McHattan, Geoffrey James v Saramoa Charters Pty Ltd & Ors [1996] FCA 891

CATCHWORDS

APPEAL - challenge to trial judge's finding of fact - functions of appellate court - findings based upon credibility of witnesses.

APPEAL - disconformity between the case pleaded and the case on which trial judge made findings.

CONTRACT - sale of business - whether tractor and trailer integral part of business - business sold "lock stock and barrel" - whether mistake as to subject matter of contract.

COSTS - order for costs on indemnity basis - whether rejection of reasonable offer of settlement should attract costs sanction - whether factual error tainted the exercise of the discretion as to costs.

Warren v Coombes (1979) 142 CLR 531

Devries v Australian National Railways Commission (1993) 112 ALR 641

Taylor v Johnson (1982-83) 151 CLR 422

In re Butlin's Settlement Trusts [1976] 1 CH 251

Water Board v Moustakas (1987) 180 CLR 491

Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd 81 ALR 397

Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993)

GEOFFREY JAMES McHATTAN v SARAMOA CHARTERS PTY LTD & ORS

No. QG 56 of 1995

SPENDER, FOSTER and BRANSON JJ

BRISBANE

17 SEPTEMBER 1996

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY No. QG 56 of 1995

GENERAL DIVISION

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN : GEOFFREY JAMES McHATTAN

Appellant

AND : SARAMOA CHARTERS PTY LTD

(A.C.N. 054 326 064)

First Respondent

AND : WILLIAM STUART HILL

Second Respondent

AND : KAYE PATRICIA HILL

Third Respondent

CORAM: SPENDER, FOSTER and BRANSON JJ

PLACE: BRISBANE

DATE: 17 SEPTEMBER 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. In lieu of the costs order of Kiefel J of 5 April 1995, the appellant pay the costs of and incidental to the action including reserved costs, if any, to be taxed.

2. Otherwise, the appeal be dismissed.

3. The appellant pay the costs of the respondents of the appeal, to be taxed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY No. QG 56 of 1995

GENERAL DIVISION

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN : GEOFFREY JAMES McHATTAN

Appellant

AND : SARAMOA CHARTERS PTY LTD

(A.C.N. 054 326 064)

First Respondent

AND : WILLIAM STUART HILL

Second Respondent

AND : KAYE PATRICIA HILL

Third Respondent

CORAM: SPENDER, FOSTER & BRANSON JJ

PLACE: BRISBANE

DATE: 17 SEPTEMBER 1996

REASONS FOR JUDGMENT

THE COURT

This is an appeal from a single judge of this Court (Kiefel J), who on 6 April 1995 dismissed an application by the appellant, Mr Geoffrey McHattan, based on a claimed infringement of his patent in a boat trailer the subject of Australian Patent No. 613632, declared that "As and from 30 April 1993 Saramoa Charters Pty Ltd was the owner of a "Taipan" boat trailer the subject of Australia Patent Number 613632 and a Chamberlain tractor Registration Number NO-251" and ordered, in the absence of a request by the applicant for further hearing as to the question of costs within 14 days, that Mr McHattan pay the respondents' costs of and incidental to the action, including reserved costs, if any, to be taxed
on a party and party basis save those costs incurred as from 21 November 1993, which were to be taxed and paid on an indemnity basis. There was no such request followed through by Mr McHattan.

This appeal depends to a very large extent on the way the trial was conducted, and to the findings of credibility by the trial judge. The appellant represented himself at the trial, which took five days, and on the appeal, which took two days with subsequent further written submissions. This extensive litigation owes some part to the personality of the appellant, of whom the trial judge said in her reasons:

" ...he appeared an intelligent man but for whom these proceedings have become something of an occupation and in the nature of a personal, intellectual challenge to him. "

The trial concerned the rights to a trailer and tractor used to convey boats from a boat ramp at Mackay Harbour to storage at premises known as "The Boatyard'.

