Wright and Francey Pty Ltd, Wright and Eichhorn v Corbett

[1992] QCA 396

IN THE COURT OF APPEAL	[1992] QCA 396
SUPREME COURT OF QUEENSLAND	Appeal No. 1169 of 1989
BETWEEN:

WRIGHT & FRANCEY PTY LTD

(First Defendant) First Appellant

GEOFFREY ALEC WRIGHT

(Second Defendant) Second Appellant

GREGORY WILLIAM EICHHORN

(Third Defendant) Third Appellant

AND:

ANDREW NEVILLE CORBETT

(First Plaintiff) First Respondent

JOHN LAWRENCE CORBETT

(Second Plaintiff) Second Respondent

NASHTOWN PTY LTD

(Third Plaintiff) Third Respondent

FANDOAN PTY LTD

(Fourth Plaintiff) Fourth Respondent

CORBETT ENTERPRISES PTY LTD

(Fifth Plaintiff) Fifth Respondent

REASONS FOR JUDGMENT OF THE COURT

Delivered the 19th day of November 1992

These are an appeal and a cross appeal against a judgment given in the Trial Division of this Court on 3 December last year.

The appellants were the successful defendants in the action; successful, that is, except with respect to costs. The formal judgment of the court recorded that:

"It is this day adjudged that the Plaintiffs' claim be dismissed with costs, excepting the Defendants' costs referable to any engineering issues and issues to do with the making of representations, which the Plaintiffs are not to pay. The costs of those issues are to be taxed separately and paid by the Defendants to the Plaintiffs."

The appellants sought to appeal only against that part of the judgment which ordered them to pay the costs referable to engineering issues and issues to do with the making of representations.

Section 9 of the The Judicature Act provides:

"No order made by any judge of the said Court by the consent of the parties or as to costs only which by law are left to the discretion of the judge shall be subject to any appeal except by leave of the judge making such order."

The appellants did not have leave of the trial judge to appeal against the order made against them. Nevertheless they argued that they were entitled to appeal to this Court without such leave. Mr Carrigan, who appeared for the appellants, submitted that this was so where the costs order was based on a judgment that was wrong, relying on Saunders v. McKenna and others [1961] Qd.R. 425. When faced with the proposition that the appellants were not attacking any judgment, Mr Carrigan submitted that this was also so where the costs order was based on findings that were wrong.

Saunders v. McKenna involved an action for damages for personal injury by a pillion passenger against the rider of the motor cycle on which she was a passenger and the driver of a truck with which it collided. The trial judge held that the truck driver was solely to blame and gave judgment accordingly with a Bullock order for costs against him. The truck driver appealed, asserting that the motor cyclist "was guilty of negligence which was the cause of the collision" and seeking, in consequence, to have the judgment against him set aside. The Full Court concluded that both defendants were to blame. However, because at the relevant time there was no legislation providing for contribution between tortfeasors, the only relief which the appellant could obtain was from payment to the plaintiff of the costs which the plaintiff was bound to pay to the other defendant under the Bullock order. The question was whether the appellant could obtain that relief in the absence of leave under s. 9.

The essential difference between that case and this is that there the appellant appealed against the substantive judgment against him, asserting that the motor cyclist was solely to blame. It was thus not an appeal against an "order ... as to costs only" within the meaning of s. 9.

Here, by contrast, the appellants do not appeal against any substantive judgment, the only such judgment being in their favour. The appeal is therefore only as to costs.

It is therefore unnecessary to consider the correctness of the decision in Saunders v McKenna or any principle stated in it; for example that an interest in costs gave the appellant sufficient standing to appeal against the judgment in favour of the other defendant. See at 429, 434, 437.

The appellants argued in the alternative, albeit faintly, that the trial judge, in making the order as to costs against which they wished to appeal, had failed entirely to exercise his discretion and that in consequence the appeal was not within the prohibition stated in s. 9: see Hong v. A. & R. Brown Ltd (1948) 1 K.B. 515 at 517. However, that was plainly not the case and it is therefore unnecessary to examine the correctness or ambit of the proposition stated in Hong.

