment.
91 Dr Refaat noted that Simplex issued an account summary on its letterhead recording the MBA payments as having been received by it.
92 Next, Dr Refaat noted that paragraphs in the defence and paragraphs in the counterclaim referring to payments under the MBA, not only stated that the payments were made to Simplex but went out of their way to say that such payments were not made to Granite, as if to underline the point.
93 Dr Refaat noted, in a chronology prepared by Mr Wilkinson, the statement relative to a meeting between Mr Barry and Dr Refaat held in June/July 2011, which stated, “Barry talked with a leasing firm, Interlease, about the possibility of them purchasing the machine from Simplex and leasing it [to] Barry”.
94 Dr Refaat then made a number of further points which boiled down to the same point which I made above, namely, that Mr Barry knew that significant terms of the PA had not been performed and there was no reason for him to presume that Granite Engineering had ever obtained title to the machine.
95 As with all contractual matters, the contractual intent is to be derived objectively. The subjective intentions of the parties are not determinative, if for no reason other than that they may be at odds with one another. Rather, the legal operation of a contract depends upon what an objective observer would suppose has been agreed based upon the externals of the dealings between the relevant party. Again, the question here is not which party most plausibly had title to the unit but which party is supposed, objectively, to have been the contracting party.
96 Turning first to the proposition advanced by Mr Wilkinson, that Dr Refaat is to be regarded as the seller, there seems to be no basis for this whatsoever. The involvement of Macquarie was not known at all. Macquarie was not involved in the transaction. This was a Simplex machine. It had been intended, according to the terms of the PA that Granite Engineering should take title to the machine, but the absence of a tax invoice, along with the absence of an allocation of share capital under the agreement, objectively would lead to the conclusion that the terms of the PA had not been fully carried into effect. The most obvious objective inference to draw would be the title remained with Simplex. There is no reason to suppose that title to the machine would ever have vested in Dr Refaat, personally. Therefore, there is no reason objectively to conclude that he would have made a promise to sell the unit or agree to sell the unit himself personally rather than as his company Simplex. The matters such as payment, the terms of the letter of reference, and perhaps the “slip” admission in the chronology, are all supportive of the view that the seller under the MBA was Simplex.
97 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?
98 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.
99 The instalments under the MBA are the price for the sale of the machine. Section 55 of the Goods Act, which would appear to apply to a non-consumer sale of goods such as this, provides that an unpaid seller may sue for the price but only if the title to the goods has passed to the buyer. Dr Refaat’s assumption was that Simplex, to the extent that it held title, retained it as against Mr Barry until payment of the price in full. Mr Barry said he regarded the transaction as equivalent to a hire purchase arrangement. This is, of course, a description of the party’s subjective intentions but these seem to be commercially realistic views of the transaction which an objective observer would probably reach independently of the subjective intentions of the parties. The MBA had been called off at the request of Mr Barry and with the acceptance of Dr Refaat on behalf of Simplex. Independently of any issues relative to Macquarie Leasing, title did not pass under the agreement for sale. The price, which is the amount outstanding under the MBA, therefore cannot be sued for.
100 This is not an esoteric rule unique to sales of goods and dependent, in particular, on the application of Part 1 of the Goods Act 1958.
101 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 was a claim against a guarantor of the obligations of a purchaser under a terms Contract of Sale. The contract was cancelled on the purchaser’s default. The purchase price instalments were payable under the Sale Agreement and therefore, covered by the guarantee conditionally upon there ultimately being a conveyance of the land. Once the contract was cancelled prospectively and no conveyance was to take place, there was no accrued right to retain or recover instalments of purchase price. This is precisely the situation which exists here. Therefore, even as between Simplex and Mr Barry, independently of any issue relative to Macquarie, the balance under the MBA cannot be recovered.
Damages for non-acceptance
102 Unsurprisingly, as a non-lawyer, Dr Refaat was unacquainted with the issues dealt with above which would appear to exclude the possibility that in the events that have happened, Simplex could sue for and recover the price of the machine. There was no prayer for relief seeking damages for non-acceptance. Given that Dr Refaat was self-represented, he should not be deprived of the opportunity for relief if it be available in a slightly different form merely by reason of the failure to describe that different form in his prayer for relief.
103 Section 56 of the Goods Act 1958 provides as follows:
“Damages for non-acceptance
(1)Where the buyer wrongfully neglects or refuses to accept and pay for the goods the seller may maintain an action against him for damages for non-acceptance.
(2)The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract.
(3)Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was fixed for acceptance then at the time of the refusal to accept.”
104 The premise for the application of this cause of action is a wrongful neglect or refusal to accept the goods. Can Simplex justifiably make that complaint here?
105 It will be recalled that the defendant alleged breaches of a number of express or implied terms of the relevant contract. If one or more of those breaches be made out, subject to arguments about matters such as to waiver election and so forth, the existence of the relevant breach may exclude the possibility that if the defendant could be regarded as not having accepted the goods, the non-acceptance could be regarded as wrongful.
