Peter Smythe v Vincent Thomas [2007] NSWSC 844 | Case summary

Peter Smythe v Vincent Thomas [2007] NSWSC 844 | Case summary | Zoe

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4620/06 - Peter Smythe v Vincent Thomas JUDGMENT 1 HIS HONOUR: The defendant, a registered eBay user, is the owner of a Wirraway Australian Warbird aircraft, serial no A20-652, registration VH-WIR ("the Wirraway"). The Wirraway was listed on eBay with a notation of a "minimum bid" of $150,000 for 10 days in August 2006 (from 15 August to 25 August 7.31 pm). 2 On 25 August 2006, the plaintiff, also a registered eBay user, made a bid in accordance with eBay rules for $150,000. The plaintiff and defendant received a notification from eBay to the effect that the plaintiff had "won" the Wirraway. eBay's notice is found at Annexure B to the affidavit of Mr Khosravi, the plaintiff's solicitor, of 4 September 2006. Neither side has a copy of the screen as it appeared before the plaintiff's bid but a copy of the screen after the bid is found as Annexure A to the plaintiff's affidavit of 14 September 2006. The Wirraway was described as manufactured in 1944, flown by RAAF in a non-combat role, restored in 1986, that the seller would arrange for "local pickup only (no postage)" and: " Present Situation: - Fresh P & W 1234 engine Low TT airframe - Always hangared - New fabric to side cowls, ready for paint scheme of choice - Refurbished interior - Featured in numerous articles and books - History known since new - One of very few remaining flying Wirraways existing - More exclusive than comparable Harvard, T-6, SNJ" 3 On 23 August 2006, prior to the plaintiff's bid, the plaintiff and defendant had a telephone conversation, the terms of which are disputed. 4 The plaintiff claims that as a result of his having been the highest bidder and his bid meeting the description of the minimum bid, a contract for the sale of goods was entered into between himself and the defendant. The defendant disputes that a contract was formed. 5 Mr B Kasep of counsel appears for the plaintiff and Mr D M Loewenstein of counsel appears for the defendant. 6 Fortunately there is agreement that the relevant law to which regard must be had is New South Wales law. There is agreement that the terms and conditions of eBay are those found as Annexure C to the affidavit of Mr Khosravi, as expanded by Annexure E. 7 The relevant terms of the eBay terms and conditions which both parties accepted as registered users (a requirement for bidding on eBay) are the following: "1. Membership Eligibility.

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Provided that nothing in this section shall affect the law relating to corporations." 34 As Mr Kasep point out, "auction" is not defined in the SGA. 35 The tribunals to which I have referred appear to have no difficulty in regarding online auctions as a species of auction, and with respect I think that approach is the correct one. In circumstances where both the buyer and seller agree to accept the terms and conditions of eBay I see no difficulty in treating the parties as having accepted that the online auction will have features that are both similar and different to auctions conducted in other forums. A live auction may require registration of bidders, and may specify the means by which payment can be made eg "personal cheques not accepted", or that bids of a certain type will be accepted eg "phone bids accepted". The parties have agreed to allow eBay, or its computer, to automatically close the bidding at a fixed time and have accepted that eBay will have no personal liability to either buyer or seller. The automatic close of bidding at a fixed time and the generation of an eBay advice headed "won" appear to have been accepted by the parties to an eBay auction as the equivalent of the fall of the hammer. As Mr Morice pointed out in the passage quoted in [27] above, the fall of the hammer equated to the going out of the candle, demonstrating that customs can change. Section 60(2) of the SGA contemplates modes of completion other than the fall of the hammer. The non-binding bid policy recognises that there are some items which by their nature cannot or ought not be sold over the internet, but there was no suggestion by the defendant here that the non-binding bid policy had any application to this case. 36 The online auction, whether conducted by eBay or by any other organisation, provides a means by which products of almost every description can be bought and sold, and utilises the exceptional breadth of the internet to expand the horizons of commerce, perhaps just as the invention of the printing press in the 16th century permitted wider publication of items for sale than the town or village square. Two matters which commerce has always cherished, access and certainty, are achieved by the combination of internet technology and acceptance by prospective buyers and sellers of the conditions for use of the particular site and its facilities. 37 I do not accept the defendant's contention that arising out of the registration and bidding process I have described, there were contracts only between eBay and the buyer and between eBay and the seller. It has been recognised even in relation to traditional auctions that existence of a contract between vendor and auctioneer can sit together with a contract between the vendor and purchaser (and between the auctioneer and purchaser): see Elder Smith Goldsbrough Mort Ltd v McBride & Palmer [1976] 2 NSWLR 631, following Chelmsford Auctions Ltd v Poole [1973] QB 542; [1973] 1 All ER 810. The eBay terms and conditions created a framework for the auction in which the plaintiff and defendant were willing participants. 38 Online auctions are not the only commercial environment in which parties come together pursuant to agreed guidelines and are able to form contracts in a different way to the usual fashion of formal offer and acceptance. "Scratching the slip" at Lloyds as explained in M A Clarke, "The Law of Insurance Contracts" (2006) 5th ed, London: informa, para [11-3A], is but one example of such a process. 39 In my view, the seller, by listing the Wirraway on eBay's site with an effective disclosed reserve of $150,000 offered to sell the Wirraway to that bidder who:

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(d) did not qualify or seek to impose a qualification on his bid to which the seller had not previously indicated his willingness to consent. 40 I can see no reason in principle why a buyer who did wish to impose a condition of sale that was not implied by relevant legislation, could not, prior to making his bid, seek agreement from the seller that the seller would accept a bid from the buyer on particular terms just as occurs in real estate transactions. If that course is adopted it would be wise for the buyer to obtain from the seller in advance confirmation in writing of such agreement, to avoid any argument as to what was said. It is clear too that a seller who lists his product on eBay would better protect himself by specifying all elements of the sale that are important to him - method of payment, time for payment, and where appropriate the exclusion of warranties where such exclusion is permitted by law. As this case itself demonstrates, the absence of details can be productive of difficulty, a point to which I shall return. 41 No argument was advanced by the defendant that the eBay terms, on their proper construction, did not require the defendant to sell if a bid of at least $150,000 was made in accordance with the minimum bid requirement, so I do not need to consider whether there is a tension or even inconsistency between clause 4, which uses the words "and your bid is accepted by the seller", and clause 5. 42 In his article entitled "E-auctions: who will protect the consumer?" (2002) 18 JCL 75, which article had been cited to me by Mr Loewenstein, Mr Adam Reynolds makes reference to two German decisions, one of the Regional Court (LG) Munster MMR 2000, 280 (21 January 2000), and one of the Regional Appeal Court (OLG) Hamburg MMR 2000, 278 (14 December 2000) - the latter being an appeal which overturned the first mentioned decision. I shall refer to the case as the Munster case. 43 An article entitled "Online Auctions - Germany Online Auctions under German Contract Law" by Jan-Malte Niemann in Computer Law & Security Report Vol 17 No 2 2001, referred to in Mr Reynolds' article, provides a synopsis of the Munster case both at first instance and on appeal, and seeks also (as does Mr Reynolds' article) to examine whether online auctions are really auctions at all. Obviously the decisions concern German law (and nor did they concern an eBay site) but the conclusion of the higher court was (according to the article) that the "opening of the offer page to the public was a legally binding offer rather than a mere invitation to treat" in part because (citing from the article at p 117): "acknowledgment by all participants of the auction house's terms and conditions was a mandatory requirement for participation in the auction. In doing so both seller and buyer declared the intention to contract subject to these terms only - not merely in relation to the auction house but also amongst each other! Thus the terms built part of the contractual basis irrespective of their exact legal classification as between the parties." 44 In the Munster case a motor dealer had placed a new Volkswagen for sale on the auction house site, with no minimum bid stated. The dealer had hoped to generate a great deal of interest by placing a starting bid of 10 DM for a vehicle worth 57,000 DM, and permitting bids in increments of only 50 DM. The small bids seem to have had the opposite effect to that intended because interest waned and the highest bid received within the specified time was 26,350 DM. 45 Mr Niemann summarised what he described as the "pragmatic and convincing arguments" of the OLG as follows: "- The vendor used the Internet auction as an advertising event consciously putting up with the risk of selling the item at an outrageously low price.

