Tycoon Holdings Pty Ltd v Trencor Jetco Inc

[1995] FCA 232

CATCHWORDS

PRACTICE and PROCEDURE - motion for leave to amend a statement of claim - adding new claims against corporation outside jurisdiction - other claims modified

CORPORATIONS - CONTRACTS - NEGLIGENCE - whether collateral contracts or tortious duties apply to a body not yet incorporated - pre-incorporation representations actions or statements later accepted or ratified by corporation

PLEADING - whether pleadings disclose cause of action - embarrassing and prolix pleadings - effect of failure to plead damages adequately - permitting pleading when particulars or further amendment sufficient to clarify allegations being made

DAMAGES - entitlement of company to damages incurred pre-incorporation - negligence and contractual measure of damages

Trade Practices Act (Cth) 1974 ss 51A, 52, 53, 82
Fair Trading Act (WA) 1987 ss 4(2), 5
Hire Purchase Act (WA) 1959
Sale of Goods Act (WA) 1895

Hoyts Pty Ltd v Spencer [1919] 27 CLR 133
Hall v Nominal Defendant [1966] 117 CLR 423
Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" [1976] 136 CLR 529
Carr v Finance Corporation [1981] 147 CLR 246
San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [1986] 162 CLR 340
T.C. Industrial Plant Pty Ltd v Roberts Queensland Pty Ltd [1963] 37 ALJR 289
Yamaji v Westpac Banking Corporation Ltd (No 2) [1993] 42 FCR 436
Heilbut, Symons & Co v Buckleton [1913] AC 30

TYCOON HOLDINGS PTY LTD & KANGARILLA PTY LTD v TRENCOR JETCO INC & MOLE ENGINEERING PTY LTD

WAG 41 OF 1991

EINFELD J

CANBERRA (heard in Perth)

5 APRIL 1995

IN THE FEDERAL COURT OF AUSTRALIA   )
WESTERN AUSTRALIA DISTRICT REGISTRY )  No. WAG 41 of 1991
GENERAL DIVISION                   )

Between:       TYCOON HOLDINGS PTY LTD
  First Applicant

KANGARILLA PTY LTD
  Second Applicant

And:       TRENCOR JETCO INC
  First Respondent

MOLE ENGINEERING PTY LTD
  Second Respondent

REASONS FOR JUDGMENT

EINFELD J                CANBERRA             5 APRIL 1995

(heard in Perth)

These proceedings arise out of the supply to the first applicant (Tycoon) by the first respondent, a United States corporation, (Jetco) of what is known as a trencher, a large earthmoving machine used for digging drainage channels on agricultural properties.  The second applicant (Kangarilla) was the builder of such channels and became the operator of the trencher which was purchased by Tycoon in Western Australia from Jetco's Australian distributor, the second respondent (Mole).  Tycoon hired the trencher to Kangarilla.  I am indebted to the applicants for the general chronology of the main events giving rise to the proceedings which with minor emendations is attached to these reasons as a schedule.

On 24 April 1991 the applicants commenced proceedings seeking damages from the respondents under the federal Trade Practices Act, three Western Australian Acts -- the Fair Trading Act 1987, the Hire Purchase Act 1959 and the Sale of Goods Act 1895 -- and for breach of contract, negligence and fraud. In the ensuing fifteen months the statement of claim was amended some seven times. There were two major and several minor interlocutory motions and other hearings in that period. Then on 21 July 1992 the applicants filed another motion for leave to amend the statement of claim yet again. On 4 September 1992 the motion was adjourned by order of Justice Lee, who directed the filing of witnesses' statements and a mediation conference by the Western Australian District Registrar. Some evidence was filed and several sittings of the mediation conference were held in the following year. When mediation failed to resolve the matter, the applicants sought to proceed with their July 1992 motion to amend the statement of claim and, by order of Justice Lee, filed the proposed amendment on 1 March 1994. A further edition of the proposed amendment was filed on 10 June 1994 after an exchange of submissions on the motion to amend. Following further submissions by the parties, the motion was fixed for hearing on 15 August 1994. The papers presented in the matter are voluminous.

The basic facts of the dispute between these parties have been set out in two previous judgments of the Court on different aspects of the proceedings, one by Justice Wilcox on 5 February 1992 and one by Justice Lee on 5 June 1992.  On a motion by Jetco to set aside the service of the originating process outside the jurisdiction, Justice Wilcox struck out the statutory claims against Jetco but allowed the common law actions to stand.  His Honour detailed the facts of the matter and spelt out the nature of the contract and negligence claims involved, and there is no need to repeat those matters again here.  Justice Lee struck out a subsequent amendment seeking to rely on a collateral contract incorporating as warranties the representations originally pleaded as misleading or deceptive conduct under section 52 of the Trade Practices Act.

