Ronstan International Pty Ltd v Thomson
[2002] VSCA 75
•31 May 2002
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 5230 of 1997
| RONSTAN INTERNATIONAL PTY. LTD. ACN 068 111 053 | Appellant |
| v. | |
| PETER THOMSON | Respondent |
| PETER THOMSON | Cross-Appellant |
| v. | |
| RONSTAN INTERNATIONAL PTY. LTD. ACN 068 111 053 | Cross-Respondent |
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JUDGES: | BUCHANAN, CHERNOV and EAMES, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 29 April 2002 | |
DATE OF JUDGMENT: | 31 May 2002 | |
MEDIUM NEUTRAL CITATION: | [2002] VSCA 75 | |
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Contract – Incorporation of printed terms into contract – Penalty or liquidated damages – Interest payable on default in timely payment – Not a genuine pre-estimate of loss.
C.J. Belmore Pty. Ltd. v. A.G.C. (General Finance) Ltd. [1976] 1 N.S.W.L.R. 507, not followed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant and Cross-Respondent | Mr A. Archibald, Q.C. with | Deacons Lawyers |
| For the Respondent and Cross-Appellant | Mr C. Golvan and Mr A. Klotz | PricewaterhouseCoopers Legal |
BUCHANAN, J.A.:
In and after September 1994 the respondent, a photographer and designer, was engaged to perform work by the appellant, a manufacturer of marine parts. On those occasions when the price of the work was substantial, the respondent prepared and gave to the appellant an estimate generated by a computer. When an estimate was accepted, usually orally, the respondent would print out and give to the appellant another copy of the estimate headed “Invoice” instead of “Estimate”. The estimates and invoices contained a number of printed terms.
In February 1995 the appellant engaged the respondent to produce a catalogue of the parts manufactured by the appellant. After discussions between the respondent, Andrew Coutts, joint general manager of the appellant, and Adrian Maloney, promotions and corporate services manager of the appellant, the respondent prepared an estimate. The estimate was accepted orally and on 28 March 1995 the respondent sent an invoice for the production of a catalogue consisting of 92 pages of typesetting, 450 photographs and 100 illustrations at a price of $214,410. The invoice recorded that the sum of $210,000 had been paid.
The appellant’s approach to the project was somewhat haphazard. Products were sent to the respondent in unsorted boxes and the respondent had to consult product managers to allocate products so that they could be grouped in ranges. Products which were not intended to be catalogued were sent to the respondent. Products which were to be catalogued were not sent. Although the respondent had been told that the appellant would supply products to be photographed which were specially selected, checked for imperfections and hand polished to remove any flaws, many of the products were marred by blemishes and defects. The appellant required several changes to be made to typesetting. In mid 1995 the appellant decided to substantially expand the range of products to be included in the catalogue, which was now to be produced to “world’s best standards”. Another 187 images and 48 pages were added. From time to time additional work was requested by the appellant such as extra photographs, the addition of products included in the data base, extra scanning and contouring and changes to typesetting and design. A mock-up of the proposed catalogue was prepared for presentation at a trade show in Amsterdam, whereupon it was decided that the block range should be re-shot to appear from a three-quarter angle rather than in profile. This involved the re-shooting of 165 images, which was done at a price of $41,430, an amount paid by the appellant. Between January and April 1996 the appellant added three ranges of products to the catalogue, requiring a further 175 images.
By May 1996 there were a number of unpaid invoices for the substantial amount of extra work performed by the respondent. While he continued to work on the catalogue, the respondent became more insistent upon payment. On 23 May 1996 the solicitors acting for the appellant wrote to the respondent requiring him to give a written undertaking that he would complete all the work in sufficient time to enable the catalogue to be printed and copies distributed at the Sydney Boat Show. The solicitors stated that if the written undertaking was not given, the appellant would rescind the contract, and engage another to produce the catalogue and sue the respondent for damages. On the other hand, if the respondent was prepared to give an undertaking in writing, the appellant would pay him $3,000 a week against the accepted invoices. The solicitors claimed that the delay in completing the project was due to the respondent, a claim which the trial judge said was unsupportable from the evidence before the court. The letter included a statement that “Our client has paid you $353,895, for work which you originally agreed to do for $212,010.” The trial judge described that statement as “nonsense”. The respondent replied to the letter rejecting the allegations contained in it, but continued to work on the catalogue until August 1996, when he was informed by the appellant that it had engaged The Craftsman Press (“Craftsman”) to complete the catalogue.