The appeal is therefore incompetent and must be dismissed.

The cross appellants appeal against his Honour's conclusion that they failed to prove any loss and against his alternative conclusion that they were guilty of contributory negligence.

In order to understand the cross appeal it is necessary to say something about the facts of the case. Some of the cross appellants, who were the plaintiffs in the action and whom we will call the plaintiffs, invested money in a business called Offshore Marinas Australia ("OMA"), a business founded by the third defendant. It is not clear which, if any, of the corporate plaintiffs, other than the fourth plaintiff, did so, it being clear that it did not.

However, the case was conducted by both sides below and before this Court on the basis that, at least for this purpose, no distinction need be made between the plaintiffs.

They claimed to have lost their money in that business in consequence of negligent mis-statements by the defendants, the mis-statements being as to the merits of a system for the construction of marinas devised by the third defendant with the engineering advice of the second defendant, which system was owned by OMA. The moneys were paid by the plaintiffs for partnership interests in the business.

His Honour found that the second defendant on his own behalf and on behalf of the first and third defendants represented that a proposed deck system, being part of the above system, was properly engineered and of merchantable quality; and that the plaintiffs relied on that representation in making their investment. His Honour also found that the third defendant represented to the second plaintiff (and consequently to the fifth plaintiff) that the system was developed and verified by engineering investigations and calculations to the point of being able to be put into production immediately; and that those plaintiffs relied on that representation in making their investment. His Honour found that these representations were untrue and misleading and made negligently.

Notwithstanding those findings, the plaintiffs failed in their action because, so his Honour found, they failed to prove loss resulting from the negligent mis-statements. The central question in this issue, and consequently in the cross appeal, is whether his Honour was entitled to take into account, in assessing the plaintiffs' loss, an amount of $600,000 which a company called Invincible Marina Systems Pty Ltd ("IMS") received from CSR Humes Pty Ltd pursuant to a deed dated 6 March 1989. That question arose in the following way.

The first plaintiff in early 1987 and the second plaintiff in about the middle of 1987, became partners in the business of OMA, together with the second and third defendants. OMA was the owner of several systems for construction of marinas and also owned a marina management system which was apparently a computerised system for security management of marinas. The marina management system and a number of design drawings relevant to the various marina construction systems were recorded on a computer assisted drafting system. In consequence of his substantial investment in OMA and the need of the business for further funds the second plaintiff in November 1987 acquired sole ownership of the business. It appears that he then transferred it to the fourth plaintiff and that the fourth plaintiff, in turn, transferred it to IMS. None of this is clear. However, the learned trial judge found that the marina activities of OMA "were in some way taken over by Invincible Marina Systems Pty Ltd", and that "it is right to regard IMS as the successor to OMA and as having taken over all OMA's property, including intellectual property". There was evidence upon which his Honour could make those findings and we are not persuaded that they should be disturbed. We add that, as in so many aspects of this case, there was a paucity of evidence, some of it contradictory.

Clause 1.1 of the deed dated 6 March 1989 between IMS and

CSR Humes Pty Ltd provided:

"In consideration of the sum of SIX HUNDRED
THOUSAND DOLLARS ($600,000) paid by Humes to
Invincible in the manner set out in clause 2.
Invincible hereby transfers, assigns and sets over
to Humes all of its right title and interest in
and to the Australian Patent Application and all
of its intellectual and industrial property rights
relating thereto and to the invention and without
limiting the generality thereof the application of

the invention in Australia for the market of ..."

marina systems and other pontoon structures.

