Reardon v Stokes Contractors Pty Limited

A Brief History of Proceedings

1. On 18 September 2012, Stokes Contractors Pty Limited commenced proceedings in the Local Court for an action against Mr Reardon for breach of contract for unpaid invoices for earthmoving works allegedly performed on property owned by Mr Reardon's company, Nessfind Pty Ltd, in Wamboin, seeking $38,881.31 in total.
2. Stokes claimed that the second and third defendants were directors, agents or employees of Nessfind Pty Ltd, authorised to act on behalf of Nessfind Pty Ltd and "knowing [sic] concerned in the first defendant's conduct referred to herein."
3. The agreement to construct a water storage pond is detailed in the original pleadings, as is the alleged agreement to "project manage" this construction. Stokes contended that these two contracts were both formed orally whilst the parties were at the property, with the works for the first contract to be "carried out at the direction of the second defendant," being Mr. Reardon. The principal of the company, Nicholas Stokes, also detailed in his evidence the invoices that were issued to the first defendant, and what money the company then received in payment. Stokes contended that the payments fell short of the full amount initially invoiced.
4. In an amended defence dated 22 August 2013, Nessfind Pty Ltd conceded that the second defendant, Mr. Reardon, is a director of Nessfind authorised to act on behalf of Nessfind, and that he was knowingly concerned in the conduct of Nessfind. It did not admit to the conduct of the first defendant as alleged in Stokes' statement of claim. The amended defence denied that Terence Reardon exercised his authority as director of Nessfind after 4 January 2011.
5. In orders dated 13 June 2014, his Honour found for the first defendant, Nessfind Pty Ltd and ordered the second defendant, Terence Reardon to pay Stokes Contractors Pty a total sum of $16,501.54.
6. The Magistrate heard the matter over two days, 21 February 2014 and 29 April 2014, and the transcript of the proceedings forms part of the evidence before this Court.
7. On 27 November 2014 Stokes filed a Notice of Contention to have the decision of Bone LCM affirmed, if need be, on grounds other than those relied on by Bone LCM and again, if need be, pursuant to the power given to the Court in section 75A(10) of the Supreme Court Act 1970. The contention was that Stokes was entitled in the circumstances to be paid reasonable remuneration for the project management services provided to Mr Readon.

Supreme Court proceedings

1. By way of amended summons filed 30 July 2014, Mr Reardon seeks to appeal the whole of the decision from the Local Court. Seven grounds of appeal were relied upon. "In entering judgment for the defendant against the plaintiff for breach of contract the learned Magistrate erred in law in that the defendant's pleadings in the court below did not allege any contract between the defendant and the plaintiff. In the alternative to paragraph 1, in awarding damages to the defendant against the plaintiff in respect of "project management" fees, the learned Magistrate erred in fact and law in that: The learned Magistrate's finding that the parties had entered into a contract with respect to project management fees was inconsistent with all of the evidence admitted in the Court below; The learned Magistrate's specific finding that "the [plaintiff], at the least, inferentially agreed with this proposition as he paid some of the [defendant's] fees at the rate which incorporated a project management fee' was unsupported by any evidence before the Court below; But for the learned Magistrate's finding in relation to project management fees, the judgment entered against the plaintiff would have been for a sum of $4,607.62; and Prior to the hearing in the court below the plaintiff had made a Calderbank offer to the defendant that judgment be entered in favour of the defendant in the sum of $9,500, with each party to pay its own costs. Reasons why leave should be given (UCPR r.50.12(4)(b)) Pursuant to section 39 of Local Court Act 2007, the plaintiff has a right of appeal as to questions of law. The plaintiff's first appeal ground, as stated in paragraph 1 above, deals only with a question of law and does not require leave of the court for the appeal to be heard. The plaintiff's second appeal ground, as stated in paragraph 2 above, deals with a question of mixed law and fact. The hearing of the plaintiff's second appeal ground will not significantly increase the hearing time of the appeal. Further, or in the alternative, it is in the interests of justice that leave be granted for the second appeal ground as the finding sought to be appealed was inconsistent with all of the evidence admitted in the Court below."
2. In submissions filed for Mr. Reardon on 23 January 2015, those seven grounds were reduced, by way of summary, to two key grounds of appeal: "1.The learned Magistrate entered judgment against the plaintiff, notwithstanding the contract pleaded to have been breached was between the defendant and Nessfind; and 2.The learned Magistrate found that a contract existed for the defendant to perform, and be paid, for project management. This finding was against the whole of the evidence in the Court below."
3. It is convenient to deal with the matter on the basis of the two grounds as ultimately argued, that having been the approach of the parties.

