FEDERAL COURT OF AUSTRALIA
Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 2) [2011] FCA 663
IN THE FEDERAL COURT OF AUSTRALIA | |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. The application be dismissed.
2. On or before 17 June 2011, the parties file and serve any affidavits and brief written submissions (not to exceed five pages) in relation to costs.
3. The matter be fixed for a hearing on costs at 2.15pm on 22 June 2011.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
VICTORIA DISTRICT REGISTRY | |
GENERAL DIVISION | VID 350 of 2009 |
BETWEEN: | MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036) First Applicant ANDREW REGINALD YEO AND GESS MICHAEL RAMBALDI (AS LIQUIDATORS OF MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036)) Second Applicant
|
AND: | LENNY'S COMMERCIAL KITCHENS PTY LTD (ACN 009 044 295) First Respondent SINO IRON PTY LTD (ACN 058 429 708) Second Respondent
|
JUDGE: | DODDS-STREETON J |
DATE: | 10 June 2011 |
PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
[1] | |
[2] | |
[10] | |
[24] | |
[28] | |
[37] | |
[50] | |
Transfer agreement between Sino and Lenny’s and subsequent events | [57] |
Whether conversion or breach of s 440 of the Corporations Act 2001 (Cth) | [66] |
[66] | |
[72] | |
[81] | |
[101] | |
[106] | |
[110] | |
[121] | |
[126] | |
[127] | |
[133] | |
[137] | |
[144] | |
[151] | |
[152] | |
[156] | |
Did Sino pay M3G an amount equal to the value of the kitchen goods and the additional goods? | [170] |
[184] | |
[186] | |
[200] | |
[212] | |
[213] | |
[219] | |
Total failure of consideration in the context of an ROT clause | [228] |
[241] | |
[247] | |
[248] |
1 In this proceeding, the applicants, Management 3 Group Pty Ltd (in Liq) (“M3G”) and its liquidators, Andrew Yeo and Gess Rambaldi (collectively, “the applicants”), seek from the first respondent, Lenny’s Commercial Kitchens Pty Ltd (“Lenny’s”) and the second respondent, Sino Iron Pty Ltd (“Sino”) remedies, including damages for conversion and breach of s 440C of the Corporations Act 2001 (Cth) (“the Act”) or restitutionary remedies in relation to various goods M3G purchased prior to the commencement of its voluntary administration on 7 April 2009. M3G agreed to purchase kitchen goods from Lenny’s (“kitchen goods”) for a total sum of $961,076.60 and purchased additional goods for a total amount of approximately $417,838.13 from various third parties for installation in a mining workers’ accommodation camp M3G was constructing for Sino pursuant to a construction contract. As at 7 April 2009, M3G had paid Lenny’s the majority of the purchase price under their contract, which provided, inter alia, that Lenny’s would retain ownership until it received payment in full. During the administration, Sino, which claimed to have paid M3G for the kitchen goods, paid Lenny’s the outstanding sum of $128,063.00 due under M3G’s contract with Lenny’s. Sino took possession of the kitchen goods and the additional goods, asserting that it had also paid M3G for all additional goods, the majority of which had been affixed to Sino’s site.
2 On or about 2 July 2008, M3G and Sino entered into a construction contract (“construction contract”) pursuant to which M3G, as principal contractor, was, for a total sum of $23,854,167.00, to design, construct and install services for a construction camp (“Fortescue Camp”) for Sino at Fortescue River in Western Australia.
3 The Fortescue Camp was one of a number of camps required to accommodate workers who were constructing Sino’s Magnetite Plant (“Sino Iron Project”) south west of Karratha in Western Australia. Sino’s related corporation, CITIC Pacific Mining Management (“CPMM”), was retained as principal contractor for the Sino Iron Project.
4 In order to undertake the construction contract, M3G in turn entered into various sub-contracts. The work of constructing the camp was principally carried out by M3G’s principal subcontractor on site, ConstructaCorp, controlled by Neil Waters. M3G engaged other subcontractors which were also present on site.
5 M3G also entered a Purchase Agreement made on 12 August 2008 with Lenny’s, under which Lenny’s agreed to supply a main kitchen, items for a wet mess (bar) and ice room at the Fortescue Camp, for a total sum of $961,076.60 (“Purchase Agreement”).
6 M3G also purchased other items of equipment for installation in the Fortescue Camp from other suppliers, including laundry machines and wall vents for $167,470.33, hot water units for $54,007.80, fire extinguishers for $18,325.00 and carpets for $178,035.00 (“additional goods”).
7 CPMM’s project architect, Allan Stoney, oversaw the delivery of a number of workers’ accommodation camps for the Sino Iron Project, including the Fortescue Camp and another camp close to the mine site, known as Camp 123.
8 Mr Stoney assisted, and subsequently, pursuant to clause 24 of the construction contract, was nominated as the representative of the superintendent under the contract, Michael McFie. Together with CPMM’s Project Director, Graham Harris, and its Project Director of Services, John Bonnette, Mr Stoney was the principal point of contact with M3G’s representatives in relation to its performance of the construction contract.
9 M3G’s director, John Arlove, its consultant, Dale Robertson, its Perth-based construction manager Daan Minnaar (until his resignation on about 15 March 2009) and its project manager, Malcolm (Tony) Halliday represented M3G in various roles in relation to the construction of the Fortescue Camp of the Sino Iron Project.
10 The construction contract dated 2 July 2008 between Sino and M3G was signed on behalf of M3G by Dale Robertson.
11 Clause 16.1(a) stated that, subject to specified exceptions, the Contractor (M3G) was responsible for “the care of the whole of the work under the Contract” from and including the earlier of the date of commencement of the work under the Contract and the date on which the Contractor was given possession of the Site, until the date of practical completion.
12 Clause 16.1 further stated:
Without limiting the generality of the Contractor’s obligations in Clause 16.1(a), the Contractor shall be responsible for the care of unfixed items the value of which has been included in a payment certificate under Clause 42.1, things entrusted to the Contractor by the Principal for the purpose of carrying out the work under the Contract, things brought onto the Site by subcontractors for that purpose and things in the course of transportation to or delivery at the Site, the Works, the Temporary Works and Constructional Plant. The Contractor shall provide the storage and protection necessary to preserve those items and things.
13 Clause 27.1 stated:
By the time stated in Annexure Part A, the Principal shall give the Contractor access to the Site sufficient to enable the Contractor to commence and carry out the Contractor’s Design Obligations in accordance with the Contract...
The Principal shall… give the Contractor access to the Site or sufficient of the Site to enable the Contractor to commence further work under the Contract. … [T]he Principal shall from time to time give the Contactor access to such further parts of the Site as may be necessary to enable the Contractor to execute the work under the Contract in accordance with the requirements of the Contract.
…
Access to the Site shall confer on the Contractor a right only to such use and control as is necessary to enable the Contractor to execute the work under the Contract or to perform its obligations under the Contract. (emphasis added)
14 Clause 27.1 further provided that if the Contractor were in breach of clause 22.1 (which required it to effect and maintain insurance) the Principal (Sino) could refuse it access to the Site. Clause 27.1 also required the Contractor to notify the Principal of the names of its consultants, agents or advisers as a condition of their access to the Site.
15 Clause 27.2 provided that the Principal and its employees, contractors and their subcontractors and agents could, at any time after reasonable notice to the Contractor, have access to any part of the Site for any purpose.
16 Clause 27.4 provided that unless the Contract otherwise provided or it was permitted by the superintendent, the Contractor should not use or allow use of the Site for:
(a) camping;
(b) residential purposes; or
(c) any purpose not connected with the work under the Contract.
(emphasis added)
17 Clauses 35.1 and 35.2 provided that the Contractor should promptly commence work under the Contract, complete it by the date of practical completion and give possession of the Site and the works to the Principal.
18 Clause 39 provided for an urgent protection of work under the Contract, other property or people.
19 Clause 42.1 provided that “[a]t the times for payment claims stated in Annexure Part A and upon the issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.5, the Contractor shall deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor”, which should include, inter alia, “the value of work carried out by the Contractor in the performance of the Contract to that time together with all amounts then otherwise due to the Contractor arising out of or in connection with the Contract or for any alleged breach thereof…”.
20 Clause 42.1 further provided that the Superintendent should assess the claim and issue a payment certificate identifying the amount which in the Superintendent’s opinion should be made, giving reasons for any difference between that figure and the amount claimed.
21 Upon the issue of a Final Certificate, the Principal was to pay an amount not less than that certified to the Contractor (or vice versa, if the amount were due to the Principal). Clause 42.1 provided that such a payment would not prejudice the parties’ right to dispute whether the amount were properly due and payable.
22 Clause 42.2 stated:
Unfixed Plant and Material
The Principal shall not be obliged to pay for any item of unfixed plant and materials which is not incorporated in the Works unless
(a) that item is listed in Annexure Part A;
(b) the Contractor provides the amount of additional security stated in Annexure Part A separately approved by the Principal under Clause 5.3; and
(c) the Contractor establishes to the satisfaction of the Superintendent that the Contractor has paid for the item, the item is properly stored, labelled the sole and exclusive property of the Principal and is adequately protected and insured.
Upon payment to the Contractor of the amount which includes the value of the item, and upon the release of any security, the item shall be the property of the Principal free of any lien or charge.
23 Annexure Part A to the construction contract did not list any items referable to clause 42.2.
24 During the course of the construction contract, M3G’s project manager “Tony” Halliday occupied an office in the public access area of the camp beyond which, behind a fence, the construction site itself was situated. Despite his initial denial that he was M3G’s employee, Mr Halliday agreed that he was its “servant” on site. He acknowledged that he was frequently the only M3G representative on site, although sometimes his predecessor, Daan Minnaar, and other M3G personnel also attended.
25 Mr Halliday testified that ingress to and egress from the construction site was strictly regulated by ConstructaCorp according to established protocols.
26 In order to enter the public part of the camp site which contained Mr Halliday’s office, the road house and the camp facility at the back of the road house, it was not necessary to sign a register. In order to enter the construction site, it was necessary to sign a register, which was (depending on the person’s identity) either a daily visitors’ register or a ConstructaCorp daily log for the ConstructaCorp employees; and, where appropriate, all employees and visitors travelling between the sites were required to sign a travel log for safety purposes.
27 Mr Halliday testified that subcontractors who brought their own small sized tools onto the construction site placed them in a lockable sea container designated for each subcontractor’s use. There was also a container on site for large hired equipment. Each subcontractor was required to keep its tool container locked, due to potential hazards and to prevent pilfering or interference. It was necessary to sign a register both to enter and remove goods, including tools, from the construction site.
28 Peter Lenny, the controller of Lenny’s, deposed that in early 2008 he was initially approached by either Mr Stoney or Mr Robertson, and was invited to quote on a kitchen and associated kitchen goods for the Fortescue Camp including a kitchen, bar (wet mess) cool room and associated components.
29 Mr Lenny deposed:
My primary contact at M3G was Mr Robertson, who I understood was a proprietor of M3G. Mr Roberson was the M3G project manager for the Fortescue project. My contact with Mr John Arlove, who was also a proprietor of M3G, was much less frequent. I had a few telephone conversations with Mr Arlove and I may have met him on one or two occasions.
30 On 21 July 2008, Mr Lenny sent a facsimile and Purchase Agreement to Mr Robertson and Mr Arlove. Mr Robertson asked Mr Lenny to reduce the quoted contract price by $40,000 to bring it within budget and to comply with M3G’s contractual obligations to Sino.
