The Contracting Parties
19 The case advanced by the Applicants significantly changed over time.
20 The case ultimately advanced by the Applicants in the Further Amended Statement of Claim was expressed in a variety of ways, being that:
(i) the agreement as made in June 1998 was an "agreement made between Howard on behalf of Arton and Boatspeed …"; and
(ii) whoever may have been the parties to the agreement as made in June 1998, events in July 2001 constituted a novation of the earlier agreement such that the parties to the contract as from July 2001 were said to be Ceetex Pty Ltd and Boatspeed. Ceetex changed its name to Alpine Beef in about September 2008.
A mooted application to further amend the Amended Statement of Claim to include as Applicants in the existing proceeding Arton and/or Mr Howard (and possibly Mrs Howard) was not pressed. The claims for contract proceeded upon the basis of the above two variants.
21 Notwithstanding the submissions on behalf of the Applicant, it is concluded that an agreement was reached either on 23 May 1998 or shortly thereafter (and prior to June 1998) and that the parties to that original agreement were Mr Howard and Boatspeed. The agreement relied upon was exclusively oral - there being, perhaps surprisingly, no written agreement.
22 The origins of that agreement may be traced to March 1998 when the boat designer, Mr Paul Stanyon, called for expressions of interest. A meeting between Mr and Mrs Howard and Mr and Mrs Ullrich took place at the premises of Boatspeed at West Gosford on Saturday 23 May 1998. Mr Howard gave an account of the conversation that occurred on that day. He could not recall whether it was Mr or Mrs Ullrich, but his account of the conversation was that one or other of them said words to the effect:
We are interested in building your new boat. We are both qualified shipwrights and have had great success in building large racing yachts. We are confident that we have the skills and capabilities to build your boat and that it will be of high quality and cruising performance. The techniques and materials that we are experienced in and have successfully used in our racing yachts are applicable to the build of your boat.
Mr Ullrich also gave an account of the matters discussed at that meeting. His account was that Mr and Mrs Howard expressed interest in building a 78 foot light weight cruising yacht for their personal use. Mr and Mrs Howard also wanted the vessel to be one which they would be capable of sailing themselves and a vessel with "low environmental impact, no generators, low voltage lighting with inverter and solar panels for charging". It was to be a vessel capable of "long, silent running". Costs of production were discussed, together with such matters as the interior design of the vessel.
23 A personal cheque for $100,000 was handed to Mr Ullrich by Mr Howard at this initial meeting.
24 Mr Ullrich's Affidavit further states that "[a]t no time during discussions with the Howards did they say anything to me which caused me to believe that the yacht was being constructed other than for them personally". He further stated that had he understood the contract to be with a company he "… would have insisted upon a written contract …" because in his experience "… obtaining payment from a company was more problematic as there were usually limits on individuals' authority and there were often time consuming procedural requirements companies had to follow for the approval and payment of accounts".
25 The present proceeding, it is considered, is not one in which it can be said that Mr Howard in his dealings with Boatspeed was contracting on behalf of an undisclosed principal, being Arton (and not Ceetex Pty Ltd, or Alpine Beef as it later became). As at 1998 Alpine Beef (or its predecessor) had not yet been incorporated. The Further Amended Statement of Claim pleads that that corporate entity was "acquired … in or about August 1999 …".
26 Cases may of course arise where a contract has been made by an agent acting for an undisclosed principal: Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 QB 545. Lord Denning MR there observed at 552 as follows:
It is a well-established rule of English law that an undisclosed principal can sue and be sued upon a contract, even though his name and even his existence is undisclosed, save in those cases when the terms of the contract expressly or impliedly confine it to the parties to it. The rule is an anomaly, but is justified by business convenience. It has been held so for many years.
In a separate judgment, Diplock LJ stated at 555:
I will deal first with the agency issue. In determining who is entitled to sue or liable to be sued on a contract, a useful starting point, where the contract is in writing, is to look at the contract. In doing so a number of elementary principles should be borne in mind. The first is that a person may enter into a contract through an agent whom he has actually authorised to enter into the contract on his behalf or whom he has led the other party to believe he has so authorised. But we are concerned here only with actual authority. Where an agent has such actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.