In these proceedings the respondent claimed an amount of $201,009 for the additional work he performed on the catalogue and for supplying a display stand and acrylic sheets used by the appellant at a marine trade fair in the United States. The amount claimed by the respondent was constituted by the sums shown on seven invoices for the following work:
The Nicro range $ 17,932
The Rigging range $ 22,460
Pacific Nylon Products andother products $ 9,510
Additional 66 images $ 8,980
Additional electronic enhancement $117,000
Display stand and panels $ 25,127He also claimed interest pursuant to one of the terms printed on his invoices. The appellant denied liability for the claim and counterclaimed for the amounts it had paid to the respondent or alternatively the amount it paid to Craftsman. The appellant also sought to set off the amount of moneys it paid for printing the catalogue. The original payment of $210,000 included a component for printing and no printing was carried out.
The trial judge held that the bulk of the claims for extra work, amounting to $193,709.86, had been established but that the provision for interest in the printed term was void as a penalty and that the sum of $31,940 was to be set off against the money payable to the respondent by the appellant. Her Honour dismissed the appellant’s counterclaim. The appellant has appealed against the judgment in favour of the respondent and the amount ordered to be set off, while the respondent has cross-appealed against the set off and the trial judge’s refusal to award interest pursuant to the printed terms of the estimates and invoices.
The Terms of the Contracts
At trial and in this appeal the appellant contended that conditions printed on purchase orders which it issued to the respondent formed part of the terms of each agreement between the parties. Whether the terms printed on the respondent’s estimates and invoices or the appellant’s purchase orders were incorporated in the contract was critical to the respondent’s claim. The term as to payment in the estimates and invoices was as follows:
“Unless otherwise stated within this estimate/invoice terms for payment in full shall be 30 days from date of invoice.”
The purchase orders, on the other hand, provided:
“Unless agreed in writing by Ronstan to the contrary, payment terms are 30 days from the date of Ronstan’s receipt of specified goods and services or 30 days from the date of the suppliers invoice (whichever is the later).”
The appellant contended that as the catalogue was not completed, no moneys were payable for the work performed on it by the respondent if the appellant’s conditions formed terms of the contract.
The contention that the conditions printed on the purchase orders were terms of the contract was rejected by the trial judge. Her Honour contrasted the present case with the facts in Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd.[1] In that case a seller made an offer on a form which contained particular conditions, the buyer replied with an order on its own form containing different conditions, and the seller responded referring to its initial offer, but returned, signed, a tear-off acknowledgment provided in the buyer’s form to the effect that the order was accepted “on the terms and conditions thereon”. It was held that the buyer’s order was not an acceptance of the seller’s offer, but a counter-offer which was accepted by the seller returning the signed torn-off form.
[1][1] [1979] 1 W.L.R. 401.
In the present case, on the other hand, the appellant in correspondence with the respondent referred to its purchase orders as part of its internal accounting machinery in that the appellant required purchase orders or the numbers of purchase orders to be used to enable the appellant’s staff to know what work was being referred to and ensure prompt payment of invoices. In a letter dated 13 June 1995 Mr Maloney requested the respondent to “provide cost estimates so I can raise a purchase order and ensure prompt payment of any future invoices.” In a letter dated 10 November 1995 he wrote to the respondent:
“The second thing that must happen is for all your invoices to include a purchase order number or at worst the purchase requisition number. I have already instructed you to contact Kylie or myself for a number. When an invoice comes into this place without an order number the accounts department pass it onto me. With so much going on I cannot readily recall what work an invoice may relate to and consequently must go searching.”
On 27 November 1995 he wrote that “No work should commence, particularly on large jobs, without a purchase order number which I can provide almost immediately if I know about the work.” That word “number” was underlined in the original letter. In my opinion her Honour was correct in characterizing the purchase orders as “an internal procedure of the [appellant]” rather than as counter-offers. Each contract was complete, in my view, upon the appellant’s oral acceptance of the respondent’s estimate.
