Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd

[2000] FCA 1524

FEDERAL COURT OF AUSTRALIA
Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd [2000]
FCA 1524

TRADE PRACTICES – Alleged misleading conduct – Whether there was a representation as to projected gross profits – Spreadsheet of income produced by respondent during course of negotiations – Whether appellants relied on this document – Inadequacies of evidence concerning damage – Whether it was open to appellants to make a case on appeal that respondent had misled them as to allocation of product outlets – Cross-claim on guarantee – Whether rectification appropriate – Whether cross-claim covered by unrectified guarantee.

TIRANGO NOMINEES PTY LTD, PAMELA WILLIAMS (as Executrix of the Estate of the late Allen James Williams) and PAULINE ANNE STOCKMAN v DAIRY VALE FOODS LIMITED

S87 OF 1999

WILCOX, MOORE and KIEFEL JJ
SYDNEY (HEARD IN ADELAIDE)
30 OCTOBER 2000

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S87 of 1999

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	TIRANGO NOMINEES PTY LTD, PAMELA WILLIAMS (as Executrix of the Estate of the late Allen James Williams) and PAULINE ANNE STOCKMAN Appellants
AND:	DAIRY VALE FOODS LIMITED Respondent
JUDGE:	WILCOX, MOORE and KIEFEL JJ
DATE OF ORDER:	30 OCTOBER 2000
WHERE MADE:	SYDNEY (HEARD IN ADELAIDE)

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellants, Tirango Nominees Pty Ltd, Pamela Williams (as executrix of the estate of the late Allen James Williams) and Pauline Anne Stockman, pay the costs of the appeal incurred by the respondent, Dairy Vale Foods Limited.

3.The order of Mansfield J dismissing the cross-claim against the second and third cross-respondents be set aside.

4.Judgment be entered in favour of the cross-claimant, Dairy Vale Foods Limited, against the cross-respondents, Pamela Williams (as executrix of the estate of the estate of the late Allen James Williams) and Pauline Anne Stockman, in the sum of $247,497.74.

5.The said cross-respondents pay the costs of the cross-appeal incurred by the said cross-claimant.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S87 of 1999

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	TIRANGO NOMINEES PTY LTD, PAMELA WILLIAMS (as Executrix of the Estate of the late Allen James Williams) and PAULINE ANNE STOCKMAN Appellants
AND:	DAIRY VALE FOODS LIMITED Respondent

JUDGE:	WILCOX, MOORE and KIEFEL JJ
DATE:	30 OCTOBER 2000
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1. THE COURT:  There is before the Court both an appeal and a cross-appeal.

   The appeal

   (i)        General

2. The appeal is brought by two applicants in the proceeding, Tirango Nominees Pty Ltd and Pauline Anne Stockman, and the executrix of a third applicant, the late Allen James Williams.    The appellants challenge the order of the trial judge, Mansfield J, dismissing the applicants’ claim against the respondent, Dairy Vale Foods Limited.

3. At the hearing of the appeal, Tirango Nominees and Ms Stockman were represented by Mr P Bick QC and Ms M Loughnan.  The executrix of Mr Williams did not appear.  Prior to the hearing, Mr Bick and Ms Loughnan provided to us a comprehensive and detailed written submission canvassing the findings of fact made by Mansfield J.  We were able to consider that submission before the hearing.  The points made in the submission were further developed by oral argument extending over more than a day.

4. We do not propose to make a summary of the facts of the case or the appellants’ submissions.  We have given careful consideration to all the matters put to us by Mr Bick and Ms Loughnan but find ourselves unpersuaded that Mansfield J fell into any error in relation to the appellants’ claim.  Many, if not most, of his Honour’s findings flowed from his assessment of the witnesses, the more important of whom gave evidence before him over many hours, if not days.  In making his assessment, his Honour enjoyed a considerable advantage over us. 

5. There is nothing inherently improbable about the view of the facts taken by Mansfield J.  Under these circumstances, we have reached the conclusion that the findings made by his Honour were well open to him.  They ought not be disturbed.