The principal is further discussed in Carter JW, Peden E, Tolhurst GJ, Contract Law in Australia (5th ed, LexisNexis Butterworths, 2007) at [16-06]. See also: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 at 276 to 277 per McHugh JA.
27 In the present proceeding it is concluded that at no time did Mr or Mrs Howard disclose to Mr or Mrs Ullrich that they were acting on behalf of Arton or on behalf of anyone other than themselves.
28 Irrespective of the undisclosed reluctance on the part of Mr Ullrich to deal with a corporation, it is concluded that the agreement is one either expressly, or at the very least impliedly, confined to an agreement between Boatspeed and Mr Howard in his individual capacity. It was an agreement made during or shortly after the 23 May 1998 meeting at the premises of Boatspeed at West Gosford. It was an agreement with Mr Howard to build a vessel for himself and his wife to their specifications and for their personal use. Certainly neither Mr nor Mrs Ullrich did anything which could be relied upon to found any conclusion that they were willing to enter any agreement with anyone other than Mr Howard or Mr Howard and his wife.
29 Rejected is a submission that the agreement was not finally made until June or July 1998. That conclusion is supported by the events and matters discussed at the meeting on 23 May 1998 and the fact that a personal cheque for $100,000 "from the Howards" was handed over at the initial meeting. It matters not, it is considered, that Mr Ullrich was told to hold the cheque and that it was later torn up when a subsequent cheque was provided in June 1998 drawn on the account of Arton. Nor does it matter that Mr Howard later contacted Mr Ullrich in approximately July 1998, after the construction of the vessel had commenced, to change the account for payment from the name of himself and his wife to that of Arton. The "project time sheets" maintained during the construction of the vessel continued to name the "customers" as "Sean & Dani", that is, Mr and Mrs Howard.
30 That conclusion as to the identification of the parties to the agreement made in May 1998 is founded upon the objective facts as to what was said and done. That conclusion, however, is also consistent with the evidence of Mrs Howard in her Affidavit. She asserted that she did not understand that she was assuming any liability in respect to the vessel and stated that, in her recollection, it was "[n]ot long after our first meeting" that she and Mr Howard agreed to engage Boatspeed to construct the vessel. Her evidence is accepted and supports the conclusion that the agreement was one between her then-husband and Boatspeed and one entered into "[n]ot long after" 23 May 1998. Such limited evidence as she did give provides no support for any conclusion other than that the agreement was one entered into with Mr Howard. Mr Stanyon also maintained that it was "[r]easonably soon after Sean had met with" the boatbuilders to whom Mr Stanyon had sent an "Expressions of Interest" document in about March 1998 that he was advised by Mr Howard "that he had decided to proceed with Boatspeed".
31 Even if there be some uncertainty as to the precise point of time at which the agreement was made, the text of an email sent on 15 June 1998 from Mrs Ullrich to Mr and Mrs Howard concerning the deposit provides no basis for any conclusion other than one that the agreement was entered into with Mr Howard (and possibly Mrs Howard) and not the Applicant corporation. That email, omitting material not presently relevant, was as follows:
Subject: Deposit
Date: Mon, 15 Jun 1998 …
From: "Sari Ullrich"
To: "Sean & Dani Howard
Dear Sean & Dani
We now have the foam requirements from Paul and the core thickness looks fine. We have sourced the supply locally, to have it sliced and degassed will take approx 21 days. This should not affect our schedule as we can commence the jig structure almost immediately.
The deposit we require to proceed will be AU$100,000 and our bank details are as follows: …
It was (inter alia) this email which was relied upon by the Applicant, together with the subsequent cheque for $100,000 drawn on the account of Arton, to fix the date of the agreement as being June rather than May 1998 and the contracting party as Arton and not Mr Howard. The Arton cheque may provide some limited support for the Applicant's contention as to the identification of the contracting party - but the text of the email does not.