Terms
The delivery term
106 According to the defendant’s case it was a term of the contract that the machine would be ready for installation and operation and therefore delivery “In April of 2011”. This term was said to be an essential term or condition on the footing that time was of the essence of the contract. “Where time of performance is of the essence, the time stipulation is a condition, that is, an essential term of the contract.” : Carter on Contract [30-090] general principle (3) 76121 (service 25). Accordingly, where the time stipulation is breached, the innocent party may terminate the contract.
107 Section 15 of the Goods Act 1958 provides as follows:
“Stipulations as to time
Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.”
108 The alleged delivery term would fall within the description in s15 of “any other stipulation as to time”, that is, a stipulation as to time other than relative to payment. According to the statute, whether time is of the essence in a particular case depends upon the proper construction of the contract. The case law, however, gives a somewhat different impression. The case law in this area is summarised by Professor Sutton in his work “Sales and Consumer Law” (4th Edition 1995) at page 191 where the learned author states:
“Generally speaking, in the case of a commercial contract for the sale of goods, stipulations as to the time are of the essence of the contract. [English and Australian authorities are footnoted.] although some doubt has been thrown on this proposition by a majority of the High Court of Australia in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] 162 CLR 549, 562.
Nevertheless, provisions as to the time, place, and mode of shipment, and the amount of the shipment, would appear prima facie to be conditions as would be a stipulation of the time of delivery. [Australian, English and New Zealand authorities footnoted.] There must be something in the terms of the contract or the circumstances of the case which shows that time is not essential, otherwise the prima facie rule applies. Thus, time of delivery will not be of the essence of the contract where the agreement provides for any delay to be compensated for in damages.
It is, of course, open to the party for whose benefit the stipulation has been inserted to waive the provision as to time. But if the party does so, he or she can at any time thereafter, on giving reasonable notice, once again make time of the essence of the contract.”
109 The last proposition stated by Professor Sutton is well illustrated by the decision of the English Court of Appeal in Charles Rickards Ltd v Oppenheim [1950] 1 KB 616. This was a contract for work and labour rather than for sale of goods, being a contract for the construction of coachwork for a Rolls Royce chassis. The court proceeded on the basis that the law as to sales of goods and contracts for work and labour were the same on this point.[1] Professor Sutton accepts the Rickards’ case as stating the law as to sale of goods. In Rickards’ case, an initial date for delivery of the coachwork was agreed upon and not met by the builder. The buyer continued to press for delivery but eventually gave notice that unless the coachwork were delivered within a stipulated time, the contract would be cancelled. The court accepted that time was initially of the essence, and if the initial date for delivery had not been met the contract could have been called off. This was not, however, what occurred in that case. Denning LJ said:
“If the defendant, as he did, led the plaintiffs to believe that he would not insist on the stipulation as to time, and that, if they carried out the work, he would accept it, and they did it, he could not afterwards set up the stipulation as to the time against them. Whether it be called waiver or forbearance on his part, or an agreed variation or substituted performance, does not matter. It is a kind of estoppel. By his conduct he evinced an intention to affect their legal relations. He made, in effect, promise not to insist on his strict legal rights. That promise was intended to be acted upon and was in fact acted on.
…
So, if the matter had stopped there, the plaintiffs could have said, notwithstanding that more than seven months had elapsed, that the defendant was bound to accept; but the matter did not stop there, because delivery was not given in compliance with the requests of the defendant. Time and time again the defendant pressed for delivery, time and time again he was assured he would have early delivery; but he never got satisfaction; and eventually at the end of June he gave notice saying that, unless the car was delivered by July 25, 1948, he would not accept it.”[2]
[1][1950] 1 KB 623-4 per Denning LJ (as he then was)
[2]ibid 616, 623
How do these principles apply to the present case?
110 There is an initial question as to whether the so-called delivery term was a term of a contract at all. Mr Barry told me on two occasions that whilst “it was agreed” and “understood” that the machine was to be delivered by April 2011, he could not render for me the discussions between him and Dr Refaat which were the basis for this alleged understanding or agreement. He could not say that he distinctly remembered Dr Refaat making such a promise.
111 In his closing submissions, Mr Wilkinson, for the defendant, relied on a passage in the transcript where Dr Refaat, in answer to a question which I asked in seeking to lead his evidence-in-chief from him:
“I never said I’m going to deliver it in two weeks, I said that will be in April, I will deliver it in April. And that’s written here.”[3]
[3]Transcript (“T”) 77, Lines (“L”) 10-13
112 On the face of it therefore, Dr Refaat has by admission filled the gap in Mr Barry’s case. Further reference for the transcript, however, indicates that this is not true:
HIS HONOUR: “So we’re at the point in January 2010?” [My emphasis] where the machine is 10 days off being ready to go, but we know in fact it didn’t?”[4]
[4]T77, L2
113 Dr Refaat was describing the situation in 2010 not the situation in 2011. when he said, “That’s written here”, he was referring to the PA which in Clause 3 provided for the commencement of operations in the partnership in April 2010.