The parties’ conduct did not support the contention that they viewed the purchase orders as counter-offers. The respondent usually began to carry out the work when the estimate was accepted, long before a purchase order was issued. On occasion no purchase order was delivered to the respondent. Payment was generally made in accordance with the terms of the estimates rather than the purchase orders. The emphasis in correspondence dealing with purchase orders was on the importance of the number of the purchase orders for the accounting staff of the appellant. I think that the absence of express acceptance by the respondent of the terms of any purchase order shows that neither party regarded the purchase orders as counter-offers which would lead to a concluded agreement only upon acceptance by the respondent. The respondent’s estimates and invoices catered for the inclusion of a purchase order number. The appellant did not rely upon that circumstance as acceptance of the terms contained in the purchase order. Rather, the appellant contended that the purchase orders were impliedly accepted by the commencement or, more usually, the continuation of the work the subject matter of the purchase orders. Considering the communication between the parties as a whole[2], I am of the view that contracts were made at each point in the ongoing series when the respondent’s offers were accepted by the appellant and that the respondent by his words and conduct reasonably led the appellant to believe that all the written terms contained in the estimates formed the terms upon which alone he was willing to contract.[3] In any event the respondent did not have to establish that the printed terms of the estimates formed part of the contracts. He was entitled to be paid for his work as long as the terms printed on the purchase orders were not incorporated in the contract.
[2]See Hussey v. Horne-Payne (1879) 4 App.Cas. 311 at 316 per Earl Cairns L.C.; ABC v. XIVth Commonwealth Games Ltd. (1988) 18 N.S.W.L.R. 540 at 547-8 per Gleason, C.J.
[3]Cf. Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287 at 339 per Diplock, L.J.
In the case of the contracts for the work on the Nicro and Rigging ranges the respondent’s offers constituted by the delivery of estimates were accepted orally. The genesis of the contract relating to the work on the PNP and other products was slightly different. The respondent gave the appellant an estimate dated 18 April 1996 in an amount of $14,000. Mr Maloney told the respondent that was too high. On 26 April 1996 the respondent negotiated with Mr Sander and agreed upon an amount of $10,000. Four days later the respondent issued an invoice for the agreed amount. Like the earlier estimate, the invoice provided that payment was to be made 30 days from the date of the invoice. On 8 May 1996 the appellant issued a purchase order which provided for payment “upon presentation of final proof on completed catalogue”. On 28 May 1996 the respondent wrote to Mr Maloney requesting him to amend the purchase order “insofar as the terms for payment of this job are 30 days from the date of our invoice”. No reply to that letter was received by the respondent. In my opinion the contract was concluded on 26 April 1996 when the parties orally agreed upon the price of the work. Having regard to the settled course of dealing between the parties I think that the agreement impliedly incorporated the terms of the estimate, modified only to reflect the amendment of the price.
Electronic Enhancement
The contract relating to additional electronic enhancement was unusual in that it was alleged to have been made orally between the respondent and Mr Coutts and was not preceded by an estimate. The work, which involved the retouching of digital images that had been scanned on to a computer, was required because the appellant failed to keep its promise to supply the respondent with products free from imperfections. The work was painstaking, requiring a good deal of precision and accuracy. The agreement made in March 1995 for the production of the catalogue contemplated 100 hours of enhancement work at a rate of $200 per hour. Later it became apparent that more enhancement work was required by reason of the poor standard of finish of the products supplied by the appellant. The respondent was requested by Mr Coutts and Mr Maloney to further electronically enhance the images. It was agreed that the work would be paid at the rate of $200 per hour on 7 October 1995, after the end of the appellant’s financial year on 30 September 1995. As the work on the catalogue increased, the enhancement work was not completed until 1996. On 16 May 1996 the respondent issued an invoice in an amount of $117,000 for 585 hours’ work on 1,170 images with a payment date of 7 October 1996. Evidence of the making of the agreement was given by the respondent and Mr Coutts. Mr Maloney had no recollection of the discussions said to have taken place between himself, the respondent and Mr Coutts.
