Supreme Court of WA|2013-04-09

CHARACTER DESIGN PTY LTD -v- KOHLEN [2013] WASC 112 (9 April 2013)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CHARACTER DESIGN PTY LTD -v- KOHLEN [2013] WASC 112

BETWEEN : CHARACTER DESIGN PTY LTD (ACN 097 385 254)

Practice and procedure - Application to strike out statement of claim - Turns on own facts

1 MASTER SANDERSON: By a summons filed 4 October 2012 the defendant sought to strike out the plaintiff's statement of claim. Subsequent to the application being made the plaintiff lodged a reamended statement of claim pursuant to O 21 r 3 of the Rules of the Supreme Court 1971 (WA). The defendant maintained objections to the reamended statement of claim and filed supplementary submissions dealing with what it said were the continuing problems with the pleading.

2 By pars 1 2 of the reamended statement of claim the plaintiff is identified as a builder and the defendant is identified as the owner of certain property in Claremont. By par 3 the plaintiff pleads that the plaintiff and the defendant agreed to convert the defendant's property from a joinery factory into four commercial and three residential units. Paragraph 3 also pleads the contract was partly oral and partly in writing.

3 Paragraph 4 pleads so far as the contract was in writing it comprised a document entitled 'Medium Works Commercial Contract Conditions (September 2002 edition)'. A copy of that contract appears as annexure MJW1 to an affidavit of Matthew John Wilson sworn on 3 October 2012 and filed in support of the application.

4 Paragraph 5 pleads what is said to be the oral part of the contract. The plaintiff refers to Item 18 in the schedule to the Medium Works Commercial Contract Conditions as specifying a contract sum of $1,553,876. It is then pleaded although this amount was specified as the contract sum in fact the parties agreed the defendant would pay to the plaintiff the actual costs of works plus a 10% margin. In other words what the plaintiff says is although there was a fixed price contract for the construction works in the written agreement the parties had a separate oral agreement which specified payment would be on a costs plus basis.

5 It is the defendant's position this plea cannot stand because it offends what the parties referred to as the rule in Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133. That is to say an oral contract which is diametrically opposed to the terms of a written contract and cannot be enforced. At first glance that argument would appear to be unanswerable. However the plaintiff claims it is not actually seeking to enforce the oral collateral contract. Rather the pleading is by way of introduction and sets up two separate and distinct causes of action.

6 The first of these is a claim for rectification. That plea is found in par 18. By way of introduction the term 'the Common Intention' is defined in par 5(b) to be the agreement the plaintiff would be paid on a costs plus basis. In its present form par 18 reads as follows (omitting underlining and striking out):

By reason of the matters pleaded in paragraph 5 the plaintiff and the defendant had the Common Intention and they executed the Written Contract in the common mistaken belief that in so far as the words of the Written Contract provided for the payment of the Contract Sum the Written Contract did not preclude the parties giving effect to the Common Intention and that they could, and would, give effect to the Common Intention. Paragraphs 22 and 23 below are repeated and relied on.

7 By par 19 the plaintiff claims it is entitled to rectification of the written contract.

8 There then appears a heading 'Equitable Promissory Estoppel'. By par 20 it is pleaded as a result of the matters referred to in par 5 the plaintiff assumed that it would perform work on a costs plus basis. This is referred to as the 'Assumption'. By par 21 the plaintiff pleads the defendant induced or acquiesced in the plaintiff adopting the Assumption. By par 22 it is pleaded in reliance on the Assumption the plaintiff performed certain work he would not otherwise have performed. The plaintiff says it issued 12 invoices to the defendant for work done by the plaintiff in accordance with the Assumption and the first 10 of those invoices were paid. It is to be assumed pars 21 22 go to support the claim for rectification.

9 It is the defendant's position rectification is not available given the pleaded facts. The way the claim is pleaded it appears the plaintiff is alleging a mutual mistake not as to the effect of the terms of the agreement but as to the effect of the collateral contract. The defendant says rectification is not available in those circumstances.

10 Reference was made to the decision in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 where Tobias JA (Mason P & Campbell JA agreeing) said:

In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract but by an error wrote them down wrongly [122].

11 It is clear the plea of rectification is not without its difficulties. However before determining whether the plea ought be struck out I should deal with the defendant's other complaints which relate to the plea of promissory estoppel.