31 Mr Lenny revised the schedule to reduce the price by the requested $40,000 and forwarded the revised Purchase Agreement to M3G. On 12 August 2009, the Purchase Agreement, executed by Mr Arlove and Mr Robertson, was returned. Mr Lenny deposed that he did not recall any negotiation over the terms and conditions with Mr Robertson or Mr Arlove.
32 The Purchase Agreement provided:
1 Supply and install main kitchen as scheduled - $711,193.00.
2 Supply and install items to Wet Mess - $111,756.00.
3 Supply and install items to Ice Room - $50,757.00.
Contract Value $873,706.00
GST $87,370.60
Total: $961,076.60
Less Deposit paid $288,323.20
Balance due: $672,753.40
33 The terms of payment were stated to be “30% Deposit Balance Progress Claims as goods are available each month payable within 14 days of invoice”.
34 A preliminary clause immediately above the execution clause of the Purchase Agreement (“preliminary clause”) stated:
The ownership or title of the goods the subject of any contract with Lennys Commercial Kitchens Pty. Ltd., shall not pass to the buyer until payment in full for all the goods has been received by Lennys Commercial Kitchens Pty. Ltd. Until the moment of full payment of that which the buyer owes Lennys Commercial Kitchens Pty. Ltd., the buyer shall be the bailee for reward of Lennys Commercial Kitchens Pty. Ltd. and shall be liable to Lennys Commercial Kitchens Pty. Ltd. for any loss or damage to the goods. If the goods are sold by the buyer prior to the receipt of full payment by Lennys Commercial Kitchens Pty. Ltd. the proceeds shall be the property of Lennys Commercial Kitchens Pty. Ltd. If the payment is overdue in whole or in part Lennys Commercial Kitchens Pty. Ltd. is entitled to rescind the contract in question and may (without prejudice to any of its other rights) recover and/or resell the goods or any of them and may enter upon the buyers premises by its servants or agents for that purpose.
35 The Terms and Conditions of Sale included the following:
2. Any order placed by a Purchaser is deemed to be an order incorporating these terms and conditions notwithstanding any inconsistencies which may be introduced in the Purchaser's order unless otherwise expressly agreed by the Vendor in writing.
…
10. If the Purchaser fails to pay moneys owing by the agreed date, he shall further pay the Vendor interest on such overdue balance at the rate of 15.5 percentum per annum calculated from the day following the agreed date of payment.
11. (a) Title of goods shall not pass to the customer and the goods shall remain the property of the Vendor until such time as the full invoiced amount thereof has been paid in full.
(b) If the customer shall fail to pay for the goods in full prior to the due date or if the customer before then becomes bankrupt or commits any act of bankruptcy or compound with its creditors or have judgement entered against it in any Court or go into liquidation whether voluntary or otherwise or have a Receiver or Manager appointed or gives any security over its stock or plant, the Vendor is irrevocably authorised at any time thereafter to enter upon any premises where the goods are situated and to take possession of and remove same and use the customer's name and act on his behalf in exercising such rights.
…
14. The Purchaser agrees to the terms and conditions of this Sale Agreement and any representations or otherwise not stated herein will not be binding on the Vendor.
36 An “Equipment Schedule” was attached to the Purchase Agreement, which listed the items and services to be supplied and/or installed by Lenny’s together with individual prices.
Manufacture and delivery of kitchen goods
37 After receiving the deposit, Lenny’s started to manufacture or order the kitchen components and other goods referred to in the Equipment Schedule. It completed those tasks prior to Christmas 2008.
38 Lenny’s engaged a transport company, Nexus Freight (“Nexus”), which provided containers for the kitchen goods. Lenny’s progressively filled the containers and when each one was filled, sent it to Nexus’ premises for storage until all containers were ready for delivery. Lenny’s typically sent a separate tax invoice to M3G for a progress payment when each container was filled, which listed the various items and their prices.
39 Mr Lenny deposed that a number of circumstances affected when the goods would be ready for delivery. He wished to avoid leaving the kitchen goods in the containers in a hot climate for a long period of time, as their plastic coating could become baked on, thus damaging the products.
40 Mr Lenny deposed:
As a security measure, each container was locked and Lenny’s was provided with the key for each container. There was a separate key for each container. As Lenny’s was to be responsible for the installation of the Fortescue Kitchen, I considered it to be a sensible precaution for Lenny’s to hold the keys to each container, even after they were delivered on site. By holding on to the keys, no one would be able to tamper with the kitchen goods or unload them without Lenny’s permission. This would reduce the risk of damage to the kitchen goods before installation and provide Lenny’s with a means to safeguard the goods while they were in transit and also while they were on site until such time as they were ready for installation.
During the course of the Fortescue Project, Lenny’s sent a number of invoices totalling $943,867.05…
Lenny's received the following payments from M3G:
26.1 18 August 2008: $288,323.20
26.2 13 November 2008: $80,000.00
26.3 5 December 2008: $170,000.00
26.4 9 December 2008: $100,000.00
26.5 24 December 2008: $83,977.89
As described later in this affidavit, the sum of $93,500.00 was remitted directly to Lenny’s by Sino by cheque dated 3 April 2009…
Together with the payments from M3G referred to above and the direct payment from Sino of $93,500.00, the outstanding balance was $128,065.96. This sum did not include the installation costs for the Fortescue Kitchen. The methodology which I used to arrive at this amount is set out in my letter to Mr Yeo dated 16 April 2009… and my email to Peter Adams on 16 April 2009…
41 Mr Lenny wished the kitchen goods to be delivered to site fairly close to the time for installation. Transport required a one to two day journey from Perth to the camp site and took place in February 2009. Mr Lenny believed that all the containers were probably forwarded in the same transport convoy.
42 Mr Lenny deposed that in about mid-February 2009, when all the goods were ready, Nexus delivered all the containers holding kitchen goods to the Fortescue Camp, save for one container which was mistakenly sent to another accommodation camp, Camp 123, where Lenny’s was installing another kitchen. Mr Lenny believed that the relevant container held the wet mess bar and associated items. The error was not rectified until after the commencement of M3G’s administration.
43 Mr Lenny testified that the containers were at all times locked with a secure padlock, to which Lenny’s held the only keys. He stated that while the goods were stored at Nexus’ storage yard, Lenny’s did not provide Nexus with keys to the containers (which Nexus owned) because the locks had been purchased by, and belonged to, Lenny’s.
44 Lenny’s two principal representatives scheduled to work on the installation at both the Camp 123 and Fortescue Camp sites from late February 2009 were Luke Jordan and Bert Stray. Lenny’s planned to engage five to seven additional employees to work on the installations.
45 On 10 February 2009, Messrs Stray and Jordan visited the Fortescue Camp site to assess its readiness, as Lenny’s planned to start installation work on 24 and 25 February 2009.
46 After the kitchen goods and panels were delivered (shortly after 19 February 2009) a cyclone hit the area between 28 February and 1 March 2009, so Lenny’s did not proceed to install the kitchen at the Fortescue Camp as planned.
47 Mr Lenny deposed:
In early March 2009, I became increasingly concerned at the delay in payment of outstanding invoices totalling $221,564.00 owed by M3G. Lenny’s was under financial pressure from its suppliers chasing payments and its bankers to stay within its overdraft. I sent emails to representatives of both Sino/Citic Pacific Mining and M3G chasing payment during March 2009 and early April 2009….
I was also following up Mr Robertson and Mr Arlove directly regarding the payment of the outstanding invoices. In about late March 2009, I was subsequently informed that Sino would pay some of the outstanding sum directly to me, being the sum of $93,500.00 and that this amount would then be deducted from its account with M3G. I agreed to accept this amount as a part payment of the outstanding balance. This was noted in Invoice 10242… which was subsequently prepared.
48 Although final payment under the Purchase Agreement was well overdue (exceeding the seven to 14 day terms), Mr Lenny testified that as at 7 April 2009, he had not taken measures to terminate or cancel the contract.
49 Lenny’s maintained insurance over the goods after the delivery to site. In cross-examination, the following exchange occurred between senior counsel for the applicants and Mr Lenny:
And with respect to the goods once they were on site, under the purchase agreement they had – they were obliged to look after them and they were liable for any loss of damage?
Yes… once they’re on that site, of course, we, to a certain degree, aren’t able to protect them as well as we would if they were in our own premises, but there’s an expectation that the builder and the people in charge of the site will just do what they have to do to make sure that they’re kept safe and secure.
50 On 7 April 2009, the second and third applicants were appointed the joint and several voluntary administrators of M3G. They later became the liquidators of M3G.
51 It was common ground that, as at 7 April 2009:
1. The great majority of the kitchen goods were in six locked containers delivered by Lenny’s to Fortescue River. There were some panels which, as they were too large to be placed in the containers, were placed between them;
2. the balance of the kitchen goods were in a single locked container which had been mistakenly delivered to Camp 123, some distance from the Fortescue Camp;
3. the keys to the containers were held solely by Lenny’s;
4. Sino had paid M3G the sum of $20,988,818.73 pursuant to the construction contract, including $8,109,548.00 (which was 90% or more of the purchase price for all the building modules supplied under the construction contract in a “fitted out” condition as manufactured), which included the modules in which the additional goods were to be installed and the kitchen and other areas in which the kitchen goods were to be installed;
5. Sino, at the direction of M3G, had paid Lenny’s $93,500 directly for the kitchen goods;
6. M3G had paid Lenny’s the sum of $722,301.09 for the kitchen goods; and
7. M3G owed a balance of $128,063.00 to Lenny’s for the kitchen goods.
52 Following the appointment of the administrators, Mr Yeo immediately visited the Fortescue Camp site and correspondence ensued between the administrators, Lenny’s, Sino and their respective legal representatives.
53 By a facsimile dated 14 April 2009, Mr Yeo requested Lenny’s to provide all documentation relating to its retention of title over the kitchen goods. Mr Yeo’s letter of the same date to Mr Harris of CPMM asserted, inter alia, that the kitchen goods remained the property of M3G, sought an undertaking that CPMM would not open the containers or deal with the goods, and stated that if CPMM wished to use the goods, it would have to purchase them from the administrators.
54 On the following day, Mr Yeo wrote to Lenny’s requesting further documentation and confirming that he, as administrator, was agreeable to selling the kitchen goods to CPMM.
55 Johnson Winter & Slattery, solicitors for Sino, by a letter to the administrators dated 16 April 2009, claimed that Sino became the legal owner of the kitchen goods on 3 April 2009 pursuant to the construction contract.
56 Full payment for the kitchen goods was not at any time made to Lenny’s by or on behalf of M3G.
Transfer agreement between Sino and Lenny’s and subsequent events
57 On 17 April 2009, Mr Lenny attended a meeting at Sino’s offices in Perth. Lenny’s and Sino entered into a transfer agreement pursuant to which Sino paid Lenny’s the sum of $128,063.00 and Lenny’s assigned, amongst other things, any title it retained to the kitchen goods to Sino.