The appellant relied upon the absence of contemporaneous documentary evidence, the issue of an invoice only after disputes had arisen between the parties, the significant scale of the work, the fact that Mr Coutts did not tell anyone in the company save Maloney of the agreement, the friendship between Mr Coutts and the respondent and the fact that Mr Coutts had been dismissed by the appellant, to contend that no agreement was made which could justify the claim for $117,000. It was submitted that the trial judge’s finding were not open to her on the evidence. In my opinion, however, while the matters relied upon by the appellant may have weakened the effect of the evidence of the respondent and Mr Coutts, they did not entail the rejection of the evidence. The trial judge acted primarily upon the testimony given before her. In my view the matters relied upon by the appellant did not demonstrate that the trial judge abused her advantage in seeing and hearing the witnesses or that the witnesses’ evidence was inconsistent with facts incontrovertibly established or was glaringly improbable, and thus “the finding of fact by [the] trial judge, based on the credibility of a witness, is not to be set aside because an appellant court thinks that the probabilities of the case are against – even strongly against – that finding of fact.”[4]
[4]Devries v. Australian National Railways Commission (1993) 177 C.L.R. 472 at 479 per Brennan, Gaudron and McHugh, JJ.
Like attacks were made upon the trial judge’s findings that the respondent entered into agreements with the appellant in respect of work on acrylic panels and the display stand for use at the USA Sale Expo. The trial judge accepted the testimony of the respondent as to the first agreement and that of the respondent and Mr Coutts in respect of the second agreement. Once again the appellant pointed to facts which lessened the likelihood of the respondent’s version being correct. That did not, however, demolish the oral testimony, which the trial judge was entitled to accept.
Account Stated
Some of the work the subject matter of the respondent’s claim in the proceedings was performed prior to 14 December 1995. The appellant contended that an account was stated between the parties on that date by the rendering of an invoice by the respondent and its payment by the appellant, and as a consequence the appellant was not liable to pay for any work performed prior to the statement of account. In particular, the appellant contended that the respondent was not entitled to be paid for producing 66 images which had been produced at the request of the appellant over the period of the project and for which no invoice had been sent until one was issued in August 1996.
There were rival versions of the arrangement pursuant to which the invoice dated 14 December 1995 was rendered. Mr Maloney said that he requested the respondent to prepare and submit to the appellant an invoice covering all work which had been undertaken by the respondent to the date of the invoice and not covered by previous purchase orders. He said that he did so in order that the appellant would be aware once and for all of the amounts which to that date were in the respondent’s view owing to him for work relating to the catalogue. The respondent, on the other hand, said that he told Mr Maloney:
“I wanted to be paid for extra work I had been doing, for which no invoice had been rendered and no agreement reached as regards payment .... Mr Maloney said I should provide an account accordingly. I did not include any amount for re-touching because I believed I clearly had an agreement for the payment for this work.”
Mr Sander, who took over some of the supervision of the project in 1996 said that in April 1996 the respondent said to him and Mr Maloney:
“that he had forgotten to include in earlier invoices some digital re-enhancing and retouching ... I said that I understood that in December 1995 Thomson had raised an invoice for all work done to that date and would only carry out further work on the basis of the Defendant’s purchase orders. Thomson said that he agreed but he had forgotten to include this work.”
In reply, the respondent denied he had made any such statement.
The trial judge preferred the evidence of the respondent to that of Mr Maloney and Mr Sander. The appellant contended that her Honour’s conclusions were based upon two grounds only and neither ground supported the conclusion. The trial judge said:
“The evidence here is conflicting as to the genesis and purpose of the December invoice. Considering that the plaintiff was cross-examined on the question and Mr Maloney was not, and noting the background in what the plaintiff describes as a ‘difference of opinion’ regarding the United States display stand, which forms the basis of a claim in this proceeding, I prefer the evidence of the plaintiff on this point.”
The absence of cross-examination of Mr Maloney could have been held to imply acceptance of his evidence[5], but that conclusion did not necessarily ensue.[6] In Bulstrode v. Trimble[7] Newton, J. dealt with the two aspects of the rule in Brown v. Dunn: as a rule of practice or procedure designed to achieve fairness to witnesses, and as a rule relating to weight or cogency of evidence. As to the first, his Honour said:
[5]Browne v. Dunn (1893) 6 R. 67.
[6]Paric v. John Holland Constructions Pty. Ltd. [1984] 2 N.S.W.L.R. 505 at 507 per Samuels, J.A.