Mr McHattan had since 1988 conducted a business known as "The Boatyard", which involved, amongst other things, towing vessels from the water by means of the trailer and storing them in a boat storage area some distance from the water as well as a ship workshop and associated matters. The trailer, described as a "Taipan" boat trailer, required a tractor to pull it. In the conduct of the boatyard, the
trailer was an important item because the storage of boats necessitated the use of a trailer since most boat owners did not themselves have trailers. The income from the conveyance of boats was a not insubstantial part of the returns of the business of the boatyard.

On 2 April 1993, Mr McHattan sold to Saramoa Charters Pty Ltd, the first respondent, the business which he had previously conducted for the sum of $160,000.00. Mr and Mrs Hill, the second and third respondents, are the directors and shareholders of Saramoa Charters Pty Ltd. In 1992, Mr McHattan had serious health problems, which had the consequence that he could not conduct the boatyard business.

The primary judge described the central question of the trial as being:

" The question is whether it was understood by the vendor and the purchaser, or at least the purchaser, that the trailer and tractor were sold as part of the business. "

The appellant takes issue with the centrality of this question, but unless the sale of the business involved the trailer, and with that inclusion an implied licence to use the trailer in the business, there would be no answer to Mr McHattan's claim of infringement of his patent.

Because of criticism by the appellant that the case as found by the trial judge was materially different from the case pleaded, it is necessary to have regard to the history of the litigation in a little detail.

It is common ground between the parties that the trailer the subject of the declaration by her Honour is the subject of a patent held by Mr McHattan. On 1 September 1993, the appellant filed an application and a statement of claim alleging infringement of his patent and seeking injunctive relief under the Patents Act 1990. At the conclusion of the trial he was seeking, in addition to damages for infringement, the delivery up of the tractor and trailer or damages for their conversion and damages for diminution in value or for repairs necessary to the trailer, as well as an account of profits.

Paragraph 11 of the statement of claim alleged that:

" Subsequent to the 21st. of June 1993 and continuing to the date of the application...the Respondents and each of them have infringed 'the Patent' in the manner set out in the Particulars of Infringement, served with this Statement of Claim".

On 8 November 1993, the respondents filed a Defence and Cross-claim. In paragraph 11(b) the respondents denied infringement and asserted:

" (b) by contract in writing dated 2nd April 1993 the first respondent agreed to purchase from the applicant, for the sum of $160,000.00, the right, title and interest in and to a boat yard business carried on on premises situated at Lot 8 Harbour Road, Outer Harbour, Mackay in the State of Queensland, together with the goodwill of the business and the vendor's fittings and plant and equipment. "

The paragraph then asserts that there was an oral agreement about 2 April 1993 that the plant and equipment would include the tractor and trailer, and there were further allegations that prior to the execution of that contract in writing, the applicant orally represented that the plant and equipment being sold to the first respondent included the tractor and trailer. The defence alleges an oral agreement that Mr McHattan would prepare the schedule to the written agreement, which would list the plant and equipment agreed to be sold and the stock-in-trade to be sold, but that Mr McHattan did not include in it the tractor and the trailer. It was then alleged that prior to the first respondent signing the written contract, Mr McHattan did not inform the first respondent that the said schedule did not include the tractor and the trailer.

The respondents in paragraph 11(d)(vi) and (vii) pleaded:

" (vi) the first respondent signed and settled the written contract relying on the applicant's representation that the plant and equipment being sold included the tractor and the trailer and on the assumption (induced by the applicant's failure as pleaded in sub-paragraph (v) hereof) that the schedule to the written contract included the tractor and the trailer;

(vii) the applicant knew that when the first respondent signed the written contract and knew that when the first respondent settled the written contract it did so under the mistaken belief that the schedule included the tractor and the trailer; "

Paragraph 11(e) set up 'mutual mistake', it being asserted:

" ...the written contract did not include a reference to the tractor and the trailer. "

Unilateral mistake is set up in paragraph 11(f).

In Paragraph 11(f) of the defence, the respondents pleaded:

" 11.

...

