HECKENBERG & ANOR v DELAFORCE

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40257/98

MASON P MEAGHER JA BEAZLEY JA

Marlene Joyce HECKENBERG & ANOR v Eric DELAFORCE (No 2) JUDGMENT 1 MASON P: This appeal was determined on 8 June 2000 (see Heckenberg v Delaforce [2000] NSWCA 137). By majority, the appeal was dismissed. The reasons are to be found in my judgment, with which Beazley JA agreed. 2 By notice of motion the appellants seek reconsideration of pars 26, 44 and 45 of my reasons for judgment and, in light of such reconsideration, orders setting aside the orders pronounced on 8 June 2000 (dismissing the appeal) and the making of orders allowing the appeal. 3 The orders pronounced on 8 June 2000 have not been entered. The Court has power to reconsider an issue if its earlier judgment proceeded on a misunderstanding not attributable solely to the neglect or default of the applicant for rehearing (see Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300). The parties have exchanged submissions, thereby enabling the matter to be dealt with on the papers. 4 The application focuses upon par 44 of my reasons. It is convenient if pars 43-45 are set out. 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.

5 The appellants submit that this passage shows that the Court of Appeal proceeded on the basis that it was common ground between the parties that whichever deed was extant at the commencement of the proceedings in 1993, that commencement terminated the deed; and that this was a complete answer to the appellants' submission that restitutionary relief was only available if the relevant contractual arrangement had been validly brought to an end by the respondent (which had not occurred). It is further submitted that there was no such common ground at trial.

Relevant issues at trial 6 The amended pleadings were part of the Red Appeal Book and earlier versions were placed before the Court during argument of the appeal. The first statement of claim was filed on 26 November 1993. The third was filed in late 1996. 7 In each version of the statement of claim the plaintiff (the respondent in the Court of Appeal) pleaded his case in alternative ways. Throughout the pleadings there was a specific claim for $100,000 plus interest from the date of the first Deed. Different scenarios leading to recovery of this "purchase price" of $100,000 were pleaded. One such scenario, found in all three versions, was that the appellants had failed to perform obligations under the first Deed to transfer to the plaintiff 20% of:- (a) their interest in the quarry the property of Heckenberg Holdings Pty Ltd; and (b) the shares in Port Macquarie Concrete Pty Ltd. 8 In their pleadings, the defendants/appellants consistently denied the allegation of breach. They also pleaded that the second Deed had released them from all claims entered into by the first Deed. 9 The first two versions of the Statement of Claim included a prayer for specific performance cheek by jowl with prayers for judgment of $100,000 plus interest, damages and a declaration that there had been a total failure of consideration of the agreement between the parties. The prayer for specific performance was dropped in the third version. It was open for the case to be conducted this way so long as the plaintiff was put to an election between any incompatible remedies before final judgment (see United Australia Ltd v Barclays Bank Ltd [1941] AC 1, Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444). The earlier versions of the statement of claim did not represent an election to affirm the first Deed in a manner that precluded the order sought in the final version of the statement of claim and made by the primary judge. 10 Before Simos J, there was a Statement of Agreed Facts and an Agreed Statement of Issues. Each document is set out verbatim in his Honour's judgment. The former document noted that it was agreed that the defendants had not performed any of their obligations under the first Deed prior to 18 July 1989 (par 8). 11 The Agreed Statement of Issues included the following: 7. Alternatively, as the defendants did not: (a) register a company Port Macquarie Sand & Gravel Pty Limited; (b) transfer 20% of the shares in Port Macquarie Sand & Gravel Pty Limited to the plaintiff; (c) procure Port Macquarie Concrete Pty Limited to transfer all of its assets to Port Macquarie Sand & Gravel Pty Limited; (d) procure Heckenberg Holdings Pty Limited to transfer its rights, title and interest in the quarry at Ballengarra Road Gumscrub to Port Macquarie Sand & Gravel Limited; or (e) transfer 20% of the shares in Port Macquarie Concrete Pty Limited to the plaintiff; and (f) transfer to the plaintiff 20% of their interest in the quarry the property of Heckenberg Holdings Pty Limited to the plaintiff, has the consideration for the plaintiff's payment of $100,000 wholly failed?