32 Nor is the identification of the parties to the original agreement assisted by the events that took place when the time came for final payment. The invoice for the final payment was initially made out to Arton. But Mr Howard requested that the account be made out to Ceetex Pty Ltd. Mr Ullrich claimed he had never heard of this corporate entity before but he did as he was requested. There was some dispute as to whether Mr Howard dictated to Mr Ullrich "… the substance of several documents that he wanted me to send to him". It matters not how that dispute is resolved - but, if it need be resolved, the evidence of Mr Ullrich is preferred.
33 It is not clear whether the Further Amended Statement of Claim seeks to rely upon any alleged breach of the agreement as made in May 1998. But to the extent that any such relief is claimed, it is rejected. The present Applicant was simply not a party to that agreement.
34 Difficulty with the identification of the parties to the original agreement may, presumably, explain the reliance placed by the Applicant upon the alleged novation of the agreement that is said to have occurred in July 2001. But this alleged novation, it is further concluded, does not answer the absence of Mr Howard as a party to the proceeding.
35 The contractual relief that is claimed in the Further Amended Statement of Claim and founded upon this novation of the original agreement was finally pleaded as follows:
10A. Howard acquired the applicant in or about August 1999 for the purpose of the applicant taking over the commission, whether made by Howard on behalf of Arton or alternatively on behalf of Howard or Howard and Dani Howard, and ultimately becoming the owner of the yacht.
10B. With the knowledge and consent of the first respondent, the applicant took over the benefit and liability of the commission, whether made by Howard on behalf of Arton or alternatively on behalf of Howard or Howard and Dani Howard, in or about July 2001.
In answer to these allegations the Further Amended Defence states as follows:
10A. The Respondents do not know and cannot admit the allegation in paragraph 10A of the Amended Statement of Claim.
10B. The Respondents deny the allegations in paragraph 10B of the Amended Statement of Claim, and say that no novation of the contract took place or was intended to take place.
Notwithstanding the manner in which the Further Amended Statement of Claim seeks to plead the novation, the Applicant correctly contends that there was no lack of certainty on the part of the Respondents as to this aspect of the case mounted against them. No Particulars were sought and the allegation was denied and addressed in the written submissions of the Respondents.
36 The principles relevant to whether or not a novation of a prior agreement has occurred are not in dispute. "Novation" in this context simply means a new contract standing in the place of a pre-existing contract.
37 A novation, it was accepted, occurs where all parties to a contract agree that a new contract is substituted for one that has already been made: Fightvision Pty Ltd v Onisforou [1999] NSWCA 323, 47 NSWLR 473. A 1992 contract between Classic Promotions and the professional fighter, Mr Tszyu, was there held to have been novated and replaced by a subsequent contract in 1993 between Fightvision and Mr Tszyu. The evidence in support of the novation may on one view be regarded as slender. The person who controlled Fightvision (Mr Mordey) had said to Mr Tszyu in January 1993:
Promotions is winding up and Fightvision will be exclusively promoting your fights in the future.
Mr Tszyu denied the conversation but conceded that he would not have dissented if he had been told. There was also a similar conversation with Mr Lewis, who was described as "the trainer". Reference was also made to events occurring after this conversation. In concluding that a novation had taken place, Sheller, Stein and Giles JJA observed:
[78] Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson (1969) 120 CLR 365 at 388, per Windeyer J, which Bainton J referred to. Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation: see, eg, Vickery v Woods (1952) 85 CLR 336 at 345, per Dixon J as his Honour then was. A novation may be express or implied from the circumstances.
[79] Fightvision submitted that on 30 January 1993 Mr Mordey, as the chief executive officer of both Promotions and Fightvision, put to Mr Tszyu that Promotions was winding up and Fightvision would be exclusively promoting Mr Tszyu's fights in the future; that Mr Tszyu did not dissent from Mr Mordey's statement; and that upon returning to Australia, Mr Mordey said much the same to Mr Lewis, who accepted the situation. Thus Fightvision's claim was that the original contract was expressly novated to it with the consent of all parties.