114 In these circumstances, I am not satisfied that the alleged delivery term was part of the contract.
115 Even if I were wrong, the delivery term would not avail Mr Barry as to the present issue. I accept that if it were part of the contract in accordance with the principles enunciated by Professor Sutton and quoted above, it should be regarded as creating a situation where the time of delivery was of the essence of the contract; but the narrative shows that when the alleged April deadline came and went, like the buyer of the coachwork in Rickards’ case, Mr Barry continued to press for delivery and thereby waived the provision that time should be of the essence. Mr Wilkinson was disposed to concede that in these circumstances s16(1) of the Goods Act 1958 would apply and any entitlement to cancel the contract would be lost. Section 16(1) states:
“Where a contract of sale is subject to any condition to be fulfilled by the seller the buyer may waive the condition or may elect to treat the breach of such conditions as a breach of warranty and not as a ground for treating the contract as repudiated.”
116 In contrast to the actions of the buyer in Rickards’ case, Mr Barry cannot rely on the delivery term to justify his actions in calling off the MBA in September 2011 because he served no Notice to Complete restoring time as of the essence. If I am correct in saying that there was no delivery term, the time for performance was within a reasonable time. It would have been open to Mr Barry to serve a notice requiring performance within a reasonable time, failing which he could have cancelled the agreement as in Rickards’ case.[5] In fact, he served no notice.
[5]ibid 616, 628, per Singleton LJ quoting Halsbury’s Laws of England, 2nd Edition
117 For all these reasons I put the alleged delivery term to one side.
The specifications term
118 Section 18 of the Goods Act deals with sales by descriptions and provides:
“When there is a contract for the sale of goods by description there is an implied condition that the goods shall correspond with the description; and if the sale be by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.”
119 According to the defendant’s pleading, the machine was sold under a description, namely, the specifications to be found in a document known as the “Simjet Brochure” to which I refer above. The specifications which were said to constitute the description were as follows:
(a) linear brushless motors;
(b) one micron resolution;
(c) five micron accuracy;
(d) three metres per second translational speed;
(e) twenty metres per second acceleration;
(f) auto-lubrication; and
(g) a suction table.
120 It was common ground that the machine did not meet the specifications. In particular, it achieved a far lesser level of accuracy than the specifications would require. This observation was made by the defendant’s expert, Mr Fletcher, who examined the machine and circumstances to which I will turn in greater detail later. Dr Refaat did not deny these observations. He obtained an admission from Mr Fletcher, however, that the machine, whilst not meeting these specifications, was adequate in the much less precise measurements which its controls allowed, for stonecutting.
121 Mr Barry, it will be recalled, said that Dr Refaat, on the question of specifications and having made certain handwritten notes on 18 February 2011 when the MBA was being negotiated, referred to the Simjet brochure which Dr Refaat had previously given to Mr Barry for scanning/printing purposes. Dr Refaat denied this.
122 With some hesitation, I prefer the account of this conversation between Dr Refaat and Mr Barry as given by Dr Refaat. It seems intrinsically unlikely that if Dr Refaat were committing to these specifications, having made handwritten notes of a number of other things, he would not have included some brief incorporation by reference of the specifications in the Simjet brochure. It was clear to me that Mr Barry had a less than precise recollection of the tortuous relationship between him and Dr Refaat. From time-to-time, in the face of what seemed to me to be relatively straightforward questions, he became confused. Sometimes he said, “I am bamboozled”. The clear and specific recollection of the reference to the brochure, without the assistance of any diary note or notation by Dr Refaat himself, seems therefore implausible. In not accepting Mr Barry’s evidence on this point, I do not suggest that he sought to be deliberately misleading. I believe that the evidence he gave was what he believed to be a genuine recollection but was, in truth, a reconstruction. It would be intrinsically unlikely that Dr Refaat would voluntarily have committed to specifications which were so much more exacting that the stonecutting work for which the machine was being purchased would require.
123 I do not believe that the specifications term was part of the contract.
The electrical safety standards term
124 Further, it is alleged by the defendant that it was stated in the MBA that the machine “would comply with the necessary electrical safety standards, namely s54 of the Electrical Safety Act and its associated regulations and standards”. This term was said to be implied by law. The pleading gave no indication as to how that implication by law arose. Nothing in Part 1 of the Goods Act would specifically imply such a term. Defendant’s closing submissions did not, so far as I could see, take the matter further. I am unclear as to how the alleged implication by law would arise. The well-known passage in the advice of the majority of Their Lordships of the Judicial Committee of the Privy Council in BP Refinery (Westport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20, 26 is as follows:
“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term and a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied:
1. it must be reasonable and equitable;
2. it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
3. it must be so obvious that “it goes without saying”;
4. it must be capable of clear expression;
5. it must not contradict any express term of the contract.”
125 It may be objected, however, that the implication described by Their Lordships constitute implication as a matter of fact rather than as a matter of law. In the absence of further elaboration as to how the implication by law arises, I believe, however, that what Their Lordships said is a good guide for me here. In particular, in principle 2 they said, “…no term will be implied if the contract is effective without it”. In my view, the issues of electrical safety are invoked by the term of fitness for purposes which the Goods Act implies into this contract. Therefore, the further implication of these matters as a separate term would be contrary to principle. I put this alleged electrical standards term to one side.
The freedom from encumbrances term
126 Section 17 of the Goods Act provides as follows:
“Implied undertakings
In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is—
(a) an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods and that in the case of an agreement to sell he will have a right to sell the goods at the time when the property is to pass;
(b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods;
(c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made.”