[7][1970] V.R. 840.
“But the mere fact that one party has succeeded upon an issue of fact without giving to witnesses for the other party, who gave evidence against him on that issue, an opportunity in cross-examination of explaining that evidence, will certainly not always be a reason for setting the decision aside on appeal; all the circumstances must be taken into account so as to see whether the conduct of the trial was in fact unfair to the appellant ...”[8]
In the present case, as Mr Maloney had the opportunity to address the point in his witness statement, I do not perceive there was unfairness which should vitiate the decision. As to the second aspect of the rule, Newton, J. said:
“[I]f a witness’s evidence upon a particular matter appeared in his evidence in chief to be incredible or unconvincing, or if it was contradicted by other evidence which appeared worthy of credence, the fact that the witness had not been cross-examined would, or might, be of little importance in deciding whether to accept his evidence.”[9]
In the present case Mr Maloney’s evidence was contradicted by the evidence of the respondent, which was accepted by the trial judge. The witness statements of both parties clearly raised and dealt with the issue.[10] It appears to me that her Honour based her conclusion on the respondent’s written and oral testimony.
[8]Above at 847.
[9]Above at 848. See also Dunn v. Maritime Services Board, unreported, NSW Court of Appeal, 9 June 1998.
[10]Cf. White Industries (Qld) Pty. Ltd. v. Flower & Hart(A Firm) (1998) 156 A.L.R. 169 at 220-1 per Goldberg, J.; Flower & Hart (A Firm) v. White Industries (Qld)Pty. Ltd. (1999) 163 A.L.R. 744 at 757 per Lee, Hill and Sundberg, JJ.
The second reason advanced by the trial judge for accepting the respondent’s evidence, “the background in what the plaintiff describes as a ‘difference of opinion’ regarding the United States display stand”, is obscure. I do not consider, however, that her Honour’s conclusion was based solely on the two grounds identified by the appellant. As I have said, in my view the conclusion was principally based upon her assessment of the respondent’s evidence.
Claim for Incomplete Work
The appellant submitted that the Nicro, Rigging and PNP work had not been essentially completed, contrary to the findings of the trial judge. The respondent himself said that the work had not been completed and reduced the amount of one of the invoices accordingly. In my opinion that circumstance does not preclude recovery of the amount referable to the completed work. It would only do so if the term with respect to payment found in the purchase orders was a term of each of the contracts. The respondent continued to work on the project in accordance with the terms of the contracts between the parties until he was displaced by the appointment of Craftsman, whereupon work on the contracts terminated. The respondent made an alternative claim for a quantum meruit which in my view justified the trial judge’s conclusion as to the amount due to the respondent.
Interest Provision a Penalty
The respondent’s claim for interest rested upon a term printed on his estimates, which provided:
“Thomson Imaging reserves the right to charge interest at the rate of 5% per month on invoice amounts which exceed the agreed terms.”
The “agreed terms” generally required payment to be made 30 days after the date of invoice pursuant to the printed term in the estimates referred to in paragraph [7] above.
The trial judge held that the obligation created by the term was not a genuine pre-estimate of loss but rather was “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach”[11], and thus be void as a penalty.
[11]Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Oil Co. Ltd. [1915] A.C. 79 at 87 per Lord Dunedin.
The respondent’s principal contention on appeal was that the term was not a penalty because the interest was payable in performance of the contract and was not conditioned upon its breach. The respondent relied upon the decision of Wootten, J. in C.J. Belmore Pty. Ltd. v. A.G.C. (General Finance) Ltd.[12] That case concerned a provision in a mortgage which stipulated that upon default being made in the payment on the due date of any sum made payable for principal and interest, the unpaid balance of the principal sum became, at the mortgagee’s election, payable on demand, whereupon the mortgagee was entitled to charge interest upon the unpaid balance at a new and higher rate of interest. It was argued that the provision was void as a penalty. Provisions contained in loan agreements stipulating that if interest is not duly paid the borrower must pay at a higher rate have been regarded as penalties.[13] Wootten, J. described the argument as “misconceived” and said:
“In the present mortgage, no payment is conditioned on breach, and the amount that has accrued before breach is in no way increased. The contract merely selects the time of default as a time from which a new interest rate is applicable for the future, and the interest becomes due, not because of the breach, but because of continued non-payment, subsequent to the breach, of the amount owing. The interest rate nominated is the only interest rate applicable under the mortgage for the period after the due date of instalments, and is not a higher interest rate which becomes applicable only by reason of default.”[14]
His Honour went on to say that the validity of such a provision was accepted by the House of Lords in Burton v. Slattery[15]. Counsel for the respondent submitted that the term as to interest in the present case also provided for interest otherwise than on breach, and could not be a penalty no matter what the rate of interest it might specify.