(f) further or in the alternative -

(i) it was the intention of the first respondent that the written contract of sale would include a reference to the tractor and the trailer as being plant and equipment sold by the applicant to the first respondent;

(ii) the respondents repeat and rely upon the allegations contained in paragraph 11(d) hereof;

(iii) when the first respondent signed the written contract it did so in the mistaken belief that the tractor and the trailer were included in the plant and equipment thereby sold;

(iv) the applicant at the time that the first respondent signed the written contract knew of the first respondent's mistake as referred to in sub-paragraph (f)(iii) hereof but did nothing to bring that mistake to the attention of the first respondent;

(v) the applicant did not inform the first respondent of its said mistake as it was the applicant's intention to take advantage of that mistake to the detriment of the first respondent;

(vi) should it be determined that the contract between the applicant and
the first respondent is wholly contained in the written contract dated 2nd April 1993 then the applicant has benefited from the first respondent's said mistake;

(vii) in the premises, it would be unconscionable to allow the applicant to benefit from the first respondent's said mistake;

... "

The defence to the infringement claim is encapsulated by the pleading in paragraph 11(g) of the defence:

" the applicant, by agreeing to sell the trailer to the first respondent (without expressly reserving to the applicant any rights in respect of the patent) thereby impliedly licensed the first respondent by its officers, directors, agents and employees to use and repair the trailer without infringing the applicant's patent. "

The case for Mr McHattan is that at no stage did the sale of the business include the tractor and trailer and that Mr and Mrs Hill at all times knew that this was the case. If, however, the Hills were mistaken in believing that the trailer and tractor were part of what was sold, that belief was engendered by a wrong interpretation of parts of the written agreement, which constitutes a mistake of law and not amenable to rectification.

The trial judge found:

" I accept that Mr and Mrs Hill believed at all times that they were purchasing a business which included, as essential pieces of equipment, the trailer and tractor. "

The trial judge expressly rejected Mr McHattan's evidence in several crucial respects and, in particular, her Honour said:

" I do not accept, as Mr McHattan says, that he had some days earlier told Mr Hewitt that the trailer and tractor were to be excluded. "

The trial judge found that Mr McHattan knew prior to the Hills signing that the tractor and trailer were excluded, and said of his knowledge at the date of the execution of the contract by the first respondent that:

" He then well knew that the Hills believed they were purchasing the business 'lock stock and barrel', which was not consistent with the exclusion of chattels important to its functioning and income. "

The trial judge indicated that if it were necessary to order rectification of the contract she would do so, on the basis that a mistaken belief on the part of one party to the contract may still ground relief by way of rectification, where the circumstances show that the other, knowing that party to be labouring under a mistake as to a term, remains silent and permits that party to execute the document to their detriment: A. Roberts & Co Ltd v Leicestershire County Council [1961] Ch. 555; Johnstone v Commerce Consolidated Pty Ltd [1976] VR 463.

After extensive reference to authority as to the basis for this jurisdiction, the trial judge said:

" One could view the matter as necessitating holding Mr McHattan to his earlier representations, concluding that it would be

inequitable to permit him to object to rectification, or giving effect to the equity created by his conduct by declining to permit him to retain the advantage he created for himself, by correcting the mistake. "

The trial judge concluded that no utility would be served by ordering rectification, observing:

" The contract does not however involve any further performance and rectification would serve no practical end, save to identify that the chattels were to pass into the ownership of the first respondent. In these circumstances I consider a declaration as to the present ownership of the chattels will suffice. The Hills' purchase of the trailer would be understood as carrying with it a licence to use it in the conduct of business, for the purpose of conveying boats but not so as to otherwise infringe Mr McHattan's right as patentee. (See Rickets (sic) on 'The Law of Intellectual Property' [50.27]). "

The submissions by the appellant on appeal fall into four broad categories. The primary category seeks to challenge the findings of fact made by the trial judge. The second area relates to submissions that rectification in the circumstances of this case was not open, it being said that any mistake by Mr and Mrs Hill was a mistake of law. A further area of submission is directed to a complaint that the appellant had been denied natural justice in that the case as found was not the case which the respondents had pleaded. The final broad category of submissions was directed at challenging the correctness of the trial judge's order of indemnity costs from 21 November 1993.