Ground one

1. The jurisdiction of this Court to determine an appeal from a decision of the Local Court is grounded in ss39 and 40 of the Local Court Act 2007. An appeal may be brought as of right regarding questions of law, but the leave of the Court is required to appeal on questions of mixed law and fact.
2. The plaintiff submits that this ground raises a question of law alone, rather than one of mixed fact and law. Although it can sometimes be difficult to distinguish between a ground which raises a question of law and one which raises questions of both law and fact, in the absence of any argument to the contrary, I am prepared to accept the submission that ground 1 concerns a question of law. This ground is thus advanced by right.
3. In the Local Court proceedings his Honour identified the issue of the contracting parties as a primary issue of concern as indicated in a subheading of his judgment, "Who were the contracting parties". Under that subheading his Honour stated: "There was no mention when an agreement was initially reached, that the plaintiff was entering into a contract with the first plaintiff [sic - defendant]. The fact of the matter, however, was that the second defendant was, when he spoke with Mr. Stokes, acting on behalf of the first defendant."
4. He identifies this issue of the identity of the contracting parties as an issue to be dealt with easily by the law as: "As a general rule, the consequences which flow in a case of an undisclosed principal are as follows. A plaintiff who seeks to recover in circumstances in which A has entered into the contract but has failed to disclose that he is the agent of B may recover against A or B. The liability of B may however be limited if B discloses his identity to the plaintiff at some stage and declares that A is the contracting party rather than B." (At [7])
5. His Honour found that in the current case, the plaintiff did become aware of the status of the first defendant. His Honour considered an affidavit of the third defendant (and principal, together with Terrence Reardon, of Nessfind), Leon Reardon, in which Leon Reardon recounted a conversation on 4 January 2014, with Mr. Stokes. Leon Reardon deposed that, in that conversation, he told Mr. Stokes, ".. any works moving forward are not approved by Nessfind. If you choose to keep working, you will not be paid by Nessfind."
6. As his Honour noted, Mr. Stokes gave evidence consistent with this, that he regarded Terry Reardon as the client. Mr Reardon is to be distinguished in the circumstances from Nessfind.
7. On the basis of this evidence, his Honour found that the first defendant, Nessfind, and the second defendant, Mr. Reardon, could be liable to Stokes for any loss sustained until 4 January 2014. After that date, his Honour concluded that Nessfind was not liable for any loss sustained by Stokes. He concluded that liability beyond that date rested with Mr. Reardon.