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Self-responsibility is always the other side to party autonomy which does not protect against unwise decisions." 46 The author having expressed his own view that the decision at first instance was "plainly wrong and as having caused unnecessary turmoil because the binding character of online auctions can easily be established under German private law and the terms and conditions at work - as long as these rules are not undermined by dubious contractual construction", noted that an appeal had been lodged to the Federal High Court of Justice. Whether the appeal was prosecuted and if it was, with what result, has not been made known to this Court. 47 The approach which I have identified in [43] above, I think, offers some support for the conclusion to which I have come. 48 In the course of submissions I raised the question of whether, if the defendant's contention that there was a contract only between him and eBay but not with the plaintiff was accepted, the plaintiff would have any rights to enforce the contract between eBay and the defendant in some fashion akin to the law relating to bills of lading: Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (1978) 139 CLR 231. Mr Loewenstein, in his written submissions, sought to answer that possibility and made reference as well to Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, in which the High Court in the field of insurance carved out an exception to the rule precluding third party enforcement of contracts, but he also pointed out that no case of that kind had been mounted by the plaintiff. Mr Kasep made it quite clear in his further submissions that the plaintiff does not seek to enforce the agreement between eBay and the defendant, but rather relies on its terms only as setting the framework for the online auction. I need therefore say no more about that issue. Time for payment 49 In my view, the discussion between the parties concerning the payment of a deposit was sufficient to enable that aspect of payment to be incorporated as a matter agreed upon should the plaintiff bid online and be the successful bidder. That the aircraft was to be collected by the buyer is clear from the listing details. Capacity to be flown and airworthiness certificates were also discussed and for reasons which I explain below, I am of the view that those matters can also be determined from the content of the conversation when coupled with the written material. Thus all details of the sale were determined, but for the time for payment of the balance of the purchase price. 50 Had nothing been said concerning time for payment, Mr Loewenstein accepted, delivery (by collection by the buyer) and payment would be required to take place within a reasonable period of time. Sections 31 and 32 of the SGA, "Benjamin's Sale of Goods" at para 8-037 and Sutton's "Sales and consumer law" at para 19.4, point to the concession being correctly made. However Mr Loewenstein point to the fact that what the defendant said was that he wanted the purchase "to be completed within six weeks of payment of the deposit but that is negotiable" (emphasis added). 51 Mr Loewenstein relies on what was said by Gleeson CJ (when he was Chief Justice of NSW) in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540: "To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention." 52 Mr Loewenstein submits that in the discussions between the parties neither price nor time for payment was agreed, and hence that "there is no room left to import a concluded contract": see para 14 of the defendant's supplementary submissions. In oral submissions Mr Loewenstein expanded on that to say that (at T68.10-20): "by saying specifically that time is to be negotiated it has been agreed that formation will not take place until the time for payment has been specifically agreed to. It demonstrates that the contract had not been concluded by agreement not to conclude the contract."

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(5) there is a tension between what I have referred to in (1) and (2) on the one hand, and on the other the fact that the website indicated that the payment and delivery were to be negotiated. 56 Having regard to the matters to which I have referred, I do not accept that the parties had agreed that there would be no binding agreement until they had a concluded agreement on the time for payment of the balance, nor that because the defendant said that he wanted the balance to be paid in six weeks but was negotiable on that time, that it is not appropriate to imply a term. Airworthiness 57 There is another issue which has arisen, which I have labelled airworthiness, and that is whether or not it was a term of the contract that the Wirraway, on delivery, would be able to be flown from Albury to South Australia and would have all necessary certificates to permit that to occur. 58 The question of whether or not the aircraft was to be capable of being flown at the time of delivery (and for which all relevant current airworthiness certificates would be held) is one which has, it was agreed, limited financial significance, both parties accepting that if the Wirraway was not able to fly, expenditure of between $8000 and $10,000 would bring it into that condition. 59 The listing on eBay described the Wirraway as one of the few flying Wirraways in Australia. The defendant's statement that the aircraft had all relevant airworthiness certificates and would be able to be flown from Albury to South Australia on delivery reinforced what had been said in the eBay listing. 60 Little was said about this aspect in submissions. The case of Ellul v Oakes (1972) 3 SASR 377 at 387 deals with the question of when statements are promissory in nature, and see also JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 in which it is made clear that the fact that without a statement to the effect made the contract would not have been entered into, was not alone sufficient to make the statement promissory. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; 55 ALR 417 the majority agreed with the conclusion of the trial judge (and that of the Court of Appeal) that statements made by the distributors were promissory. Gibbs CJ disagreed but did note at 61-62: "A representation made in the course of negotiations which result in a binding agreement may be a warranty - i.e., it may have binding contractual force - in one of two ways: it may become a term of the agreement itself, or it may be a separate collateral contract, the consideration for which is the promise to enter into the main agreement. In either case the question whether the representation creates a binding contractual obligation depends on the intention of the parties. In J. J. Savage & Sons Pty. Ltd. v. Blakney , at p. 442 and Ross v. Allis-Chalmers Australia Pty. Ltd. at pp. 565, 567, it was said that a statement will constitute a collateral warranty only if it was "promissory and not merely representational", and it is equally true that a statement which is "merely representational" - i.e., which is not intended to be a binding promise - will not form part of the main contract. If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations. In the present case Mr. Blackman, who made his statements fraudulently, had, of course, no intention that they should amount to contractual undertakings, but he could not rely on his secret thoughts to escape liability, if his representations were reasonably considered by the persons to whom they were made as intended to be contractual promises, and if those persons intended to accept them as such. The intention of the parties is to be ascertained objectively; it "can only be deduced from the totality of the evidence": Heilbut, Symons & Co. v. Buckleton , at p. 51. In other words, as Lord Denning said in Oscar Chess Ltd. v. Williams , at p. 328: "The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice."