58 The transfer agreement stated:
To: Sino Iron Pty Ltd
In consideration for the payment by Sino Iron Pty Ltd ABN 31 058 429 708 (Sino) of $128,063, we, Lennys Commercial Kitchens Pty Ltd ABN 18 009 004 295 (Lennys) hereby assign the following to Sino, with effect on and from the date that we sign this agreement:
(a) all rights and benefits we have under our contract with Management 3 Group Pty Ltd ABN 21 100 863 036 (M3G) relating to the supply of kitchen and other equipment to the kitchen, wet mess, ice room and crib room at the Fortescue River Road House (Contract), including but not limited to:
(i) our right to claim $128,063 as a debt due and owing from M3G pursuant to the Contract; and
(ii) our right to prove in any administration, liquidation or deed of company arrangement against M3G;
(b) all trade and customary warranties for all kitchen and other equipment supplied pursuant to the Contract; and
(c) to the extent that Sino does not have title to all kitchen and other equipment supplied pursuant to the Contract, we hereby transfer title in such kitchen and other equipment to Sino.
_______________________________________________
for and on behalf of Lennys Commercial Kitchens Pty Ltd
Date: 17 April 2009
59 At the meeting on 17 April 2009, Mr Lenny signed the transfer agreement and provided Sino with the keys to the locked containers.
60 On cross-examination, Mr Lenny testified that he considered the kitchen goods to be Lenny’s until they were paid for in full, and that he was merely “handing over” the goods to Sino in exchange for receiving the balance of $128,063.00 under his agreement with M3G. He further testified that he was “desperate” for the money because his business was suffering due to the lack of funds.
61 On 20 April 2009, Mr Lenny, by a letter to Mr Yeo, advised that Lenny’s had provided Sino with the keys to the containers and stated that Lenny’s contract with M3G was at an end.
62 By letter of 22 April 2009, the applicants’ then solicitors, Minter Ellison, responded to Johnson Winter & Slattery’s letter of 16 April 2009. The letter denied that title to the kitchen goods had passed to Sino and required the goods to be delivered up to the applicants, failing which they would commence proceedings. On the same date, Johnson Winter & Slattery confirmed by letter its position that Sino was the legal owner of the kitchen goods.
63 Between 26 April 2009 and 17 May 2009, the kitchen goods were removed from the containers and installed at the Fortescue Camp.
64 During that period, the applicants sought injunctive relief to restrain Sino from further installing the kitchen goods. On 15 May 2009, Finkelstein J ordered by consent that the applicants’ application for interlocutory relief be dismissed, without prejudice to the applicants’ allegation that Sino was in breach of s 440C of the Act. His Honour granted leave to Sino, nunc pro tunc, to install and use the kitchen goods.
65 On 15 December 2009, Finkelstein J granted leave to Sino, nunc pro tunc, to install and use the additional goods upon Sino’s undertaking that the damages sought by the applicants would be assessed by reference to:
(a) the value of the kitchen goods and additional goods in the place they were located and in the state they were in on 7 April 2009; and
(b) the ownership of those goods as at 7 April 2009.
Whether conversion or breach of s 440 of the Corporations Act 2001 (Cth)
Possession of the kitchen goods
66 At trial, the applicants (contrary to their initial allegation) submitted that Lenny’s retained title to all of the kitchen goods due to M3G’s failure to pay the full purchase price and conceded that Lenny’s exercised rights pursuant to the retention of title clause (“ROT clause”) in the Purchase Agreement.
67 The applicants nevertheless alleged that Lenny’s breached s 440C of the Act and that both Lenny’s and Sino were liable to pay damages for conversion and/or wrongful detention by reason of their conduct in entering the transfer agreement, delivering and receiving, respectively, the keys to the containers holding the kitchen goods, and Sino’s subsequent installation of the goods.
68 Possession or an immediate right to possession is a necessary condition of entitlement to sue in conversion. Conversion essentially entails “the denial by the defendant of the possessory interest or title of the plaintiff in the goods”, which may occur where the defendant “manifests an assertion of rights or dominion over the goods that is inconsistent with the plaintiff’s rights” (Palmer N, Palmer on Bailment (3rd ed, Thomson Reuters (Legal) Limited, 2009) at 84). Detinue, in contrast, has been described by Dowd J in Banks v Ferrari [2000] NSWSC 874 as follows (at [59] and [62]):
The gist of the action of detinue is the wrongful detention of goods…
…
The distinction between conversion and detinue is that in the former action, the injurious act is the original taking or interference with the dominion of the true owner, whereas the latter injurious act involves the wrongful detention of goods.
69 Section 440C of the Act provides:
Owner or lessor cannot recover property used by company
During the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except:
(a) with the administrator’s written consent; or
(b) with the leave of the Court.
70 Section 440C prohibits an owner or lessor from taking possession of, or recovering, property during administration only if the property is used or occupied by, or in the possession of the company.
71 In the present case, the applicants did not contend that M3G used or occupied the kitchen goods. Rather, in relation to both the conversion and the s 440C claims, they submitted that M3G at all material times prior to 17 April 2009 had both possession in fact and the immediate right to possession of the kitchen goods.
72 The applicants submitted that M3G had the right to possession of the kitchen goods under the Purchase Agreement both prior to and as at 7 April 2009 because:
(a) the preliminary clause of the Purchase Agreement described the buyer as a bailee for reward and entitled it to sell the goods, which, the applicants submitted, necessarily entailed an entitlement to possession; and
(b) although the Purchase Agreement entitled Lenny’s to recover possession of the kitchen goods upon, inter alia, the buyer’s default in making payment when due, under the preliminary clause of the Purchase Agreement, Lenny’s was required to rescind the contract as a necessary precondition of its right to possession or recovery of the kitchen goods. As rescission had not occurred on 7 April 2009, Lenny’s right to retake possession of the goods did not arise, although payment was overdue. Instead, the right to possession remained in M3G.
73 As the applicants submitted, according to the principle of The Winkfield [1902] P 42 [1900-3] All ER Rep 346, a bailee in possession may sue a wrongdoer in conversion for the full value of the goods and the latter cannot rely on title in a third party unless defending under it.
74 There was, in my view, force in the applicants’ submission that despite its provision for Lenny’s retention of ownership and title to the goods, the preliminary clause, by its express provision for consequences of sale, implicitly authorised the buyer to sell the goods. In that event, by the preliminary clause, the proceeds of sale would be Lenny’s property, held on trust by M3G. The absence of a right to possession of the goods would significantly detract from, although it would not absolutely negate, the buyer’s capacity to sell them. Further, both the preliminary clause and clause 11 provided for Lenny’s recovery and repossession of the goods, which would be unnecessary if the buyer were to retain possession or the right to possession at all times.
75 Therefore, in my view, on a fair reading, the Purchase Agreement, while not expressly conferring an entitlement to possession of the goods on the buyer at any particular point prior to payment in full, contemplated that the buyer would take possession of goods on delivery.
76 Any rights to or possession of the kitchen goods conferred by the Purchase Agreement on M3G were defeasible as against Lenny’s, because the Purchase Agreement also provided that Lenny’s immediate right to possession arose upon M3G’s failure to pay the full amount when due. Contrary to the applicants’ submissions, that entitlement did not, in my view, depend on Lenny’s prior rescission of the Purchase Agreement.
77 The preliminary clause of the Purchase Agreement is an “all moneys” clause expressed to apply generally to all contracts between M3G and Lenny’s and all indebtedness of M3G to Lenny’s. In contrast, clause 11 is a term or condition of the particular Purchase Agreement which, to the extent of any inconsistency, would prevail.
78 There is, however, in my opinion, no relevant inconsistency between the preliminary clause and clause 11. Irrespective of whether the preliminary clause required rescission as a precondition of Lenny’s entitlement to recover and resell the goods and to enter premises for that purpose (which is debatable), the preliminary clause also expressly states that the entitlements it confers are without prejudice to any of Lenny’s other rights. The preliminary clause does not qualify or reduce any rights of Lenny’s, including those arising from other contractual provisions such as clause 11.
79 Under clause 11 of the Purchase Agreement, Lenny’s irrevocable authorisation to enter premises to take possession of and remove goods applies automatically upon the satisfaction of either of two preconditions, namely, the failure to pay for the goods in full by the due date (as occurred in this case) or entry into one of various forms of insolvency or associated circumstances (which may also have occurred in this case, depending on whether the terminology covered entry into voluntary administration).
80 It is, however, unnecessary to determine whether the Purchase Agreement conferred upon M3G a right to possession enforceable against Lenny’s prior to a time on which payment became overdue, as it is not disputed that payment in full was, as at the date of Lenny’s alleged conversion and breach of s 440C, outstanding and overdue. Lenny’s therefore had an immediate right to possession of the kitchen goods under the Purchase Agreement at the relevant time. Further, in so far as Lenny’s did not have access to the site on which the containers were stored, Lenny’s was irrevocably authorised to exercise M3G’s rights of access in order to recover possession of the goods.
81 As I have concluded that Lenny’s had an immediate right to take possession of the goods at the date of the alleged acts of conversion and breach of s 440C of the Act, it is unnecessary to determine whether M3G had possession of the kitchen goods in fact at that time. Nevertheless, in my opinion, irrespective of the parties’ legal entitlements under the Purchase Agreement, Lenny’s in fact, at all material times retained possession of the kitchen goods by maintaining sole possession of the keys. Although the Purchase Agreement contemplated that M3G would have possession as a bailee for reward on delivery, such a bailment assumes a taking of possession. As Palmer stated (in Palmer, N, Palmer on Bailment (3rd ed, Thomson Reuters (Legal) Limited, 2009) at 564):
[A] prospective purchaser who acquires possession of goods under an effective title retention clause (reserving legal property in the goods to the seller until payment of the price or the occurrence of some other condition) will hold those goods until satisfaction of the condition as a bailee for mutual advantage
82 Lenny’s, however, never delivered possession of the kitchen goods to M3G.
83 As the applicants submitted, the possession of a key to a container holding goods may not inevitably amount to possession of the goods themselves, as in some circumstances the retention of the key may not be accompanied by the requisite animus possidendi or intention to exercise control and dominion over, and exclude others from, the goods (see, for example, Collector of Customs for the State of New South Wales v Southern Shipping Company Limited (1962) 107 CLR 279).
84 The applicants submitted that in the present case, M3G’s lack of access to the keys was immaterial, because the containers were locked only in order to secure the goods until installation rather than to exclude M3G, which neither needed nor wished to open the containers. Further, the applicants submitted that M3G possessed and controlled the work site on which the containers were stored, which necessarily carried with it possession and control of the kitchen goods inside the locked containers. That possession was evidenced by M3G’s responsibility to care for the containers, which it exercised without charging Lenny’s when it was necessary to secure them with chains due to the impending cyclone.
85 The possession of a key to a container, accompanied by an irrevocable licence to enter premises controlled by another party in which the container is situated, has been held to establish possession of the goods.
86 In Wrightson v McArthur and Hutchinsons (1919) Ltd [1921] 2 KB 807; [1921] All ER Rep 261 (“Wrightson”), Rowlatt J held that the plaintiff had possession of goods placed in a locked separate compartment in the defendant’s warehouse in circumstances where the keys were delivered to the plaintiff, who was licensed to enter the defendant’s premises to use the key. Rowlett J observed that the locked compartment contained only the goods intended as the plaintiff’s security for performance of a third party’s obligations under a contract, and the evidence indicated that the parties had left the goods at the defendant’s premises to save trouble in the event of the defendant redeeming them in due course.
87 Rowlatt J stated:
The point to which this case is now reduced is whether the circumstance that the rooms, the keys of which were delivered, were within the defendants’ premises, prevents the delivery of the keys conferring possession of the contents of the rooms.
88 His Lordship observed that if the plaintiff had received the outside key to the whole warehouse or the keys to the apartment or receptacle in the premises of a third party, it would be clear that possession of the contents passed to the plaintiff. Conversely, if the “keys had been given without a licence to go and remove the goods at any time”, it would have indicated that possession did not pass to the plaintiff, because, as the goods were in the defendant’s warehouse, the plaintiff would lack any power of affirmative control at his free will.
