Heckenberg anor v Delaforce

Marlene Joyce HENCKENBERG and Casper Leon HECKENBERG V Eric DELAFORCE

CONTRACT-WHETHER PART PERFORMANCE OR TOTAL FAILURE OF CONSIDERATION-REMEDIES-RESTITUTION ONLY AVAILABLE IF TOTAL FAILURE OF CONSIDERATION-BENEFIT BARGAINED FOR WAS NOT RECEIVED-BENEFIT RECEIVED WAS INCIDENTAL TO CONTRACTUAL OBLIGATIONS

Facts: The parties entered into a deed whereby the respondent paid $100,000 in return for a 20% interest in a new company to be established by the transfer of assets from two of the appellant's companies, Port Macquarie Concrete Pty Ltd ("Port Macquarie Concrete")and Heckenberg Holdings Pty Ltd ("Heckenberg Holdings"). Default provisions in the deed stated that if the appellants were unable to secure the transfer of assets to the new company, the respondent would receive a 20% registered share interest in Port Macquarie Concrete and a 20% interest in a quarry which Heckenberg Holdings had leased. The respondent paid the $100,000. However, the transfer was not effected, and no interests from the appellant's two companies were forthcoming. A second deed was agreed upon. This purported to recite the first deed and provided for the sale of Port Macquarie Concrete and the quarry lease owned by Heckenberg Holdings. This contract remained unperformed as well. Port Macquarie Concrete was eventually sold to another party. Heckenberg Holdings maintained a full interest in the quarry lease. The appellants formed another company called Wilson River Sand and Gravel Pty Ltd. This company mined the quarry in return for a dividend payable to Heckenberg Holdings. The appellants paid 20% of these royalties to the respondent. The respondent brought proceedings, claiming restitution of $100,000 plus interest for non performance of the first deed. The trial judge found there had been a total failure of consideration by the appellants in meeting their obligations under the first deed. The appellants appealed against this decision, arguing the payment of royalties to the respondent constituted satisfaction of the default provisions in the first deed. They also argued there was evidence to show that shares from Port Macquarie Concrete had been transferred to the respondent, thus satisfying the second component of their contractual obligations.

Held (Mason P and Beazley JA, Meagher JA dissenting): There was a total failure of consideration. The payment of royalties to the respondent arose out of a subsequent agreement between the appellants and a third party. It does not constitute part performance of the first deed, even though it did provide the respondent with an equivalent benefit to the one found in the default provision. There was no evidence to show a board resolution had been passed vesting the 20% shareholding of Port Macquarie Concrete in the respondent.

ORDERS

1. Appeal dismissed with costs.- 38 - THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40257/98

MASON P MEAGHER JA BEAZLEY JA

JUDGMENT 1 MASON P: The appellants, Mr and Mrs Heckenberg were the shareholders and directors of two companies: • Port Macquarie Concrete (Port Macquarie Concrete) which owned land at Port Macquarie upon which it operated a concrete plant; • Heckenberg Holdings (Heckenberg Holdings) which held an unregistered twenty-year quarry lease of Torrens title land at Gumscrub. 2 In about April 1989 the respondent Mr Delaforce had a conversation with Mr Heckenberg about a proposal to transfer the concrete plant and the quarry lease to a new company to be formed in which the appellants would own a 20% share and in which further parcels of 20% of the shares would be sold for $100,000 to each of four other interested parties. The new company was to be called Port Macquarie Sand and Gravel (PMSG). The respondent expressed interest and, by 24 May 1989, he had paid moneys totalling $100,000 to or at the direction of Mr Heckenberg. 3 On 24 May 1989 the appellants as vendors and the respondent as purchaser executed a Deed (the first Deed), to which the seals of Port Macquarie Concrete and Heckenberg Holdings were also affixed. After reciting the parties' intentions the Deed stipulated: IT IS HEREBY AGREED AS FOLLOWS: 1. In consideration of the sum of ONE HUDNRED THOUSAND DOLLARS ($100,000.00) paid to the vendors by the purchaser the vendors will transfer to the purchaser twenty percent (20%) of the shares in the Company yet to be formed but provisionally known as PORT MACQUARIE SAND & GRAVEL PTY LTD. 2. The vendors will procure from Port Macquarie Concrete Pty Ltd a transfer of all its assets to the Company yet to be formed but provisionally known as PORT MACQUARIE SAND & GRAVEL PTY LTD. The agreement to the said PORT MACQUARIE CONCRETE PTY LTD to this Deed is shown by its execution of these presents under seal. 3. The vendors will procure from Heckenberg Holdings Pty Ltd a Transfer of all its right title and interest in its quarry to the company yet to be formed but provisionally known as PORT MACQUARIE SAND & GRAVEL PTY LTD. The agreement of the said Company to this Deed is shown by its execution of these presents under seal. If for any reason the vendors are unable to transfer to the proposed new Company the assets of Port Macquarie Concrete Pty Ltd and its right title and interest in the quarry presently the property of Heckenberg Holdings Pty Ltd, then the vendor will transfer to the said ERIC DELAFORCE twenty percent (20%) of its interest in the quarry the property of Heckenberg Holdings Pty Ltd and twenty percent (20%) of the shares in the said Port Macquarie Concrete Pty Ltd. 4 No other person took up shares in PMSG. In June 1989, Mr Heckenberg told the respondent that Mr John Bates wanted to buy both the concrete plant and the quarry lease. The respondent agreed to this proposal, saying that he wanted $120,000 out of the sale to Bates, being a return of his $100,000 plus $20,000 which he had paid out in interest. 5 On 18 July 1989 the parties executed a further Deed (the second Deed). It had been presented to the respondent by Mr Heckenberg on the basis that "it gives you some protection now that we are selling to Bates". The second Deed recited the first Deed and the agreement of the parties to terminate the first Deed. Its operative clauses provided: 1. In consideration of the sum of ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000.00) being paid by the said CASPER LEON HECKENBERG and MARLENE HECKENBERG to the said ERIC DELAFORCE less any payments previously made by the said CASPER LEON HECKENBERG to the Hastings Credit Union on behalf of the said ERIC DELAFORCE the said ERIC DELAFORCE will release the said CASPER LEON HECKENBERG and MARLENE HECKENBERG from all rights obligations claims suits demands whatsoever arising from the Deed dated 24 day of MAY 1989 a copy of which is annexed hereto and marked "A". 2. Further the said ERIC DELAFORCE shall receive twenty (20) percent of the nett proceeds made by PORT MACQUARIE CONCRETE PTY LIMITED, HECKENBERG HOLDINGS PTY LIMITED trading as HECKENBERG HOLDINGS PTY LIMITED from the sale of gravel, sand, concrete and other materials made by the date of the Agreement a copy of which is annexed hereto and marked with the letter "A" and the completion of the sale by PORT MACQUARIE CONCRETE PTY LIMITED of its property situate at 14 Blackbutt Road and its plant and equipment and the sale of HECKENBERG HOLDINGS PTY LIMITED of its gravel quarry situate at Gum Scrub. 3. Payment pursuant to Clause 1 and 2 hereof is strictly subject to and conditional upon PORT MACQUARIE CONCRETE PTY LIMITED and HECKENBERG HOLDINGS PTY LIMITED completing the sale of their property and gravel lease respectfully to PLASMILL PTY LIMITED.