When an appeal court has to consider findings of fact made by a trial judge, the distinction has to be drawn between those cases where the findings of fact depend upon a view taken of conflicting testimony and those cases which depend on inferences from uncontroverted facts.

In Warren v Coombes (1979) 142 CLR 531, a majority of the High Court (Gibbs ACJ, Jacobs and Murphy JJ) said, at 552.5:

" The duty of the appellate court is to decide the case - the facts as well as the law - for itself. In so doing it must recognize the advantages enjoyed by the judge who conducted the trial. But if the judges of appeal consider that in the circumstances the trial judge was in no better position to decide the particular question than they are themselves, or if, after giving full weight to his decision, they consider that it was wrong, they must discharge their duty and give effect to their own judgment. "

In this case, some facts are not in dispute, such as the contents of the written agreements, but many of the crucial facts depend on assessment of the credibility of witnesses. In respect of those matters, the position is as appears from Devries v Australian National Railways Commission (1993) 112 ALR 641, in the judgment of Brennan, Gaudron and McHugh JJ at 646:

" If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his [or her] advantage' SS Hontestroom v SS Sagaporack [1927] AC 37, at 47; or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the
evidence' or which was 'glaringly improbable' Brunskill (1985) 59 ALJR, at 844; 62 ALR, at 57. "

In this case, the trial judge has given detailed reasons as to her preference of the evidence of the claim by the Hills as to the subject matter of the contract of purchase of the business and for her rejection of crucial aspects of the appellant's evidence. No ground exists for concluding that the trial judge failed to use or palpably misused her advantage.

The appeal therefore has to be conducted on the basis of her Honour's findings. In summary form, the facts on which the appeal has to be considered are:

There had been discussions between Mr McHattan and Mr Hill in early 1992 without any resolution. There were some further discussions in early March 1993. At least by 20 March 1993 it was clear to Mr McHattan that the Hills could pay no more than $180,000.00. In a conversation about that time, Mr McHattan told Mr Hill that he wished to sell the business "lock, stock and barrel". (Mr McHattan in his evidence at trial did not dispute that that phrase may have been used.)

At about that time, a business contract in standard form was produced by Mr McHattan. The parties were Mr McHattan and the Hills personally, with a price of $180,000.00. Clause 1 provided:

" 1. THE Vendor agrees to sell to the Purchaser and the Purchaser agrees to purchase from the Vendor for the price of One Hundred and Eighty Thousand dollars (180,000.00) all the right title and interest of the Vendor in and to a certain The Boat Yard business carried on on premises and situated at Lot 8 Harbour Road Outer Harbour Mackay (hereinafter referred to as 'the said business') together with the goodwill of the said business and the Vendors fixtures, fittings, and the Vendors plant and equipment set forth in the Schedule hereto, ~~excluding stock-in-trade~~ including stock-in-trade as per attached Schedule. "

The purchase price by cl. 17 of that draft contract was made up as follows:

Plant, furniture & chattels $68,000.00

Stock-in-trade $10,000.00

Goodwill $102,000.00

No Schedule listing plant and equipment and stock-in-trade was then in existence.

On about 25 March, Mr and Mrs Hill were at the boatyard and Mr Hill asked Mr McHattan to prepare an inventory. The two of them walked around the yard discussing items. There were items pointed out by Mr McHattan which he wished to keep and which were not to be included in the sale, and these were discussed.

There were further discussions between the Hills and Mr McHattan after 25 March 1993. The Hills advised that they wanted a company, Saramoa Charters Pty Ltd, of which they were directors, named as the purchaser, that the deposit be reduced to $500.00, and that the area within which Mr McHattan agreed not conduct business be increased from 50 to 100 kilometres. The first two of these requests were agreed to by Mr McHattan but not the extent of the geographical restraint. Mr McHattan then prepared the further contract which contained an apportionment of the purchase price as follows:

Plant, furniture and chattels $75,000.00

Fixtures, stock-in-trade $10,000.00

Goodwill $95,000.00

That draft contract was delivered by Mr McHattan to the Hills on 31 March 1993, together with a letter dated 30 March 1993. There was an extensive discussion on that evening but at no time was it mentioned that the trailer and tractor were not included in what was to be sold or that they were not considered to be part of the business.