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The intelligent bystander must however be in the situation of the parties, for "what must be ascertained is what is to be taken as the intention which reasonable persons would have had if placed in the situation of the parties": Reardon Smith Line v. Hansen-Tangen , at p. 574." [footnotes omitted] 61 In my view the defendant's statements that the plane would be able to be flown from Albury to South Australia and had (and inferentially would have) a current airworthiness certificate on completion of the 100 hour inspection, were promissory in nature and should be treated as part of the contract for sale. The statements were matters upon which the defendant alone had the relevant information and would in my view objectively be regarded as important by a purchaser, particularly where it was intended to fly the aircraft from Albury to South Australia. 62 I should note that Mr Loewenstein argued that there was an inconsistency in the plaintiff's position because he wanted to take advantage of the conversation prior to the bid and the fact of an online bid. 63 It is true that the plaintiff seeks to incorporate the terms of payment of a deposit of 10 per cent within seven days and the capacity of the aircraft for flight (and holding of airworthiness certificates) from the conversation and add this to the fact of the bid and bid process online. I have made mention of the practice in real estate transactions of seeking agreement to changes in the contract which precede the bidding and fall of the hammer. Provided that the statements made by the seller can be established and that they are promissory in nature, I do not think that there is any reason in principle why the contract concluded by the bidding process online cannot incorporate additional matters that have been agreed or the subject of representations in advance of acceptance of the bid. 64 It was suggested in the defendant's earlier written submissions that the absence of inspection of the aircraft by the plaintiff and the absence of an engineer's report pointed to the absence of any firm agreement. The plaintiff said that he was well informed about the history and appearance of the aircraft and accepted the defendant's description of its airworthiness, but in any event there is no substance in the point. A plaintiff is not required to inspect or obtain a report in respect of any item for sale and if he chooses not to do so (whether imprudently or not), the need for inspection could not be implied as a precondition of formation of a contract if agreement would otherwise appear objectively to have been reached. Waiver 65 The defendant argues that on the basis of his conversation with the plaintiff (either in the form for which he contends or in the form for which the plaintiff contends) the plaintiff waived his right to bid for the plane. As I have indicated I accept the plaintiff's version of what occurred and I do not accept that the plaintiff offered $150,000 in that conversation or that the defendant rejected it. There is agreement between the parties that the defendant did mention that he had a Queensland buyer interested in paying $220,000 and according to the plaintiff the defendant told the plaintiff that he was hoping to obtain $250,000 for the aircraft: see para 4 of the plaintiff's affidavit of 14 September 2006. 66 Mr Loewenstein referred to Commonwealth v Verwayen (1990) 170 CLR 394 at 406. At 406-407 Mason CJ said: "According to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right: Craine v Colonial Mutual Fire Insurance Co Ltd [(1920) 28 CLR 305, at p 326.]; Grundt v Great Boulder Pty Gold Mines Ltd [(1937) 59 CLR 641, at p 658.] However, the better view is that, apart from estoppel and new agreement, abandonment of a right occurs only where the person waiving the right is entitled to alternative rights inconsistent with one another, such as the right to insist on performance of a contract and the right to rescind for essential breach: see Kammins [[1971] AC, at p 883.] This category of waiver is an example of the doctrine of election.