Both respondents argued that leave should not be granted on the ground that notwithstanding the passage of almost four years since the proceedings were commenced, the proposed amendments disclose no reasonable cause of action.  On the issue of delay, it must be recalled that although heard in 1994/5, the present motion was in fact filed on 21 July 1992, 15 months after the proceedings were commenced, and that many of the proposed amendments have arisen from objections of the respondents.  A number of arguments were also raised that because relevant events took place before the incorporation of Tycoon, it cannot sue on them.  It is convenient to deal with these pre-incorporation arguments globally at the end of this judgment.

The respondents also argued that the now proposed amended statement of claim is prolix.  It must be at once said that it is certainly an extraordinary document.  Far from merely pleading the material facts on which the intended causes of action are based, it contains in considerable detail the evidence including words and conversations intended to be led in evidence.  Moreover, the applicants said at the hearing of the motion to amend that they would be making even more changes.  On the other hand, despite their contrary submissions, more detail rather than less, at this stage of this quite remarkable proceeding, is hardly embarrassing to the respondents who are being made privy to virtually every aspect of the applicants' case.  I have not been able to find one instance of principle where the material fact has not been pleaded, even though there are numerous instances where much more has also been pleaded.

Apart from the respondents' attitude to its previous incarnations,  I was led to believe that the detail in this document is the result of criticisms from the Bench that the earlier efforts to plead the case had been too broadly drafted.  For what it is worth, and at the risk of inducing schizophrenia and anxiety stress in the parties, especially the applicants' advisers, I must add my own view that the claim is now much more complicated than is necessary to present what I understand to be the applicants' case.  At the same time, whilst I can appreciate the attack on the form and method of the pleading, I do not think that it has established a case of prolixity such as to reject the document in principle.  Certainly Mole's existing defence will need amendment if the new statement of claim is permitted and this should be at the cost of the applicants whatever the result.  Jetco has not yet filed a defence despite the fact that the proceedings will shortly celebrate their fourth birthday.
The principal proposed amendments relate to what are called in the intended pleading the first and fourth collateral contracts.  These are the only two matters to raise substantially new causes of action.  The first collateral contract is new, and the fourth is being extended to add Kangarilla as an applicant.

JETCO'S ARGUMENTS

First collateral contract

The applicants allege that the terms of the first collateral contract with Jetco were as follows (first Jetco offer):

38.By reason of the matters pleaded in paragraphs 28 to 37 it is to be inferred that on or about 29th April 1988 at Dallas, Texas, Jetco, by Gilbert, made an oral offer expressed to Kimber and Henning that upon, and in consideration of a person or entity being either the Partnership or any person or company associated with the Partnership ("the Purchaser") accepting Jetco's offer by placing an order or causing a financier to place an order, in Australia with Mole, as Jetco's distributor in Australia, for the supply of a trencher to be designed, manufactured and supplied by Jetco to Mole Jetco undertook to each of the Purchaser and any company or person associated with the Purchaser which might agree to hire and use the trencher that Jetco would:

38.1design and manufacture a trencher:

(a)to have the Trencher Characteristics;

(b)to the highest engineering standards;

(c)applying the most stringent quality control procedures; and

(d)ensuring that the engineering design and manufacture services provided by Jetco would utilise the most experienced people in the industry
having a complete understanding of trenching products and applications;

38.2guarantee the quality of the trencher so that Jetco would rectify at the expense of Jetco all deficiencies in the design and manufacture of the trencher as may be discovered and reported to Jetco or Mole in a six month period commencing from the date of delivery of the trencher to the end user;

38.3provide, and cause Mole to constantly maintain in Western Australia, a stock of all spare parts required to maintain the trencher in good operating condition.

The acceptance of the first Jetco offer, said to be constituted by entry into certain other contracts, is pleaded in paragraph 63 of the proposed amendment as follows:

63.1On or about 21 November 1988 Tycoon and Kangarilla entered into a contract (the Trencher Hire Contract) by oral agreement between Henning for Kangarilla and Kimber for Tycoon for the supply by Tycoon to Kangarilla of the Trencher and operators on terms as follows;

(a)the Trencher would be made available to Kangarilla exclusively on a wet hire basis, that is to say, Tycoon would supply the Trencher, together with operators, on demand by Kangarilla for the purpose of performing such interceptor canal construction contracts in Western Australia as Kangarilla had entered into and might in the future enter into and Tycoon would meet all operating costs of the Trencher including operator wages, fuel, oils and transportation costs.

(b)Tycoon would at its own expense provide a suitable truck and trailer and personnel for transportation of the Trencher to such locations in Western Australia as Kangarilla might from time to time specify.

(c)Kangarilla would at its expense perform the land survey for each interceptor canal to be constructed.

(d)Kangarilla would at its expense market the services of the Trencher throughout the South West agricultural area of Western Australia.

(e)Tycoon would receive 90% of the fees charged by Kangarilla for the construction of interceptor canal (excluding any surveying fees charged).

(f)the duration of the contract was indefinitely namely until such time as either party should choose to terminate.

(g)the Trencher would have the Trencher Characteristics.

(h)commencement of the hire was conditional upon the Trencher being tested to the satisfaction of Kangarilla.