[80] The subsequent events were relied on as confirming that the novation to Fightvision had taken place. As is only commonsense, "… if the parties have conducted themselves on the basis that a contract exists between them, a court will readily infer that such a contract has been brought into being": D W Greig and J L R Davis, The Law of Contract (1987) Law Book Co, Sydney at 249. The learned authors refer to Brogden v The Metropolitan Railway Company [1877] 2 App Cas 666. Lord Cairns LC spoke (at 679) of the correspondence between the parties being pervaded with "the expression of a feeling on the one side and on the other that those who were ordering the coals were ordering them, and those who were supplying the coals were supplying them, under some course of dealing which created on the one side a right to give the order, and on the other side an obligation to comply with the order."
[81] In the present case the course of dealing was not relied on only to prove novation, but also to confirm Mr Mordey's evidence of the conversations with Mr Tszyu and Mr Lewis. The subsequent events were consistent with Fightvision being substituted for Promotions in the original contract and carrying out the remainder of the agreement.
[82] In examining the evidence of Mr Mordey and Mr Tszyu, as well as others, it must be remembered that in reality Mr Mordey was the promoter. Plainly he used corporate vehicles to carry out his promotion activities. Mr White SC, who appeared for Mr Onisforou and Mr Fenech and undertook the burden of the argument on this point, accepted this as the reality of the situation. Up to 30 January 1993, the corporate vehicle Mr Mordey used for Mr Tszyu's fights was Promotions. After that, he used Fightvision as the corporate vehicle to promote Mr Tszyu.
[83] In our opinion, the submission that Mr Mordey's words to Mr Tszyu and Mr Lewis were insufficient to establish novation seeks to read too much into the way in which these parties carried out much of their contractual relationships and activities. Stated simply, Mr Mordey was the promoter and Mr Tszyu was the boxer. The corporations involved were merely vehicles for the promoter to promote Mr Tszyu's fights. It is unsurprising that Mr Mordey did not know of the legal term "novation". What non-lawyers would? Mr Mordey did know, however, that it was desired to wind Promotions down (or up, it does not matter) and have Fightvision become the exclusive promoter of Mr Tszyu's bouts. He told Mr Tszyu and Mr Lewis of this, and they were agreeable. It was informal, but it had the result that all parties to the 17 January 1992 contract agreed that there should be a new contract with Fightvision in place of Promotions.
This exposition of principles relevant to novation has since been applied: e.g. South Australian Farmers Fuels Pty Ltd v Whittingham [2008] SASC 211 at [20]; Mr Whippy Pty Ltd v Oceanwalk Pty Ltd [2008] NSWCA 8 at [22] to [23].
38 In those circumstances where the parties to the novated contract are different from the parties to the original contract, it is necessary to secure the consent of all parties concerned: Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641. Samuels JA there observed at 645:
A novation is a transaction by which, with the consent of all the parties concerned, a new contract is substituted for one that has already been made: Cheshire & Fifoot, The Law of Contract, 8th ed (1972) at 504. The essence of a novation and the element which distinguishes it from an assignment is that the consent of the debtor is required - the ordinary situation is one which arises where one debtor or creditor is substituted for another - whereas for an assignment the co-operation of the debtor is unnecessary although he must be given notice by statute or to preserve priorities in equity. In Olsson v Dyson (1969) 120 CLR 365 at 388, Windeyer J pointed out that novation requires that all three persons involved (that is the original debtor and creditor and the substitute for one of them) be parties to the transaction; because it "is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract": …
McHugh and Clarke JJA agreed with Samuels JA. A party cannot "… consent in advance to an unspecified means of novation that will subsequently be binding at [the] election of another party": Goodridge v Macquarie Bank Limited [2010] FCA 67 at [102] per Rares J.