   (ii)        Alleged misleading conduct

6. The case pleaded, and sought to be made at trial, was that the respondent represented to Tirango that, if Tirango entered into a distributorship agreement with the respondent, Dairy Vale would ensure that Tirango was able to earn a gross profit of not less than $11,000 per week.  The trial judge was not satisfied that any such representation was made.  To the extent this representation was said to arise out of a spreadsheet faxed to Mr Williams on or about 14 June 1994, his Honour held that Mr Williams did not rely on that document.  That finding was substantially based on the way in which the appellants’ case was conducted at trial and his assessment of Mr Williams.

7. Perhaps sensing that these findings were not really vulnerable to challenge, at the hearing of the appeal counsel changed their client’s case.  Counsel first contended the respondent had been guilty of misleading conduct in representing that Tirango would be allocated all the outlets for Dairy Vale product hitherto serviced by another distributor, Mr Little.  This representation was said to arise out of a notation made on the 14 June spreadsheet.  However, during the course of reading transcript references, it became evident that Mr Thwaites of Dairy Vale, whose evidence was accepted by the trial judge, had deposed he had informed Mr Stockman, a director of Tirango until his sudden death on 28 May 1994, that not all of Mr Little’s outlets would be allotted to Tirango.  Further, there was evidence from Mr Thwaites, not refuted by Mr Williams, that Mr Thwaites had told Mr Williams the same thing.

8. When we drew counsel’s attention to this evidence, they again changed course, contending the 14 June 1994 fax would have conveyed to Mr Williams that, notwithstanding that Tirango was not to receive all Mr Little’s outlets, Dairy Vale was representing that sufficient milk would be made available to Tirango to provide to it a gross profit of $11,000 per week.  However, this latest case is unsupported by any evidence from Mr Williams, the person who is supposed to have been influenced by Dairy Vale’s representation to enter into an agreement with Dairy Vale, rather than National Dairies, thereby allegedly causing Tirango to suffer loss.

9. The essential problem about the appellants’ case, however it is expressed, is that it lacks cogent supporting evidence.  Mr Williams’ testimony was expressed in vague and general terms.  Mansfield J was not impressed; either with the specificity of Mr Williams’ evidence or his reliability as a witness.  We think his Honour’s reaction was entirely understandable.

10. There are other major problems about the appellants’ case; not least the finding of the trial judge, well open to him, that by the date of the agreement, 23 June, Tirango effectively had no alternative to dealing with Dairy Vale.  On 17 June National Dairies had indicated it was unwilling to enter into any agreement with Tirango on account of its apparent insolvency.  There was no other milk producer in the market.

11. The appellants might possibly have made out a case that they were led to believe they would be allocated all of the rounds of Mr Little and, by these means, would achieve a gross profit of not less than $11,000 per week.  Part of that case may have been that representations to this effect were made before the negotiations with National Dairies were terminated by that company on 17 June 1994 and the true position not revealed till after that date.  In those circumstances it might have been said the appellants were, in substance, left with no alternative but to conclude the negotiations with Dairy Vale even on the basis that all the Little rounds would not be allocated to them.  Part of that case may also have been that they could have satisfied the indebtedness of Tirango to National Dairies by using the proceeds of a life insurance policy relating to Mr Stockman.

12. However, it is clear that no such case was pleaded below.  It was not the case the respondent was called upon to meet.  It may be accepted that, as senior counsel for the appellant submitted, the appellants are not necessarily bound by the pleadings, if the case they now rely on was raised and fully ventilated before the trial judge:  see Water Board v Moustakas (1997) 180 CLR 491 at 497 and also Nescor Industries Group Pty Ltd v Miba Pty Ltd (1997) 150 ALR 633. However, this did not occur. In any such case, the time when Mr Thwaites told; Mr Stockman and Mr Williams that not all of Mr Little's rounds were to be allocated to Tirango would have been of critical importance. It would plainly have been material to know whether Mr Williams had been told before 17 June 1994 and, if so, how long before.

13. We were taken to a number of passages in the transcript concerning when Mr Williams was told the rounds of Mr Little would not all be allocated to Tirango.  However it is comparatively clear that neither counsel for the applicants nor, importantly, counsel for the respondent were endeavouring to establish with any precision when Mr Williams was told; and the relationship between that date and the time the negotiations with National Dairies were terminated.  It cannot be said, in our opinion, that the case just mentioned was fully ventilated before the primary judge.  Accordingly it is not open to the appellants to maintain, in this appeal, such a case; being one that is materially different to the case maintained below.