63.2On or about 4 January 1989 Tycoon entered into a contract with Mole ("the Contract") for the purchase by Tycoon of the Trencher from Mole in that on or about 3rd January 1989 Tycoon by Kimber placed an oral order with Mole accepted by Mole by letter dated 4 January 1989 for the supply by Mole to Tycoon, of the Trencher on terms that:

(a)the Trencher would be designed and manufactured in the USA by Jetco to have the Trencher Characteristics;

(b)payment for the Trencher would not be due until such time as the Trencher had been tested to the satisfaction of Tycoon and accepted by Tycoon;

(c)Mole would maintain in Western Australia a constant stock of all spare parts required to maintain the Trencher in good operating condition;

(d)Mole would hold the said stock at Mole's Welshpool store;

(e)the Trencher upon supply to Tycoon would have the Trencher Characteristics;

(f)the Trencher, excluding engine, hydraulic motors and all other parts not manufactured by Jetco, would be covered by a 6 months warranty to the effect that every deficiency in the Trencher discovered, and reported to Mole, in that period following delivery to Tycoon being a failure to have the Trencher Characteristics and not attributable to normal wear and tear would be rectified at no expense to Tycoon;

(g)the Trencher engine, hydraulic motors and all other parts not manufactured by Jetco would be covered by a warranty by Mole equivalent to the warranty provided to Jetco by the manufacturer of the relevant part.

63.3On or about 3 January 1989 Tycoon placed $100,000 into a term deposit account with Wesfarmers Co-op Ltd in the joint names of itself and Mole and subsequently paid that sum to Mole as a deposit in respect of the purchase price of the Trencher.

63.4Tycoon forwent the opportunity to acquire and modify alternative machinery to the Trencher with which to perform interceptor canal construction work under subcontract to Kangarilla which machinery and modifications were under consideration by Tycoon namely to purchase and modify Caterpillar D8N bulldozers, or purchase and modify 2 second hand Cleveland bucket wheel trenchers or purchase a Liebherr tracked bucket excavator.

It should at once be noted that paragraphs 63.1 and 63.2 allege, so far as the proposed pleading is concerned, two quite different apparently unconnected contracts.  The main contract, viz. the purchase of the trencher by Tycoon from Mole, is pleaded in paragraph 63.2.  In paragraph 63.1 a related contract for the hire of the trencher by Tycoon to Kangarilla is pleaded.  These contracts involve different parties, and the hire contract predates the purchase contract.  This formulation is in words almost meaningless but, as I understand the position, the substance of the allegation is that Jetco agreed with the principals of what was to become Tycoon, and who would acquire Kangarilla, to guarantee to both the purchaser and hirer the quality and maintenance of the trencher provided that it was

purchased in Australia from Mole.

In acceptance of that agreement, Tycoon became incorporated, entered into a purchase agreement with Mole, and hired the trencher to Kangarilla.  So formulated, the matter is somewhat clearer although, depending on the evidence, the fact that the hire predated the purchase may provide a problem for the applicants.  By paragraph 64, the applicants allege that by entering both the purchase and hire contracts, Tycoon and Kangarilla accepted the first Jetco offer.  This is the contract which is described as "the first collateral contract"; it is said to be collateral to the purchase contract from Mole.

In opposition to leave being granted to add this cause of action, Jetco made several points.  The first was that the application to amend which was dismissed by Justice Lee on 5 June 1992 involved a pleading of substantially the same cause of action as this first collateral contract.  Whilst it is true that the first collateral contract does in essence repeat the pleadings disallowed by Justice Lee on 5 June 1992, his Honour's decision was based upon the failure of the applicants to raise any relevant facts in the affidavits they had filed (judgment p.7) -

..... to support a pleading of a "collateral pre-incorporation contract" incorporating the pleaded representations and warranties.

The importance of this matter is that in the first collateral contract the applicants are commencing a cause of action against a company, Jetco, not in the jurisdiction, thus raising the questions of comity discussed in the earlier judgments referred to.  However, these judgments being interlocutory, additional evidence may of course be led as a basis for another application for a different decision: Carr v Finance Corporation [1981] 147 CLR 246; Hall v Nominal Defendant [1966] 117 CLR 423. And since Justice Lee's decision the applicants have filed a great deal of additional affidavit material.

Although the volume and content of this evidence, the complexity of the proposed and previous pleadings, and the nature of the dispute have made investigation quite difficult, I have been unable to identify any serious occasion of default in meeting the court-ordered requirement that verified prima facie evidence be provided of the causes of action and material facts relied on against Jetco.  I respectfully agree in this respect with the remark of Justice Wilcox in the judgment of 3 February 1992 that a prima facie case on each cause of action does not require prima facie proof of each precise allegation of fact.  Although it is obvious that by the time of the hearing, any significant defect in proof will impinge upon the applicants' chances of success, there is certainly no glaring omission such as to call for the exercise of the discretion not to permit the amendment sought.  I can see no reason why Jetco cannot file a defence to the proposed pleading although some further refinements and a few corrections to it will first be necessary.  The written and oral submissions made on the current motion, not to mention some constructive consultation between counsel and, hopefully, these reasons for judgment, will help to identify these matters.