[Plasmill Pty Ltd was the name of Mr Bates' company.] 6 Contracts to sell the concrete plant and the quarry lease to Plasmill Pty Ltd (Plasmill) were sent to that company's solicitors in July 1989. Ultimately, however the concrete plant was contracted to be sold for $265,000 to Pioneer Concrete Pty Ltd (Pioneer Concrete) and the quarry lease was contracted to be sold for $435,000 to a company called Quizrock Pty Ltd (Quizrock). 7 The sale of the concrete plant was completed in November 1989 and virtually the whole of the proceeds of sale were used to pay creditors of Port Macquarie Concrete, which company was ordered to be wound up in April 1990. 8 Mr Heckenberg gave unchallenged evidence that he "executed on behalf of Port Macquarie Concrete an allotment of shares" to the respondent on about 20 August 1989. A Return of Allotment dated 20 August 1989 was put into evidence, showing the allotment of one share to each of Mr Heckenberg, Mrs Heckenberg and the respondent. (Mr and Mrs Heckenberg already owned two subscribers' shares.) There was no direct evidence as to a board resolution approving the allotment or whether registration of the respondent's membership of Port Macquarie Concrete was effected. For reasons set out below, I conclude that this never occurred. 9 Curiously, the respondent was never notified of the allotment until 1993, ie after the assets of Port Macquarie Concrete had been sold with the proceeds distributed to creditors; after that company had been put into liquidation in April 1990 as an insolvent company; and after the commencement of proceedings between the parties in late 1993. 10 In November 1989 Mr Heckenberg told the respondent that the sale of one of Port Macquarie Concrete's assets had nothing to do with the respondent. He also told the respondent that he didn't have any interest in Port Macquarie Concrete, only 20% in PMSG (RB 8). This unchallenged evidence and other conduct at the time show the parties moving down the path to performance of a variant of the second Deed, something that was only abandoned in 1991. Had the arrangements referable to the second Deed come to pass the respondent would have been paid $120,000 and exited the venture. There would have been no question of him also getting benefits under the default provisions of the first Deed. 11 In April 1990 the appellants' solicitors were telling the respondent's solicitor that the respondent would be paid the $120,000 due to him (under the second Deed) on completion of the sale of the quarry to Quizrock. At this stage, no party contemplated performing any part of the first Deed. 12 In October 1990 Quizrock served notice of rescission of its agreement. Following proceedings in the Equity Division between Heckenberg Holdings and Quizrock, Heckenberg Holdings retained its ownership of the quarry lease. Mr Heckenberg wrote to the respondent on 15 March 1991 telling him that Quizrock was not proceeding further to purchase the lease. He continued: This means that Heckenberg Holdings Pty Ltd regains full ownership of the lease of which you are entitled to 20% share in accordance with our earlier agreement. The lease will now be worked in a manner which was agreed upon at the recent meeting between Noel Fleming - Eric Delaforce - Leon Heckenberg at Fleming's house. That is, we form a company named Wilson River Sand & Gravel Pty Ltd which is to have three directors (shareholders). The three stated above. This company will process and market the gravel and sand with the permission of Heckenberg Holdings Pty Ltd . The financial structure to be fully determined but on the basis of the discussion of our meeting with Noel. Would you please let me know if you want to proceed as agreed to an equal partner in the new company Wilson River Sand & Gravel Pty Ltd as it is now necessary to proceed to have the company registered. Looking forward to getting things under way as soon as possible. (emphasis added)

13 This letter is evidence that no steps had been taken to date in performance of any part of the first Deed. It acknowledged the respondent's right to 20% of the lease, but asserted that "full ownership" had been regained by Heckenberg Holdings. It proposed the formation of a new company, with a new partner (Fleming), that would itself enter into a permissive agreement with Heckenberg Holdings.