12 For present purposes the statement by Brennan J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 sets out the principles. His Honour said:

[I]t is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs (428 429).

13 It is the plaintiff's position it has pleaded all of the elements to establish a promissory estoppel. By par 5 it pleads the plaintiff assumed the parties would deal on a costs plus basis not on a fixed price basis as set out in the contract. By par 21 it pleads the defendant induced the plaintiff to adopt that Assumption. By par 22 it pleads the plaintiff has acted on that Assumption. By par 23 it is pleaded the defendant knew the plaintiff was relying on the Assumption. By par 24 it is said that the plaintiff's action in undertaking certain building work will result in loss to it if the Assumption of a costs plus contract is not fulfilled. Finally it is said the defendant has failed to act to avoid the detriment by fulfilling the Assumption.

14 It is the defendant's position promissory estoppel cannot be used to defeat the operation of Hoyt's v Spencer. In support of this proposition the defendant relies upon the decision of the New South Wales Court of Appeal in Saleh v Romanous [2010] NSWCA 274. Handley AJA (with whom Giles JA & Sackville AJA agreed) said:

In my judgment the Judge correctly held that the purchasers had established a promissory estoppel which entitled them to restrain the vendors from enforcing the contract of sale. Such an estoppel is not the equitable equivalent of a contract, and cannot give the purchasers positive rights to rescind and recover their deposit that they would have had if the precontractual promise had contractual force. A precontractual promissory estoppel which conferred positive rights of that nature would be contrary to Hoyts' case [73].

15 Applying that rationale to this case the defendant says even if the plaintiff were able to establish a promissory estoppel it would not be able to recover payments on a costs plus basis. To do so would fly in the face of the Hoyt's v Spencer decision. Relying on Saleh the defendant says the cause of action in promissory estoppel ought be struck out.

16 It is somewhat difficult to reconcile the decision in Saleh with what was said by the High Court in the Waltons Stores decision and with what was said by the Western Australian Court of Appeal in Tipperary Developments Pty Ltd v The State of Western Australia [2009] WASCA 126; (2009) 38 WAR 488. In DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348, Meagher JA (with whom Macfarlan JA agreed) was not prepared to indorse what was said in Saleh. To add to the confusion an application for special leave to appeal to the High Court in Saleh was refused. It must be acknowledged however that it would appear to stand alone and be of doubtful application.

17 In the circumstances then I am satisfied the plea of promissory estoppel should stand. Counsel were unable to refer to any case such as this where promissory estoppel was used to avoid the operation of the Hoyt's v Spencer decision (always assuming Saleh was not directly on point). Conscious of the need to allow the law to develop I am satisfied this matter should be allowed to proceed.

18 Once that position is reached in my view it is appropriate to allow the plea for rectification to stand. Having the plea in the statement of claim will not delay a fair trial of the action. It would appear there is only one disputed fact in this matter. That is whether or not there was the alleged oral agreement. A defence has been filed and goes to some lengths to establish the defendant has paid the plaintiff all that it is entitled to receive save for an amount of $6,234.53. But all of the matters raised by the defendant apart from the collateral contract question appear to involve matters of arithmetic. No point of principle is involved. The trial should be short (always a risky assumption) and leaving the rectification plea in the statement of claim will not make any perceptible difference to the conduct of the hearing.

19 Having said all of that there are two matters to which the plaintiff may care to address its attention. At present the plaintiff pleads there was one agreement which was partly oral and partly in writing. As the argument was structured on the strike out application the plaintiff appears to be saying there was a written agreement and a collateral agreement. Some minor adjustments to the wording of pars 3 5 may clarify the position. In par 21 the defendant is said to have induced or acquiesced in the plaintiff adopting the Assumption. That is a conclusion not supported by any material fact. As it is an important element of the statement of claim at the very least the plaintiff ought provide particulars of that paragraph to enable the defendant to understand the case it has to meet. None of these two points warrant the present reamended statement of claim being struck out. They are both minor and if they are not corrected it is difficult to see any significant prejudice will flow to the defendant. On that basis the defendant's summons will be dismissed. I will hear the parties as to costs.

CHARACTER DESIGN PTY LTD -v- KOHLEN [2013] WASC 112 (9 April 2013)

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CHARACTER DESIGN PTY LTD -v- KOHLEN [2013] WASC 112 (9 April 2013)

Cases Cited (3)