Jetco also alleged that the proposed pleading is embarrassing and tends to cause "prejudice".  All legal proceedings create prejudice to those against whom they are brought.  As I understood this submission, it was principally that the matters pleaded could not give rise to a contract.  Jetco said that the statements made by its personnel were mere representations, and could not amount to promises.  Certainly a reading of the allegations shows that most of the statements were representations.  However, I am of the opinion that the applicants should be given the opportunity at trial to argue that they constitute guarantees in a collateral contract.  It is at least arguable that a manufacturer guaranteeing the quality of goods can be held liable in contract if the representee purchases the goods from a separate supplier, especially the manufacturer's nominee.

Further, despite the argument of Jetco to the contrary, I am of the opinion that in theory at least Kangarilla can be a party to such a contract.  If the guarantees were made to those who later acquired Kangarilla, and who were known to Jetco as the future principals of some such organisation, and in the circumstance where it was clearly in Jetco's interest for Kangarilla to enter the agreement with Tycoon, I believe that an arguable case is
mounted.  Whether Kangarilla is entitled to relief from breach of the contract is a matter for trial.

Fourth collateral contract

Although pleaded as such in the proposed amended statement of claim, during the hearing of the motion paragraph 63 was removed as a basis for the fourth collateral contract (T70).  The applicants now allege that by three things done by Tycoon viz:

1.making what is described as a further payment to Mole for the trencher of $150,000 (paragraph 77);

2.entering a hire purchase agreement with Australian Guarantee Corporation (AGC) thereby procuring payment to Mole of $780,021, the balance of the purchase price (paragraph 78); and

3.accepting delivery of the trencher without further testing, thereby waiving its contractual right to test the unit before delivery and payment, and its right under the Sale of Goods Act to examine and test the machine to ascertain whether it conformed to the principal contract (paragraph 79),

all three occurring on or about 11 October 1989, and by Kangarilla's commencing to hire the trencher from Tycoon, both applicants accepted a second offer by Jetco.  Insofar as it includes Kangarilla, this assertion also raises a new cause of action.  This second offer is pleaded in proposed paragraph 70 as follows:

..... on or about 28 May 1989 at Grand Prairie, Texas [USA], Jetco by Gilbert and/or John Gilbert made an oral offer to Tycoon and Kangarilla represented by Kimber that in consideration for Tycoon proceeding to procure settlement of the purchase of the Trencher and each of Tycoon and Kangarilla taking delivery of the Trencher in Western Australia notwithstanding the failure of the Trencher to demonstrate at a field trial conducted in Texas on or about that date that it had the Trencher Characteristics:

70.1Jetco would send Nowels to Western Australia with the Trencher to provide to Tycoon in Western Australia quickly and expertly and at no expense to Tycoon or Kangarilla all such assistance and do all such things as may prove necessary in order to ensure that the Trencher had the Trencher Characteristics and;

70.2would warrant that subject only to such adjustments as Nowels may make the Trencher on delivery would have the Trencher Characteristics.

70.3would warrant that before delivery of the Trencher to Tycoon:

70.3.1the rear undercarriage assembly would be modified to ensure that the Trencher would float over boggy ground in transport mode;

70.3.2three buckets would be removed from the bucket wheel and the wheel re-timed;

70.3.3the conveyor components would be adjusted to eliminate belt slipping under load;

70.3.4a crumber plate of the correct dimensions for the intended canal profile would be manufactured and fitted to the Trencher;

Nowels was evidently a technician employed by Jetco.
The applicants' case is that Jetco offered to the representatives of the two companies a means by which certain obligations already allegedly agreed to could be varied.  It is said that in continuing with the arrangements that were then in train, both applicants accepted the new contract, or a variation of the old.  Kangarilla supplied consideration by proceeding with the arrangement, thereby procuring Tycoon's continued participation in the venture, to Jetco's obvious advantage.  This offer and acceptance are said to constitute a contract by Tycoon and Kangarilla with Jetco collateral to the purchase contract or varying the first collateral contract.

Jetco complained about this pleading that:

1.it does not allege that Jetco ever made an offer to Kangarilla,

2.no consideration was provided by Kangarilla, and

3.there is no assertion, and it is not possible, that any offer by Jetco to Kangarilla was capable of acceptance by Kangarilla's commencing to hire the trencher from Tycoon.

Whilst retaining not inconsiderable doubt whether the applicants will, at trial, ever be able to prove their allegations in these respects sufficiently to raise a real issue, I believe that the proposed pleading permits of the possibility that an action may lie.  Tycoon's entry into a contract with Kangarilla which gives a benefit to Jetco, albeit indirect, is certainly entitled to be considered as the acceptance of a contractual offer by Jetco.  The matter is one for evidence and inferences from evidence.  Its legal basis is not so hopeless as to require its summary disallowance on this motion.