If that matter had been raised at any time, Mr and Mrs Hill would not have proceeded with the contract.

Whilst they had read the inventory and therefore knew that no mention was made of the tractor and trailer there, they did not appreciate the importance of it when read with clause 1.

On 2 April 1993, Mr and Mrs Hill met with Mr McHattan and Mr Hewitt at the offices of Mr Hewitt, Mr McHattan's then solicitor. At that meeting the Hills requested the purchase price be reduced to $160,000.00 with a corresponding reduction in the price to be paid for a house

which was to be sold to Mr McHattan as part of the overall transaction, which change was agreed to. The apportionment of the purchase price was:

Plant, furniture & chattels $75,000.00

Fixtures, stock-in-trade $10,000.00

Goodwill $75,000.00

At that meeting, no mention at all was made of the tractor and trailer.

Clause 1 was in the same terms as the previous contract, except that the words "excluding stock in trade" were not deleted. Clauses 12, 13 and 17

provided:

" 12. THE Purchaser acknowledges that no representations in connection with this sale have been made by the Vendor and that he, the Purchaser, has completed the said purchase after satisfactory personal inspection and investigation of the said premises and business and the said fixtures, fittings, plant, trade utensils, implements, stock and licences and has perused such records of financial transactions relating to the said business as he has desired to inspect.

13. IF any mistake be made in the description of the premises or any other error whatsoever shall appear in the particulars of the within sale Agreement such mistake or error shall not annul the sale but a compensation or equivalent shall be given or taken as the case may require.

...

17. THE Vendor and the Purchaser hereby agree that the aforesaid purchase price of One Hundred and Sixty Thousand Dollars ($160,000.00) mentioned shall be apportioned as follows:

Plant

Furniture $ 75,000.00

Chattels

Fixtures Stock-in-Trade... $10,000.00

Goodwill $75,000.00

$160,000.00

___________ "

Attached to the document is a document headed "Inventory" and dated 20.3.93. This document lists a number of items of plant and equipment and stock-in-trade as well as other items which fit into neither category. The list was typed by Mr McHattan. It does not include either the trailer or tractor.

On 2 April 1993, after the execution of the contract, Mr Hill had attended at the boatyard and observed the trailer being operated by Mr McHattan and, at that time, had received advice and explanation from Mr McHattan as to its use. On Monday, 5 April 1993, in the course of a lengthy discussion, Mr McHattan told his solicitor that the sale did not include the tractor and trailer. Settlement occurred on 30 April. On 1 May, Mr McHattan came to the yard and demonstrated how a boat was placed on a trailer and how to change the aircraft tyres on it and promised Mr Hill to bring a tool needed for gauging tyre pressure, which he did on 3 May.

On 3 May, Mr McHattan posted a letter to the Hills advising that he was leaving for a short holiday and said:

" ...The balance of my equipment, I will leave in the yard & remove it when I return, however you are welcome to use same till then, copies of various permits, registrations etc are wrapped in plastic, in the battery box on the tractor, should you need then [sic]. "

What was meant by the "balance of my equipment" was not definitely resolved.

Between 30 April 1993 and 7 June 1993, the Hills used the trailer on a regular basis in the conduct of the business.

On 7 June, Mr McHattan attended the yard, saying that he had heard that the Hills were claiming that the tractor and trailer were owned by them. Mr Hill asked Mr McHattan to sign the forms of transfer for the registration of the tractor.

On 7 June, Mr McHattan wrote to Mr Hill concerning their earlier conversation on that day and Mr Hill's request that Mr McHattan transfer the tractor and trailer to Saramoa Charters Pty Ltd. The letter said:

" I can only re-iterate (sic) that they are not part of the contract of sale. As suggested, please check with your solicitor on this matter urgently. "

The letter did not seek the return of the tractor or trailer.