127 Mr Wilkinson submitted that by virtue of paragraph (c), it was a term of the contract that the goods should be free from any charge or encumbrance. In fact, they were under the ownership of Macquarie Leasing Pty Ltd in pursuance of the hire purchase arrangements entered into in 2010. Interestingly, it will be seen that the term as to freedom from encumbrances is referred to in the Goods Act as “an implied warranty”. That is, a term which gives a right to damages but not a right to terminate the contract. In the circumstances, the implied condition referred to in paragraph (a) of the section would seem to be more pertinent because it implies a condition. As to this, Dr Refaat submitted that the MBA was an agreement to sell and not a sale. Section 6 of the Goods Act provides as follows:
“Sale and agreement to sell
(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. There may be a contract of sale between one part owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
128 The MBA was an agreement to sell and not in itself a sale. Therefore, the obligation under the implied condition deriving from paragraph (a) was to make title when the purchase price was paid to Simplex in full, something which has not yet occurred. It was, perhaps for this reason, that Mr Wilkinson did not place reliance on s17(a). The effect of s17(a) would seem to be that it is permissible to enter into a sale of encumbered goods as long as the right to sell will exist at the time when property is to pass. It would be surprising if that sensible outcome were in any way subverted by anything to be found in s17(c). At any rate, since the term implied by s17(c) is a warranty by virtue of the definition of warranty in s3(1) of the Goods Act, the term, even if proven to be breached, would not give Mr Barry an entitlement to cancel the MBA and reject the machine.
129 This conclusion relieves me of the need to consider the possible operation of the Personal Property Securities Act 2009. The hire purchase arrangements between Macquarie and Simplex would appear to fall within the definition of security interests in that statute. Unperfected security interests may be overridden by the interests of innocent purchasers in accordance with Part 2.5 of the Act. The Macquarie interests seems to have been perfected only in 2012. Whether this was as a result of delay on Macquarie’s part or the timing of the commencement of the register in which the notice of the interest was entered need not therefore by investigated.
Terms as to fitness for purpose and merchantable quality
130 Section 19 of the Goods Act provides inter alia:
“Implied conditions as to quality or fitness
Subject to the provisions of this Part and of any Act in that behalf there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows—
(a) where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not) there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose;
(b) where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not) there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed;
…”
131 The defendant’s pleading alleges that both of these implied terms were part of the MBA.
132 In my view, the implied condition as to fitness for purpose clearly operates here. Mr Barry, by implication, made known to Simplex the purpose for which the goods were required. Dr Refaat is the principal of Simplex. He well knew the business which Mr Barry intended to go into. He was aware of the preparations by way of the cutting room which had been undertaken. The machine carries the Simplex tradename. This fact on its own does not render the proviso excluding the implied condition operative.[6]
[6]Sutton op cit 259; Baldry v Marshall [1925] 1 KB 260
133 Mr Fletcher inspected the machine at the request of Mr Barry’s solicitors and provided a report expressing a number of quite damning conclusions as to the fitness of the machine, He concluded that it was not fit for its purpose, that it lacked accuracy and it was not properly constructed in accordance with the principles of electrical construction required by the Electrical Safety Act 1998 and the associated regulations and standards. In my view, a machine cannot be regarded as fit for its purpose if its supply or offer for supply would be contrary to statute. Section 54 of the Electrical Safety Act prohibits the supply or offer to supply a non-compliant piece of equipment. Mr Fletcher’s evidence was that the machine was non-compliant. He was critical of its lack of accuracy and its tendency to vibrate.
134 Dr Refaat furnished a report which he authored himself to the effect that the machine was satisfactory. He cross-examined Mr Fletcher at great length and most skilfully obtained a number of significant admissions from him.
135 There was disputation between the parties as to an expert inspection of the machine. In the event, no inspection on behalf of the defendant took place until as late as 25 November 2013. A previous attempt at inspection a few days previously proved abortive when the machine repeatedly “cut out”. The inspection was carried out in accordance with an order of the court, which permitted an inspection of up to three hours and required Dr Refaat to make himself available to operate the machine. On 25 November, the inspection undertaken by Mr Fletcher lasted less than an hour. Dr Refaat declined to allow Mr Fletcher, himself, to operate the machine. Mr Fletcher seems to have felt therefore that he could not carry out a satisfactory inspection without being able to take control of the machine himself. Whilst the machine included some three axes, X, Y and Z, his inspection focused almost solely on the Z axis. His observations as to lack of accuracy and a tendency to vibrate focused on the Z axis. It was put to him, and ultimately not denied, that the accuracy in the machine resided more in the X and Y axes than in the Z axis. That the lack of rigidity in the Z axis, which underlay the tendency to vibrate, conceivably might have been caused by a defect in tuning. He conceded that greater rigidity might have been introduced in the Z axis by an adjustment to a relevant servo motor, so that it would offer earlier and more complete resistance to finger pressure applied by Mr Fletcher. The burden of Dr Refaat’s cross-examination was that, in the circumstances, Mr Fletcher had simply not given the machine a “fair go”.