[12][1976] 1 N.S.W.L.R. 507.
[13]David Securities Pty. Ltd. v. Commonwealth Bank of Australia (1990) 23 F.C.R. 1 at 29.
[14]Above at 509.
[15](1725) 5 Bro.P.C. 233.
Burton v. Slattery was described by Lockhart, Beaumont and Gummow, JJ. in David Securities Pty. Ltd. v. Commonwealth Bank of Australia[16] as a case in:
“a long line of authority which indicates that additional interest will not be considered as a penalty, but rather as a liquidated satisfaction fixed and agreed upon by the parties as compensation for the lender being kept from his money.”[17]
Their Honours characterized the decision in C.J. Belmore Pty. Ltd. v. AGC (General Finance) Ltd. as “a recent application of the reasoning in Burton v. Slattery.”[18]
[16]Above at 30.
[17]The headnote in Burton v. Slattery refers to “the additional interest not being considered in that case as a penalty, but as a liquidated satisfaction fixed and agreed on by the parties.”
[18]Above at 31.
I think that a provision which accelerates the obligation to repay the principal sum and then charges additional interest pending repayment is not materially different from a provision which, upon default, does not make the principal sum immediately due and payable but simply imposes a higher rate of interest on the unpaid balance. In both cases the obligation to pay the higher rate is triggered by a breach on the part of the borrower, as is the obligation in the present case to pay interest at the rate of five per cent per month. If the increase in the rate represents a genuine pre-estimate of the amount needed to compensate the innocent party for a loss of funds he would otherwise have available to him, it will be treated as “a liquidated satisfaction fixed and agreed upon by the parties”, but if not, it will be void as a penalty. I consider that the provision as to the interest in the respondent’s estimates is to be tested in like fashion. The trial judge formed the view, after hearing evidence, that the rate fixed by the term was far in excess of an amount which could be described as a pre-estimate of the loss the respondent would suffer as a consequence of being kept out of his money. If that conclusion was justified, the provision was void.
The respondent challenged the trial judge’s finding that the provision as to interest was not a genuine pre-estimate of loss. The mere fact that a contractual term operates to impose upon a party an obligation to pay a sum greater than can be recovered at law does not entail the result that the term is a penalty.[19] The degree of disproportion between the stipulated amount and the loss likely to be suffered by the promisee must show that the term is oppressive or unconscionable.[20]
[19]P.C. Developments Pty. Ltd. v. Revell (1991) 22 N.S.W.L.R. 615 at 628-31 per Mahoney, J.A.
[20] AMEV-UDC Finance Ltd. v Austin (1986) 162 C.L.R. 170 at 193-4 per Mason and Wilson, JJ.
The respondent in his witness statement said that he believed that he could generate a return of five per cent on income. His counsel submitted that as the appellant led no evidence on the subject, it had failed to discharge the onus which it bore to establish that the term was a penalty.[21] The accounts of the respondent’s business for four years were in evidence. They disclosed that the return achieved by the respondent’s business on net assets were substantially less than five per cent per month. While I have some reservations as to the relevance of the return on assets in a business which depended largely on the expenditure of personal effort, I consider that the rate stipulated by the term was so high that, in the absence of proof of special circumstances, it could properly be found to be excessive. In my view the trial judge was entitled to conclude that the term did not embody a genuine pre-estimate of loss.
[21]De Francesch Builders Pty. Ltd. v. Riley (2000) WASC 301.