Negligence

Proposed new particular B to paragraph 106 of the statement of claim states:

..... at all material times Jetco knew that the entities associated [with] Henning and Kimber that would ultimately acquire and use the Trencher would rely upon the said expertise in relation to the design manufacture maintenance and repair of the Trencher.

PARTICULARS OF KNOWLEDGE

On or about 26-29 April 1988 Henning and Kimber said to Willhoite and Gilbert words to the effect that they and the entities acquiring and using the Trencher would be relying on the expertise of Jetco to design and manufacture a bucket wheel trencher to have the Trencher Characteristics, to provide an adequate supply of spare parts to keep the Trencher running at all times and to produce and provide a "best-cause worst-cause" estimation of component service life after taking into account the soil conditions the Trencher would be required to operate in.

The expertise referred to is described in particular A as "special expertise in the design manufacture and repair of trenching machinery".

Jetco complained that no evidence has been identified to support these assertions, in particular that there is no verification
that the applicants intended to rely upon the representations of the respondents.  I do not consider this objection to have any real merit.  Justice Wilcox (judgment p.12) said in this regard:

It is common ground that the subject machine was custom-built for the applicants, by a manufacturer which held itself out as a world leader in the design and construction of trenchers.  It is also common ground that, whatever the content of those instructions, the first respondent received detailed instructions as to the applicants' requirements.  Under those circumstances, the first respondent clearly came under a duty of care towards the applicants even though, as a matter of contract law, the sale was to be made by Jetco to Mole.  Jetco knew that Mole would resell to Kangarilla or its nominee and that the ultimate purchaser would be relying on Jetco's expertise in designing and constructing a machine meeting the disclosed requirements.

I respectfully agree with and adopt his Honour's comments.

Damages

Finally, Jetco submitted that the issue of damages has been improperly pleaded.  The complaint in this regard broadly raises two issues:

1.that the damages resulting from each alleged breach of contract have been pleaded globally rather than separately pleading the damage resulting from each

2.that in respect of the negligence claims, the contractual measure of damage has been pleaded

As I explained to the parties during the hearing, I have little sympathy with complaints about the pleading of damages.  Although it is customary to provide particulars of damage in a pleading or to supply a statement or schedule of damages at a later time, such matters are not in truth required to be pleaded at all.  In this case I am far from convinced that the pleading is inappropriate.  It is true that several different contracts are pleaded, but the alleged result of each breach was that the applicants were denied the benefit of an operational and adequately functioning trencher.  It must always be recognised that in certain cases the proper measure of tortious damage will approximate the contractual measure.  Here, where it is alleged that by the respondents' negligence the applicants lost the benefit of a contract similar in nature and substance to the one they were led to believe they were entering, it may well be, and might be presumed, that the damages in each case are the same.  

MOLE'S ARGUMENTS

No new causes of action against Mole are raised in the proposed amended statement of claim.  Nevertheless, Mole objects to the manner in which the existing claims are repeated.  Counsel for the applicants labelled this approach as Mole merely "jumping on a passing wagon", but I must nevertheless address its concerns, albeit some of them rather briefly.  In addition to alleging a failure to disclose a reasonable cause of action, Mole said that the proposed pleading is not in proper form and, in a number of allegedly important respects, embarrassing.  Mole's arguments may be collated under the various causes of action:

1.Trade Practices Act

Mole's proposition under this heading includes an alleged inconsistency in the statement of the cause of action.  Mole also complains that representations alleged to be false (s.53) have been inappropriately pleaded as statements of future intent or of opinion or under section 51A which is directed only at misleading not false representations.  That some conduct relied on as contravening the Act occurred outside Australia is said by Mole to require ministerial consent (s.5) and this consent has not been obtained.  Some representations are alleged to have been made to Tycoon before its incorporation.

I have been unable to discern a real basis for these assertions of embarrassment.  The alleged inconsistencies in the statement of the Trade Practices Act claims raise the matter I mentioned earlier, viz. that extensive items of evidence rather than merely the material facts have been pleaded.  For the reasons given earlier this contention is in my opinion inconsequential and argumentative, as is Mole's position on the sections 53 and 51A claims.  It may be, as was conceded in argument, that the section 53 claim is unnecessary, but that is no reason to refuse it.  Its inclusion can cause no real hardship; such a duplicity in pleading in an abundance of caution is hardly even unusual.

As to the supposed extra-territorial elements of the claim, the relevant passage in Yamaji v Westpac Banking Corporation Ltd (No 2) [1993] 42 FCR 436 is at 440:

It follows that where a party applies at an interlocutory hearing to amend his pleading to set-up extra-Australian conduct in the context of a section 82 claim, he will be able to pursue such an application at that time only if the necessary consent has already been obtained.