136 Highly impressive as Dr Refaat’s cross-examination of Mr Fletcher was, I find it ultimately unpersuasive. Dr Refaat stressed, in a number of places, that complaints as to the quality and fitness of the machine were made only at a late stage. He drew attention to their absence from early letters of demand and pleadings, et cetera. Be that as it may, it had been clear to him for months prior to the trial that an assault would be mounted on his machine’s fitness for purpose and quality generally. On a number of occasions, Dr Refaat said that the machine had been left in pieces. When he had undertaken two factory moves, it had not been operated for some time and so forth. Nevertheless, if the machine was, as he contends it is, fundamentally sound as distinct from continuing to exhibit serious “bugs”, as Mr Barry would have it, one might have expected that Dr Refaat would have “tuned up the machine” so that it could provide an impressive performance. He might even have laid on a view at which he operated the machine and showed off its capacity. As it was, however, all that was done was that a few paltry samples were produced and not even put into evidence as exhibits. Mr Barry looked at these samples and was critical of the quality of the work which the machine had done. The samples were not offered to me so that I could form any opinion as to Mr Barry’s criticism. Were there any difficulties in the parties agreeing to such a process, the Court could have made appropriate orders. I am inclined to the view that, albeit on the basis of a regrettably perfunctory inspection, Mr Fletcher has correctly identified this machine as afflicted by continuing significant development problem. In the end, however, it is unnecessary for me to reach a concluded view on this point. Mr Fletcher’s evidence was, to put it in colloquial terms, that the wiring of the machine was “a mess”. The lengthy cross-examination did not seem to challenge this criticism head on. The photographs produced with Mr Fletcher’s report, in my view, amply bore it out. In his closing submissions, Dr Refaat seemed to concede that the wiring was amiss but said that the machine was fit for its purpose because it could cut stone and the wiring could be rectified during the course of installation.
137 A related issue arose out of s55 of the Electrical Safety Act, which provides for certification of compliance of electrical equipment. The regulations require certification of equipment such as this in accordance with their terms before they are energised. Mr Fletcher said that in the circumstances the certification regime required a machine such as the present to be certified at the point of manufacture and re-certified at the time of installation. The installation of such a machine is complex and in itself raises safety issues. Dr Refaat, however, contended that it was sufficient that certification should take place following installation. Indeed, since certification of the equipment as installed in situ was required, it was inappropriate and pointless to seek certification at the point of manufacture.
138 As a matter of abstract principle, there seemed to be much to be said for both of these. The true meaning of the statute and the regulations did not leap off the page at me. Given that I have not had the benefit of submissions from the regulator on this point, it would be, in my view, undesirable for me to purport to express a final view on the true meaning of the regime established by the statute and the regulations unless it were essential to my decision to do so. In my view it is not and so I pass up the opportunity. It is, in my view, wholly unrealistic to think that radical deficiency in the quality of the wiring of the machine is to be regarded as something which can be “fixed up” at the time of installation. Even if certification can properly be deferred until installation, the internal wiring of the machine is something which must be appropriately rendered at the point of manufacture. A machine which does not meet this requirement is, in my view, not fit for the purpose of stonecutting because it would be unlawful and negligent for an operator to employ it for stonecutting in its present condition. In my view, the implied condition, as to fitness for purpose as part of the MBA, was breached by Simplex. It follows that failure by Mr Barry to accept the machine, which was in breach of the implied condition, was not wrongful.
139 Dr Refaat complained that these points as to the fitness of the machine were raised only at a late stage. It is clear that they were not in Mr Barry’s contemplation when he purported to “call off” the MBA in September 2011. This breach of condition, however, is available to be relied on to justify that cancellation. In Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, 377-8, Dixon J, as he then was, speaking in the context of alleged wrongful dismissal of a sales agent by Felt & Textiles:
“When the respondent terminated his agency it was not aware of the contents of the telegrams and the letter which he had sent to its customer's buyer, and it acted upon other grounds. It is well established, however, that a servant's dismissal may be justified upon grounds on which his master did not act, and of which he was unaware when he discharged him (Boston Deep Sea Fishing and Ice Co v Ansell (1888) LR 39 Ch D 339; Spotswood v Barrow, (1850) 5 Ex 110, 155 ER 48; Willetts v Green (1850) 3 Car. & Ker. 59, 175 ER 462; Mercer v Whall, (1845) 5 QB 447 at p 466, 114 ER 1318 at p 1325; Ridgway v Hungerford Market Company, (1835) 3 A. & E. 171, 111 ER 378. It is true that the agreement between the appellant and the respondents does not amount to a contract of service. But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition, whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract.”