Relevant issues in the appeal 12 Simos J had held that the first Deed was terminated by the plaintiff by his commencement of the proceedings (Judgment p39). 13 This conclusion was challenged in par 8 of the Notice of Appeal in which it was contended that his Honour erred in holding that the respondent had terminated the first Deed by his commencement of the proceedings notwithstanding that no notice to perform had ever been given and that the appellants remained ready willing and able to perform that obligation thereunder (par 8). 14 Construed broadly, this rolled-up contention asserted error in finding that (a) the respondent had purported to terminate the first Deed by commencement of the proceedings and (b) that he had entitlement to do so. Arguments to this effect were advanced in written submissions on the appeal and orally (Tr pp2-3, 11-14, 29-39, 52-3). I recognised those arguments in par 43 of my judgment. 15 The extreme paucity of discussion about this matter in the judgment of the learned trial judge prompted me to ask senior counsel for the appellants early in the hearing whether the parties had joined issue at trial on whether the contract had gone off. Counsel, who had appeared at trial, was initially unsure (Tr p14). However, he later told the Court that the submission had been made to the trial judge that the contract had never been terminated and that there was no basis for terminating it. 16 Pausing at this stage, the following matters appear. 17 First, Simos J held that the respondent had purported to terminate the first Deed in 1993 when the proceedings were instituted. 18 Secondly, the judgment below assumes rather than explains why such termination was effective beyond recording the appellants' continuing breach of their substantial obligations under the first Deed. In this, the judgment reflects the issue posed in par 7 of the Agreed Statement of Issues. 19 Thirdly, in the Court of Appeal the appellants challenged the finding that the first Deed was terminated. They did not complain about lack of reasons, but rather sought to challenge the primary judge's conclusion on the bases that (a) no notice to perform had been given by the respondent and (b) the appellants remained ready willing and able to perform. 20 Fourthly, this Court raised with the appellants during the hearing the possibility that the reason why there was no finding by Simos J as to the basis of the first Deed being terminated was that this matter had not truly been in issue at trial. It did not require the respondent to adopt this proposition before the Court could act upon it, if it otherwise had merit. The exchange of submissions in the appeal on the question of entitlement to terminate did not foreclose the matter. In any event, the validity of the termination was addressed in my judgment (see below). 21 As I pointed out in par 44 of my earlier judgment, the submission that the respondent had no basis for terminating the first Deed was not one of the specific issues formulated by the parties and recorded in the judgment of Simos J. 22 Indeed, the evidence filed in support of the present application confirms that the juridical basis for termination of the first Deed was barely explored at trial. Notes of submissions at trial first put into evidence in the current application show that the submissions of counsel for the defendants (appellants) at trial included the following. Before the plaintiff can proceed for restitution, he must first bring the contract to an end; if not, the contract continues to govern the situation and the plaintiff must seek his remedy in damages: Goff & Jones , 45, 403, 419; Yeoman Credit Limited v Apps [1962] 2 QB 508. Not only has he not done so, but he has accepted benefits under the contract: Yeoman Credit Limited v Apps [1962] 2 QB 508, 512, 525. To sue for damages under a deed is not termination. 23 I shall refer to this as the "main submission". Its thrust is to challenge the proposition that the plaintiff ever purported to terminate the first Deed, rather than to dispute his basis for doing so. 24 The recent affidavit further states that "in reply" the defendants' counsel also submitted inter alia: Time was not essential. No assignment was ever tendered. No notice was ever given.