On the following day, Messrs Wallace & Wallace, solicitors for the Hill interests wrote to the solicitor for Mr McHattan stating:

" We refer to the business contract between the parties dated the 2nd April and the list of plant and equipment set out in the inventory attached to the contract. It has now come to our client's attention that the tractor registered number NO-251 and trailer were not included in the list although it was clearly intended that they were included in the sale as they form a central part of the plant used in the operation of the business.

We would be grateful if you would have your client confirm this matter so that a transfer of motor vehicle registration can be prepared and executed by the parties. "

On 21 June, Mr McHattan's solicitor replied:

" I am instructed by my client that the tractor and trailer where [sic] not included in the Contract of Sale and clearly belong to my client. It would appear now that settlement of this matter has been concluded but your client desires to obtain ownership of the tractor and trailer. Although my client has other plans for the tractor and trailer he is prepared to discuss the sale of the tractor and trailer to your client. "

On these facts, while there were differences in the accounts given by Mr Hill and Mrs Hill as to their understanding of cl 1 and cl 17 of the contract, the trial judge found that there was no doubt that they were asserting that at the time they executed the contract they were mistaken as to the subject matter of the contract. The trial judge found that the Hills mistakenly considered that Clause 1 bore a meaning which had the consequence that the tractor and trailer were part of the sale.

This finding was clearly open to her on the evidence, as was the finding that Mr McHattan knew prior to the Hills signing that the tractor and trailer were excluded.

The submission by the appellant is not that the trial judge erred in law in applying the equitable doctrine of unilateral mistake to the facts which her Honour found, but rather that the findings of fact should have been different, so that there was no room for the operation of that doctrine.

The principles which her Honour applied on the facts before her were expressed by Mason ACJ, Murphy J and Deane J in Taylor v Johnson (1982-83) 151 CLR 422 at 432:

" ...a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. "

That passage refers to rescision, but relief by way of rectification was also clearly open on the findings made by her Honour.

The contention made by the appellant is that since the terms of the contract were read and understood by the parties at the time of its execution:

" ...the respondents expectations of the outcome, even if erroneous, don't constitute a 'mistake'. "

His submission was that the misunderstanding by the Hills was an "an error in their interpretation of the law", and that "The respondents interpretation or expectation of the law is not relevant to the performance of the contract."

The mistake under which the Hills laboured in the present case, as found by her Honour, was one as to the subject matter of the contract. That mistake, in turn, could be traced to their misunderstanding as to the meaning of terms in the contract. At times, the Hills contended that the trailer was included in the sale because of the provisions of clause 17; at other times, because of the provisions of clause 1, or that it should have been included in the schedule, but was not.

It was held in In re Butlin's Settlement Trusts [1976] 1 CH 251 that rectification of a settlement was available not merely in respect of words wrongly added, omitted or wrongly written, but also where words were purposely used in a mistaken belief that they bore a different meaning from their correct meaning as a matter of true construction. Brightman J said at 260-261:

" In such a case...the court will rectify the wording of the document so that it expresses the true intention: see Jervis v Howle and Talke Colliery Co. Ltd. [1937] Ch. 67; Whiteside v Whiteside [1950] Ch. 65, 74 and Joscelyne v. Nissen [1970] 2 Q.B. 86, 98. "

It is not irrelevant to observe that the relief claimed by the first respondent in the Defence of the respondents and the Cross-claim of the first respondent, filed on 8 November 1993, included:

" (a) a declaration that it is the owner of the tractor and the trailer;

(b) further or in the alternative, rectification of the written contract of 2nd April 1993 to include in the plant and equipment sold thereby the tractor and the trailer;

(c) an order that the applicant do all necessary things to enable the sale of the tractor and the trailer to be completed;

... "

The decision by the trial judge not to make any formal order of rectification because the declaration in the terms given was sufficient for the purposes of the case is not properly open to attack, and there was no notice of contention filed by the respondents in this regard.