140 Rich J more pungently observed:
“The suggestion faintly made that, because the defendant was unaware of the plaintiff’s misdeeds in this matter until after the termination of the contractual relationship, they could not constitute a defence, is an ancient heresy to which I am surprised to find any surviving adherent.”[7]
[7](1931) 45 CLR 359, 370-1
141 In my view, the condition as to merchantable quality, implied by s19(b) of the Goods Act also applies here. The MBA was a sale or agreement to sell specific ascertained goods, not goods to be ascertained only by a description as a CNC stonecutting machine for instance. On the other hand, for the purposes of the application of the implied condition, goods can be regarded as bought by description even in these circumstances.[8]
[8]Sutton op cit 302; Australian Knitting Mills v Grant (1933) 50 CLR 387, 417-8 per Dixon J (as he then was)
142 Unlike certain other statutes, the Goods Act, Part 1, does not define merchantable quality. Given that, according to the evidence of Mr Fletcher, it would not be lawful to sell this machine, it is difficult to see that it is of merchantable quality. However, a decision of the English Court of Appeal suggests that the legality of sale of an item does not go to merchantable qualities.[9]
[9]Sumner Permain & Co v Webb & Co [1922] 1 KB 55; Sutton op cit 289
143 In seeking to summarise what the case law establishes as to the meaning of merchantable quality, Professor Sutton, says that to be of merchantable quality an item or goods –
“… must be capable of passing in the market or in the trade under the name or description by which it is sold. It is not enough that the article is saleable to somebody at some price; for a use can always be found for goods if the price is low enough. A buyer will put up with serious defects in return for a substantial abatement of price. The goods must be acceptable generally in the market with all its defects known and the fact that articles of the same character are being bought and sold in the market in large quantities is relevant in this connection.”[10]
[10]Sutton op cit 285-6
144 Here, this machine was being offered for sale as a new machine at a very substantial price. Mr Fletcher was of the view that it could be sold but only under a different description and with a much lower price. In my view, this establishes a breach of the merchantable quality implied condition.
145 It follows that, in light of all these matters, a failure on Mr Barry’s part to take delivery of this machine would not be wrongful, and, therefore, Simplex, would not be entitled as against Mr Barry to damages for non-acceptance under s56 of the Goods Act.
The position of Dr Refaat
146 The above analysis assumes that the party seeking to enforce the MBA from the seller’s side is Simplex. As previously explained, Simplex is not a party to this proceeding. The sole plaintiff and defendant to counterclaim is Dr Refaat.
147 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 MBA 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 PA to pay Simplex $143,000 inclusive of GST, or a share in the machine.
148 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.
149 This principle does not apply merely at the macro level but also at the micro level in relation to companies such as Simplex. This is known as the rule in Foss v Harbottle (1843) 2 HARE 461; 67 ER 189. The learned editors of Ford’s Principles of Corporations Law, 14th edition state at [11.300]:
“…the rule that the company is the proper plaintiff to bring an action in respect of a wrong done to it, and that consequently an individual member has no standing to bring proceedings complained of a wrong to the company…”
150 The rule in Foss v Harbottle is now subsumed into Part 2F.1A of the Corporations Act.
151 A proceeding can be brought by a member on behalf of a company under this provision now only with the permission of a court exercising jurisdiction under the Corporations Act. This Court has no powers in that respect. Given that this Court is not empowered to exercise its power under the Corporations Act, it is sufficient to note that it could not give permission to Dr Refaat to bring those proceedings on behalf of Simplex even if it wanted to. In any event, the provisions are intended to deal with situations where those in control of a company are inflicting wrongs on it to the disadvantage of minority lenders and, because of the wrongdoer’s own control, no proceeding will be issued, leading the minority to be disadvantaged by the wrongs done to their company.
152 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.
153 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 MBA. The claim brought by Dr Refaat, insofar as it relies on enforcement of the MBA, therefore fails.
154 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.
155 The next item in the prayer for relief is a claim for “costs”. This must fail likewise because, aside from the fact that the claim by Dr Refaat under the MBA has failed, he is self-represented. Since costs are monies that a litigant pays to his legal representative, he has no costs - see Cachia v Hanes (1994) 179 CLR 403, except perhaps relative to court fees.
Claims in relation to trade secrets
156 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 PA and, later, under the MBA. He agreed that he was, over and beyond these matters, intrinsically curious and asked Dr Refaat many questions.
157 I put it to Dr Refaat that when he entered into the MBA 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 MBA 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 MBA that would have imposed the restraints which he now seeks to impose on Mr Barry.
158 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 PA or from some general equitable principle. The demand for the relief relative to confidentiality was simply bald and not otherwise developed.
159 The response from Mr Wilkinson was balder still. He simply said “there is no obligation” and provided no analysis beyond the simple denial.
160 The claim by Dr Refaat is based on alleged breach of confidence. Dr Dean in his book Trade Secrets and Privacy states that indicates that secrets and confidences can be protected by virtue of a variety of different entitlements, provisions of contracts, express or implied, and also the general jurisdiction of equity.
161 At [20.5] 15-101 update 0 [2], Dr Dean says:
“The all-encompassing protection against the misuse of secret information is based on the doctrine called ‘breach of confidence’ which is the intervention of equity to prevent unconscientious conduct in the misuse or disclosure of confidential information. Equity intervenes based on the conscience of the defendant in her or his handling of secret information.
Until recently, separate conclusions were offered with respect to the jurisdictional basis for the doctrine of breach of confidence. After the judgments in cases such as Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2)(1984) 156 CLR 414…and Australian Broadcasting Corp v Lenah Game Meats Pty Ltd (2001) 208 CLR 199…, it was confirmed that the all-encompassing basis noted at 2 above is, and always was, the basis for equity’s intervention.”
162 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.
163 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.
164 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”.