Set-off
The trial judge allowed the sum of $31,940 as a set off against the sum owing by the appellant to the respondent. The amount of $210,000 referred to in paragraph [2] above was paid prematurely to enable the appellant to claim an export development grant. It was paid in two sums in March and September 1995. The invoice totalling $214,410 was made up of a number of components, one of which was an amount of $75,440 shown as the cost of printing 35,000 copies of the proposed catalogue. Her Honour said:
“None of the amount of $75,440, attributable in invoice No. 4120 to printing costs, was repaid to the defendant, but $43,500 of that amount was applied to expenses associated with the proposed catalogue and not separately billed to the defendant. That being so, there would seem to have been a failure of consideration in respect of the difference, namely $31,940. While that failure of consideration is attributable to the repudiation of the contract by the defendant, the fact remains that the money was paid in advance for a purpose which has not been fulfilled. Accordingly, the defendant is entitled to the repayment of the amount of $31,940, to be set off against the amounts recoverable by the plaintiff in this proceeding.”
The appellant contended that the sum of $43,500 should not have been deducted from the invoice amount of $75,440 in calculating the amount of the set off. It was submitted that her Honour assumed that the respondent had incurred expenditure of $43,500 on printing costs for the catalogue. The respondent paid the sum of $77,000 to Craftsman for printing the catalogue. When Craftsman refunded to the respondent the advance payment made for printing costs, it reduced the amount of the refund by $43,500 to account for scanning costs which he had already incurred. Although her Honour took the amount of $43,500 to be expenses associated with the catalogue and not separately billed by the respondent to the appellant, the evidence showed that the respondent had already charged the appellant for scanning costs exceeding $54,000, and that amount had been paid to him by the appellant.
In this Court counsel for the respondent accepted that the sum of $43,500 did not represent “expenses associated with the catalogue and not separately billed to the [appellant].” Instead counsel submitted that no amount should be set off against the sums found to be due to him because the payment of $210,000 was made to the Peter Thomson Trading Trust, not the respondent. Alternatively, it was submitted that the contract to which the set off was said to relate was an entire contract so that the appellant was only entitled to a set off in the event of a complete failure of consideration.[22]
[22]See Baltic Shipping Co. v. Dillon(The Ship Mikhail Lermontov) (1993) 176 C.L.R. 344 at 374-5 per Deane and Dawson, JJ.
The trial judge held that the payment was made to the Peter Thomson Trading Trust “at the request and by the direction of the plaintiff.” Her Honour had earlier described the contract pursuant to which the payment was made as one between the appellant and the respondent. With respect, I think that was correct. The initial contract, like the later contracts which varied and added to it, was one between the appellant and the respondent. The estimate referred to in paragraph [2] above, was headed “Thomson Imaging”, a business name owned by the respondent. Upon the oral acceptance of that estimate, a contract was formed. Later, in May 1995, for his own purposes the respondent directed his debtor to pay the money to a third party.[23] The obligation that was satisfied by that payment was one owed to the
respondent.
[23]Bolton v. Madden (1873) L.R.9 Q.B. 55.
The trial judge also rejected the argument that the invoice dated 28 March 1995 for $214,410 embodied an entire contract. In my opinion the project was not to be likened to the building of a ship[24]. The parties conducted themselves on the basis that there was a separate contract for each of the items enumerated in the invoice. In Roxborough v. Rothmans of Pall Mall Australia Ltd.[25] Gleeson, Gaudron and Hayne, JJ. said:
“[T]here are cases ... where it is possible, both to identify that part of the final agreed sum which is attributable to a cost component, and to conclude that an alteration in circumstances, perhaps involving a failure to incur an expense, has resulted in a failure of a severable part of the consideration.”
In my view the present is such a case.
[24]Hyundai Heavy Industries Co. Ltd. v. Papadopoulos [1980] 2 All E.R. 29.
[25](2001) 185 A.L.R. 335 at 340.
For the foregoing reasons I would allow the appeal for the limited purpose of varying the amount of the judgment by allowing a set off in an amount of $75,440, and dismiss the cross-appeal.
CHERNOV, J.A.:
I have had the advantage of reading the draft judgment of Buchanan J.A. in this matter. For the reasons there stated, I agree that the appeal should be disposed of as is proposed by his Honour.
EAMES, J.A.:
I agree with the reasons of Buchanan, J.A. and with the orders proposed by him for the disposition of this appeal.
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