39 A contract of novation, it may further be accepted, need not itself be in writing - it may be inferred from conduct: McMahon v National Foods Milk Ltd [2009] VSCA 153 at [77], 259 ALR 20 at 50. Nettle JA there also reaffirmed the proposition that when searching for any intention to novate, no narrow or pedantic approach is warranted.
40 In the present proceeding, and for the purpose of resolving any alleged novation, the question as to whether the initial agreement entered into in about May 1998 was a contract between Mr Howard and Boatspeed or a contract between Arton and Boatspeed may be left to one side. The case ultimately advanced by the Applicant was that whoever the parties to the original contract were, that contract had been replaced in July 2001 by a contract between Alpine Beef (or Ceetex as it was then known) and Boatspeed.To the extent that it was necessary to consider the intention of Arton or Mr Howard, and whether one or other consented to the new agreement, the Applicant contended that there was no relevant distinction, Mr Howard being the controlling mind of Arton (and, for that matter, Alpine Beef).
41 The facts relevant to the alleged novation are within a narrow compass.
42 The Applicants place particular reliance upon an invoice dated 6 July 2001. That invoice was issued by Boatspeed to Ceetex Pty Ltd and was as follows:
The illegible text assumes no present significance.
43 That invoice was attached to an email from Mr and Mrs Ullrich to Mr Howard which stated (emphasis in original):
Attached is the final cost reconciliation for "China Grove II". We must discuss the transfer of ownership prior to export, as an immediate GST drawback upon export seems appropriate.
The reference to export was a reference to promoting the vessel overseas.
44 Also on 6 July 2001, Mr Ullrich forwarded to Ceetex Pty Ltd a letter marked to the attention of Mr Howard in the following terms:
Just a note to bring you up to date with 'China Grove 2' and the paperwork necessary in regards her registration as an Australian Ship. We completed the required measurement documentation early this week and the builders certificate of ownership. We have been sent and subsequently completed the Certificate of Handover. This certificate names Arton 001 Pty Ltd as the owner, we assumed this is correct as we understand that Arton 001 is acting for Ceetex Pty Ltd as the beneficial owner.
Please contact us if any problem arises with the registration process.
45 Although the content of these documents was not put in issue, a dispute did emerge in respect to the invoice setting forth the "final cost reconciliation". According to Mr Ullrich, the invoice was originally sent to Arton "… as Mr Howard had early on requested that accounts be in that company's name". Mr Ullrich maintained that it was "almost immediately after the account had been sent" that Mr Howard telephoned "and asked me to resend the account made out to Ceetex". Mr Ullrich said that this was the first time he had ever heard of this company. When questioned as to this evidence of Mr Ullrich, Mr Howard stated that he had no recollection of the telephone conversation. Mr Howard also accepted that he had no recollection of the first occasion when he discussed Ceetex with Mr Ullrich other than to say that it would have been before title in the China Grove II passed from Boatspeed. The evidence of Mr Ullrich as to the forwarding of the account initially to Arton and thereafter to Ceetex at the request of Mr Howard is accepted.
46 Reliance is also placed by the Applicant upon the fact that the China Grove II was not registered in the name of Arton or Mr Howard but in the name of Ceetex.
47 Even in a factual context such as the present where there was a surprising lack of formality in respect to the initial agreement for the purchase of the vessel, the submission that the facts are sufficient to establish a novation of that initial agreement is rejected.
48 Given the importance of establishing a novated contract in or about July 2001, it is surprising that there was so little evidence directed to what Mr Howard was trying to achieve at about that time. Perhaps evidence directed expressly to his intention to replace the prior agreement with a new agreement was not expected or required. Such an intention could potentially be implied or inferred from his conduct. But such evidence as was directed to his conduct at this particular point of time or shortly beforehand was more directed to plans to display the vessel overseas at the Genoa International Boat Show and the potential to build and sell vessels based on the China Grove II design jointly with Boatspeed.