14 In a letter of 1 April 1991 the respondent wrote: I refer to your recent letter to me dated 15th March, 1991, and note that the legal proceedings against Quizrock Pty Limited have been concluded, and we can now go ahead and work the gravel quarry at Bransdon Road. I just need a few points clarified at this stage, as follows: 1. The Agreement I signed with you on 4th May 1989 states that I was to have 20% shares in the now liquidated Port Macquarie Concrete Pty Ltd., so am I to assume that I have 20% share in Heckenberg Holdings or a 20% in just the gravel quarry. In either case, can you please send me a copy of the share (or minutes) certificate stating this. I would very much like to get this cleared up so I can work the quarry with both Noel and yourself. 2. I would like to sell you back this 20% shareholding of Heckenberg Holdings and start afresh with Wilson River Sand and Gravel. I look forward to hearing from you.

15 There was no response to this letter. In particular, no share certificate was forwarded, nor was it asserted by the appellants that the respondent was already an allottee, let alone a member of Port Macquarie Concrete (in liquidation). The inference I draw is that the respondent was not, nor had he ever become, a member, whether or not the allotment of August 1989 had truly taken place. No board resolution to that effect was proven. There was no reason to make the respondent a member at that time because the parties were proceeding to complete the second Deed until 1991. 16 On 15 June 1991 there was a meeting between the respondent, Mr Heckenberg and Mr and Mrs Fleming. The three families discussed the formation of Wilson River Sand and Gravel Pty Ltd (Wilson River Sand and Gravel). (The respondent later declined an offer to become a shareholder of that company.) At this meeting it was agreed that Wilson River Sand and Gravel would pay Heckenberg Holdings $2 per metre for any gravel taken from the quarry by way of dividend, and that the respondent would receive 20% of the $2 less any administration charge (CB 68-9, 130). 17 Pursuant to the agreement reached at the meeting of 15 June 1991, Wilson River Sand and Gravel paid $2 per metre for gravel taken from the quarry. Cheques totalling $12,288.28 were sent from Heckenberg Holdings' accountants to the respondent between November 1991 and December 1992, representing his 20% entitlement to the agreed royalties (less administration costs) while the quarry was being worked by Wilson River Sand and Gravel. No other moneys have been paid by the appellants to the respondent. 18 Subsequently Wilson River Sand and Gravel was wound up. The quarry was thereafter operated directly by Heckenberg Holdings, but not apparently profitably. The appellants do not appear to have involved the respondent in those operations. 19 The respondent commenced proceedings in the Equity Division in 1993. He pleaded a variety of claims arising out of the oral agreement of May 1989, the first Deed and the second Deed. He also claimed restitution in the sum of $100,000 plus interest arising out of the nonperformance of the first Deed. The claims based on the oral agreement and the second Deed are no longer pressed. Initially, specific performance was included in the relief sought, although the statement of claim did not identify what was sought to be specifically performed. However, an Amended Statement of Claim filed in October 1996 abandoned this claim and confined the substantive claims to damages and restitution. Ultimately, the restitution claim alone was pressed. Amongst several matters pleaded by the appellants by way of defence, it was pleaded that the appellants had transferred certain shares in the company known as Port Macquarie Concrete to the respondent; and it was also pleaded that the respondent had received various payments and benefits from Heckenberg Holdings being an acknowledgment and acceptance by the respondent that he had received his due entitlements being a 20% share of the net proceeds of the quarry. 20 Simos J addressed various issues formulated by the parties. 21 He held that the second Deed never became operative because the sales to Plasmill were not completed. Accordingly, the appellants never became liable pursuant to cl 1 of the second Deed to pay $120,000 to the respondent. Accordingly, the release of rights stemming from the first Deed contemplated by the recital to and by cl 1 of the second Deed never became operative. 22 In his Honour's opinion, the terms of the second Deed were such as to indicate that it was the intention of the parties that they would remain bound by the terms of the first Deed unless and until the second Deed became operative upon fulfilment of the condition provided for in cl 3 of the second Deed. These findings are not challenged in the appeal. It is, however relevant to observe that the findings do not amount to findings that the parties were taking steps in performance of the first Deed during the time that they were taking contrary steps obviously referable to the second Deed or some variant of it. 23 Simos J rejected the respondent's argument that the first Deed was void for uncertainty. He also rejected an argument that the first Deed contained an implied term to the effect that it would be terminated in the event that Mr and Mrs Heckenberg failed to find purchasers of the remaining three further portions of 20% of the shares in PMSG. These findings also stand unchallenged. 24 By 1991 the venture contemplated by the second Deed was abandoned. Since no steps were taken to perform cls 1-3 of the first Deed, the appellants were bound, in the events which happened, by the terms of what Meagher JA (whose judgment I have had the benefit of reading) aptly describes as the "default provision ": If for any reason the vendors are unable to transfer to the proposed new Company the assets of Port Macquarie Concrete Pty Ltd and its right title and interest in the quarry presently the property of Heckenberg Holdings Pty Ltd, then the vendor will transfer to the said ERIC DELAFORCE twenty percent (20%) of its interest in the quarry the property of Heckenberg Holdings Pty Ltd and twenty percent (20%) of the shares in the said Port Macquarie Concrete Pty Ltd. The reasons why Simos J held that there had been a total failure of consideration 25 The matter debated before Simos J relating to the default provision was whether there had been a total failure of consideration. The respondent submitted that there had been, although he accepted that the appellants were entitled to be credited with the $12,288.28 paid by Heckenberg Holdings in 1991-92. The appellants on the other hand submitted that these payments were part of the agreed return under the first Deed, with the consequence that there had been no "total" failure of consideration. 