The applicants are not by their amendments seeking to "set up extra-Australian conduct in the context of a section 82 claim."  That was done long ago in the original statement of claim.  The applicants merely seek to amend the facts and circumstances which set up the relevant conduct.  In any event, this claim also arises under the Fair Trading Act which by section 4(2) extends to conduct outside Western Australia by Western Australian companies of which Kangarilla is one.  Furthermore, I am of the view that on its proper construction the trade practices legislation was not intended to prevent the institution of proceedings without the Attorney General's consent but only requires consent before relief can be granted.  It is unlikely that section 5 of the Trade Practices Act could have been meant to operate so that before a case even commences, and therefore all the facts, allegations and defences are collated, a decision of this potential importance has to be made once and for all by bureaucrats foreign to the litigation.

2.   Purchase contract

A number of objections were taken to the way the purchase contract has been pleaded resulting in the submission that the pleading is again embarrassing.  The first example given is that there is no assertion of the price agreed to be paid for the trencher.  It is true that there is no indication in the proposed pleading of the actual contract of an agreement on a price.  In that literal sense, therefore, Mole is correct.  It is clear from other parts of the pleading, however, that the parties are alleged to have agreed on a price of $US693,000.  This complaint is therefore quite trivial but the applicants should amend the proposed pleading of the purchase contract to include the agreement as to price.

A similar procedure should be adopted in respect of the pleading of the communication to Mole of the purpose of the trencher as required for the implication of terms under the Sale of Goods Act. This complaint is again an inconsequential matter -- the proposed statement of claim already makes the allegation, albeit somewhat indirectly, that the respondents were aware of the purpose to which the trencher was to be put. A fairly strong implication arises also from the alleged exchanges between the parties prior to contract. Nevertheless this defect should also be corrected when the amendment is finally settled.

Other criticisms of the pleading of the purchase contract were essentially technical and, to the extent necessary, can and should be overcome by particulars, further refinement of the words or discussion between the parties.  They are not matters going to a motion for leave to amend.

3.   Second collateral contract

According to the applicants, Mole made an offer after execution of the principal contract that if Tycoon accepted delivery of, and paid for, the trencher as soon as it arrived, without performing the trials that it was entitled to perform under the contract, Mole would warrant the fitness of the trencher (the Mole offer).  It is said that by accepting delivery and paying for the trencher without conducting trials, this offer was accepted by Tycoon, creating the "second collateral contract" (paragraph 81.1), or varying the original contract (paragraph 81.2).

Mole alleged that the pleading of this contract is embarrassing or does not disclose a reasonable cause of action because:

1.the contract is not in truth collateral to the purchase contract for the reason that the consideration was not entry into the purchase contract which had been made months earlier: Hoyts Pty Ltd v Spencer [1919] 27 CLR 133 at 139 and 147; Heilbut, Symons & Co v Buckleton [1913] AC 30 at 47; and

2.the terms of this contract are inconsistent with the purchase contract which included that payment was to be made after inspection, and presupposed continued ownership of the trencher by Mole when in fact AGC became its owner on or before its hire purchase agreement with Tycoon.

In response the applicants agreed in argument to delete paragraph 81.1 so that the matter is pleaded purely as a variation of the original contract.  It would appear, therefore, that there is no longer to be a second collateral contract alleged.

I can perceive no reason why the assertions made in the proposed pleading cannot constitute the alleged variation.  It is at least arguable whether entry into the hire purchase agreement precluded the continued existence of the contract.  It is certainly not so as a matter of law: T.C. Industrial Plant Pty Ltd v Roberts Queensland Pty Ltd [1963] 37 ALJR 289. As noted previously, the applicants say that payments were made to Mole both by Tycoon under the contract and by AGC under the hire purchase agreement. It seems agreed that, as also noted earlier, some such payments were made on the same day. Whilst it may well be true that the entry into the hire purchase agreement did not represent an acceptance of or consideration for the Mole offer, a conclusion is open that the offer was accepted by procuring the balance of the purchase price through the hire purchase agreement. It is a matter for examination of the terms of these contracts as to whether one precluded the other in a relevant sense. This examination must take place at the trial, not on this motion to amend.

4.   Third collateral contract

Alternatively to the variation pleaded in paragraph 81.2, the applicants say, relying on the same allegations of fact (paragraph 81.3), that a 'third' collateral contract was formed, this time collateral to the hire purchase agreement between Tycoon and AGC pleaded in paragraph 78.  This alleged agreement was that in consideration for Tycoon entering the hire purchase contract and taking delivery of the trencher, Mole gave the specified warranties as to the quality and fitness of the machine.  The Mole offer is alleged to have been conditional on Tycoon arranging to:

pay to Mole or procure payment to Mole of the balance of the purchase price.

Mole's attack on the pleading of this collateral contract was that:

1.the Mole offer did not contain a term that Tycoon enter a hire purchase agreement, which therefore cannot amount to an acceptance of or consideration for the offer; and

2.the implied terms of this contract cannot arise because they depend on the Sale of Goods Act and this collateral contract was not for the sale of goods.