This is the only material suggesting any issue as to non-entitlement to terminate. It is not clear what this submission was a reply to, nor is there information about the circumstances in which defendants' counsel was making a reply in equity proceedings. Nor is the submission related to any of the formulated issues in the Agreed Statement of Issues. 25 The trial submissions thus recorded elide several different points. The primary thrust of the main submission was the proposition that a party cannot recover judgment for restitution "off the contract" so long as a valid contract continues in force. This is a clearly correct legal proposition (see Dimskal Shipping Co SA v International Transport Workers Federation (The Evia Luck) [1992] 2 AC 152 at 165, Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 at 275 and other authorities referred to in Mason and Carter, Restitution in Australia at [315]). 26 The second part of the main submission, as recorded, asserts that the respondent had not taken steps to bring the relevant contract to an end, that his acceptance of benefits under the contract was incompatible with doing so and that to sue for damages under a deed was not termination. These propositions are incorrect in fact and law. 27 The plaintiff had always pleaded grounds for the first Deed being rescinded, terminated or otherwise ineffective (none of them presently material, but crystal clear in their "bottom line"). He had always pleaded non-performance of the first Deed and claimed the return of the purchase price as on a total failure of consideration. Each version of the statement of claim sought much more than damages. Even though one prayer in the first and second versions of the statement of claim was for specific performance, that did not in its context constitute an irrevocable election against restitutionary relief as on a "total failure of consideration" (relief elsewhere claimed in the alternative). A party is not put to election between incompatible remedies until the claims are brought to judgment (United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30, Ciavarella v Balmer (1983) 153 CLR 438 at 449). 28 This leaves only the question whether, in light of the way the case was fought at trial, it was open to the primary judge to conclude that termination was effective to bring the first Deed to an end, thereby opening the way to recovery of the purchase price if the plaintiff established total failure of consideration. 29 In my view his Honour was entitled to so conclude for the reasons set out more fully at pars 43-57 of my earlier judgment. There was no need for a notice making time for performance of the first Deed of the essence in 1993. It was common ground that the appellants had not performed their essential obligations under the first Deed in the four years between its inception and the filing of the first statement of claim in 1993 and that they were in breach in not having done so. This breach continued until judgment. There were several possible grounds on which the first Deed might (absent a notice making time essential) have been validly brought to an end, including mutual agreement (cf 1 of the second Deed), mutual abandonment or acceptance of repudiation. I repeat par 56 of my earlier judgment: 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. 30 In light of the agreed fact at trial that the defendants had not performed any of their obligations under the first Deed, Simos J was entitled to conclude that the appellants' continued non-performance evidenced either mutual abandonment or repudiation on their part. The facts pointing strongly to repudiation and/or mutual abandonment, Simos J was entitled in light of the limited issues formulated at trial to approach the matter on the basis that the critical issues were whether the "consideration" had failed totally and whether the respondent had lost the right to so contend by virtue of the stance earlier adopted in the litigation. Entitlement to terminate was not addressed by his Honour because it was not really in issue and because, had it been formally in issue, the point lacked any merit. 31 The appellants' arguments to the contrary on appeal were not overlooked. They were simply not accepted. 32 I would dismiss the motion with costs and direct that the orders pronounced on 8 June 2000 should be entered. 33 A contested stay application pending an application for special leave to appeal to the High court has been foreshadowed. If the only "execution" threatened by the respondent is bankruptcy pursuant to the bankruptcy notice already served then it may be that a stay is neither necessary or appropriate given that time for compliance with that notice has been extended from time to time while the judgment debtors exercise their appeal rights (cf Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148). If, however the appellants wish to move this Court for a stay then they should have liberty to do so on notice to the respondent. 34 MEAGHER JA: In this matter I agree with the claimant's submissions. At the date when the proceedings were commenced, the opponent was not entitled to terminate the First Deed. In these circumstances, the Court's judgment should be withdrawn, and the orders made which I proposed in the first place. 35 BEAZLEY JA: I agree with Mason P. *************

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