26 No point appears to have been taken at trial about total failure of consideration being irrelevant unless accompanied by termination of an outstanding contractual arrangement and the absence of such termination in the present case. This point first assumed importance in the appeal. 27 Simos J looked to the first Deed to see what on its true construction the defendants had, in the events which happened, bound themselves to give to the plaintiff in exchange for the $100,000 he had paid. He held that the bargained for benefit was that the plaintiff would become properly registered in the share register of Port Macquarie Concrete as the legal owner of 20% of the issued shares in that company and that he would be made the owner of a 20% interest in the quarry lease of Heckenberg Holdings pursuant to an appropriate instrument of transfer or assignment executed by Heckenberg Holdings. These were found to be the benefits bargained for by the plaintiff which the plaintiff did not receive. 28 Simos J then addressed subsidiary arguments by the defendants. First, it had been submitted that all that was required of them was to put the plaintiff in a position where he was entitled to become registered as holder of 20% of the shares in Port Macquarie Concrete, and that allotment of the relevant shares (which had occurred) was sufficient performance. Simos J held that on the true construction of the first Deed, in the relevant factual context, the defendants, in addition to procuring the allotment of the relevant shares to the plaintiff, were also obliged to have the Board of Directors pass the necessary resolution and, pursuant thereto, to procure the entry of the name of the plaintiff in the share register or Port Macquarie Concrete. He held that this reflected the ordinary and natural meaning of the words used in the first Deed in the context of the surrounding circumstances, which were that the defendants were the directors and shareholders of Port Macquarie Concrete. It was registration, not allotment, that was the bargained for benefit. 29 A further reason for rejecting this first subsidiary argument was that the defendants had never communicated the fact of the allotment to the plaintiff. The significance of actual knowledge is discussed in Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104, to which Simos J referred. 30 His Honour also held that the defendants, who were the persons who would have had knowledge of such facts if they had occurred, had not proved that a board resolution to allot the share had taken place or that the plaintiff had been entered in the share register as a member (RB 169). 31 Simos J gave other reasons why there had been a total failure of consideration with respect to the obligation to procure that the respondent become a 20% share holder in Port Macquarie Concrete (RB 169-172). 32 The second subsidiary argument advanced by the defendants, and repeated by them as appellants on appeal, related to the obligation to procure the transfer of the agreed (20%) interest in the quarry lease. The appellants never suggested that they had taken any steps in performance of this obligation. But what they relied upon was the fact that they had procured the payment by Heckenberg Holdings to the respondent between November 1991 and December 1992 of 20% of the profits (royalties) of the quarry while it was being worked by Wilson River Sand and Gravel. This was said to constitute a partial performance by the appellants of their promise under the first Deed. 33 Simos J rejected this argument. He held that the payments in 1991-1992 were not part of the benefit bargained for under the first Deed and therefore could not be relied upon to negate the proposition that there had been a total failure of consideration. 34 Simos J held that the moneys derived from Wilson Sand and Gravel were capable of restoration by the plaintiff to the defendants in circumstances where it would be unjust to permit the defendants to retain the whole of the moneys received by them from the plaintiff. This was the position maintained by the plaintiff at trial. (There was, in my view, nothing inconsistent in asserting total failure of consideration while making this offer of counter-restitution, in light of the respondent's ultimate abandonment of the venture in any of its manifestations when he commenced the proceedings.) 35 Simos J held that the defendants' willingness to transfer or assign the relevant interest in the quarry to the plaintiff could not itself be regarded as performance of their obligations under the first Deed. That obligation was to procure the execution by Heckenberg Holdings in favour of the plaintiff of an instrument of transfer or assignment. In this context, Simos J noted a submission by the defendants that, in accordance with "conveyancing practice" it was for the plaintiff to supply to the defendants a form of instrument of transfer or assignment for approval and execution by Heckenberg Holdings. His Honour noted that there was no evidence of any such conveyancing practice and he did not believe that it would be appropriate for him to take judicial notice of the same. Earlier (RB 159) he had held that the true construction of the first Deed obliged the defendants to procure the transfer of the 20% interest to the plaintiff by handing over an appropriate instrument of transfer or assignment and without waiting for the tender of a form of assurance by the plaintiff.

Restitution based upon failure of agreed return 36 The claim advanced by the respondent is based on restitution, not contract. It was described by Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour, Limited [1943] AC 32 at 61 as follows: Another class is where ... there is prepayment on account of money to be paid as consideration for the performance of a contract which in the event becomes abortive and is not performed, so that the money never becomes due. There was in such circumstances no intention to enrich the payee. This is the class of claims for the recovery of money paid for a consideration which has failed. 37 Reference to "consideration" draws attention to the need to focus upon the promises in the agreement which turned out to be abortive. However, the expression has a tendency to cause confusion especially now that restitutionary claims are no longer seen to be based upon implied contract. For that reason, it would in my view be preferable if this type of claim were described as one based upon failure of agreed return (see Mason and Carter, Restitution Law in Australia (1995) pars 207, 303, 912). 38 The reason why reference to "consideration" has a tendency to confuse was explained by Viscount Simon LC in Fibrosa (at 48): In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act - I am excluding contracts under seal - and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.