89 Rowlatt J referred to the principle that delivery of a key has effect not as symbolic delivery, but as giving the actual control.
90 Rowlatt J concluded:
I think that in the case before me the possession was transferred, having regard to the fact that a licence to come and make the necessary entry to use the key was also conferred, a licence which it seems to me could not be revoked... [T]he mere fact that the plaintiff might wrongfully be excluded from the whole building does not, I think, affect the matter.
91 In the present case, Mr Lenny, an impressive, responsive and highly credible witness, whose evidence I accept, expressly testified that Lenny’s retained the keys to the containers both to keep the goods secure and in order to maintain control of them. The consistent theme of Mr Lenny’s evidence was that Lenny’s intended to exclude others from the goods until it obtained payment in full. The applicants, in final written submissions, selectively quoted Mr Lenny’s relevant evidence, omitting his crucial addition of intention to control.
92 In cross-examination, the following exchange occurred between senior counsel for the applicants and Mr Lenny:
And if you do open them, there’s that possibility of dust getting into them, which you don’t want happening. Is that right?
Well, yes, I guess. It’s actually not necessarily the main reason. I mean, the main reason is to avoid the risk of losing anything out of those containers by somebody pilfering something, or damaging something. And then there’s always an argument about who did it, and why is, you know, item number 139 is missing. We put it in there, where has it gone? … So that’s really the main reason that we like to keep the things like that absolutely secure and under our control.
And is it the case that if someone else were to open the containers, that the warranty that you provided under the contract would commence?
No.
(emphasis added)
93 In re-examination, Mr Lenny stated:
You had a retention of title clause in your sale agreement, didn’t you?
Yes.
And did you understand that the delivery of the goods to site would, in any way, mean that you lost control of the goods that you had consigned?
No.
And did you understand that delivery of those goods to site as part of the sale agreement that you had with M3G would allow M3G to open the containers and take possession of the goods?
No.
94 Mr Lenny also testified that as at 17 April “As far as I was concerned, we were the owners. Lenny’s Commercial Kitchens still had possession or title to the goods, because we hadn’t been paid at that stage”.
95 In contrast, Mr Halliday, on whose evidence the applicants relied, asserted that M3G had possession of both the construction site on which the containers were stored and the kitchen goods themselves.
96 Sino initially objected to the admission of the relevant paragraphs of Mr Halliday’s affidavit as conclusionary and unsupported by material facts, but ultimately, merely submitted that no weight should be accorded them.
97 Mr Halliday was an unimpressive witness who was frequently evasive, highly argumentative and unusually discursive. He failed to respond directly to many questions, despite being directed to do so on a number of occasions.
98 Mr Halliday testified that M3G’s lack of keys did not affect its possession of the kitchen goods, as it had no need to open the containers and, had the need arisen, he would have broken the locks. He also testified that prior to the cyclone, M3G took action to secure the containers to the ground with chains at its own cost and did not seek reimbursement for its work from Lenny’s.
99 Mr Halliday’s final evidence was that when the prospect of opening the containers in order to check the goods arose, Luke Jordan of Lenny’s offered to open the containers for him. Again, the applicants’ written submissions misstated the effect of Mr Halliday’s evidence on that significant issue, extracting only his earlier testimony (which he subsequently corrected) that Mr Jordan offered him the keys. Ultimately, Mr Halliday conceded that M3G did not at any time acquire possession of the keys and was at no stage offered possession of the keys for any purpose. The evidence does not indicate that Lenny’s was willing to provide the keys to M3G if a need to open the containers arose, but, rather, that Lenny’s intended to control and oversee any such process.
100 The evidence establishes, in my view, that Lenny’s retention of the keys to the containers was principally, if not exclusively, due to its consistent intention to maintain possession of the kitchen goods until it obtained payment in full. Its maintenance of the keys reflected its animus possidendi in relation to the kitchen goods and in fact effectively excluded all others from access to them. As in Wrightson, Lenny’s possession of the keys was coupled with an irrevocable licence to use M3G’s right of access to the premises in which the containers were stored if payment were overdue. Therefore, irrespective of whether M3G had possession of the construction site as at the date of the acts of the alleged conversion and breach of s 440C of the Act, in my opinion, Lenny’s had possession of the kitchen goods. M3G’s securing of the containers during the cyclone did not, in the circumstances, establish its possession of the contents, but was consistent with its obligations under the construction contract. Lenny’s animus possidendi extended to the panels, which although too large to be placed in the containers, were stored in immediate proximity to them and could be used only in conjunction with their contents.
Possession of the construction site
101 Further, while (given the above conclusions) it is unnecessary to determine the issue, I am not persuaded that M3G had exclusive possession of the construction site. Mr Halliday asserted that the construction contract conferred exclusive possession of the site on M3G and limited Sino’s right of access to inspection, quality control and meetings. The construction contract, however, conferred on M3G access to and possession of only so much of the site as was necessary for the specified limited purposes of carrying out its obligations under the construction contract. It did not entitle M3G to exclusive possession of the site generally as against Sino, which had an unqualified entitlement to enter for any purpose upon giving notice. Mr Halliday testified that if Sino gave notice to come on the site, he would “discuss it and agree…” while asserting that he could refuse to allow Sino to do anything contrary to the construction contract.
102 Mr Halliday initially stated that the gates of the construction site were locked if there was no one at reception. Subsequently, he apparently conceded that the gates were sometimes open while unattended, but due to the small number of regular employees working on site, a stranger could be readily identified.
103 Mr Halliday conceded that the protocol for registering tools was unrelated to M3G’s title, ownership and possession of the relevant equipment, unless it were brought in to be fixed or installed as part of the contractual works, in which case it was subject to a purchase agreement and became the property of M3G.
104 In practice, M3G’s subcontractor, ConstructaCorp, conducted the regime of monitoring, controlling and recording access to the site, which, as Mr Halliday conceded, merely reflected an almost universal practice directed at good site management and maintenance of health and safety protocols. Mr Halliday conceded that control of a work site gate, as conducted by ConstructaCorp, was a commonplace regime sometimes subcontracted to a security firm. He agreed that it was usual for substantial construction sites in Australia to have a protocol for meeting entrants at the gate, introducing them to the protocol and providing them with a name tag, induction information and other details before admitting them.
105 In my opinion, the evidence does not establish that M3G had exclusive possession of the site on which the containers were situated. If, contrary to that conclusion, M3G otherwise had exclusive possession of the site, it would not have been entitled to exclude Lenny’s at any time when payment was overdue, as under clause 11 of the Purchase Agreement, Lenny’s was irrevocably authorised to exercise M3G’s rights of access to premises on which the kitchen goods were located.
Findings on conversion and breach of s 440C
106 Therefore, as at 7 April 2009 (and at all times thereafter up to and including 17 April 2009), in my opinion, Lenny’s had, as against M3G, the right to possession of the kitchen goods and the right to access premises on which they were situated. It also had possession of the kitchen goods in fact, as it had retained the keys to the containers in which all kitchen goods physically capable of being stored therein were stored, and thereby maintained control of the goods.
107 As M3G between 7 April and 27 April 2009 had neither possession nor an immediate right to possession of the kitchen goods as against Lenny’s, its conversion claim against both Lenny’s and Sino (which dealt with the goods with Lenny’s authority) must fail.
108 Nor did M3G use or occupy the kitchen goods. Accordingly, if it had been necessary for Lenny’s to recover or take possession of the kitchen goods, such acts would not breach s 440C of the Act.
109 The applicants submitted that although Lenny’s retention of the keys did not evidence its possession of the kitchen goods, its delivery of the keys to Sino and Sino’s acceptance constituted conversion, because the intention was to deprive M3G of possession and vest it in Sino. The applicants also at one point contended that s 440C of the Act implicitly prohibited the owner from selling title to goods in the possession of a company during administration, but ultimately did not pursue that argument. As I have concluded that M3G did not have possession or an immediate right thereto as against Lenny’s at the relevant time, it is unnecessary to determine those questions.
110 Although, given the above findings, its is unnecessary to determine the quantum of damages for conversion of the kitchen goods, at trial the parties led considerable evidence on their value as at 7 April 2009, which for completeness I briefly consider.
111 The applicants alleged that the value of the kitchen goods as at 7 April 2009 was at least their invoice value and included a premium, as the goods were only marginally customised, if at all, and were readily saleable to other mining companies operating in the area in or around Karratha. The applicants contended that Sino was desperate to install the kitchen goods, had no other feasible alternatives and thus would have paid a premium.
112 The applicants relied principally on the evidence of Mr Halliday, who, in his second affidavit, disputed Mr Lenny’s evidence that the kitchen goods were custom designed and therefore not apt for other camp sites. He deposed that the kitchen goods could be installed in most, if not all, mining camp kitchens, because they were of standard dimensions and would require only minor alterations. He estimated that the value of the kitchen goods would have reduced by 20%.
113 At trial, Mr Halliday conceded that he was not an expert in the valuation or sale of kitchen equipment and had never previously sold kitchens in Australia. Mr Halliday also acknowledged Mr Lenny’s superior expertise, but asserted that mining companies such as BHP, Rio Tinto and Fortescue Metals would “kick your door down” to purchase a complete accommodation camp kitchen and (in the context of “a huge shortage of materials in Western Australia”) would have paid at least 80% of the invoice value.
114 In cross-examination, Mr Halliday stated that it would cost around 10-15% to alter and modify the kitchen goods for installation in a different kitchen with a different layout and shape. He acknowledged that re-sale would require the containers to be opened, which could occur in a closed warehouse at a cost of approximately $20,000. He denied that the items would deteriorate in storage.
115 In contrast, the respondents contended that a considerable proportion of the kitchen goods were custom manufactured and having been transported to the remote site would, as at 7 April 2009, be valued at around 40% to 50% of their invoice price.
116 Mr Lenny in that context deposed that the custom manufactured kitchen goods, such as the benches and worktops, would be “unsaleable” unless the alternative kitchen were built in exactly the same way as the Fortescue Camp.
117 He deposed that the value of the kitchen goods would be around 40–50% of the original value, taking into account factors such as the limited prospect that a buyer could be found and the possibility of deterioration in storage prior to the re-sale.
118 At trial, Mr Lenny reiterated that the kitchen equipment was custom-designed to suit the specific mining project. He stated that the goods could be re-sold only if “significant” modifications were made to the stainless steel, or if they were placed in a building of similar configuration and size.
119 Mr Northey, then a Project Director for CPMM, denied that Sino’s need to install the kitchen goods would have forced it to pay a premium. Mr Northey was a credible witness who testified that although his preferred option was a “sensible” deal with the administrators, Sino would not be “greenmailed or blackmailed” and would have pursued plans for alternative kitchens which were already on foot, rather than pay a premium.
120 I have referred to the unsatisfactory features of Mr Halliday’s testimony at para [97] above. Mr Halliday conceded his lack of expertise and experience on kitchens or the sale of kitchens in Australia. There was no evidence to support his assertions that other mining companies were eager to buy the kitchen goods at all or at the percentage he specified. While denying that the goods were customised, Mr Halliday conceded that they would require modification and alteration for installation in a different kitchen, although he estimated the cost of such measures at only 10% to 15%. Mr Lenny was, in contrast to Mr Halliday, a very measured and credible witness whose expertise and experience in selling kitchens was unchallenged. Further, I was persuaded that, as Mr Northey testified, Sino was prepared to pursue less convenient options rather than agreeing to pay the administrators a premium for the kitchen goods. Accepting the evidence of Messrs Lenny and Northey, I find that the value of the kitchen goods as at 7 April 2009 was between 40% and 50% of their invoice value.