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Availability of specific performance 68 In the course of submissions I raised with counsel the question of the availability of the remedy of specific performance. The issue assumed particular significance in the light of the defendant's evidence that the Wirraway remains in a hangar at Albury airport and that the 100 hour maintenance check or overhaul which it was said by the defendant to be receiving in August last year has not been completed. I was informed by both counsel that the hangar is not owned or rented by the defendant. If that is correct then the goods the subject of the sale agreement are in the hand of a third party. Section 32(3) of the SGA provides: "(3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that the third person holds the goods on the buyer's behalf: Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods." 69 According to "Benjamin's Sale of Goods" para 8.012: "This subsection is declaratory of the common law, and means that a bailee or other third person in possession of the goods must attorn to the buyer before delivery will be held to have taken place. One effect of such an acknowledgement is that the third person thenceforth ceases to hold the goods on behalf of and to the order of the seller and instead holds them on behalf of and to the order of the buyer. The acknowledgment by the third person must be given with the consent of both the buyer and the seller, and each party to the contract of sale must do all that is necessary, so far as it depends on him, to obtain it." (footnotes omitted) 70 KCT Sutton in "Sales and consumer law" (1995) 4th ed, LBC Information Services, points out at para 19.2 that: "Where the seller is not obliged to send the goods to the buyer, it is enough if the seller has put it in the buyer's power to take away the goods him or herself. Hence, when the documents of title to goods warehoused by a third person are handed to the buyer duly indorsed, the seller has done his or her part and it is incumbent on the buyer to accept or reject the goods within a reasonable time of the documents being handed to him or her."

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71 There appears to be some room for argument as to how the test for whether the Court should grant specific performance is to be formulated: see [20-030] of Meagher, Gummow & Lehane, "Equity: Doctrines & Remedies" (2002) 4th ed, LexisNexis Butterworths; Jones & Goodhart, "Specific Performance" (1996) 2nd ed, Butterworths; Spry, "Equitable Remedies" (2007) 7th ed, LawBook Co at 638; Wilson v Northampton & Banbury Junction Railway Company (1874) LR 9 Ch App 279 at 284; Wedgwood v Adams 6 Beav 600 at 605; 49 ER 958 at 960; Harnett v Yielding (1805) 2 Sch & Lef 549 at 553; Adderley v Dixon (1824) 1 Sim & St 607; 57 ER 239. Whether the test to be applied is "would damages constitute a complete remedy" (Adderley) or are damages "necessarily commensurate to the injury sustained" (Harnett), "is it just in all the circumstances for the plaintiff to be confined to his remedy in damages" (Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992 at 1005; [1973] 1 WLR 349 at 379-380), in my view the nature of the subject of the bargain, which is not only a fine looking aircraft (see Exhibit "A") but is a vintage and unusual item, leads me to conclude that the case is one in which, subject to two matters, the relief of specific performance of the contract sought should be granted. 72 The first issue is that the Wirraway is not presently in flying condition, it having been left in a partially dismantled state and it is not the subject of current certificates of airworthiness. 73 The second issue is that it is not currently in the possession of the defendant but rather is in a hangar owned by a third party. 74 So far as the first point is concerned, there is evidence from the defendant that the amount of work necessary to complete the 100 hour maintenance work is not that substantial - in the order of between $8000 and $10,000. That and the evidence of the degree of dismantling of which the defendant advised the plaintiff points to a relatively small amount of work to be done. The obligation to ensure that the work is done and that all necessary certificates are obtained rests on the defendant. So far as the second point is concerned it is also necessary for the defendant to ensure that anything necessary to be done (ie payment of moneys due to the third party) is completed: see [69] and [70] above. 75 Mr Kasep indicated that even if the Wirraway is not repaired under instructions from and at the expense of the defendant (as in my view it ought to be) the plaintiff, if he received title to the Wirraway, would have it repaired by the same third party as he is one of only two authorised mechanics for the Wirraway in Australia. The plaintiff would then seek damages for breach of contract by the defendant. 76 Whilst I think there may be a need to obtain further information to enable orders to be drawn in an appropriate form I do not think the matters to which I have adverted present an obstacle to the order for specific performance. Nor do I think there is a problem of continuing supervision or need for indefinite series of rulings of the type that can preclude a grant of specific performance: see JC Williamson Ltd v Lukey (1931) 45 CLR 282; [1931] ALR 157; see Meagher, Gummow and Lehane (supra) at [20-065] citing Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1; [1998] ANZ ConvR 470, and see generally [20-055]-[20-080] of Meagher, Gummow and Lehane. Conclusion 77 It follows that in my view a binding contract was formed between the plaintiff and the defendant and that it should be specifically enforced. 78 It was agreed by counsel for both parties that should I come to the view that the contract be specifically performed it would be appropriate to permit the parties time to endeavour to reach agreement on the precise form of orders including dealing with the $15,000 paid into Court by the plaintiff, and to list the matter before the duty judge next week to enable agreed short minutes to be then handed up, or failing that, any argument on the form of the orders to be ventilated.

Peter Smythe v Vincent Thomas

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Judgment (79 paragraphs)

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Cases Cited (13)

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