The next category focuses on what is said to be the disconformity between the cases pleaded and the case on which the trial judge made her findings.

While paragraph 11 of the defence pleads a number of oral representations that the plant and equipment being sold included the tractor and trailer, the particulars of those representations make it plain that there was no express representation of the kind alleged in the pleading, but rather the conclusion to the effect of the alleged oral representation was to be inferred from the particularised conduct of Mr McHattan.

In paragraph (4)(d)(vii) of his response to the Defence and Cross-claim, Mr McHattan "...denies...when the first respondent signed the written contract...it did so in the mistaken belief that the schedule included the tractor and trailer...", and in paragraph (4)(f)(iv), Mr McHattan denied that he, at the time the first respondent signed the contract knew of that mistake by the first respondent, but did nothing to bring that mistake to the attention of the first respondent.

On a careful analysis of the pleadings, the nature of any disconformity between the pleadings and the case as fought was that the defence speaks of the mistake as to what was contained in the schedule to the written contract, whereas at trial the mistake relied on was a mistake as to the subject matter of the contract.

In Water Board v Moustakas (1987) 180 CLR 491, Mason CJ, Wilson, Brennan and Dawson JJ said at 497:

" In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet. In cases where the breach of a duty of care is alleged, the particulars should mark out the area of dispute. The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars
should be amended to reflect the actual conduct of the proceedings. Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged: See Dare v Pulham (1982) 148 C.L.R. 658. In Leotta v Public Transport Commission (N.S.W.) (1976) 50 A.L.J.R. 666, at p. 668; 9 A.L.R. 437, at p. 446, a case having been submitted to the jury which was factually different from that alleged in the pleadings and particulars, Stephen, Mason and Jacobs JJ. observed that the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence. The failure to apply for the amendment in that case was held not to be fatal. But in Maloney v Commissioner for Railways (N.S.W.) (1978) 52 A.L.J.R. 291, at p. 294, 18 A.L.R. 147, at pp. 151-152, Jacobs J., with whom the other members of the Court agreed, pointed out that the conclusion in Leotta was reached only upon the presupposition that the new issue or new way of particularizing the existing issue had emerged at the trial and had been litigated. "

Mr McHattan made the point before the trial judge in final submissions that:

" What they have pleaded is that they thought it was in the schedule. But now they have not changed their pleadings, and if they have not pleaded this other stuff, then there is no mistake of fact, there can only be a mistake of law. "

However, having regard to the terms of the letter of 8 June 1993 by the solicitors for the respondents to Mr McHattan's solicitor earlier referred to, and to Mr McHattan's denial in paragraph (4)(f)(vii) of his "response to defence", there can be no doubt of the case that the respondents were asserting at the trial and there was no injustice to Mr McHattan in the way the findings were reached.

This is even clearer, having regard to the earlier discussion between the trial judge and Mr McHattan, on the third day of the five day trial :

" ...I presume we are having a discussion now about the management of this---

Her Honour: Yes. Yes, that is right.

Mr McHattan: ---and it is not - so if Mr Crowe could tell us when he feels comfortable with which of his defences he is going to run with, whether it is the, you know---

Mr Crowe: I could do that now, your Honour.

Her Honour: Yes, that might be of assistance.

Mr Crowe: Essentially, a Taylor v Johnson defence, which, for Mr McHattan's explanation, is a unilateral mistake, being that Mr McHattan was aware that my clients were acting under a mistake when they entered into the contract and that he took advantage of that mistake.

Her Honour: That he knew of their mistake, the error?

Mr Crowe: Yes, and took advantage of it.

Her Honour: Yes.

Mr Crowe: In circumstances that are unconscionable.

Her Honour: In the cross-claim there are also references to various heads of damage. Are you pursuing some or all of those?

Mr Crowe: No. "

A little later, Mr McHattan said:

" ...it is a little unfair because actually Mr Crowe has sort of gone on his fishing expedition. Now he has decided what he has caught and he will have a go at that.

Her Honour: I do not consider it is unfair at all, Mr McHattan.