Whether the additional goods converted
121 M3G alleged that Sino converted the additional goods which were purchased from various suppliers, unless they were affixed to the site. M3G conceded that to the extent to which the additional goods were affixed to the site, the property in them passed to Sino pursuant to the general law doctrine of fixtures. M3G’s conversion claim in relation to the additional goods was thus limited to those that remained unaffixed. Sino contended that it had acquired property in all the additional goods under clause 42.2 of the construction contract, whether or not they were affixed.
122 The following additional goods the subject of the applicants’ claims were purchased by M3G from third party suppliers:
37 laundry machines and wall vents;
97 hot water units;
95 fire extinguishers; and
carpet and ancillary materials.
123 It was common ground that a number of the additional goods were affixed, but the quantity was disputed. Sino contended that almost all of the additional goods were affixed, or, if not conventionally affixed, appropriated to a sufficient degree to pass title in accordance with the principle in Williams v Fitzmaurice [1858] 3 H. & N. 844 (“Williams v Fitzmaurice”). The applicants submitted that many of the additional goods were not affixed and the principle in Williams v Fitzmaurice did not apply, so that property in them did not pass to M3G on that basis.
124 In Williams v Fitzmaurice, Pollock CB, with whom Watson and Channell BB agreed, held that a builder could not recover in trover for flooring that he had prepared, fitted and left in the defendant’s house without nailing it down.
125 It is unnecessary to decide whether, as the applicants submitted, Pollock CB’s reasoning was inconsistent with relevant Australian authority, as in my opinion, the evidence in this case, discussed below, did not establish that any of the additional goods were sufficiently fitted to constitute, in a reasonable sense, part of the “corpus”, although falling short of affixation (see Atkin Chambers, Hudson’s Building and Engineering Contracts (12th ed, Thomson Reuters (Legal) Limited, 2010) at 1147).
Whether the additional goods were affixed
126 In identifying the affixed additional goods, M3G relied principally on the evidence of Mr Halliday, supported by that of Mr Yeo, while Sino relied principally on the evidence of Mr Stoney. M3G submitted that Mr Halliday’s evidence should be preferred to Mr Stoney’s, because Mr Stoney relied principally on conversations and correspondence with others and had no direct knowledge of the extent of affixation of the additional goods.
The 37 laundry machines and wall vents
127 The applicants contended that no laundry machines were affixed. Eight machines were in the laundries but were not plugged in because they had incorrect electrical fittings, while 29 machines were stored in the administrative centre.
128 Sino contended that all the laundry machines and wall vents had been affixed because they were connected to the plumbing, although some were awaiting “hard wiring”.
129 Mr Halliday deposed that 29 laundry machines were stored in the administrative store and uninstalled. In his first affidavit, he deposed that the remaining eight machines were plugged into the laundry electrical sockets. He withdrew that assertion in his second affidavit, where he deposed that they were not plugged in because they were not fitted with appropriate electrical outlets. He further deposed that they were not connected to the mains water supply, the exhaust vents were not fitted, and the waste outlet pipes were not fitted.
130 Mr Stoney gave no evidence about the 29 laundry machines which Mr Halliday asserted were in the administrative store. He asserted that although the remaining eight machines were not “hard wired” (ie the electrical connection to the machine was not fixed into a wall-mounted switch) they were connected by hoses to the building’s plumbing (ie the mains water supply) and otherwise ready to be connected to the electrical supply. Mr Stoney’s assertion was based on a document known as the “punch list”, which stated “not hard wired” next to the headings “washing machine” and “dryer”, from which he inferred that hard wiring was the only step yet to be completed to affix the laundry machines. Mr Stoney conceded that he had no direct knowledge of the matter.
131 Mr Yeo exhibited photographs of the laundry machines in situ as at 9 April 2009. He testified that he did not remember that any of the laundry equipment was installed, but recalled that some had been unpacked.
132 I find, on the balance of probabilities, that none of the laundry machines and wall vents were affixed. While Mr Halliday was not an impressive witness, Mr Yeo, whose testimony was candid and logical, could not recall seeing any of the machines installed when he visited the site. Mr Stoney was a candid and conscientious witness, who made appropriate concessions, but his evidence was based only on an inference drawn from a short and inconclusive notation on a list prepared by a third party.
133 The applicants conceded that 81 hot water units had been installed, but submitted that 16 had not been installed and were stored in the administrative centre or staples stores area. Sino submitted that all hot water units had been installed.
134 Mr Halliday deposed that 16 hot water units had not been installed, while the remaining 81 had been installed. Mr Yeo testified that only a “small number” of the hot water units had been installed, while the majority were still in boxes.
135 Mr Stoney relied on his conversation with Neil Waters of ConstructaCorp, who informed him that the hot water units were installed “miles” before M3G went into administration. Although Mr Stoney was an impressive witness, his evidence was hearsay. Mr Yeo’s evidence was relatively vague. In the circumstances, I accept the evidence of Mr Halliday, who was in the best position to give direct and accurate evidence.
136 I conclude that 81 of the hot water units had been installed, and 16 units had not been installed.
137 The applicants submitted that only 20-22 fire extinguishers had been installed while Sino submitted that all fire extinguishers had been installed by fixing their brackets to the wall and placing a number of the extinguishers in the brackets.
138 Mr Stoney exhibited to his affidavit a communication from the fire extinguisher supplier to M3G dated 15 March 2009, confirming that the “Fire Extinguisher Selection and Installation” was installed and supplied in accordance with an Australian Standard. Mr Stoney also asserted that hanging the fire extinguishers on the brackets was all that was necessary in order to install them.
139 Mr Halliday deposed that 40 fire extinguishers were stored in the kitchen/dining area awaiting installation, while the balance had been hung in their brackets but were “not otherwise connected or bolted to the Camp Site land”.
140 At trial, when taken to the communication exhibited by Mr Stoney, Mr Halliday testified that fire extinguishers were installed on the outside of some of the accommodation rooms, but that the majority were still standing inside.
141 Mr Yeo exhibited to his affidavit a photograph which indicated that a number of fire extinguishers were not installed. He gave no evidence in relation to whether the brackets for the fire extinguishers had been installed, or whether the fire extinguishers would be hung on the brackets at the completion of the installation process.
142 When shown a photograph of fire extinguishers taken by Mr Yeo, Mr Halliday stated that approximately 20 to 22 extinguishers were installed outside.
143 I conclude that 55 of the fire extinguishers were installed and 40 were not affixed.
Carpet and ancillary materials
144 The applicants submitted that 70% of the carpet had been installed while Sino submitted that almost 100% had been installed.
145 In his first affidavit, Mr Halliday estimated that only 70% of the carpet had been laid and affixed to the floors at the camp site. In his second affidavit, he deposed that the estimate of 70% related mainly to the linoleum laid in the kitchen and mess.
146 At the trial, Mr Halliday acknowledged that in his first affidavit he used the word “carpeting” to describe “basically all floor coverings”. He stated that carpet was to be laid only in the gymnasium (and possibly in the administration offices), while all the major areas would “have linoleum on the floor.”
147 Mr Stoney exhibited to his affidavit a facsimile from Kim Hawes of Carpet Hotline Commercial to Neil Waters of ConstructaCorp dated 25 May 2009, which referred to “floorcovering materials currently stored in the gym area”. According to Mr Stoney, Mr Hawes estimated the value of the unused and uninstalled carpet material as approximately $5,500. Mr Stoney deposed that in his discussions with John Bonnette of CPMM and Neil Waters of ConstructaCorp in around late May 2009, he was not informed that there were any uninstalled or unused carpet materials other than those referred to in the facsimile. Mr Stoney conceded that he had no direct knowledge of the affixation of carpet materials.
148 Mr Yeo exhibited photographs of uninstalled carpet to his affidavit.
149 Mr Stoney’s evidence was hearsay, and was in any event, based on Mr Stoney’s assumption that he would have been informed if any additional carpet materials were uninstalled.
150 In the circumstances, I find that 70% of the carpet was affixed and 30% was unaffixed.
Conclusion on affixation of additional goods
151 It follows that 37 laundry machines and wall vents, 16 hot water units, 40 fire extinguishers and 30% of the carpet were unaffixed. Therefore, unless Sino acquired title to them under clause 42.2 of the construction contract or otherwise, Sino would be liable to M3G for conversion of those additional goods.
Did Sino acquire title to the kitchen goods and the additional goods pursuant to clause 42.2 of the construction contract?
152 The significance of whether Sino acquired title to the kitchen goods and the additional goods pursuant to clause 42.2 of the construction contract differs according to the findings made on various issues in dispute.
153 Whether Sino acquired property in the kitchen goods pursuant to clause 42.2 of the construction contract is relevant as an alternative defence to the applicants’ allegation that it converted them and it may be relevant to the applicants’ restitution claims against Lenny’s.
154 Whether Sino acquired property in the additional goods pursuant to clause 42.2 will determine whether it is liable for conversion of those additional goods found not to have been affixed to the works.
155 Initially, the question whether Sino acquired title to the kitchen goods was of wider relevance as the applicants apparently (albeit obliquely) claimed that despite the terms of clause 11 and the preliminary clause of the Purchase Agreement, title to the kitchen goods, or at least those the subject of the separate invoices, passed to M3G. At the outset of the hearing, however, the applicants conceded that the Purchase Agreement contained an “all moneys” ROT clause which operated to maintain Lenny’s title to all the kitchen goods, as M3G did not, at any stage, make payment in full. The applicants nevertheless submitted that the Purchase Agreement authorised M3G to sell the goods to third parties.
Construction of clause 42.2 of the construction contract
156 Sino submitted, and the applicants disputed, that by December 2008 Sino had obtained title to the kitchen goods and additional goods pursuant to clause 42.2 of the construction contract by payments made to M3G in relation to items 1-4 of an Amended Payment Schedule, which items (it was common ground) included the kitchen goods and additional goods.
157 The applicants submitted that clause 42.2 of the contract had no operation at all because it applied only to items listed in Annexure Part A and only then if all the other specified preconditions in clause 42.2(a) to (c) were satisfied. M3G submitted that none of the preconditions of clause 42.2’s operation were satisfied. No items were listed in Annexure Part A. Sino had not paid M3G an amount which included the value of the kitchen items and additional goods, and M3G did not have title to the kitchen goods, as Lenny’s retained title to them at the relevant time.
158 The applicants submitted that clause 42.2 constituted a “complete code” in relation to unfixed plant and equipment, and the failure to list items in Annexure Part A indicated that “the parties did not intend clause 42.2 to have any operation”.
159 The applicants further submitted that the second and third paragraphs of clause 42.2 could not apply to unfixed items generally but only those which satisfied criteria specified in the first paragraph. They contended that the words “the item” and “any security” in the second paragraph illustrated a link with the first paragraph, without which the second (and third) paragraph would make no sense.
160 The language and grammatical structure of clause 42.2 supports the applicants’ construction. A literal construction would, however, produce a result unlikely to have been intended by the parties.