49 That proposal to jointly exploit the design, it may be noted, came to nought. Perhaps not surprisingly, the cross-examination of Mr Howard did not expose any more detail than was otherwise scantily set forth in his Affidavit. Initially it would appear that Mr Howard kept his intentions to exploit the boat's design to himself. The following exchange thus occurred between Mr Howard and Senior Counsel for the Respondents:
MR BRANSON: Mr Howard, do I correctly understand that the principal purpose of commissioning the vessel, China Grove II, was to have built for you a luxury cruising vessel? Does that accurately summarise the position?---No, it was to - that does not - it was to purchase - to build a prototype of which we would - which we would hopefully sell and building subsequent yachts, according to the same hull design.
Well, are you asserting that when you first had any discussion with the Ullrich's [sic], that you made plain to them that your primary intention was for them to construct a boat that would become a prototype?---I don't recall discussing my intentions with them. I - on my first meeting with them it was a meet and greet to discuss whether they would be - for me to assess whether they would be the sort of boat builders I would want to deal with on an ongoing basis, and to build the first of this hull design.
But if that was in fact your intention, why would you not have communicated that to Mr and Mrs Ullrich, either at the initial meeting or shortly thereafter?---It didn't seem to me to be their business.
There remains, however, some uncertainty as to when this hitherto undisclosed intention to build the China Grove II as a prototype was first raised with Mr or Mrs Ullrich. A little later in the cross-examination of Mr Howard, questions were directed to the 23 May 1998 meeting and there was the following exchange:
Thank you. Now, is this the position that it was quite some time before you revealed to the Ullrichs that this vessel, China Grove II, was, in your mind, to be a prototype?---No.
Sorry?---I don't believe it was some time after that initial meeting that I revealed that. I believe it was revealed shortly after that meeting.
Mr Howard's Affidavit maintained that it was when the construction of the vessel "proceeded" that he "… envisaged the possibility of some future joint business venture with them …". But the proposed joint venture did later emerge and was discussed with Boatspeed. An email from Mrs Ullrich to Mr Howard sent on 21 December 2000 seeks an opportunity to discuss with Mr Howard "the proposed partnership". The sum of $300,000 was also lent "through Ceetex" to Mrs and Mrs Ullrich to acquire property and to build a new factory. Mr Howard retained PriceWaterhouseCoopers to examine the accounts of Boatspeed. The Howards' and the Ullrichs' discussion of the proposed joint venture to exploit the design, however, says nothing as to either the parties to the alleged novated agreement or the intention of the parties to novate an earlier agreement.
50 The financial reports internal to Ceetex, however, did disclose the vessel as an asset. Reports titled Special Purpose Financial Reports for Ceetex for the financial years ended 30 June 2002, 2003, 2004 and 2005 thus disclosed as an asset "Boat held for resale". Contracts of insurance for the vessel showed Mr Howard as the owner.
51 The facts do not establish any novation because:
· although the invoice is susceptible of an inference that Boatspeed was as at July 2001 then dealing with Ceetex Pty Ltd, the only inference that should be drawn is that as at that date, there was an amount outstanding of $1,163,023.67 and that until that payment was received the title to the vessel remained in Trycill (that is, Boatspeed).
Moreover:
· whoever may have been the original contracting parties, that original contract was a contract for the construction of a vessel and it is not considered that there was any subsequent contract;
· there was a dearth of evidence as to what either Mr Howard or the Applicant intended to achieve by the events in about July 2001; and
· whatever may have been the intention of Mr Howard as at July 2001, there is no basis for any conclusion that the events of that month were intended by either Boatspeed or Mr and Mrs Ullrich to themselves constitute a new or separate agreement from that previously entered into, let alone an agreement in substitution for that prior agreement.
All that was happening on 6 July 2001 was that final arrangements were being made for the final payment and the name of the entity to whom the vessel was to be registered.
52 The events on and surrounding 6 July 2001 and the events that preceded that date, it is concluded, do not constitute any novation of the earlier agreement. There was no intention expressed to enter into any new agreement. Nor have any facts or conduct been made out which would provide any real support for an inference to be drawn that the parties intended in July 2001 to replace the earlier agreement with a new agreement.