Clearly entry into the hire purchase contract was in execution of the second of the alternative conditions as to payment. It is thereby well open to be considered as consideration for the pleaded offer. Similarly, whether it is open to the applicants to imply the terms pleaded in proposed paragraphs 98 and 104, either by the Sale of Goods Act or under the general law, is a matter for trial. Despite the initial appeal of Mole's argument in this regard, it may be that the implications can be drawn by some other means which should not, in all the circumstances, be summarily foreclosed now.

5.   Hire Purchase Act

The assertion was that no action under this Act lies against Mole because only the hirer can make known the purpose of the hired goods and Tycoon was not incorporated at the time the matters and acts relied on occurred. Other parts of the pleading make manifest what is alleged in this respect but as with the need to satisfy the terms implied by the Sale of Goods Act, the pleading of this cause of action should specifically state who it is alleged made known to Mole the relevant purpose.

6.   Negligence

The alleged fatal defects in the pleading of this claim are:

1.the facts said to give rise to the duty of care of Mole to Tycoon arise from oral statements made before the incorporation of Tycoon and thus cannot support the alleged duty

2.the failure to assert that Mole knew or ought to have known that Kangarilla had contracted to hire the trencher from Tycoon disentitles Kangarilla from asserting a duty of care: Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" [1976] 136 CLR 529; San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [1986] 162 CLR 340 at 354

3.Mole's default is not pleaded distinct from Jetco's

4.the respective claims of damages against Mole and Jetco are not distinguished

The question of whether Mole knew that Kangarilla was to be the actual user of the trencher is irrelevant, although the proposed pleading makes clear that the applicants intend to lead evidence that it did, at least through the pre-contractual negotiations between Jetco, Henning and Kimber.  Depending on foreseeability, a duty of care may be owed to whoever uses the relevant goods, even arguably someone using them illegally.  If the applicants' allegations in this respect are proved, it will at least be open to find that use by Kangarilla was foreseeable.  Indeed it seems to be common ground.

Some further particulars appear to be necessary to distinguish Mole's from Jetco's default and the damages said to flow from each but the absence of such particulars from the proposed pleading does not provide a basis for refusing leave to amend.  Mole's arguments concerning the wording of the damages claim arise from technical faults in the pleading which are matters for particulars or further amendment.  I do not see any issues of principle in these contentions but if they exist, they are in my opinion inappropriate for resolution on a motion to amend a statement of claim.

7.   Fraud

The proposed statement of claim also pleads reliance on fraudulent misrepresentations by Mole.  Here it was asserted by Mole that:

1.the alleged intention to deceive is not particularised

2.the alleged fraud was not committed on Tycoon because it was not incorporated at the time

3.no prima facie evidence has been led to support the allegations made

I can see no basis for these complaints.  The forgery giving rise to the allegation of intent to deceive is clearly pleaded.  There is no requirement for verified evidence to sustain the claims against Mole, an Australian company.

Pre-incorporation arguments

I do not accept the respondents' arguments based upon the fact that relevant acts, representations or conduct predated Tycoon's incorporation.  In all but one of the instances raised, the people involved later became Tycoon or Kangarilla or were their agents, and it is asserted that the companies accepted, ratified or confirmed the acts and commitments of these persons.  In the case of the Hire Purchase Act claim this fact is implied, and can easily be added to the pleading as necessary.  Further, whilst Tycoon was not incorporated at the time of at least one of the relevant offers, it was at the time of the acceptance.  I have been referred to no rule of law or principle and no authority that an offer can only be accepted by the immediate offerees, that pre-incorporation actions and statements cannot be later ratified or accepted, or that pre-incorporation damages cannot be claimed.  I believe that all three are possible in principle.  Further, it is my opinion that the applicants should be allowed to argue at trial that a company can base the establishment of a duty of care upon statements made pre-incorporation to and by its ultimate principals.  Whether the arguments succeed in this case will depend on the evidence at the hearing.

Conclusion

I propose to give leave to the applicants to amend the application and statement of claim, in principle in terms of the draft filed on 10 June 1994.  There will be a need for some further amendments as forecast or offered by the applicants themselves during the hearing of the motion and as made necessary or desirable by these reasons for judgment.  If possible, short minutes of agreed orders should be submitted by the parties to the Western Australian District Registrar for approval by a Judge in Chambers.  If there is no agreement on these matters, the motion should be listed before a Judge ordinarily sitting in Western Australia for directions on how to proceed.  If necessary I will be available to hear further argument, either by telephone, video conference or written submissions.

The respondents will pay the applicants' costs of the motion unless within 7 days written submissions for a contrary or alternative order are made to me.

SCHEDULE

1.  1986                   Partnership of John Bernard Kimber, Neil Malcolm Henning and Geoffrey Herbert Reynolds trading as Combined Conservation Services commences business designing and constructing drainage systems for saline and waterlogged agricultural lands in Western Australia.

2.  15 July 1986       The second applicant (Kangarilla) is incorporated in Western Australia.

3.  Late 1987          The partners in Combined Conservation Services commence investigations to find earthmoving machinery to more efficiently construct the drainage systems than bulldozers then being used.