161 Clause 42.2 is the only provision of the construction contract dealing with the Principal’s purchase of unfixed items. The first paragraph of clause 42.2 recognises that generally, the Principal is not obliged to pay for items of unfixed plant and material not incorporated in the works, save for the specified exception. Nevertheless, neither clause 42.2 nor any other provision of the construction contract expressly or implicitly prohibits the Principal’s voluntary purchase of unfixed items for which it is not required to pay.
162 On the applicants’ construction, because there are no items of unfixed plant and material which satisfy the preconditions of its obligations to pay, the construction contract would make no provision at all for the transfer to the Principal of any unfixed plant and materials in respect of which it voluntarily paid the value. If the second paragraph of clause 42.2 does not apply to such unfixed items, the Principal could acquire no property in them pursuant to the terms of the construction contract even if it had paid the value and had released any security. It is, in my view, improbable that the parties intended that consequence or the relative rights of the parties under such transactions to be uncertain or left to be resolved by the general law or a separate agreement.
163 Although the literal terms of clause 42.2, when read in isolation, better accord with the applicants’ interpretation, the clause must be read in the context of the construction contract as a whole which, as a commercial contract, should be robustly construed in order to avoid irrational or unintended results. In MLW Technology Pty Ltd v May [2005] VSCA 29, Gillard AJA (Winneke P and Buchanan JA agreeing) held (at [76]):
The court, in construing contracts between businessmen and also their actions, should proceed in a common sense, non-technical way. How would the businessmen construe their agreement in the light of the commercial purpose and the setting?
164 On that basis, in my opinion, the failure to specify any items in Annexure Part A Item 47 did not deprive clause 42.2 of all operation. The second paragraph is capable of independent application to unfixed items which are not subject to Sino’s obligation to pay imposed by the first paragraph. On a robust construction, according to the applicable principles, paragraph 2 of clause 42.2 in my view extends to unfixed plant and equipment for which Sino was not obliged to pay.
165 The second paragraph assumes that, on payment to the Contractor, the item shall be the property of the Principal free of lien or charge. The application of clause 42.2 thus appears limited to unfixed plant and equipment in relation to which the Contractor can pass property to the Principal.
166 Sale of goods legislation typically provides for the sale of goods to which the seller does not yet have, but will acquire, ownership, and provides for the time when property will pass to the buyer.
167 In the present case, the Purchase Agreement provides that ownership of the goods will not pass to the buyer until payment in full. The preliminary clause nevertheless expressly provides for the outcome of a sale by the buyer prior to the seller’s receipt of full payment (namely, the seller would acquire property in the proceeds of sale).
168 In my opinion, the preliminary clause of the Purchase Agreement, as the applicants submitted, implicitly authorised the buyer to sell the goods and pass good title to a third party. The buyer’s capacity to pass title to a third party is in tension, but not necessarily irreconcilable, with the provision that title will not pass to the buyer until it has paid in full.
169 Therefore, on the better view, if Sino paid M3G an amount including the value of unfixed items such as the kitchen goods and such additional goods as were still unfixed (given there was no evidence that there was any security), in my opinion, property in such goods passed to Sino pursuant to clause 42.2 of the construction contract.
Did Sino pay M3G an amount equal to the value of the kitchen goods and the additional goods?
170 Sino submitted, and M3G denied, that Sino paid M3G amounts including the full value of the kitchen goods and the additional goods. As noted above, it was common ground that the kitchen goods and the additional goods were incorporated in items 1 to 4 of an Amended Payment Schedule for which Sino made very substantial payments. The parties nevertheless disputed the proportion of the value of items 1 to 4 for which Sino paid. Sino submitted that prior to 7 April 2009 it paid 100% of the value and indeed, made an overpayment. In contrast, M3G submitted that, as at 7 April 2009, at the highest, Sino had paid only 95% and, on the better view, approximately 90% of the value of items 1 to 4.
171 Mr Stoney deposed that the construction contract required Sino to make payments to M3G according to a payment schedule on the achievement of specified milestone events, but when advised of M3G’s cash flow problems due to its inability to claim for progress between the milestones, he negotiated an Amended Payment Schedule with Dale Robertson, which variation Brian McAdam confirmed on 17 December 2009.
172 Mr Stoney deposed that:
(a) pursuant to the Amended Payment Schedule, Sino paid M3G $1,581,633.55 just prior to Christmas in 2008, based on his certification made on 19 December 2008 of M3G’s interim progress claim of $3,956,933.00 (exclusive of GST).
(b) between the commencement of the Construction Contract and 31 March 2009, Sino paid $20,988,818.73 to or on behalf of M3G.
(c) from October 2008, there was a lack of progress on site and Sino made a number of direct payments to M3G’s subcontractors. The accommodation units would not be fit for use unless critical facilities such as the kitchen were installed, and in February 2009, Sino made direct payments to ConstructaCorp.
(d) In early February 2009, M3G forwarded to Sino a progress claim for $3,065,164.30 inclusive of GST. Mr Stoney prepared a certification dated 5 March 2009 of $1,050,217.91, inclusive of GST, as payable to M3G. That amount was paid by a cheque handed to Dale Robertson of M3G, at a meeting between Sino and M3G representatives on 12 March 2009. At the meeting on 12 March 2009, Mr Robertson disputed the certification, claiming that M3G was entitled to a further $1.8 million. Sino then made a further payment of $485,000 to Sino. Following Mr Robertson’s complaint during the meeting on 12 March 2009, Mr Stoney issued a further certification of progress as at 5 March 2009.
173 Mr Stoney deposed:
Items 1 to 4 of the Amended Payment Schedule included the supply of all the building modules required for the FRRCC in a “fitted out” condition as manufactured, including the modules comprising the kitchen. The value of the modules was $8,446,892, as recorded in both the Price Schedule and the Amended Payment Schedule in Appendix A of the Contract.
174 Mr Stoney further deposed that, as at 5 March 2009, save for $422,344.00 withheld, Sino had paid M3G for all of the works comprising items 1 to 4 of the Amended Payment Schedule. Sino’s payment amounted to 95% of the value of all buildings and the fittings required to be installed therein, including the kitchen goods. (I note that, according to the certification documents, the amount withheld was $422,344.50).
175 The $422,344.00 withheld as at 5 March 2009 did not, Mr Stoney deposed, relate to the kitchen goods but to the further fit out and installation works required to obtain shire approval of occupancy of the entire Fortescue Camp, including the accommodation units and the central buildings.
176 Mr Stoney deposed:
The kitchen Assets had already been paid for by Sino and the only outstanding payments due to M3G related to further fit-out and installation works required in respect of those Assets in order to ensure the fitness for occupation of the accommodation units at the FRRCC.
177 Mr Stoney deposed that as at 3 April 2009, Sino had paid Lenny’s $93,500 at M3G’s request ($85,000 plus GST) thus reducing the amount withheld by $85,000 to $337,344 by 7 April 2009. That increased the payments from Sino to M3G from 95% to 96% of the value of the buildings comprising items 1 to 4. According to Mr Stoney, the withheld amount was also less than the value of undelivered goods and incomplete installation and fit out works attributable to items 1-4 of the Amended Payment Schedule which Mr Stoney stated to be $381,114 comprising:
Loose Furniture $155,909
Gym Equipment $100,000
Televisions $ 9,200
Installation of kitchen equipment $ 63,380
Installation of coolroom and bar $ 5,750
Beer garden roof/ shade sails $ 46,875
TOTAL $381,114
178 Mr Stoney deposed:
As at 7 April 2009, M3G had not paid Lenny's for the Assets. The Assets had however already been paid for by Sino by virtue of its payments to M3G under the Contract.
179 Sino submitted that the withheld amount of $337,344 should be set off against the value of the undelivered goods and incomplete works (being $381,114), so that it had paid M3G in excess of 100% of items 1 to 4.
180 The applicants did not dispute that items 1 to 4 of the Amended Payment Schedule included the kitchen goods and the additional goods. They contended, however, that Sino did not, as Mr Stoney deposed, pay M3G an amount including the value of the kitchen goods or the additional goods, because at best it paid only 96% of the value of items 1 to 4. The applicants noted, in that context, that Mr Stoney withheld $422,344.00 as item 4 as at 5 March 2009, which was about 5% short of payment in full, and no additional certification was ever made. They also asserted that Sino’s $85,000 payment to Lenny’s should be disregarded, as it was not a payment certified as due under the construction contract but merely “ex gratia”.
181 The applicants also submitted that Mr Stoney’s deduction of $439,815 in his certificate of 19 March 2009 on account of defective toilets was no longer justified as at 7 April 2009, because on Mr Robertson’s evidence, the majority of the defective toilets had then been rectified, further reducing the percentage of items 1 to 4 paid by Sino to approximately 90%.
182 More fundamentally, the applicants submitted that all payments made by Sino to M3G were for the value of the work carried out by M3G in the performance of the construction contract and not for the value of any specific item. They also submitted that because Mr Stoney had “under-certified” for items 5 to 9 of the Amended Payment Schedule, items 1 to 4 could not have been “over-certified”.
183 Although there was much detailed and complex evidence on whether Mr Stoney’s deductions, withholdings and other calculations were justified, the only issue hinging on that question was whether Sino had paid M3G either an amount equal to the full value of items 1 to 4 or only roughly 90% of the value of the items, which, as was common ground, included both the kitchen and the additional goods.
184 I am satisfied that Sino, prior to 7 April 2010, paid M3G an amount which included the full value of the kitchen goods and the additional goods, and that title in those goods therefore passed to Sino pursuant to clause 42.2 of the construction contract. In my opinion, Sino paid M3G the full value of items 1 to 4 as at December 2008, save for $422,344.00. I accept Mr Stoney’s evidence that the withheld amount did not relate to the kitchen goods or the additional goods and therefore did not detract from Sino’s payment of the full value of those goods.
185 Given the above findings, the question whether Mr Stoney, as the applicants alleged, deducted too much for the defective toilets or miscalculated the value of the undelivered goods and incomplete works is irrelevant. As Sino submitted, if 100% of the goods had been paid for, the effect of the payment would not be retrospectively reversed by reason of any later miscalculations or rectifications. Any miscalculations, rectifications or under-certifications for items 5 to 9 would be addressed by appropriate adjustments and would not, in my opinion, undo payments made in respect of items 1 to 4.
186 If, contrary to the above findings, Sino had not paid for the full value of the kitchen goods and additional goods because the $422,344.00 withheld by Mr Stoney related at least in part to those items, it would be necessary to consider whether the withheld amount of $422,344.00 and the amount deducted for defective toilets were sufficiently offset by the value of undelivered goods, incomplete works and other payments made by Sino to M3G so as to result in an overall payment by Sino of 100% of the value of items 1 to 4.
187 For completeness, I now consider the evidence on those questions, which was complicated and unclear.
188 The applicants relied principally on the evidence of Mr Robertson while the respondents relied on Mr Stoney. As stated above, Mr Stoney was a reliable and credible witness, while Mr Robertson was frequently unresponsive, stated that his memory was faltering as he had taken “heavy medication”, and declined to answer a number of questions (albeit unrelated to the present issue) on the ground that it might incriminate him. In the case of conflict between the direct evidence of Mr Stoney and Mr Robertson, I preferred that of Mr Stoney.
189 I accept, in accordance with Mr Stoney’s evidence, that the appropriate deduction for the replacement of defective toilets was $439,815 and that the value of the undelivered goods and incomplete works was $381,114.
190 Mr Stoney gave evidence that there were 302 toilets for the Fortescue Camp as a whole, which were defective.
191 Mr Robertson asserted that the “majority” of the defective toilets had been rectified by 7 April 2009. The applicants submitted that 112 toilets had been rectified based on a punch list dated 4 April 2009.