Consideration

1. Mr Reardon contends by his written submissions that the only cause of action pleaded by Stokes Contractors was for a breach of contract by Nessfind. He states that on 4 January 2011 the earthmoving agreement came to an end, and that all payments due to Stokes Contractors prior to 4 January 2011 were paid. Mr Reardon states that his Honour erred in law by entering judgment against him considering the cause of action was solely against Nessfind.
2. In considering this ground I have had regard to the pleadings in the Local Court and the evidence adduced during those proceedings as well as to case law regarding procedural fairness.
3. The matter was originally pleaded as an action against Nessfind and Mr. Reardon. The relevant particulars are as follows "15. The plaintiff has requested and demanded the first defendant pay the outstanding invoices, however the defendants have neglected to make payment. 16. The defendants owe the plaintiff $35,524.47."
4. The references in the particulars to the "defendants" generally is somewhat imprecise, and capable of differing interpretations. Ms. McDonald, counsel for Stokes, has referred to the statement of claim containing "rather infelicitous drafting".
5. The amended defence filed by Nessfind and Mr. Reardon on or about 22 August 2013, states in part: "18. Further and in answer to the whole of the ASoC, the defendants say that: … k) The second defendant says that he entered into a contract for the continuation of works by the plaintiff at the Wirrianda property in his individual capacity from 4 January 2011, but says that he was induced to do so by the unconscionable conduct of the plaintiff. l) Further or in the alternative to paragraphs 18(a) to (k) above, the defendants are not, or were not obligated to make payment towards invoices, or parts thereof… …
6. The defence refers to a number of considerations said to be relevant to the asserted absence of any liability against Mr. Reardon for works undertaken by Stokes after 4 January 2011, despite an agreement for such work to be undertaken.
7. The identities of the contracting parties was clearly an issue in the proceedings before the Magistrate and, despite the imprecision of the original pleading, the issue appears to have been recognised by both the court and the parties. Indeed, the matter was conducted by the parties on that basis.
8. Despite that, Mr. Reardon relies upon the failure to plead an action in contract against him in the pleadings filed by Stokes as a basis upon which to impugn the conclusions of the Local Court.
9. In written submissions before this Court, Mr. Reardon notes that "the only cause of action pleaded by the defendant in the court below was for a breach of contract by Nessfind" and that the "only claim that the plaintiff, and Nessfind, had to meet at trial was for the alleged breach of contract by Nessfind".
10. In oral submissions in court, the plaintiff stated: "I should say, your Honour, as a matter of frankness, that it wasn't disputed ultimately that there was a contract as between the plaintiff and the second defendant; what was disputed was whether the plaintiff had brought any action in respect of that contract." [T5.35]
11. The present plaintiff also relies upon the failure of Stokes to make an application to amend the pleadings so as to bring an action against Mr. Reardon for breach of contract.
12. Where there is a contention that a matter was determined on a basis other than one raised in the pleadings, attention must be given to both the pleadings and the manner in which the case was conducted.
13. Whilst the pleadings may be determinative of the matter, that is not always the case. Where neither the pleadings nor the evidence advanced and argued by the parties gives rise to determination of the matter on a basis other than that which was pleaded, there is likely to be a denial of procedural fairness to one or both parties in determining the trial by reference to a matter not argued before the Court. That will not be the case, however, where the evidence adduced by the parties and the issues argued by them legitimately gives rise to determination of the matter pleaded on a different basis to that pleaded, and upon which the trial may be determined.
14. As stated in Gould v Mount Oxide Mines Ltd (in liquidation) [1916] HCA 81; (1916) 22 CLR 490 at [517]: "Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest."
15. See also Banque Commerciale SA (In Liquidation) v Akhil Holdings Ltd (1990) 169 CLR 279; Dare v Pulham (1982) 148 CLR 658; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets [2008] NSWCA 206; 73 NSWLR 653.
16. Here, his Honour clearly took the view that, whilst breach of contract was pleaded against Nessfind alone, the evidence adduced by both Stokes and Mr. Reardon established the existence of a contract between the two at the material time, and the parties had argued the matter in a manner consistent with that evidence.
17. That conclusion was, in my view, open to his Honour, and does not represent a denial of procedural fairness to Mr. Reardon.
18. His Honour had regard to evidence adduced by both parties relevant to the question of the identity of the contracting parties.
19. Stokes relied upon evidence from its principal, contained in an affidavit of Nicholas Stokes dated 30 September 2013: " 8. As I understood the agreement, Stokes Contractors (Stokes) was hired by Terence on a hire only basis to supply and operate equipment on the site to perform works under Terence's direction. To me, this meant Terence would be directing us where and how to excavate the pond and where to dispose of the excavated earth. I of the understanding that Terence would perform all survey and set out works for the pond and would manage the works whilst Stokes performed the physical excavation works. 30. On or about 1 September 2010, Terence asked me to accompany him to inspect an area where he wanted to construct a horse arena and road as an extra facility to enhance the property sales. Terence showed me the area he had in mind and asked me for my opinion about the suitability of the area and to work out the cost of construction. I advised Terence that I would need to take survey levels and excavate some test holes, to which he agreed to pay extra for the fact of my organising the works. 32. Prior to the construction of the culverts, I calculated the quantities, sources the pipes and headwalls and bedding sand. Based on comparative quotes, I ordered the material and arranged for delivery. I organised invoices to be sent to Terence and Terence subsequently contacted the suppliers and arranged payment. 39. On or about 5 January 2012, I had a conversation with Terence, updating him as to my conversation with Leon, to the following effect: Terence: Leon has no more money but I want you to keep working on the site. I am going to buy Leon out and complete this project myself. Me: How are you going to finance this? Terence: I can pay in the interim until I get my insurance payout but only at a rate of $2,500.00 a week which should be enough to cover your wages and fuel costs. Me: Given the situation you have left me in, I have little choice. Terence: I hope to complete the first 5/6 blocks of the subdivision and to get them onto the market and try to get provisional sales in order to persuade the bank to lend money to complete the project. 77. In relation to paragraphs 11(c) and 12(c) of the Amended Defence, I concede that the tax invoices were addressed to Wirrianda Estate at that address. After an analysis of all invoices, I note that some were addressed to Terence while others were addressed to Wirrianda Estate. Aside from the unpaid invoices from this claim, all other invoices had been paid either in full or in part."
20. In examination in chief on 21 February 2014 in the Local Court, Mr Stokes deposed, at T6:39-6:48: "Q: The last sentence it is written in the affidavit "I advise Terence that I would need to take survey levels and excavate some test piles to which he agreed to pay extra for the fact of my organising the works." Can you recall that conversation, or a conversation - yes or no? A: I can, yes. Q: Thank you. Can you please tell his Honour as best you can recall the words that Terrence said to you? A: Terrence said that "I realise that you're doing works over and above what we originally agreed and we will work out some form of remuneration later."
21. At the close of the reopened case for the plaintiff, his Honour referred to what he regarded as the issues in contention, at T95:46-95:49: "HIS HONOUR: "… that's an issue the way it's panned out; and who was the contract with, that's an issue." HASSALL: [counsel for Nessfind Pty Ltd]: Yes."
22. Further, at (T96:37 - 96:39) his Honour said: "But it was no doubt an agreement then between the plaintiff and the second defendant. Before that [5 January] it might have been an agreement with the first defendant or the second defendant."
23. It is clear that the issue of the identity of the contracting parties was raised on the evidence, and specifically referred to by his Honour as an issue to be determined. Mr. Reardon did not dispute the existence of a contract between he and Stokes: affidavit of Mr. Reardon of 5 November 2013 at [56] - [57]; T91:31 of 21 February 2014). There was opportunity for Mr. Reardon to address this aspect of the matter, and he did so; for example, in cross-examination of Mr. Stokes on 21 February 2014 (at T15:50 - 16:23; T18:45 - 19:33).
24. Whilst Mr. Reardon's primary submission to his Honour in his closing address relied upon the deficient nature of the pleading (which did not plead a contract between Stokes and Mr. Reardon), he also addressed (in the alternative) the issue of the identity of the contracting parties and of his liability for any loss to Stokes.
25. Despite any deficiency in the pleadings, the parties contested the case on the issues chosen at trial, including the existence of a contract between Mr. Reardon and Stokes after 4 January 2011. His Honour was entitled to determine the matter by reference to the evidence and having regard to the manner in which the matter was argued before him.
26. It must be borne in mind that the overriding purpose of the Civil Procedure Act 2005 is to determine and litigate the real issues between the parties and achieve a just outcome. It is clear that it was open to his Honour to decide who the contracting parties were and to determine that the relevant contract after 4 January 2011 was between Stokes and Mr Reardon, notwithstanding the matter in which the pleadings were drafted.
27. There was no denial of procedural fairness and, accordingly, this ground is not made out.

Ground 2

1. Contrary to the submission of the plaintiff, the second ground advanced by Mr Reardon raises a mixed question of both law and fact and the leave of this Court is required to argue it: s 40 Local Court Act 2007.
2. The question of leave to appeal was explored by Gleeson CJ in Swain v Waverley Municipal Council (2004) 220 CLR 517 at [2]: "In the common law system of civil justice, the issues between the parties are determined by the trial process. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal. Most decisions of trial courts are never the subject of appeal. When there is an appeal, the appellate court does not simply re-try the case. Depending on the nature of the appeal provided by statute, Courts of Appeal act according to established principles by which their functions are constrained. Those principles reflect the primacy of the trial process and the practical limitations upon the capacity of a court which does not itself hear the evidence justly to disturb an outcome at first instance."
3. The determination of a question of leave is discretionary.
4. In Maytom v Kennett [2014[ NSWSC 116 at [79] Hallen J noted: "The discretion is given for the obvious purpose of enabling the court to meet the overall interests of justice. Without intending to be exhaustive, when exercising the discretion, the court will have regard to the nature and history of the proceedings, the conduct of the parties, the nature of the litigation, the length of the delay, the reasons for the delay, whether the delay was intentional, or contumelious, or merely the result of a bona fide mistake or blunder, the proposed grounds of appeal, whether the appeal is arguable, the consequences to the parties of the grant, or refusal, of the extension of time, and the extent of the prejudice, if any, suffered as a result of the delay, by the intended respondent to the appeal. (In setting out these factors, I bear in mind that although they are referred to in the cases, they should not confine the broad discretion given to the court.)"
5. In raising this ground, Mr. Reardon contends that the learned magistrate erred in the conclusion he reached that Mr. Reardon was responsible for payment of project management fees claimed by Stokes. It is argued that his Honour's conclusion was not open to him on the evidence.
6. His Honour's remarks on this issue were brief, and are here extracted in full: "The defendants maintain that the plaintiff [Nessfind] was contracted to dig a hole and nothing more. The plaintiff maintains that during the course of the project it became clear that, because of occasional absences of the second defendant and because of some changes to the measurements of the pond, it was necessary for it to play a project management role. To use Mr Stokes' words "the whole thing morphed". To some extent, the second defendant, at the least, inferentially agreed with this proposition as he paid some of the plaintiff's fees as the rate which incorporated a project management fee."
7. Mr. Reardon contends that his Honour's finding that he "inferentially", and "at least to some extent" agreed to Stokes undertaking the role of project management was in error, and was contrary to the evidence adduced before the Local Court.
8. The evidence of an agreement for Stokes to act as project manager was slight. His Honour's conclusion that there was such an agreement appears to have been based on a view that Mr. Reardon had conceded that aspect of the matter. Such a view is contrary to the evidence, there having been no such concession by Mr. Reardon.
9. Such concessions as were made were made by Mr. Stokes.
10. In his evidence, Mr. Stokes conceded that there was no contract between Stokes and Mr. Reardon for project management (T16:20 of 21 February 2014; T18:45 of the same date). He also agreed that he had not in his e-mail of 28 March 2012 sought payment for project management fees, despite making a demand in that e-mail for monies said to be outstanding for work undertaken (T18:25 of 21 February 2014). Critically to my mind, the evidence was that Stokes did not render any invoice to Mr. Reardon referable to project management fees until some nine months after Stokes had completed its work at the property (T18:20 of 21 February 2014).
11. The only relevant invoice was rendered on 17 May 2012, the work having been completed the preceding August. There is no evidence that this invoice was paid by Mr. Reardon or, contrary to his Honour's conclusion, that Mr. Reardon ever paid for project management work by Stokes.
12. The failure to render an invoice for work in the nature of project management for such an extended period is not indicative of an agreement for project management, and work completed pursuant to an agreement of that nature.
13. Having considered the evidence, I do not regard his Honour's conclusions as being open to him.
14. The defendant argues that it was open to the learned magistrate to order Mr. Reardon to pay Stokes for project management work, even in the absence of any agreement between the parties to that effect, on the basis of quantum meruit. I am unable to accept that submission.
15. Principles of quantum meruit allow for the recovery of reasonable remuneration where services were rendered to a person or entity in circumstances where the services rendered were either sought or accepted by the person or entity.
16. There was no evidence before the learned magistrate to establish that the fees demanded by Stokes and contended by it to be owed by Mr. Reardon for project management constituted reasonable remuneration.
17. The invoice rendered on 15 May 2012 was devoid of detail of the nature of the services said to have been provided by Stokes, and provided no information which could allow any proper assessment to be made of the reasonableness or otherwise of the invoiced amount, one of $9,900. The invoice asserted that "120 site days" had been worked, and demanded payment at a rate of $75 per day for that work. Whether the work undertaken constituted project management was not established on the evidence, and nor was there any evidence led as to the commercial value of the work completed, whatever it may have been.
18. In these circumstances, it is difficult to see how his Honour's orders could be based upon quantum meruit principles. That must be particularly so in circumstances where neither his Honour nor the parties referred to these principles, and Mr. Reardon had no opportunity to address any claim or award based upon them.
19. Having considered the matters relevant to ground 2, I accept Mr. Reardon's submission that his Honour fell into error in his conclusions with respect to liability for project management fees. The evidence did not support his Honour's conclusions in this regard. Accordingly, I would grant leave to advance this ground, and uphold the appeal on this basis.

The Question of Costs

1. In the Local Court, his Honour made an order that each party bear its own costs. That order was based upon the partial success of the claim by Stokes.
2. In these proceedings, Mr. Reardon submits that, if successful on either or both grounds, costs of the proceedings in the Local Court (and in this Court) should be awarded in his favour. That submission is based upon both the existence of a Calderbank offer made to Stokes on 8 November 2013 for the sum (inclusive of costs) of $9,500; and upon the contention that the value of the claim in relation to which Stokes might be anticipated to succeed being less than $10,000, the matter could have been resolved in the Small Claims Court, without costs to the parties.
3. Stokes contends (relevantly) that its refusal of the Calderbank offer should not militate in favour of an award against it of costs, because the value of the offer could not have been ascertained given that the sum specified was inclusive of costs.
4. The competing claims of the parties in this jurisdiction, as in the Local Court, have not been resolved wholly in favour of either party. That being the case, I regard the orders made in the Local Court to be appropriate, despite the plaintiff's success in this Court on ground 2.
5. I do not intend to make an order in favour of either party in relation to the costs of these proceedings. Each party should bear its own costs.

ORDERS

1. Accordingly, the orders of the Court are as follows: 1. Ground 1 is dismissed. 2. Leave to appeal Ground 2 is granted and that ground is upheld. 3. The order of the Magistrate directing the plaintiff to pay project management fees to the defendant is set aside. 4. The orders of the Magistrate are otherwise affirmed. 5. Each party is to bear its own costs of the proceedings in this Court.

Amendments 09 December 2015 - File number on coversheet corrected 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. Decision last updated: 09 December 2015