The patent application was in respect of a system for construction of marinas said by the plaintiffs to have been devised by an engineer called Gallagher for IMS. It is true that Mr Gallagher's design, involving as it did a "concrete coffin" system of pontoon floats, differed markedly from the hollow polyethylene float system developed and being promoted by OMA. However, it had marked similarities to an earlier system, also using "concrete coffin" floats, designed by the third defendant for OMA, but abandoned by OMA in favour of the polyethylene float system. The drawings for this earlier system were among the plans which IMS took over from OMA. Moreover, the first plaintiff, who had died before the trial having given some evidence on commission, was undoubtedly familiar with the OMA "concrete coffin" system and, to use the second plaintiff's term, he and Mr Gallagher "interrelated" in developing the IMS system. The trial judge inferred that it was ideas derived by the first plaintiff, through his association with OMA, that inspired certain features of the IMS system, and consequently that the IMS system was developed on the basis of specific or at least general knowledge of the OMA system.

We are not prepared to say that was a wrong inference to

draw from those facts.

There was evidence that at least some of the design work done by Mr Gallagher was done for the fourth plaintiff whilst it owned the OMA business. However, as the second plaintiff made little or no distinction between entities controlled by him, except by accounting done subsequently, and as he controlled both the fourth plaintiff and IMS, little if anything turns on this. Certainly the plaintiffs could not, and did not seriously assert that any such distinction should be made for any relevant purpose.

A recital to the deed records that the agreement includes the assignment of "all those items set forth in the Third Schedule" which includes the software on the computer assisted drafting system. There is a restrictive covenant in the deed preventing IMS from carrying on the business of manufacture, supply or sale of marinas, a transfer of name and a transfer of copyright in all design data owned by IMS; and the deed is subject to the assignment of the computer assisted drafting system which was leased by the second plaintiff. He assigned the benefit of that lease to CSR Humes by deed of assignment, also dated 6 March 1989, which specifically included the marina management system. At least one former employee of OMA, a Mr Threlfall, became an employee of IMS when it acquired the business and, in turn, of CSR Humes after the deed of 6 March. The first plaintiff apparently also moved from OMA to IMS and it was the intention of the deed of 6 March that he should, at least for a time, become employed "in a managerial capacity" by CSR Humes, though it is not clear whether his fatal illness intervened to prevent that. A moulding machine and a number of moulds also passed from OMA to IMS and thence to CSR Humes.

All of this seems to indicate, notwithstanding clause 1.1, that what really passed to CSR Humes pursuant to the deed of 6 March was the whole of the business of IMS, which was the business previously conducted by OMA, a partnership and later a business owned solely by the second plaintiff.

Whether or not that was so, when one has regard to all of the property which clearly did pass under the deed and to the fact, as found in effect by his Honour, that except possibly to the extent that Mr Gallagher may have modified the OMA "concrete coffin" system, it was the property of the former OMA business, his Honour was entitled to infer, as he did, that the deed of 6 March was "the ultimate realisation of the plaintiffs' investment in OMA".

The plaintiffs' case, as his Honour recorded it, was "that the OMA system was completely useless, and was discarded, that anything of OMA's which CSR Humes might have ended up with was accidentally acquired". Although the sum of $600,000 was not apportioned, the plaintiffs were prepared to concede that some credit should be given for items of equipment, originally owned by OMA, which passed to CSR Humes pursuant to the deed of 6 March. However, they said, what CSR Humes was really paying for was the invention to which the patent application related, which came into existence after IMS had acquired the business formerly owned by OMA. It appears from what we have said that those contentions were substantially rejected by his Honour.

The question which arises is not one of mitigation in the sense of action taken to put a stop to continuing loss. It is whether the price for which the plaintiffs' investment was sold in March 1989 is relevant to the determination of whether the plaintiffs suffered any and if so what loss by making an investment in consequence of the misrepresentations made in 1987. That question is one of fact. Prima facie, evidence that an investment of approximately $280,000 made in consequence of the misrepresentations was, in substance, sold less than two years later for $600,000 is relevant and, without more, proof that no loss was sustained. That is so because it is prima facie evidence that the value of the investment made in consequence of the misrepresentations was, when made, more than $280,000 notwithstanding those misrepresentations.