165 Dr Dean, in his work at [40.4600] 25-4055 update 6, stated that the definition of trade secrets “most preferred by the author” was found in the Judgment of Harper J (as he then was) in GSK Australia Pty Ltd v Ritchie (2008) 77 IPR 306; [2008] VSC 164 at [49]. The definition is as follows:
“I therefore take a trade secret to be an item of confidential information, learnt during employment, the confidentiality of which, as an employee of ordinary honesty and intelligence would acknowledge, must be maintained even after that employment has come to an end. In other words, a trade secret has an inherent quality that takes it above and beyond more general knowledge, albeit that the general knowledge may to a lay person be very specialised. Whether information amounts to a trade secret is a question of fact, to be determined in the particular circumstances. A trade secret is to be distinguished from knowledge of no special significance such as that which an employee with familiarity with the relevant art might acquire (without employing any more skill than that of an ordinary practitioner of the art) simply by building upon the information necessarily made available to him in the ordinary course of his employment.”
166 Very extensive evidence would be necessary, in my view, to make out the requirements of a definition such as this. 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.
167 This part of his claim fails likewise.
Further argument as to repudiation
168 Mr Wilkinson submitted that entering into the hire purchase arrangement with respect to the machine with Macquarie was “self disabling” and was a further reason why Mr Barry was entitled to regard the MBA as repudiated, accept that repudiation, and discharge himself from further performance.
169 The argument is that a contracting party, by disabling himself from the ability to perform his fundamental obligations, for example, to make title to the subject matter of the sale, thereby repudiates the contract.
170 This raises the issue of who engaged in the disabling conduct. It is only “self” disabling if it is the party to the contract that did it. The hire purchase arrangements were entered into by Simplex.
171 Mr Wilkinson’s submission was that the seller under the MBA was Dr Refaat. More generally, since a hire purchase agreement, by its nature, includes an option to purchase, that is, an option to “pay out” the owner and take title to the subject matter of the hiring, entering into a hire purchase agreement relative to a chattel the subject matter of a subsequent agreement for sale is no more self-disabling than is the action of mortgaging a residential property which one subsequently offers for sale by auction.
Counterclaim
172 I turn to Mr Barry’s amended counterclaim.
MBA
173 For reasons given previously, I have concluded that the parties to the MBA were Simplex and Mr Barry. Insofar as Mr Barry is the victim of contractual breaches under the MBA, Dr Refaat cannot be liable for such breaches because, on my findings, he is not a party to that contract. The proper defendant to a cross-claim by Mr Barry seeking to enforce the MBA would be Simplex. As previously explained, Dr Refaat sought to add Simplex as a party to the proceeding. I ruled that this should happen and that Dr Refaat should have leave to represent it, but the demands for an adjournment and further interlocutory steps made on behalf of Mr Barry derailed this process. Insofar as the lack of Simplex as a party to the proceeding has brought Mr Barry’s claim under the MBA undone, he is, at least to some degree, the author of his own wrong.
174 Insofar as monies paid or purportedly paid under the MBA are sought to be recovered as monies had and received, those claims must be dismissed because the monies were received by Simplex and not by Dr Refaat.
The cutting room
175 The problems caused by the lack of Simplex as a party to the proceeding do not operate with respect to the claim made by Mr Barry relative to the cutting room. This claim is for costs of $10,976.02 representing 85 per cent of the outlays which he said he made. This claim is made under the 2010 former business agreement or PA, the counterparty to which was Dr Refaat.
176 Dr Refaat did not, as I understand him, deny that various outlays had been made. He simply said that he did not authorise them. As I understood his evidence initially, it was to the effect that he knew nothing at all about these matters.
177 The cross-examination of Dr Refaat as to these matters was somewhat perfunctory. It was put to him that he did know and approve the expenditures but the matter was not elaborated. When Mr Barry gave his evidence, he described a scene at the Alive Graphics factory where Dr Refaat was in attendance and became involved in a vigorous debate with Mr Barry’s son, the electrician, who was carrying out electrical work. Dr Refaat demanded, as I understood the matter, a higher number of amps from the power outlets in the proposed room.
178 At the commencement of the following day, I enquired of Mr Barry as to whether his son was available as a witness to give corroboration of the scene which Mr Barry had described on the previous day. At that point, Dr Refaat said he accepted that these events had occurred and was not denying them. I was left to wonder how he could have made the blanket denials of knowledge which he seemed to make initially.
179 Dr Refaat said that there was no necessity for a separate room for the stonecutter. Mr Barry had said that it was necessary to construct a separate room because dust was the enemy of the printing industry. Dr Refaat said that the dust and like residues would be damped down by the water used for cooling and lubrication purposes in the cutting process. Mr Barry then said that the extreme noise generated by the stonecutting necessitated a separate room.
180 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 PA, 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.
181 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.
182 Dr Refaat’s final response to the cutting room expenses claim was to say that when, in February 2011, Mr Barry negotiated the termination of the partnership, amongst the scenarios which he considered was scenario 3, “pull the pin on the machine”, which included the statement, “will lose on building costs 11K”. Secondly, Dr Refaat noted that during the term of the MBA, 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.
183 As to the scenario 3 “pull the 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.
184 Ultimately, the only basis left for Dr Refaat to deny liability for these expenses is that the arrangements made on 18 February 2011, 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 partnership upon a dissolution, death, etc., the settled account constitutes a good defence to the pressing of any further claim – Lindley & Banks on Partnership 19th Edition, 735 [23-109].