39 Citing this passage, Mason CJ explained it in Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 350-1 that: In the context of the recovering of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration.

The appellants' submissions in the appeal 40 The appellants submit that in the circumstances it was not open to the respondent to make a restitutionary claim without first bringing the relevant contractual arrangement to an end. It is contended that he never purported to do so, nor did he have grounds to do so. 41 The appellants submit that restitution is available only upon a total failure of consideration. This proposition was not disputed by the respondent and it represents the current Australian law (see Baltic). A compelling case exists to reconsider it in cases where apportionment and counter-restitution are possible (see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 383; Goss v Chilcott [1996] AC 788; Goff and Jones, The Law of Restitution 5th ed 1998 pp42, 502-4; Carter and Tolhurst, "Restitution for Failure of Consideration" (1997) 11 JCL 162; Edelman, "The New Doctrine of Partial Failure of Consideration" (1997) 15 Australian Bar Review 229). 42 It was next submitted that the respondent got at least part of what he had bargained for. This submission reiterated what I have referred to as the second subsidiary submission advanced before Simos J. In particular the appellants relied upon: (1) the offers made in a letter from their solicitors dated 21 December 1993; (2) the royalty payments stemming from the arrangement between Heckenberg Holdings and Wilson River Sand and Gravel in 1991-1992; (3) the allotment of shares as evidenced by the Return of Allotment dated 20 August 1989.

The position of the parties at the commencement of the proceedings in 1993. Was the respondent limited to a contractual claim sounding in damages? 43 In this Court a primary submission of the appellants was that restitutionary relief was, in the circumstances, only available if the relevant contractual arrangement, ie the first Deed, had been validly brought to an end by the respondent. It was submitted that the respondent had no basis for termination, nor had he purported to do so. 44 The learned trial judge held that the first Deed had been terminated by the respondent by his commencement of the proceedings in 1993. The basis of this finding of implied termination is not spelled out in the judgment, which proceeds to address the specific issues formulated by the parties (RB 143ff). These issues did not include the one now relied upon. There was an issue at trial as to whether the first Deed was terminated, but that addressed the circumstance whether entry into the (conditional) second Deed itself operated to terminate the first Deed (see RB 146-149). The trial judge's conclusion that the second Deed never became operative, and therefore never itself became the basis for termination of the first Deed, is not challenged in the appeal. But the way in which that issue was addressed suggests that it was common ground between the parties that whichever deed was extant at the commencement of the proceedings in 1993 was terminated by that event (see esp RB 147 A-F). The critical matter on which issue was joined was whether there was a total failure of consideration. I think that this is a complete answer to this part of the appeal. 45 It is true that the various statements of claim generally assume rather than assert the termination of any contractual arrangements. However, having regard to the way in which the case appears to have been fought at trial and having regard to the reality of the parties' position (to which I refer below), I see no injustice to the appellants in holding them to this assumed situation. 46 There is an air of total unreality in some of the abstruse contractual and conveyancing points taken by the appellants after the respondent had issued his statement of claim on 26 November 1993. That document may not be a supreme model of narrative pleading, but it did include a prayer for a declaration that there had been a total failure of consideration and the respondent did plainly claim the return of $100,000 together with interest thereon from 24 May 1989 (the date of the second Deed). Facts were pleaded that were capable of supporting such relief, including allegations of substantial breach of the first Deed. The second Deed purported to terminate the first Deed. 47 It is worth recording the situation as it stood in October 1993. The respondent had paid the appellants $100,000 in May 1989 as the full consideration for the contracted acquisition of a 20% interest in a concrete plant and associated quarry. Nothing had been transferred to him. The company in which he was to be issued shares under the default arrangement in the first Deed had gone into liquidation in 1990. No shares had been issued, or ever allotted, to his knowledge. Nor had the alternative arrangement contemplated in the second Deed involving the sale to Bates (Plasmill) come to anything. By the end of 1989 the concrete plant had been sold to a third party (Pioneer Concrete) and the proceeds of sale disbursed to the creditors of Port Macquarie Concrete which (as indicated) had been put into liquidation. Heckenberg Holdings had managed to recover its interest in the quarry lease from Quizrock after protracted Equity proceedings, but no assignment of any interest in that lease had been made or offered in the respondent's favour, and the quarry had not operated profitably since 1992. 48 Against this background, the letter written by the appellants' solicitors on 21 December 1993 has the hollow ring of a poorly crafted attempt by a lawyer to wrong-foot a substantially innocent party in what was represented as a conveyancing transaction still waiting completion. The letter acknowledged service of the statement of claim and continued as follows: Prior to any applications being served on our clients, we would advise that, on our instructions, one third of the shares in Port Macquarie Concrete Pty Ltd were transferred to your client some years ago. Further, our clients accept that Mr Delaforce is entitled to a 20% share in the quarry operated by Heckenberg Holdings Pty Ltd. As your client has been made aware previously, it he wishes to find a suitable purchaser at a reasonable price, Heckenberg Holdings will be quite happy to sell its interest in the quarry with your client to receive his proper share. If there is some further document that your client wishes executed evidencing his share in the quarry interest, please submit this document for our clients' consideration. On our instructions, Mr Delaforce has never suggested that he required any transfer documents and our client has kept him fully informed as to the operations of the quarry. In the event that our client is successful in defending these proceedings, we give you notice that we propose to produce this letter and seek indemnity costs from Mr Delaforce. (emphasis added) 49 This letter was the first notice to the respondent that any shares had purportedly been "transferred". The "transfer" of one third of the shares was not the arrangement for a one-fifth interest in the default provision in the first Deed. And the assertion that Heckenberg Holdings would be happy to sell its interest in the quarry so as to confer on the respondent his proper share of that to which he was entitled is inconsistent with any performance of the default provision up to that date. 50 There was no reply to this letter. The appellants submit that this shows acquiescence by the respondent, further confirmed by the inclusion of a prayer for specific performance in the respondent's statements of claim until October 1996. The respondent submits that his silence to the offer should be interpreted as an indication that he was not interested in further performance along these lines. In my view, the respondent's interpretation is the only plausible one. 51 This letter foreshadowed the principal arguments relied upon by the appellants at trial and in the appeal. The respondent did not deign to reply to the letter, but he pressed on with the litigation and the parties traded pleadings, evidence and submissions relating to the matters raised by the appellants in the letter and in their pleadings in support of their respective cases. These included claims by the appellants that some contractual arrangement continued to exist between the parties that was capable of performance in the future and genuine but effectively hollow offers to perform. The offers were hollow because shares in Port Macquarie Concrete (in liquidation) were worthless and because the quarry had not traded profitably since 1992.