It was for the plaintiffs to prove otherwise. Their case that the sum of $600,000 was paid for Gallagher's invention having been rejected by his Honour, they did not give any other explanation for why the investment should have increased so much in value in such a short time.

Hussey v. Eels (1990) 2 Q.B. 227 was relied on by the plaintiffs. In that case the Court of Appeal thought that the subsequent sale of land, purchased on the basis of a negligent misrepresentation that the bungalow thereon had not been the subject of subsidence, should be ignored in the assessment of damages. The sale was two and a half years after the purchase at a price substantially higher than the purchase price. It was made, so the Court held, only after the plaintiffs, who were the representees/purchasers, had "unlocked the development value of their land" by obtaining planning permission to demolish the bungalow and to build two houses on the land; that is, the Court held that the profit was due to steps taken by the purchasers which, in effect, changed the character of the land. There was also evidence in that case tending to show that a bungalow such as the subject one, by the time of sale, would have cost as much as or more than the sale price of the land, suggesting that inflation in land values between the dates of purchase and sale was the explanation for the apparent profit.

On either basis that case is distinguishable from this. Here there was no evidence capable of explaining the increase in value from $280,000 to $600,000 other than that it was caused by Mr Gallagher's work. His Honour, in effect, rejected that explanation. Nor did the plaintiffs adduce evidence of any expenses incurred in bringing the value up to $600,000. His Honour was accordingly entitled to conclude, and we would also conclude, that on the evidence, limited as it was, the investment was worth more than $280,000 in 1987 and that consequently the plaintiffs suffered no loss in consequence of the misrepresentations.

Having reached that conclusion, it is unnecessary for us to consider the cross appeal against his Honour's alternative conclusion that he would have, in any event, reduced the damages by fifty percent for contributory negligence. However, in case this matter should go further, we will express our opinion on that question.

In finding reliance by the plaintiffs on the negligent misrepresentations of the second and third defendants thereby making them liable for whatever damage the plaintiffs suffered his Honour, in effect, found that it was reasonable in all the circumstances to rely on them: Mutual Life and Citizens' Assurance Co. Ltd v. Evatt (1968) 122 C.L.R. 556, 571; L. Shaddock & Associates Pty Ltd v. Parramatta City Council (1981) 150 C.L.R. 225, 231. We have some difficulty in reconciling such a finding with one that the plaintiffs were negligent in relying on those misrepresentations, a finding that was necessary in this case to found contributory negligence. However, we do not think it necessary to decide whether that difficulty may be resolved in the way in which Trainor J. sought to do in Grand Restaurants Ltd v. City of Toronto 123 D.L.R. (3d) 349, 366-7. Even if a finding of contributory negligence may be made in a case in which the negligent act of the plaintiff said to constitute contributory negligence is reliance upon a negligent misrepresentation we think that on the facts here the plea of contributory negligence should have failed.

The negligent misrepresentation of the second defendant, as found by his Honour, was that the proposed deck system was properly engineered and of merchantable quality. That of the third defendant was that the system was developed and verified by engineering investigations and calculations to the point of being able to be put into production immediately. None of the plaintiffs had any engineering qualifications or experience. Nevertheless his Honour said:

"In this case, my view is that any damage the plaintiffs may have suffered may fairly be said to result partly from their own fault, within the meaning of s. 10. In particular, they are saddled with the failure of Mr Corbett to appreciate (or acknowledge once he became active in the business) how far from fully developed the OMA system was.

In my view it is not right to sever the second and
fifth plaintiffs' position from his and the third
plaintiff's. They have all made common cause.
...
...
I cannot accept that Dr Corbett's reliance extends
anything like as long as page 90 might suggest.
Quite apart from his expectations regarding
customer enthusiasm for OMA products, there came
regularly from August 1987 signals that engineers
such as Mr Patterson's firm, followed by Mr
Seymour, would not repose confidence in the
system. It was not reasonable to ignore Mr
Seymour's views on the basis of Mr Eichhorn's
criticism of his competence. I do not think that
the five pages of 'Abel Point Calculations' in
October 1987 would serve to allay the doubts any
reasonable investor would have felt.
They did not, in any event, because the plaintiffs
proceeded, at a leisurely pace, to obtain Mr
Gallagher's views."