4.  February 1988     Henning and Kimber become aware of the first respondent (Jetco) and its products from a magazine advertisement.

5.  About February 1988 Kimber contacts the second respondent (Mole) as the Australian distributor for Jetco, by telephone.

6.  About February 1988 Kimber has first meeting with Brian Smallwood of Mole.  Kimber given photographs of Jetco trencher by Smallwood.

7.  About March 1988   Henning and Kimber have meeting with Smallwood concerning Jetco trenchers.

8.  19 March 1988      Jetco writes to Mole stating that the trench profile required by Henning and Kimber could be obtained with a Jetco excavator.

9.  23 April 1988      Henning, Kimber and David Braidwood of Mole travel to Texas and Arizona to have discussions with Jetco personnel and observe Jetco trenchers.

10. 5 May 1988         Henning, Kimber and Braidwood return to Western Australia.

11. About 5 May 1988    Henning and Kimber collect and send to Jetco, via Mole, 5 samples of Western Australian soil, photographs of soil profiles, photographs of trenches dug by excavator in Western Australia and a video of a bulldozer, ditchwitch and backhoe working in Western Australian conditions.

12. 17 June 1988       Jetco faxes Mole with the necessary weight of a trencher in order that it meet the production rate required by Henning and Kimber.

13. 21 June 1988           Mole faxes Jetco in response to Jetco's fax of 17 June 1988.

14  21 June 1988           Mole faxes Jetco concerning expected production costs in relation to soil samples.

15. 23 June 1988           Kangarilla commences to carry on business as Combined Conservation Services in its capacity as the trustee of the CCS Unit Trust, having on this date acquired the earthmoving business previously carried on by Kimber, Henning and Reynolds in partnership trading as Combined Conservation Services.

16. 14 July 1988           Jetco faxes Mole a quotation dated 13 July for the design and manufacture of a trencher and on the same date faxes Mole:

(a)the estimated component service life sheet for the trencher described as "Western Australia Custom Canal Excavator", and

(b)a specification sheet for the trencher.

17. About 14 July 1988 Mole forwards to Kimber a version of the Jetco quotation together with the estimated component service life sheet and specifications sheet.

18. 8 August 1988          A further component service life sheet for the trencher is faxed by Jetco to Mole and shortly thereafter given by Mole to Kimber.

19. 2 September 1988   Kimber meets with Smallwood at Mole's premises.

20. 27 October 1988    The first applicant (Tycoon) is incorporated.

21. 21 November 1988   The issued shares in Tycoon are acquired by Kimber, Henning and Reynolds together with Edward Paul Lawrence and Mostyn Evander Franklin.

22. About 21 Nov 1988  Tycoon and Kangarilla enter into a contract for the supply by Tycoon to Kangarilla of the trencher and operators.

23. About 3 January 1989    Tycoon places $100,000 into a term deposit account with Wesfarmers Co-Op Limited in the joint names of itself and Mole.

24. About 4 January 1989    Tycoon enters into a contract with Mole for the purchase by Tycoon of the trencher from Mole.

25. 17 January 1989        Mole writes to Tycoon confirming that:

(a)the trencher is to be tested in Texas in May 1989 in the presence of two representatives from CCS and one representative from Mole

(b)modifications are to be noted at that time and carried out before machine leaves Jetco factory

(c)payment for trencher is to be held until completion of USA trial and acceptance of performance by CCS and Mole

(d)spare parts listings are to be finalised

26. 18 May 1989            Kimber, Reynolds and Braidwood travel to Texas to inspect the trencher and observe it undergoing trials.

27. About May 1989         Tycoon pays Mole $100,000 towards purchase of the trencher.

28. 27 May 1989            Trencher tested in Texas in the presence of Kimber, Reynolds, Braidwood and Jetco personnel.

29. 27 May 1989            Meeting between John Gilbert of Jetco, Kimber, Reynolds and Braidwood concerning the performance of the trencher during the trial.

30. About 28 May 1989  Kimber, Reynolds and Braidwood return to Western Australia from Texas.

31. About 16 June 1989 Trencher leaves Jetco factory en route to Western Australia.

32. About September 1989    Trencher arrives on wharf at Fremantle.

33.1 About 11 Oct 1989 Tycoon pays Mole $150,000 towards purchase of the trencher.

33.2                  Tycoon enters into a hire purchase agreement with Australian Guarantee Corporation with respect to the trencher, as a result of which the balance of the purchase price is paid to Mole.

33.3                  Tycoon accepts delivery of the trencher.

34. 31 October 1989    Trencher commences first job in Western Australia at Meckering.

35. Thereafter        Trencher suffers breakdowns and performance problems.

For the applicants               W. Martin QC and P. Fletcher instructed by Solomon Brothers

For the first respondent             R. Le Miere QC and D. Newnes instructed by Mallesons Stephen Jacques

For the second respondent        A. Siopis and S. Nalder instructed by Parker & Parker

Dates of Hearing                 15 and 16 August 1995

Date of Judgment                 5 April 1995