52 The statement of claim underwent amendments. In its third edition, issued in October 1996, it pleaded the appellants' failure to perform both their primary and secondary obligations under the first Deed. (I shall explain these terms in the next section of the judgment.) The respondent pleaded the termination of the first Deed on 18 July 1989, albeit based upon an implied term in the first Deed which was not established or, alternatively, the agreement to that effect found explicitly in the second Deed. In this pleading the respondent abandoned the claim for specific performance. He also replaced the claim for a declaration as to a total failure of consideration with the more specific claim for restitution in the sum of $100,000 plus interest from 24 May 1989 which became, in effect, the substantive order made in his favour in the final judgment. 53 At all times during the pendency of the proceedings the respondent was pleading the non performance of the first Deed and seeking, inter alia, relief by way of return of the $100,000 he had paid, such relief based upon a total failure of consideration. The specific performance of the second Deed was one way of achieving this goal. The parties joined issue and prepared for trial which came on for hearing in 1997. The letter of 21 December 1993 may have been relevant to costs, but it did not and could not amount to performance of an outstanding contract nor have the effect of depriving the respondent of any right based on a restitutionary cause of action that had accrued prior to the commencement of the proceedings. 54 Right and remedy are distinct concepts. The appellants' submission that the bald prayer for specific performance evinced an intention to affirm both of the deeds in such a manner as to preclude a restitutionary judgment must be rejected. It is well established that a plaintiff who pleads the breach of a contract under which he or she is the purchaser may (without necessarily affirming) claim alternative remedies, including specific performance, damages and restitution without being held to have elected in favour of any particular remedy (United Australia Ltd v Barclays Bank Limited [1941] AC 1, Ciavarella v Balmer (1983) 153 CLR 438 at 448-9).

The two deeds analysed 55 The first Deed (set out at par 3, above) contained what may be termed a primary and a secondary (or default) obligation on the part of the appellants. The primary obligation was to procure the issue of 20% of the capital in the proposed company PMSG to the respondent after having transferred to PMSG the concrete plant and the quarry lease. The secondary (or default) obligation was to transfer to the respondent 20% of the interest of Heckenberg Holdings in the quarry and 20% of the shares in Port Macquarie Concrete. That secondary obligation arose when the vendors became "unable to transfer to the proposed new company the assets". It is obvious that this secondary method of performance was intended by the parties to serve as an alternative way of giving the respondent a 20% stake in the concrete plant and the quarry for the $100,000 that he had already paid. 56 The appellants never performed or even attempted to perform their primary obligations under the first Deed before its implicit termination upon commencement of the proceedings (at the latest). The appellants certainly abandoned any intention to perform the primary obligations when (with the respondent's concurrence) they entered into the ultimately abortive contracts with Mr Bates' company Plasmill. The common intention not to proceed to performance of the primary obligation under the first Deed is evidenced by the express terms of the second Deed that purported to terminate the first Deed. There was of course a conditionality about the second Deed and, when the Bates' purchases fell through and the concrete plant was itself sold to Pioneer Concrete in November 1989, and when the substitute Quizrock contract came to an end by 1991, the second Deed was effectively abandoned. It was then, but only then, that any question of turning back to performance of the first Deed could arise.