    (ii)        Damages for (wrongful) termination of contract

14. The facts relied upon, and found, were that Dairy Vale gave a notice on 7 August 1996 claiming an excessive amount due ($229,404.22 and not $209,130.72).  Mansfield J held the notice to have been invalid.

15. Tirango claimed that Dairy Vale should account to it - both with respect to the profits it made after it took over the business after 9 September 1996 and also to the value of the “rounds” which Tirango had held under the contract and which were now taken from it, although the submissions suggested that what was sought was an award of money.

16. If Dairy Vale made any profits after terminating Tirango’s exclusive distributorship they were not pointed to or pursued.  It could not have been said that Tirango itself was denied the opportunity of making profits by reason of Dairy Vale’s breach of agreement.  It was operating at a loss.  Attention focussed on the “rounds” which it had lost although, as was pointed out during argument, it was not denied access to customers but only the products of Dairy Vale.  We appreciate the difference might merely be theoretical, if no other product was available.  We put to one side the difficulties in proof of loss,.

17. The nature of, and basis for, the relief claimed by Tirango was not apparent from its pleadings.  On one view, it might be seen as the loss of the opportunity to obtain something for the exclusive distributorship in the rounds, and any goodwill associated with it, on the basis that Dairy Vale would not unreasonably withhold an assignment (see cl 19 of the Wholesale Vendor Agreement).  It may be accepted that damages of that kind were within the contemplation of the parties: Chaplin v Hicks (1911) 2 KB 786, 791; but that damage may be dependant upon a number of contingencies, to the point where it may be negligible: Fink v Fink (1946) 74 CLR 127, 134. These authorities were referred to by Burchett J in the judgment of the Full Court in Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527, 566. As Mansfield J pointed out, in Amann the Commonwealth was unable to prove, as a fact, that it would, in any event, have lawfully terminated the agreement it had wrongfully terminated (see:  Commonwealth v Amann Aviation Pty Ltd 174 CLR 64, 95-6).

18. In the present case his Honour held that Dairy Vale could, and would, have lawfully terminated the agreement by 9 September 1996.  It was, as his Honour observed, clearly entitled to have done so and intended to do so.  On the appeal Tirango’s only submission against this finding was that his Honour wrongly assumed that Dairy Vale, at some point in the period, would have realised that its first notice was invalid.  It was not however necessary for it to establish that.  The submission overlooks that what is here being weighed, against the prospect of Tirango ever recovering monies for its contracted rights, is the contingency that the contract would be terminated.  It was clearly so high as to render negligible the prospect.

19. The appellants also sought to derive a right to monies, by way of damages for trespass, by analogy to cases involving receivers, invalidly appointed, dealing with company property.  In those cases, however, the relief claimed is merely an accounting for the monies received on the sale of the property which has no doubt been applied to the debt:  as to the effect of such a claim see Blanchard and Gedye “The Law of Company Relationships in Australia and New Zealand”, second edition, par 4.14 (p 81).  We do not understand the appellants to maintain a claim for such relief.

    The cross appeal

20. Ms Stockman and Mr Williams executed a document entitled “Guarantee and Indemnity” which was addressed to Dairy Vale and contained the following:

    “IN CONSIDERATION of Dairy Vale having agreed to enter into the annexed Agreement at my/our request I/we the Guarantor referred to in the Schedule hereto:

    1.HEREBY GUARANTEE the payment by the Vendor therein named to Dairy Vale and the due and punctual observance and performance by the said Vendor of the terms and conditions therein contained or implied on the part of the said Vendor to be observed and performed.

    2.AS a separate and severable covenant agree to indemnify Dairy Vale and keep it indemnified from and against all losses costs charges and expenses whatsoever that Dairy Vale may suffer or incur by reason of the failure or default of the said Vendor to observe and perform the terms and conditions and covenants therein contained or implied and on the part of the said Vendor to be observed and performed.