192 The punch list dated 4 April 2009 bore the notation “changed out / silicon issues” next to the word “toilet” on 92 occasions. In cross-examination, Mr Stoney conceded that the notation “changed out / silicon issues” on the punch list suggested that the corresponding toilet had been rectified. The punch list bore the notation “toilet does not comply-change out” in three instances. In 21 instances, no notation at all appeared next to the word “toilet”.
193 I was not persuaded that the toilets were rectified where no notation appeared. I therefore conclude that 92 toilets were rectified prior to 7 April 2009 based on the 92 notations “changed out / silicon issues” on the punch list.
194 Further, I was persuaded that, as Sino submitted, its direct payment of $93,500 ($85,000 plus GST) to Lenny’s should be taken into account in determining whether Sino paid M3G for the full value of items 1 to 4. While Mr Stoney described the payment as “ex gratia”, he testified that he treated it as “moneys payable by Sino to M3G” pursuant to clause 43.5 of the construction contract.
195 As Mr Stoney deposed, the value of items 1 to 4 was $8,446,892, from which the withheld amount of $422,344.00 should be deducted.
196 Mr Stoney then deducted $439,815 for the defective toilets. The rectification of 92 of the 302 toilets by 7 April 2009, represented 30.46% of $439,815, namely $133,983.38. When that amount is subtracted from the amounts paid by Sino to M3G, in addition to the $422,344.00, it results in a total payment shortfall of $556,327.88.
197 On 3 April 2009, Sino directly paid Lenny’s $85,000 plus GST which reduced the total payment shortfall by $85,000 to $471,327.88. The undelivered goods and incomplete works were valued at $381,114 which reduced the total payment shortfall by $381,114 to $90,213.88. Therefore, as at 7 April 2009, if, contrary to the conclusion at para [184], Sino had not paid M3G an amount representing the full value of all of items 1 to 4, the shortfall in payment was $90,213.88. An amount equal to 98.9% of the value of items 1 to 4, being $8,446,892, had been paid.
198 If that amount were applied rateably to everything comprising items 1 to 4, Sino would have failed to pay an amount representing only 1.1% of the value of the kitchen goods and additional goods. If, as I have found, M3G did not have title to or possession of the kitchen goods and, as was common ground, title in the affixed additional goods passed to Sino, Sino would have converted 1.1% of the value of the unaffixed additional goods.
199 If, contrary to my finding, Sino did not acquire title to the unaffixed additional goods under clause 42.2 of the construction contract, it would follow that Sino converted all the unaffixed additional goods by installing them at the Fortescue Camp and would be liable to pay damages accordingly.
Total failure of consideration
200 By the statement of claim, the applicants alleged that if (which it denied) Lenny’s validly exercised its rights under the ROT clause, Lenny’s was liable for money had and received as a consideration had totally failed.
201 That allegation was pleaded in rudimentary form. It was unparticularised and unsupported by any material facts. The allegation was not amplified in the applicants’ statement of facts and contentions which almost exclusively addressed the conversion and s 440C arguments and which were, in disregard of the Court’s repeated directions, filed and served late, without leave or explanation, thereby obliging the respondents to file and serve their own statements first in order to comply with the Court’s orders.
202 Although the pleading and written contentions gave no forewarning, senior counsel for the applicants in opening stated that total failure of consideration would constitute a principal aspect of the applicants’ case. The respondents submitted, correctly, that such an emphasis would represent a major shift from the case as pleaded or outlined in the statement of facts and contentions, which they had prepared to meet. Senior counsel for the applicants declined to amplify the point at that stage.
203 Only in the applicants’ final submissions which were filed late on 15 April 2011 did the applicants elaborate their contentions on total failure of consideration, in the context of an application radically to amend the pleadings by introducing a number of new claims, including restitutionary claims against Sino and allegations based on implied terms, rescission ab initio, repudiation, severable consideration and counter-restitution. That application was dismissed for reasons given on 18 April 2011.
204 The applicants’ claim for money had and received against Lenny’s thus remained in elementary form until developed in their written final submissions filed after the closure of the evidence, which were directed at the case incorporating the proposed amendments, for which leave was refused. The final submissions propounded a complex and detailed case, based, inter alia, on alleged severability and alternatively, a failure to provide any consideration for which M3G had bargained. The first respondent was afforded no reasonable opportunity to respond or lead evidence in relation to some aspects of the detailed case the applicants ultimately propounded, including allegations of severable consideration. While the first respondent broadly addressed the applicants’ fundamental pleaded allegation that if Lenny’s validly exercised its rights under the ROT clause, then there was a total absence of consideration for M3G’s instalments, there were, perforce, no elaborated responsive submissions to many aspects of the applicants’ written argument.
205 The applicants’ submissions in support of their claim for money had and received were shifting and inconsistent. Until a late stage, they denied the “valid exercise” of the rights under the ROT clause on which the money had and received claim against Lenny’s depended. At trial, while the applicants conceded that Lenny’s exercised its rights under the ROT clause, counsel did not make clear whether the valid exercise of the ROT clause was also conceded, but rather, contended that rescission of the Purchase Agreement was a necessary precondition of Lenny’s right to repossess the kitchen goods, which was not satisfied, as the Purchase Agreement had not been rescinded as at 7 April 2009. In contrast, in the context of their claim based on total failure of consideration, the applicants ambiguously asserted that the Purchase Agreement was “rescinded” as at 17 April 2009 on the execution of the transfer agreement, but as Lenny’s recovery of the kitchen goods was in breach of s 440 of the Act, the purported rescission was invalidated.
206 Further, until trial, the applicants’ denied that Lenny’s retained title to all the goods under the ROT clause. At trial, they conceded that Lenny’s retained title under the ROT clause, but contended that M3G was entitled under the Purchase Agreement to sell the goods to third parties.
207 Lenny’s submitted that it retained title to the goods under the ROT clause and while ultimately that was also Sino’s primary contention, Sino alternatively contended that it had acquired title to the kitchen goods and the unaffixed additional goods pursuant to clause 42.2 of the construction contract, and title to the affixed additional goods by reason of their incorporation into the works.
208 As stated above, in my view, on the better construction of the Purchase Agreement, Lenny’s retained ownership of all the goods until payment in full or, if M3G sold goods pursuant to the implicit authority conferred by the Purchase Agreement, Lenny’s obtained property in the proceeds of sale.
209 Further, even if M3G had previously obtained possession of the goods, Lenny’s obtained the immediate right to possession if, inter alia, payment in full was overdue, which occurred. Lenny’s entitlement to take possession and enter premises for that purpose in such circumstances, and to resell the goods, was not conditional upon rescission of the Purchase Agreement.
210 I have also found that Sino acquired property in the kitchen goods and the unaffixed additional goods pursuant to clause 42.2 by its payment as at December 2008 of an amount equal to the value of the kitchen goods and additional goods. If, contrary to that conclusion, title could not pass under clause 42.2 or the amounts withheld or deducted by Sino as at December 2008 were excessive and on a proper accounting, there was a degree of underpayment for items 1 to 4, on M3G’s best case, Sino had nevertheless paid it an amount equal to not less than 90% of the value of the items 1 to 4.
211 The applicants’ claim for restitution of the instalments M3G paid to Lenny’s under the Purchase Agreement must be considered in the light of the above findings.
212 The applicants principally submitted that:
(a) Clough Mill v Martin [1984] 3 All ER 982 (“Clough Mill”) established that a claim for moneys had and received was applicable in circumstances where a party exercises retention of title rights.
(b) When M3G made payment to Lenny’s in accordance with the Purchase Agreement, it expected in return to obtain the benefits contracted for under the Purchase Agreement, namely, ownership of the kitchen goods for the purpose of incorporating them into the works, which it ultimately did not obtain.
(c) Lenny’s, at its election, “rescinded the contract ab initio”, which was unjust. The contract was, from that point, void ab initio, and, on the basis of Westdeutsche Landesbank Girozentrale v Islington London Borough Council; Kleinwort Benson Ltd v Sandwell Borough Council [1994] 1 WLR 938, there can have been no consideration under it, so the parties should be restored to their pre-contractual position. (I observe, however, that as noted above, the applicants’ submissions on rescission were inconsistent and were not reflected in the pleadings.)
(d) Alternatively, the consideration under the Purchase Agreement could be apportioned and counter restitution could and should be made. The parties implicitly acknowledged that the consideration under the contract could be broken up and apportioned. A liberal approach to severance from the consideration bargained for should be adopted and the requirement for total failure of consideration should be dispensed with, as M3G had no remedy for breach.
(e) M3G did not obtain any benefits from other items prepared and services supplied by Lenny’s, namely the customisation of the kitchen goods and packing, transport to site and service drawings, because the kitchen goods were ultimately repossessed and sold. Further, Lenny’s ultimately did not suffer any corresponding “disbenefit” from its provision of such services as it sold the goods to Sino. In that context, the applicants relied on their contentions that (contrary to my findings above) although customised, the goods could have been readily used without significant modification, or the kitchen could have been sold as a whole, as the evidence established a market for a complete kitchen around Karratha, thus eliminating the necessity and costs of re-transporting them to Perth.
(f) The applicants also pleaded an unparticularised claim in “unjust enrichment”, which was not addressed or elaborated in its closing oral submissions. The applicants’ final written submissions nevertheless stated in that context:
“Customisation” was not a true disbenefit, as the goods were still readily usable if either the kitchen was sold as a whole… or because the goods were readily usable even without modification… alternatively, if simple modifications were made.
There is no evidence that Lennys would have had to transport the kitchen goods back to Perth and auction them on an individual basis and/or that the goods would need to be modified due to their prior customisation.
On the contrary, there is evidence of a market for a complete kitchen in or around Karratha...
There is no evidence that the mere fact that the kitchen goods had been transported to the site reduced their value upon re-sale to another. The goods were stored in locked containers and had not been exposed to “red dust”. There was evidence that the goods might not need to be inspected prior to sale… If, however, there was a need for the goods to be inspected for the purposes of sale, that could be done in a secure warehouse sealed against the entry of “red dust”… for a cost of about $20,000.
213 The precise scope of and principles governing a claim to restitution based on total failure of consideration in Australian law have not yet been definitively and comprehensively stated by the High Court. The High Court has recently heard, but not yet determined, an appeal from a relevant case: Haxton v Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) (2010) 265 ALR 336.
214 Restitution remains an evolving area of law in both Australian and English jurisdictions. The High Court has, however, rejected the view that unjust enrichment “is a definitive legal principle according to its own terms and not just a concept” (David Securities Pty Ltd and Others v Commonwealth Bank of Australia (1992) 175 CLR 353 (“David Securities”)).
215 In Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 (“Roxborough”), Gummow J, while acknowledging the elusive doctrinal basis of the action for money had and received, recognised a need for caution in judicial acceptance of any all-embracing theory of restitutionary rights and remedies founded upon a notion of unjust enrichment, stating that preferably, the rules and remedies of restitution should develop on a case by case basis, in accordance with its ancillary role to avoid unjust results in specific cases.
216 His Honour referred to Lord Mansfield’s description in Moses v Macferlan (1760) 2 Burr 1005 of the action for money had and received as “lying in numberless instances”, the question being whether “the defendant may retain it with a safe conscience” (at 1008-12). Lord Mansfield stated that “the gist of this kind of action [is] that the defendant, upon the circumstances of the case is obliged by the ties of natural justice and equity to refund the money” (at 1012).