The first Deed remained entirely unperformed 57 I agree with Simos J that even the default provisions of the first Deed were entirely unperformed by the commencement of proceedings. There was a total failure of consideration, or agreed return, under the relevant contractual arrangement. 58 The parties are agreed that it is necessary to examine the first Deed to see what it was that the respondent had bargained for in return for his $100,000 (see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382, Baltic at 351). The receipt of benefits referable to matters other than performance of the relevant contractual arrangement will not preclude a plaintiff from recovering payments as on a "total failure of consideration" (see Rover International Ltd v Cannon Film Sales Ltd (No 3) [1989] 3 All ER 423 at 432-4). 59 The secondary obligation of the appellants to the respondent had two aspects: • transfer (ie vesting) of 20% of Heckenberg Holdings' interest in the quarry; and • transfer (ie vesting) of 20% of the shares in Port Macquarie Concrete. 60 Neither event occurred. 61 Nor was there partial performance of either obligation, for the reasons which follow. 62 The transfer of 20% of Heckenberg Holdings' unregistered leasehold interest in the quarry was capable of performance by deed. None was executed. The 1991 arrangement that resulted in $12,288.28 being paid to the respondent was not performance of the default provision concerning the assignment of a share in the quarry lease, notwithstanding that (for a time) it produced an equivalence of the benefits that might have come from performance of the default obligation. The 1991 arrangement represented the conferral by Heckenberg Holdings on Wilson River Sand and Gravel of some interest in the lease. The evidence does not disclose whether this was by way of assignment, sublease or licence. Whatever was involved, it was not a performance of the default obligation. The very fact that it was negotiated in 1991 and stemmed from a separate agreement to which Mr Fleming and Wilson Sand and Gravel were parties further confirms this. Indeed, the 1991 arrangement was incompatible with performance of the default provision, because it was based upon Heckenberg Holdings retaining the totality of its leasehold interest, albeit that this enabled it to provide the respondent with an equivalent benefit for the (limited) time of its duration. The letter of 21 December 1993 shows Heckenberg Holdings still regarding itself as the owner of the total leasehold interest. This interpretation differs from that of Simos J in some respects (cf RB 156-8) but is open in relation to the unchallenged primary facts. 63 It does not assist the appellants that the 1991 arrangement entailed express recognition of the respondent's entitlement to a 20% share in the lease "in accordance with our earlier agreement" (ie the first Deed). Performance of a contract requires more than recognition of its continued existence. 64 The submission that it was for the respondent to tender the appropriate assurance before he would put the appellants in breach must be rejected for several reasons. I respectfully adopt those given by Simos J and would add the following. 65 No question of possible performance according to the default provision could have arisen until March 1991 when Heckenberg Holdings eventually prised its interest in the lease back from Quizrock. The parties then moved to the new arrangement involving Wilson River Sand and Gravel which (as indicated) was not itself a performance of the first Deed. Nor was there any performance during the time when Heckenberg Holdings chose to operate the lease itself (albeit unprofitably). The suggestion that the respondent was obliged to take the first step and to tender a draft deed of assignment before putting the appellants into breach of the default obligation strikes me as fanciful in these circumstances. 66 More importantly, this abstruse and unpleaded conveyancing point (which was not raised below until after the close of evidence and which was not supported by evidence) is irrelevant. That is because there was still total non-performance on the appellants' part up to the time that the respondent brought the shutters down by commencing the proceedings in late 1993. The reality appears to be that the whole project was either abandoned by mutual agreement in 1992-1993 or (at the very least) performance of it was left in all parties' "too hard" baskets. It is unnecessary to decide which was the situation, because the important thing is that the contract was held to have been brought to an end by commencement of the proceedings in 1993. Either way, there was "total failure of consideration" regardless who may have had the next obligation with regard to what I shall assume was a wholly incomplete "conveyancing" transaction. 67 To say that the appellants may not have been entitled to make secret profits out of the quarry lease while the agreement with the respondent remained extant is not the same as saying that the appellants had taken steps in performance that prevented a claim based upon "total failure of consideration" once the contractual arrangement had been brought to an end. 68 As regards the default obligation to vest a 20% shareholding in the respondent, this obligation was wholly unperformed. In light of the matters summarised in pars 8-11, I do not accept that Simos J erred in holding that he was not satisfied that the necessary board resolution concerning the allotment ever occurred, a fortiori that the appellants caused the respondent to become a member of Port Macquarie Concrete. 69 The appellants' failure to answer the respondent's letter of 1 April 1991 (par 14, above) in which he enquired about receiving a share certificate is proof sufficient that performance of this obligation was called for and did not occur. 70 It is unnecessary to decide whether the allotment (if it occurred and if it were perfected) would have constituted performance of the first Deed. It is hardly self evident, in circumstances where four-fifths of the shares were held by the appellants and where the intent of the arrangements effectuated by the first Deed was that there would be partners additional to the appellants and the respondents. 71 The appeal should be dismissed with costs. 72 MEAGHER JA: At all material times a company called Port Macquarie Concrete Pty Ltd owned certain assets situate at Port Macquarie, and another company called Heckenberg Holdings Pty Limited owned certain other assets, including a quarry. The appellants, Mr and Mrs Heckenberg, were the only directors of, and shareholders in, both companies. 