Mr McHattan: That is fine. But what I might say is I could probably shorten my cross-examinations
right up. If we are really just going to deal with a fixed - if Mr Crowe could tell me by Monday virtually - and obviously by implication yourself, and you are agreeable - what the issues are that we need to resolve.

Her Honour: Mr Crowe has already outlined to you that the case that they rely upon in response to your claims is that they suffered under a mistake as to whether the tractor and trailer were included in the contract and that you assisted in that mistake; that you knew that they were suffering from a mistake and the contract was executed in those circumstances. That is the case Mr Crowe relies upon.

Now, there are other matters that you need to establish in your case, but I do not take the view that it is the function of the court to outline another party's own case. You know what the essential features of your case are; you have pleaded them. But that is the case you have to meet, so to speak, from the other side, as Mr Crowe has outlined it.

Mr McHattan: Thank you, your Honour. "

Particularly in the light of these exchanges, there is no substance in the pleading point.

The final matter relates to the question of indemnity costs from 21 November 1993. The decision to award indemnity costs from that date was based on a letter dated 19 November 1993 in which the respondents offered to return the tractor and pay an additional sum of $7,500.00, and proposed that each party bear their own costs in the proceedings to date.

The discretion to award costs is a discretion which is "absolute and unfettered but must be exercised judicially". As Woodward J said in Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd 81 ALR 397 at 400:

" ...special circumstances...are necessary before any order for costs other than 'party and party' costs should be made. "

His Honour said at 401:

" I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard to the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion. "

The remarks of Woodward J in Fountain Selected Meats have been the subject of consideration and comment in a number of cases, some of which are referred to by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 231.

The remarks of Davies J in Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993) referred to by Sheppard J may usefully be repeated:

" The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose. "

The approach of the trial judge and the basis for her order of indemnity costs appears from the following passage of her reasons for judgment:

" A matter which is proper to be taken into account in the grant of indemnity costs is the pursuit of an action where a party should know there was no chance of success, or where there is seen to be a wilful disregard of the true facts: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 400-1, referred to in Colgate-Palmolive Company and Anor v Cussons Pty Limited (1993) 46 FCR 225, 231. Here the second of those circumstances may also be relevant. In any event, when the letter was received Mr McHattan had legal advisors and it would be apparent that the letter may have consequences later with respect to costs. Moreover, on the view I have taken of the facts of this case Mr McHattan ought not have brought the action, and at the latest ought to have desisted when the offer was received. "

It appears from this passage that the actual basis for the award of indemnity costs was a view that, after receipt of that letter, the action was pursued, where Mr McHattan should have known that there was no chance of success. The reference to the "second of those circumstances may also be relevant", suggests that the discretion was exercised on the first ground.

The basis of the decision appears to be that when the letter was received, Mr McHattan had legal advisers. It is true that at that time, Mr McHattan was using a firm of solicitors as his address for service, but they were not advising him concerning his legal matters. This mis-
understanding of the factual position concerning legal advice taints the exercise of the discretion as to costs. The discretion proceeded on a wrong basis.

It is apparent that the trial judge formed a most unfavourable view of the credit of Mr McHattan. The fact that an application fails because the applicant is disbelieved on important elements of the application does not generally call for the award of indemnity costs.

Looking at the matter afresh, and particularly at the circumstance that the written contract effectively required rectification for the defence to infringement of the patent to be made good, the ordinary order as to costs should be made in this case.

The appeal should be dismissed save that, in lieu of costs order made by the trial judge, the costs order should be the applicant pay the respondents' of and incidental to the action, including reserved costs if any, to be taxed.

Notwithstanding the limited success on this aspect of the matter for the appellant, the order concerning the costs of the appeal should be that the appellant pay the respondents' costs of the appeal, to be taxed.

I certify that this and the preceding twenty-six (26) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date: 17 September 1996

The appellant appeared in person.

Counsel for the first, second and

third respondents : Mr A Crowe

instructed by : Wallace and Walker

Date of Hearing : 31 July and 1 August 1995

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