His Honour thus concluded that the plaintiffs ought to have acted sooner than they did to verify the correctness of the representations. We think that was to impose too high a standard upon the plaintiffs who we think were entitled to accept and rely on the expertise of the second defendant until it was demonstrated that they ought not to do so. As to the first representation, even at the trial, in which a number of experts were called, the adequacy of the engineering of the system remained arguable; and as soon as the second plaintiff received a firm view from an expert that the system would not work he ceased production. As to the second, the defendants failed to prove when either of the individual plaintiffs first realised that the system was not ready for production and consequently that he ought to have appreciated that fact before he did. We would therefore have concluded that his Honour should not have found that the plaintiffs were guilty of contributory negligence.

The appeal is dismissed with costs and so also is the cross appeal.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND	Appeal No. 1169 of 1989
Mr Justice Davies Mr Justice McPherson Mr Justice Moynihan
BETWEEN:

WRIGHT & FRANCEY PTY LTD

(First Defendant) First Appellant

GEOFFREY ALEC WRIGHT

(Second Defendant) Second Appellant

GREGORY WILLIAM EICHHORN

(Third Defendant) Third Appellant

AND:

ANDREW NEVILLE CORBETT

(First Plaintiff) First Respondent

JOHN LAWRENCE CORBETT

(Second Plaintiff) Second Respondent

NASHTOWN PTY LTD

(Third Plaintiff) Third Respondent

FANDOAN PTY LTD

(Fourth Plaintiff) Fourth Respondent

CORBETT ENTERPRISES PTY LTD

(Fifth Plaintiff) Fifth Respondent

REASONS FOR JUDGMENT OF THE COURT

Delivered the 19th day of November 1992

MINUTES OF ORDER: 1. Appeal dismissed with costs.

2. Cross-appeal dismissed with costs.

CATCHWORDS:	COSTS - DEPARTING FROM GENERAL RULE - appellants who were successful at trial were refused costs on all issues - whether need for leave to appeal from costs order - whether failure to obtain leave to appeal renders appeal incompetent and must be dismissed - Judicature Act s. 9
NEGLIGENCE - CAUSATION - appellant claimed that it suffered losses as a result of a negligent misstatement - whether any evidence that plaintiffs suffered any loss as a result of making the investment - whether any loss made is a question of fact - whether investment worth purchase price at time of acquisition
Counsel:	Carrigan for the Appellants Bowden for the Respondents
Solicitors:	Short Punch & Greatorix for the Appellants Feez Ruthning for the Respondents
Hearing Date(s):	22 September 1992

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND	Appeal No. 1169 of 1989
BETWEEN:

WRIGHT & FRANCEY PTY LTD

(First Defendant) First Appellant

GEOFFREY ALEC WRIGHT

(Second Defendant) Second Appellant

GREGORY WILLIAM EICHHORN

(Third Defendant) Third Appellant

AND:

ANDREW NEVILLE CORBETT

(First Plaintiff) First Respondent

JOHN LAWRENCE CORBETT

(Second Plaintiff) Second Respondent

NASHTOWN PTY LTD

(Third Plaintiff) Third Respondent

FANDOAN PTY LTD

(Fourth Plaintiff) Fourth Respondent

CORBETT ENTERPRISES PTY LTD

(Fifth Plaintiff) Fifth Respondent

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DAVIES JA
MCPHERSON JA
MOYNIHAN SJA
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Reasons for Judgment of the Court delivered the

19th day of November 1992

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1.    THE APPEAL IS DISMISSED WITH COSTS.

2.    THE CROSS-APPEAL IS DISMISSED WITH COSTS.

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