    3.As a separate and severable covenant we covenant and agree with Dairy Vale on the same terms and conditions as are contained in Clause 3.15 of the annexed Agreement as if reference to ‘the Vendor’ therein was a reference to ‘the Guarantor’.”

    As his Honour observed, the parties accepted that the “annexed agreement” was the Wholesale Vendor Agreement.  That position was maintained on the appeal.

21. At the trial, Dairy Vale relied primarily on clause 3.  However, the Wholesale Vendor Agreement did not contain any clause 3.15.  Clause 3 referred only to the term of the agreement and extended to four parts.  The following clause, headed “Vendor’s Obligations”, did contain a clause 4.15 which concerned the liability of Tirango for the payment of products:

    “The Vendor shall make due and punctual payments for the Products to Dairy Vale in accordance with the trading terms.”

    Dairy Vale contended that the reference in clause 3 of the guarantee and indemnity to clause 3.15 of the Wholesale Vendor Agreement was a mutual mistake; the parties having intended to refer to clause 4.15.  They sought an order to rectify clause 3 by substituting a reference to clause 4.15.  However, counsel for Dairy Vale called no evidence as to their client’s intention and asked no questions of Mr Williams or Ms Stockman about the matter.  Under those circumstances, Mansfield J was not prepared to infer that the parties intended clause 3 of the guarantee to refer to clause 4.15 of the main agreement.  He refused an order for rectification and dismissed the cross-claim.

22. Cogent evidence is required to justify an order for rectification:  see Meagher, Gummow and Lehane ‘Equity Doctrines and Remedies’, third edition, para [2610] and the authorities there cited.  Having regard to the absence of evidence in the present case, we respectfully agree with Mansfield J that it was not appropriate to order rectification.  However, even if there is no evidence concerning the actual intention of the parties, a court may sometimes be able to conclude that an error has been made and to eliminate this by a process of construction:  see Meagher, Gummow and Lehane at [2608]-[2609] and the cases there referred to Fitzgerald v Masters (1956) 95 CLR 420; Watson v Phipps (1985) 60 ALJR 1. The jurisdiction to correct obvious errors in documents, by a process of construction, does not permit any element of speculation. Whilst words may be “supplied, omitted or corrected” it is only where “…it is clearly necessary in order to avoid absurdity or inconsistency”: Fitzgerald v Masters, 426-7, but no further: Watson v Phipps, 3.

23. In the present case it is plain that there is an error in the reference to a non-existent clause; and one may take it that some obligation was intended to be assumed by the guarantors.  One may readily fasten upon clause 4.15 as containing an obligation to pay, but this involves an assumption that that was the nature of the obligation to be assumed.  This exceeds the permissible limits of construction.

24. That is not however an end to the question of liability under the Guarantee and Indemnity.  His Honour dealt only with liability pursuant to clause 3, no doubt because that was the focus of submissions.  Clauses 1 and 2 are set out in para 20 above.  Resort to them, for an alternative source of liability, cannot in our view be denied to Dairy Vale.  They  were clearly relied upon in the cross-claim.  This was acknowledged, in the written submissions on behalf of the guarantors, at the trial.

25. It was submitted that clause 1 is uncertain in its reference to payment under the Agreement.  The obligation to pay under clause 4.15 is one “in accordance with the trading terms”.  However, these terms can be found in another agreement, the “Milk Vendor’s Agreement”, signed by the guarantors as vendors and on behalf of Tirango.  In any event, whatever view is taken of clause 1, a liability on the part of Ms Stockman and Mr Williams to pay Dairy Vale themselves was undertaken under the indemnity provision, clause 2.  There seems to be no answer to its provisions.

26. In our view the cross-claim should be allowed and Ms Stockman and (the estate of) Mr Williams held jointly and severally liable for the losses incurred by Dairy Vale on account of the non-payment by Tirango of the sum of $247,497.74.

27. The appeal should be dismissed.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Wilcox, Moore and Kiefel .

Associate:

Dated:             30 October 2000

Counsel for the Appellant:	P Bick QC and M Loughman
Solicitor for the Appellant:	Slater & Gordon
Counsel for the Respondent:	A J Besanko QC and T J Mellor
Solicitor for the Respondent:	Mellor Olsson
Date of Hearing:	30-31 August 2000