73 On 24 May 1989 the two appellants entered into a deed with the respondent Mr Delaforce. That deed provided that Port Macquarie Concrete Pty Ltd would transfer all its assets to a company not yet formed, and that Heckenberg Holdings Pty Ltd would transfer its interest in its quarry to that new company. It also provided that Mr Delaforce would acquire a 20% holding in the new company, in return for a payment by him to the appellants of the sum of $100,000.00. It acknowledged that that payment had been made. 74 It then provided, in what I might call a "default provision," "If for any reason the vendors are unable to transfer to the proposed new Company the assets of Port Macquarie Concrete Pty Ltd and its right title and interest in the quarry presently the property of Heckenberg Holdings Pty Ltd, then the vendor will transfer to the said ERIC DELAFORCE twenty percent (20%) of its interest in the quarry the property of Heckenberg Holdings Pty Ltd and twenty percent (20%) of the shares in the said Port Macquarie Concrete Pty Ltd." 75 Performance of the covenants in the deed of 24 May did not proceed, and a second deed was entered into between the same parties on 18 July 1989. That deed recorded another joint venture agreement between the parties. It also recited: "The parties hereto have agreed to terminate the said Deed" ( scil the May 1989 deed) 76 It contained two covenants setting out the terms of the new agreement, and then in clause 3 provided as follows: "3. Payment pursuant to Clause 1 and 2 hereof is strictly subject to and conditional upon PORT MAQUARIE CONCRETE PTY LIMITED and HECKENBERG HOLDINGS PTY LIMITED completing the sale of their property and gravel lease respectfully to PLASMILL PTY LIMITED" Almost needless to say neither of the two companies completed their sale to Plasmill Pty Limited. 77 In these circumstances Simos J held that Mr Delaforce was entitled to a substantial verdict against the appellants, who now appeal against his decision. 78 Two other aspects of this case deserve mention. One is that, the first deed having been expressly repealed of the second deed, and the second deed never having taken effect, what regulated the relationship between the parties? The answer which appealed to his Honour, and which was embraced by both parties, both at first instance and on appeal, was that the "default provisions" of the first deed applied. In my view we should approach the appeal on that basis. 79 The second is that the quarry has been operating since the date of the second deed, continuously it would seem since 1991, under licence to another company called Wilson River Sand and Gravel Pty Ltd, and has been producing profits. One fifth of any profit has been paid by the appellants to the respondent. The amounts received by the respondent total $12,288.28. 80 Simos J, as I have said, found against the appellants. He found that there had been a breach of the "default provisions" of the first agreement, which resulted in a total failure of consideration as far as the respondent was concerned. I have difficulty in accepting his Honour's conclusions, and my difficulty stems mainly from the initial assumption (and assumption it was more than finding) that there was a breach by the appellants of the promises contained in the "default provisions" 81 The first promise was to convey to the respondent "20% of its (sic) interest in the quarry the property of Heckenberg Holdings Pty Limited." That is a promise to convey 20% of the property, whatever it was. It is not a promise to convey any legal estate. The owner of the property on which the quarry is situated is a company called Madwood Pty Ltd, which had given a 20-year lease of the quarry to Heckenberg Holdings Pty Ltd. That lease was unregistered and unregisterable. This was decided by Hodgson J in Madwood Pty Limited v Heckenberg Holdings Pty Limited (NSW S.C. (Eq), 9 Nov, 1988, unreported). So, then, Heckenberg Holdings had a merely equitable interest, of which it was contractually obliged to assign 20% to the respondent. Presumably, in normal circumstances, the way to do that would be by deed, a deed of the simplest form sufficing: such would be required by S.23C(1) of the Conveyancy Act 1919. In the present case, it is arguable that not even that would have been necessary, since Mr Delaforce had furnished full consideration, thereby obtaining a 20%interest by way of resulting trust, in which case S.23 C (2) would dispense with the formalities of S.23C(1). This would be bolstered both by the maxim that equity looks on as done what ought to be done, and of the doctrine enunciated by Lord Westbury LC in Holroyd v Marshall (1862) 10 HLC 191 that any agreement for consideration (even executory consideration) effects an immediate assignment of the totality of the vendors interest. 82 Further, one must address the question what if any rights Mr Delaforce would be entitled to even if he had received a one-sentence deed of conveyance. Not , assuredly, any right of possesion of the land leased. It would only be a right to 20% of the profits from the lease. This he received. He thus has obtained all which, in practical terms, he would ever have been entitled to obtain. 83 On this analysis, it is hard to see any breach of a promise to "transfer" a 20% interest in the quarry. 84 But there is more to it than that. The cases do make it plain that it is the assignee's duty to draft the assurance and tender it to the assignor, upon whom the duty to execute it then arises. This is not, as his Honour seemed to think, a mere conveyancing practice. It is a fundamental principle of conveyancing law, affirmed in England ( Poole v Hill (1840) 6 M&W 835, in Victoria (Pam v Barbour) (1870) 1 VR (L) 136, in New South Wales (Layard v Allen (1881) Tarl; and in South Australia ( E.Brown Pty Limited v Florence [1967] SASR 214). In this case it was not disputed that Mr Delaforce never drafted or tendered any draft conveyance. 85 Moreover, the appellants were forever protesting their willingness to convey the appropriate interest to Mr Delaforce. For example, on 21 December 1993 their solicitor wrote to Mr Delaforce's solicitors: "If their is some further document that your client wishes executed evidencing his share in the quarry interest, please submit this document for our client's consideration. On our instructions, Mr Delaforce has never suggested that he required any transfer documents and our client has been kept fully informed as to the operations of the quarry."

It seems to follow that, from whatever point of view one looks at the matter, the appellants were never in breach of the promise to transfer to the respondent a 20% interest in the quarry. 86 The other promise in the "default clause" was to make the respondent a 20% owner of the share capital of the Port Macquarie Concrete Pty Limited. In this case, the evidence is even clearer that there was no breach. It was not in contest that an appropriate allotment of shares in favour of the respondent was effected. It was disputed in argument whether the appellants' obligation was satisfied by the allotment, or extended further to procure registration. However, the state of the evidence was such that there was no evidence of any kind as to whether the shares were or were not registered in the respondent's name. Perhaps they were. One simply does not know. And since it was for the respondent to prove that the shares were not registered, and since there can be no breach of the promise unless there was non-registration, the respondent's case in this regard must also fail. In my view the following orders should be made: 1Appeal allowed . 2. Order of Simos J set aside. 3. In lieu thereof judgment for the defendants. 4.Order that the respondent pay the costs of the appellants both below and on appeal, but to have a certificate under the Suitors' Fund Act in respect of the latter. 87 BEAZLEY JA:I agree with Mason P.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.