217 In Ovidio Carrideo Nominees Pty Ltd v Dog Depot Pty Ltd (2006) V ConvR 54-713 (“Ovidio Carrideo”), Chernov JA, in discussing whether a landlord had a good defence to a claim for restitution, reiterated (at [16]) the recognition of the majority in David Securities:
[T]hat any matter or circumstance that showed that the receipt or retention of the payment was not unjust would ordinarily afford a good defence to such a restitutionary claim. (emphasis in original)
218 A claim of total failure of consideration may be crucial in cases in which there is no valid contract, as the payer will otherwise be without remedy. A number of important cases concern contracts which were ineffective or void (due to illegally, ultra vires or other circumstances) under which payments were made on the assumption that the contract was valid. The facts of such cases are very different from those of the present case.
Apportionment of consideration
219 Despite the uncertainty attending the scope of restitutionary relief based on total failure of consideration, in Baltic Shipping Co v Dillon (1993) 176 CLR 344 (“Baltic Shipping”) the High Court endorsed the traditional principle that “ordinarily…an entire and indivisible consideration will not wholly fail if part of it is tendered and accepted” (at 378).
220 In Baltic Shipping, the High Court considered that the consideration under a valid contract for a pleasure cruise was indivisible, and held that the plaintiff could not recover, on the basis of total failure of consideration, her entire fare because the cruise ended some days prematurely.
221 In Roxborough, however, the High Court held that certain amounts paid under valid supply contracts could be apportioned. Gummow J observed where there is a partial failure of a contractual promise, the general rule is that a proportionate part of the money paid cannot be recovered on an action for money had and received, due in part to the difficulty posed by an entire obligation in which the consideration for the payment was indivisible.
222 In Roxborough, the High Court held that a buyer could recover amounts of a licence fee (or indirect tax) subsequently held to be invalid, which it had paid to a wholesaler under supply contracts for tobacco products. The plurality held that the tax amounts were externally imposed, rather than agreed by negotiation, and the parties had treated them as distinct and separate elements.
223 The plurality concluded that the amounts paid in respect of the tax which was ultimately held to be void were not part of an agreed price or one indivisible sum which was impossible to apportion. Instead, it was possible to identify the part of the agreed sum attributable to a cost component and to conclude that the unforeseen invalidity of the tax (and the payee wholesaler’s consequent failure to incur an anticipated expense) resulted in the failure of a severable part of the consideration.
224 Gummow J concluded that invalidation of the tax meant that the claimants had paid the money on a basis that later became falsified. His Honour observed that the retailers had no contractual remedy in respect of the retention of the claimed moneys and the very form of the relevant transaction indicated that the payments made for delivery of and title to the tobacco products and for the tobacco licence fee could be “broken up”.
225 In Goss v Chilcott [1996] AC 788 (“Goss v Chilcott”), a lender recovered advanced funds on a mortgage which was subsequently invalidated, although it had received two instalments of interest, on the basis of a distinction between capital and interest.
226 In David Securities, the High Court held that the parties had implicitly acknowledged that the consideration under the loan agreement, which contained a clause essentially requiring the borrowers to pay an amount in the nature of a withholding tax subsequently held to be void, could be broken up or apportioned.
227 In the present case, the applicants’ submitted that the Equipment Schedule separately identified the prices of each item and service supplied under the Purchase Agreement, so that consideration under the Purchase Agreement was severable under the principle in Roxborough. In the present case, in contrast to Roxborough, Goss v Chilcott and David Securities, no part of the contractual promise was void or subsequently invalidated and there was no evidence that the parties treated any particular element as distinct or separate. Although the Equipment Schedule itemised and set out the prices of different components, the applicants led no evidence on whether and if so on what basis the parties recognised the possibility of severance, which matters were never put to Mr Lenny. The circumstances of this case are very different from those which in the above cases reflected the parties’ recognition, and the possibility, of severance. No element of the Purchase Agreement was invalidated or imposed without negotiation. The Purchase Agreement was for the supply of items to be drawn, sketched, transported and installed together as a unified whole. It did not, in my view, enable the Court readily to apportion consideration between elements which had or had not wholly failed.
Total failure of consideration in the context of an ROT clause
228 The only explicit support for the application of the doctrine of total failure of consideration to a contract containing an ROT clause identified by the applicants was obiter dicta in the 1984 case of Clough Mill.
229 In Clough Mill, the issue for determination was whether an ROT clause in a contract for the sale of yarn (which provided that if the yarn were incorporated into other goods, the suppliers would have property in such goods until they received payment in full) constituted a void unregistered charge. The Court of Appeal held that there was no charge, as the yarn was, at the time of the claim, identifiable, unused and unpaid for. The buyers thus never acquired legal title to and could not grant a charge over it.
230 In the course of his reasons, Robert Goff LJ considered hypothetical questions arising from the problems associated with the operation of an ROT clause which permitted the seller to retain title to material still held by the buyer, even if part of that material had been paid for.
231 In his Lordship’s hypothetical example, a quantity of material was sold, half of which had been delivered (but only half of that paid for) at the point of the buyer’s insolvency, but the value of the material had appreciated. Robert Goff LJ considered that if some of the quantity remaining with the buyer were still unpaid for but worth more than the outstanding amount due under the contract, and the contract were still subsisting, “it would be perfectly possible” to imply a term that the seller could only sell so much of the material as was necessary to pay the outstanding part of the purchase price, and must account to the buyer for the surplus if he sold more than was necessary to pay off the balance of the purchase price.
232 If, on the other hand, the seller terminated the contract by accepting the buyer’s repudiation, Robert Goff LJ considered that the seller probably retained title to the entire amount of the material still remaining with the buyer (although a part was paid for) and could sell it, but the buyer could recover any part of the purchase price already paid in relation to the goods sold, on the ground of failure of consideration.
233 Oliver LJ observed that “the operation of the retention of title in circumstances where the goods have been partly paid for gives rise to problems, particularly in the case of an accepted repudiation” and while it was unnecessary to express a concluded view on the hypothetical questions, he was in agreement with the solutions propounded by Robert Goff LJ (at 993).
234 Sir John Donaldson MR stated at (994):
There remains one other aspect which creates problems, but again is not, I think, determinative of this appeal. The first sentence retains property in all the material to which the contract relates until the price of that material has been paid in full. Thus, if three-quarters of the yarn had been paid for, the appellants would retain ownership of, and have a right to resell, all the material. Such a resale would be likely to realise more than was owed by the buyers. What happens then? I am inclined to think that the word ‘until’ in the phrase ‘reserves the right to dispose of the material until payment in full for all the material has been received’ connotes not only a temporal but also a quantitive limitation. In other words, the appellants can go on selling hank by hank until they have been paid in full, but, if thereafter they continue to sell, they are accountable to the buyers for having sold goods which, on full payment having been achieved, became the buyers’ goods.
235 Robert Goff LJ’s hypothetical development example was based on a different clause, contract and circumstances (including the appreciation of the goods’ value) from those at issue in this case. His Lordship emphasised that it was necessary in every case to consider:
the relevant documents and other communications which have passed between the parties, and to consider them in the light of the relevant surrounding circumstances, in order to ascertain the rights and duties of the parties inter se, always paying particular regard to the practical effect of any conclusion concerning the nature of those rights and duties. In performing this task, concepts such as bailment and fiduciary duty must not be allowed to be our masters, but must rather be regarded as the tools of our trade.” (at 987)
236 Robert Goff LJ’s dicta received the qualified concurrence of Oliver LJ, although Sir John Donaldson MR adopted a somewhat different approach. No Australian authority considering the dicta in Clough Mill, or dealing with claims based on total failure of consideration in the context of a contract containing an ROT clause, was cited or identified.
237 Moreover, on the most favourable application of Robert Goff LJ’s approach to the present case, whether or not the Purchase Agreement were rescinded, Lenny’s could sell the goods (including those already paid for) up to the amount required to pay off the balance of the outstanding part of the purchase price without being accountable to M3G.
238 Lenny’s did not receive more than the outstanding purchase price from Sino pursuant to the transfer agreement which, inter alia, transferred title only to any goods to which Sino did not already have title. If, as I have found, Sino had already acquired title to all the kitchen goods pursuant to clause 42.2 by paying M3G an amount equivalent to their value, on Robert Goff LJ’s analysis, Lenny’s could have no obligation to account to M3G for those amounts.
239 Although Robert Goff LJ, in his hypothetical example, contemplated an implied term in a subsisting contract precluding the sale of more than was required to satisfy the outstanding amount of the purchase price, such a term would not have been breached in this case. The applicants were, in any event, refused leave to amend after the closure of the evidence by alleging an implied term.
240 In summary, the analyses in Clough Mill were not uniform, their status is uncertain and they would not assist the applicants in the present case.
Benefits for which the payer bargained
241 Although total failure of consideration is a “complex conception” used in multiple senses in the law, in the context of restitutionary claims to recover money (paid for example under a mistake of law or fact) it has been held to refer to the benefit for which the payer bargained, “rather than any benefit which might have been received in fact” (Ovidio Carrideo per Nettle JA at [26]).
242 In that context, the reasons or matters the payer considered in deciding to make the payment are relevant. The terms of the contract (even if ineffective) and its context may illuminate what the payer gave and expected to receive by way of consideration.
243 In Rowland v Divall [1923] 2 KB 500 (“Rowland”), the buyer of a car successfully reclaimed the entire purchase price of a car to which the vendor had no title, despite the buyer’s use of the car for some months, on the basis that the buyer had not received what he contracted for, namely the property and the right to possession. As the vendor had no title, Rowland is distinguishable from cases such as the present involving ROT clauses where the vendor has good title to the goods which the buyer receives the right to acquire from the vendor (see, for example, the discussion in McCormack G, Reservation of Title (2nd ed, Sweet and Maxwell Limited, 1995) at 114-119).
244 If an action for money had and received based on total failure of consideration were otherwise available in relation to an ROT clause where the buyer had (despite receipt of some other benefits) received nothing for which it had bargained, or where the retention of the instalments was unconscionable or unjust, in my opinion, M3G has not established that it received no part of the benefits it bargained for, or that Lenny’s retention of the purchase moneys was unjust or unconscionable.
245 The applicants led no evidence other than the terms of the Purchase Agreement to indicate the benefits for which M3G bargained. The applicants’ narrow characterisation of the benefits as title to all of the kitchen goods ignored the contractual conditionality of that entitlement within the context of associated mutual rights and obligations. Lenny’s did not obtain a windfall and received no more than the contract price. Further, irrespective of whether the Purchase Agreement permitted sale to a third party and Sino in fact acquired title, Sino nevertheless paid M3G an amount equal or substantially equivalent to the value of the goods, and M3G, even if not authorised to sell the goods, in fact received amounts referable to them.
246 If, contrary to my findings, M3G were neither entitled to nor did sell the kitchen goods to Sino and did not receive amounts including their value, in my view, Lenny’s nevertheless provided expected benefits in accordance with its contractual obligations, as it sketched, planned, prepared and supplied the kitchen goods, caused them to be transported to the designated site and, in contrast to Rowland, conferred on M3G the contractual right to acquire a valid absolute title thereto on the fulfilment of the specified conditions.
Finding on total failure of consideration
247 In my opinion, the applicants’ claim for restitution from Lenny’s on the basis of total failure of consideration is not established.
248 In my opinion, the applicants’ claims are not established. The application should be dismissed.
I certify that the preceding two hundred and forty-eight (248) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton. |
Associate:
