WAGGA ROAD PROPERTIES PTY LIMITED & ORS v SMITH & ANOR [2008] NSWSC 1410 | Case summary

1 HIS HONOUR: This is an appeal under s 73 of the Local Courts Act 1982 by the defendants who suffered a judgment against them in the Local Court. The facts are relatively simple and were undisputed. The defendants, (comprising a company and its directors, who I will call the owners) entered into an arrangement with the plaintiffs (comprising a company and its directors, who I will call the managers) concerning the building and setting up of a retirement home in Albury. 2 The managers engaged a builder to construct, amongst other things, a kitchen in the owners' building. There were disputes between the managers and the builder as to the adequacy of the construction work and payment was refused. The builder served a statutory notice of demand on the owner company (rather than on the managers) for reasons which are not clear. As it happened, at that time the owners and the managers were engaged in negotiations directed to the latter's acquisition of all the shares in the owner company. 3 The owners thought, on legal advice, that having regard to the costs of litigation it was sensible simply to pay the outstanding account. The managers did not agree and wished to take action to set aside the statutory notice. Since the owner company was the subject of the notice it was necessary that proceedings to set the notice aside were taken in its name. Through their solicitor, the owners agreed that the managers could take proceedings in its name upon the condition that the owner company was not subject to any of the costs of the litigation. The managers commenced the proceedings, which were terminated in favour of the owner company by an order setting aside the notice and for costs. These were the orders sought. The managers then went about assessing the costs with a view to enforcing the costs order of which, of course, they wished to have the advantage, having borne the risk and expense of suing. When the managers had got part way down that path a dispute broke out between them and the owners and the foreshadowed acquisition of the company by the managers did not proceed. 4 In the meantime, the builder had a number of outstanding claims (including that which had led to the issue of the notice). Instead of negotiating with the managers, it negotiated directly with the owners. Those disputes were settled by the owners who, amongst other things, agreed to give up the claim for costs which, although it was in the owner company's name, was in fact and in law, for the benefit of the managers. It was, therefore, not dealing with property, namely the chose in action constituted by the order for costs, of which it was the beneficial owner. 5 The negotiations between the owners and the builder were conducted without any knowledge of or disclosure to the managers, who discovered it some months later when attempting to enforce the assessment procedures of this Court in relation to what they thought was their costs order. The managers therefore sued the owners in the Local Court for their costs. The Local Court is not a court of pleading. Nevertheless, the legal and factual issues must be stated clearly enough for the court to determine questions of relevance, and any issues of law. In this case, as well as the statement of claim, comprising a somewhat formal pleading, and a defence, in the same form, affidavits were exchanged, read on each side. No evidence was called. There were no factual disputes. The case formally pleaded was a claim under s 52 of the Trade Practices Act 1974. The statement of claim sets out in general terms the facts to which I have just referred. It would have been better perhaps had the action relied on s 51AA of the Act (which prohibits a corporation from engaging in unconscionable conduct within the general law) rather than s 52. I do not think it can be doubted that the facts gave rise at least to a prima facie case that the defendants had engaged in unconscionable conduct by seeking to destroy the beneficial interest of the managers in the chose in action consisting of the order for costs. 6 The owners having acted in breach of their representation to and authorising of the managers to undertake the litigation in question to its completion, including by necessary implication the obtaining and enforcement of any order for costs, the learned Magistrate found in favour of the managers. It is submitted here that the reasoning of the Magistrate was based upon arguments not put by counsel and not disclosed, at least expressly, in the statement of claim. There is no evidence before me as to the submissions put to the magistrate at the close of the proceedings and I am not, therefore, able to determine this question in favour of the appellants. Even if I were to do so the question would still remain, I think, whether any miscarriage occurred since the findings, except so far as the construction of the representation is concerned, were on facts not disputed, and the denial of natural justice depends only upon whether particular legal arguments were articulated. 7 At the centre of the owners' case, both before the Magistrate and here, was the contention that the authorisation to conduct proceedings in the name of the company did not comprehend obtaining a costs order, or if it did, enforcing the costs order, or if it did, that the owners could nevertheless after the litigation had been completed except for enforcing of the costs order, then withdraw their authority and settle behind the managers' back with the builder. This was an impossible proposition to maintain before the Magistrate and did not get better before me. 8 It is true that the question of obtaining a costs order and enforcing it was not the subject of an express statement in terms when the owners' solicitor conveyed to the managers' solicitor their agreement that the action could be undertaken, but it must inevitably have been found that such authorisation included obtaining an order for costs and enforcing it. It also implied that the owners would not do anything to prevent the manager from enforcing its orders for costs. It seems to me, therefore, that the conclusion that the owner had acted contrary to their representation and the terms of its authority was an inevitable one. This was the conclusion to which the Magistrate, not surprisingly, came. 9 The difficulty facing the managers is casting these circumstances in terms of the legal and factual issues posed by s 52 of the Trade Practices Act. It is clear that, at the time the authority was given or the representation made, it could not be suggested that it was misleading. There is no evidence that would permit an inference that the owner did not intend to fully honour their representations in the sense in which they were communicated. It was only after the parties fell out and in the context of continuing disputation between the owners and the builder that the question arose whether the owners were entitled to take unilateral action to give to the builder, as it were, the costs to which the managers were entitled. 10 It is argued for the managers that the representation, as also the authority, was continuing and did not come to any effective end until the litigation was completed by the recovery of costs. I think this must be correct. It is then said that, whilst the representation was continuing, the owners were negotiating with the builder to destroy its very subject matter, namely the right of the managers to obtain their costs and that this constituted deceptive and misleading conduct. 11 It is said that, had this conduct not been undertaken, the managers would have in due course obtained an assessment of their costs and recovered them from the builders. If they had been informed by the owners of the negotiations, they could have and almost certainly would have, I think, informed the builders of their beneficial interest in the costs' order with the consequence that the builders would have had notice of their interest and the managers could have proceeded against the builders in respect of the order or by other proceedings to recover their interest which, upon this hypothesis, the builder had notice. The Magistrate, however, focused on whether the continuing representation that the managers were authorised to continue the litigation to its end was misleading. This is an error of law. It focused on the wrong conduct. Although I have stated this problem baldly, it is difficult, in fact, precisely to derive from the learned Magistrate's reasons how he analysed the issues for determination. On the other hand, the Magistrate did note the alternative contention by the managers that, by failing to disclose that they were intending to execute the deed, the owners had engaged in misleading and deceptive conduct. This alternative case is that in which I have mentioned above and focused correctly on the legal issues. In answering it, however, the Magistrate held that either the representation was misleading because it was ultimately terminated in circumstances where it was implied it would not be terminated, or that the entry by the owners into the deed with the builder was itself the misleading and deceptive conduct. It will be seen that neither of these ways of looking at the case dealt with the "alternative" way in which it was cast. 12 I have mentioned that the centre of the owners' case was the contention that the authority related merely to the conduct of the litigation itself and did not extend to obtaining or enforcing an order for costs and there could be no misleading of the managers since there could be no suggestion that that representation was in any way false or qualified. It was submitted then that any actions taken by the managers as to costs could not have been in reliance upon the representation so understood. As I have said, this characterisation of the representation is without substance. In dealing with the reliance argument, however, the Magistrate said that the representation, "Had the real capacity to mislead because it was silent about the aspect of ... applying for costs but implied they could do so". This might have been true, but it was a non sequitur. If the representation implied that the managers could apply for costs, then the mere fact that it was silent was immaterial, silence in this context meaning only not in express terms. 13 The Magistrate referred to the submissions of counsel for the owners that the representations as to the authority to conduct the litigation was "not misleading because it did not include a representation limiting the right of...[the owners] to deal with its property as it saw fit, including a chose in action constituted by costs" and held that this submission was wrong because the representation implied that the managers were authorised to apply for costs. It seems to me that this conclusion necessarily implies that his Honour indeed accepted that the representation, though made at a particular time, continued in effect at the time when the owners settled their disputes with the builder. So read, although there is some awkwardness of language, I do not think that it discloses an error of law. 14 The error of law to which I have already referred, namely applying the facts to the wrong issue may have the consequence that the Magistrate's judgment should be quashed upon this ground. In my view, the primary facts being undisputed, I should myself consider the substantive question whether the ultimate order of the Magistrate is correct. 15 I have already stated that the factual issues as set out in this statement of claim clearly raise a case at least under section 51AA of the Trade Practices Act 1974. The undisputed evidence demonstrates to a certainty that the defendants acted unconscionably within the meaning of the general law and hence within the meaning of s 51AA of the Trade Practices Act. 16 In Thaina Town (on Goulburn) Pty Limited v City of Sydney Council [2007] NSWCA 300, the Chief Justice pointed out - "103 This Court must be concerned that the course of administration of justice in this State does not impose unnecessary cost burdens on parties by adopting a narrow interpretation of statutory powers conferred upon the Court to ensure the just and efficient administration of justice. Where no new findings of primary fact are required to be made, this Court should exercise a power conferred upon it in wide terms so as to ensure that the costs of legal disputation is minimised and thereby apply the guiding principle in s56 of the Civil Procedure Act 2005 to the exercise of powers conferred by an Act other than that Act or by Rules of Court, so as to facilitate the just, quick and cheap resolution of the issues in dispute in civil proceedings." 17 In that case, however, the powers of this Court on appeal are somewhat more widely expressed than in s 75 of the Local Court Act. As Harrison AJ said in Servcorp v Tikuta [2008] NSWSC 1005 it may be appropriate that this Court should substitute its own verdict where I have mentioned the facts are in substance undisputed and the judgment below is wrong: see also Klesteel Pty Ltd v Mantzauranis [2008] NSWSC 194. Where, however, the judgment is correct on undisputed facts, should this Court remit the matter for a new trial, although the outcome on those facts is inevitable, simply because the Magistrate erred in some legal respect in coming to the correct conclusion? 18 It was submitted by counsel on behalf of the owners that I would not dismiss the appeal since a case such as that I have articulated of unconscionability, had it been clearly articulated below, would have had the consequence that further evidence may have been called by the owners on the point. I do not accept this submission. The unconscionability argument was clearly implicit in the statement of claim. It was clearly implicit in the outlines in the summaries of cases filed in the Local Court before the preparing commenced. It was clearly implicit also in the affidavits. No attempt was made to show that, by virtue of the managers' conduct, the representations and authority could not be relied on or otherwise attempting to justify the owners' conduct. The arguments were directed to the nature of the impugned representations and the issue of reliance. Yet it seems to me that such evidence clearly went to the issues in the proceedings, even though they were cast in terms merely of s 52 of the Trade Practices Act. For example, the issues raised included whether the managers had acted in a way which indicated that the representation was limited or more limited than they alleged and whether any notice had been given to them in a timely way that the authority might have come to an end and so on. 19 This is a claim for a sum of less than $20,000. To send this back to the Local Court for further litigation in the context where all factual matters were able to be disputed below and are, as it seems to me, likely to be indisputable at all events merely because of the theoretical possibility that the owners might call further evidence would be to multiply costs needlessly and defeat the proper ends of the administration of justice in this case. This is especially so when, on the evidence, the Magistrate's decision was clearly correct. 20 Under s 75(1) of the Local Court Act 1982, the Court may, inter alia, vary the terms of the judgment or order or dismiss the appeal. 21 Judgment was given in the amount set out in the plaintiffs' solicitor's bill of costs. However, that had been the subject of some disputation between the parties and, if that disputation was not settled, an assessment would have been required. That assessment, because of the conduct of the owners, did not in the end result but I do not think that it was right to assume that the amount claimed would have been assessed as correct. As against this argument there was no issue below that the sum was correct and the case was approached by the parties on the basis that, if the plaintiffs succeeded, they should have the amount claimed. It was only during argument in this Court that counsel for the owners pointed out that the learned Magistrate may have erred in this respect. It seems to me that the complete answer is that, if he erred, he did so at the invitation of both parties. 22 I do not intend to continue this litigation for one moment longer than is necessary. Accordingly, the appeal is dismissed.

WAGGA ROAD PROPERTIES PTY LIMITED & ORS v SMITH & ANOR

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Judgment (15 paragraphs)

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