185 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.
186 I prefer the evidence of Mr Barry that Dr Refaat required that there be separate meters for electricity and water for the cutting room in preference to Dr Refaat’s denial, particularly in light of what I regarded as somewhat uncandid answers by Dr Refaat initially as to his level of knowledge of the cutting room expenditure.
The personal loans
187 There was no denial of personal loan 3. In my view, however, the interest on personal loan 3 should be calculated as simple interest rather than as with interest compounding on daily basis, as contended for on behalf of Mr Barry. I quoted the terms on which the loan was made as set out in the email. Mr Barry seemed to suggest that the reference to linking the interest on this loan to overdraft rates entailed daily compounding. I am unaware of any such banking practice and there is no proper evidence that this is the way banks calculate overdrafts. My understanding, for what it is worth, is that interest is capitalised half yearly and not on a daily basis. There is nothing in the email which stipulates daily compounding and so it should not be allowed.
188 I reject the contention put by Dr Refaat that personal loan 2 was converted into payments under the MBA. I accept what Dr Refaat has said, namely, that it would have been a sensible measure for him to have taken. However, I accept Mr Barry’s denial that he agreed to it. There can be no simple set off as between the two amounts. On the findings I have made, the monies owed under the MBA were owed to Simplex, whereas the parties to the personal loan were Mr Barry and Dr Refaat. There should judgment for the amount claimed with respect to the personal loans save that the calculation for personal loan 3 should be at simple interest.
Money had and received
189 According to paragraphs 57 and 58 of the amended counterclaim, the claim for monies had and received is for $102,000 “paid by the plaintiff to counterclaim for Simplex and/or Granite Engineering’s account”. It is said that a consideration for that money has totally failed “and the defendant to counterclaim [viz] Dr Refaat alternatively Simplex and/or Granite, has had and received this sum (via his companies Simplex and Granite Engineering) for its own use.”
190 No ground has been demonstrated for lifting the corporate veil or piercing it – whichever metaphor is deemed appropriate. Insofar as monies were paid to Simplex and Granite, it is difficult to make Dr Refaat responsible for those monies except insofar as they represent monies owed to Dr Refaat which were, by his direction, paid to one of those companies.
191 Mr Wilkinson referred me to no authority as to this claim. If the focus on the PA is an indication that the parties did work together as partners for some time, and the outlays which Mr Barry made to Granite Engineering Pty Ltd were credited to him as payments under the MBA, then in those circumstances, I cannot accept that these amounts were paid upon a consideration that totally failed. It may be that if no machine has ever been delivered and if, as I have found, Mr Barry is entitled to refuse delivery of the machine which is offered, then the consideration under the MBA has totally failed. The claim to recover those monies would properly be brought against the seller under the MBA, namely, Simplex, not against Dr Refaat.
Rent
192 Rent at $215 per calendar month was payable to Alive Graphics Pty Ltd according to Mr Barry under the terms of the PA. There are a number of problems with this claim.
193 Dr Refaat says that the area rented was used extensively as a storage facility by Alive Graphics Pty Ltd and no rental should be paid for that reason. More pertinently, Alive Graphics Pty Ltd is not a party to this proceeding. Conversely, it is not a party to the partnership or PA. The rent is claimed as to 85% as a partnership expense. For the same reasons as relative to other cutting room expenses the claim should succeed; but I do not believe it was proven that Mr Barry made the rental outlays. Absent such proof, he would be entitled to an indemnity, only. The obligation to pay rent abates when an eviction takes place but I a not persuaded that using the space as temporary storage in the circumstances amounted to an eviction of the partnership by Alive Graphics.
Imposition of additional terms
194 It will be recalled that Mr Barry alleges, and Dr Refaat denies, that Dr Refaat unilaterally imposed an additional requirement in the MBA as a condition precedent to the delivery of the machine, namely, that the monthly payments paid would be required to total 50 per cent before delivery.
195 Dr Refaat said that this was offered as an option in return for an extended term and a reduction in instalment amounts thereafter.
196 The email from Dr Refaat to Mr Barry of 26 August 2011, at first blush, appears to support Mr Barry. It states, “You need [my emphasis] three payments or so to get to 50 per cent of the machine. I suggest that you make payments on 1/9/11, 1/10/11 and 1/11/11”.
197 However, the email refers to delivery times of the machine “as is” on 21 October and delays of one week for a new spindle and two weeks for “safety fencing”. Two of those delivery dates are prior to the 50 per cent level being reached. In those circumstances, I cannot be satisfied that Dr Refaat in fact sought to impose unilaterally a new provision in the MBA.
Costs
198 I have heard no submissions as to costs and so I will reserve them. As previously noted, apart perhaps from court fees, there can be no costs for the plaintiff since he is self-represented.
Final order
199 Since the defendant/counterclaimant is represented by solicitors and counsel and the plaintiff is not and, further, because the defendant/counterclaimant has enjoyed a measure of success, though limited, and the plaintiff has not, I will direct the defendant/counterclaimant, within 14 days of this day, to bring in short minutes to give effect to these reasons.
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