MANILDRA FLOUR MILLS MANUFACTURING PTY LTD v BELTAVIA PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, MEAGHER JJA, and Hope AJA 11 April 1989, 14 December 1989 [1989] NSWCA 137 Priestley and Meagher JJA and Hope AJA This case concerned an agreement under theterms of which Beltavia Pty Ltd, the plaintiff below and the respondent in this Court, was to mill the wheat of Manildra Flour Mills Pty Ltd, the defendant below and the appellant in this Court. The plaintiff was to charge the defendant for the flour produced and the defendant was to charge the plaintiff for the wheat it delivered. The plaintiff brought these proceedings to recover alleged overpayments made by it for the defendant's wheat. A question arose as to whether, on the contract between the parties, it was obliged to pay for the wheat actually delivered (as the plaintiff alleged) or for wheat deemed to have been delivered (as the defendant alleged). Rogers J found for the plaintiff on this issue, but this Court came to the opposite conclusion, accepting the defendant's contention. Meagher JA's reasons, with which the other members of the Court agreed, were published on 31 May 1989. However, the Court did not know to what final orders (if any) the defendant's success entitled it. This situation arose because of the exiguity of the evidence, which Meagher JA described, because we were unclear exactly what issues his Honour had decided and because the pleadings, if they may be so termed, raised matters which did not readily seem to be decided by a resolution of the construction question. The question now raised by the unsuccessful plaintiff is best understood by referring to its amended summons. Paras | to 4 of this document read as follows: "1. It was agreed orally and in writing in about May 1984 that the Defendant deliver to the Plaintiff's flour mill at Dubbo, quantities of wheat which would then be milled into flour at the Plaintiff's flour mill at Dubbo and then delivered by the Plaintiff to the Defendant at Auburn at a price agreed on between the parties. 2. (a) It was further agreed between the parties that the price of flour delivered to Auburn would fluctuate dependant on the price of whet as delivered from time to time by the Defendant to the Plaintiff at Dubbo; (b) It was further agreed between the parties that the grist rate in respect of all transactions be the grist rate of 1.31. 3. During the period 10th April 1984 to 6th December 1985, a quantity of wheat was delivered by the Defendant from various silos to the Plaintiff's flour mill at Dubbo. During the aforesaid period, a quantity of flour was milled by the Plaintiff and delivered by the Plaintiff to the Defendant at Auburn and Shoalhaven. 4. (a) Invoices were raised by the Plaintiff against flour supplied to the Defendant; (b) The defendant in turn then raised invoices against the Plaintiff for wheat allegedly supplied by the Defendant to the Plaintiff; 2 UNREPORTED JUDGMENTS (c) Such invoices raised by the Defendant were based on the invoiced tonnages of flour supplied by the Plaintiff multiplied by the agreed grist rate of 1.31; (d) The actual amount of flour (multiplied by the agreed grist rate) exceeds the amount of wheat supplied by the Defendant to the Plaintiff; (e) The oversupply of flour being due from flushing of the flour mill, incorrect blending of bread flour and periodic mill chokes." Para 5 was in the following terms: "5. In or about mid December 1985, the parties agreed that the Plaintiff would continue to supply flour to the Defendant as follows: (a) That the Defendant would pay the Plaintiff $268.85 for each tonne of flour dispatched; (b) The Plaintiff would not allow the grist rate to fall below 1.31; (c) That the Plaintiff would pay the Defendant the sum of $157.00 less freight, for each tonne of wheat provided by the Defendant. PARTICULARS 10.4.84 to 4.12.85 see annexure 'A' 7.12.85 to 28.2.86 see annexure 'B"' Annexure "A" was a statement of the amounts owing to the plaintiff on its allegations up to 6 December 1985; annexure "B", which incorporated annexure "A", shows the amount which the plaintiff alleges was owing to it by the defendant by 28 February 1986. The annexure "A" figure was $72,561.71; the annexure "B" figure was $108,055.42. Rogers J found for the plaintiff in the sum of $106,927.71. To this Court, at the time of deciding the construction question this figure seemed to be the annexure "B" figure, subject to some minor and unexplained adjustment. The Court was not clear whether its decision of the construction question decided the whole case, or whether in some way it was confined to the par 4 argument, possibly leaving the par 5 claim for approximately $35,000 outstanding. Accordingly when publishing the reasons of 31 May 1989 this was said: "Exactly what orders should be made is not now clear, as the judgment seems to reflect not only the matters which were in dispute before his Honour and on appeal but also some other (undefined) disputes between the parties. The matter should therefore be relisted for further argument as to the final orders which should be made by this Court." The parties have since been unable to agree whether the issue before Rogers J had been one upon which the whole case was to be decided, or whether the plaintiff had reserved the right to put a separate case on the par 5 allegations if it lost the construction argument on par 4. When the parties, after six months, brought the matter back to this Court for resolution, the Court was told that no transcript which made clear what took place before the trial judge had been found. Affidavits were filed by Mr McClintock who appeared for the defendant at the trial, and Mr Downes QC who appeared for the plaintiff, and his instructing solicitor. There was not a great deal of difference between the two accounts, but for the plaintiff it was argued that whereas on Mr McClintock's recollection it was quite clear that the construction argument was presented to Rogers J as covering the plaintiff's whole claim, that is that the same construction point arose on both pars 4 and 5, Mr Downes' recollection showed that it applied only to par 4. The Court suggested that if this was right, it might be better for a single judge, preferably Rogers CJ Comm D, to decide what the actual position had been at the trial. There was no cross-examination before this Court of any of the three deponents. WAANILDRA FLOUR MILLS MANUFACTURING PTY LTD v BELTAVIA PTY LTD (Priestle and Meagher JJA and Hope AJA) The plaintiff said that for its purposes the fact of the differences between the accounts was sufficient to justify its contention that this Court should send the matter back, with a view to a single judge, preferably Rogers CJ Comm D, deciding the issue, and whether a further hearing should go on at first instance. It was in the foregoing circumstances that, before us, the contentions of the parties became: (a) according to the plaintiff, Rogers J had determined a separate issue; he did not make any formal order to that effect, but de facto he tried a separate issue, viz the construction of the contract, on the basis that if that issue were determined in favour of the plaintiff, the plaintiff would be entitled to judgment for the full amount claimed; whereas if that issue were determined adversely to the plaintiff, the remaining issues would remain for consideration (b) according to the defendant, not only were no formal orders made for separate determination of any issue but the parties did not agree that any issue should be determined separately; the parties tendered for determination the construction issue on the basis that it was the only matter in dispute between the parties: success for the plaintiff on that issue entitling it to judgment in full, failure for the plaintiff on that issue entitling the defendant to judgment in its favour. In the course of argument the Court at first tended to the view that it could not resolve the point of dispute between the parties on the material before it, and that the most appropriate forum to determine the matter would be the trial judge, if that could be arranged. However, on reading Mr Downes' affidavit more carefully and on reflection the Court has decided otherwise. His affidavit supplies the answers to some of the questions which puzzled the Court on the initial hearing of the appeal. The relevant parts are as follows: "4. To the best of my recollection, during opening argument, inter alia, as to how the case was to proceed, discussion to the following effect took place: DOWNES: ' On one view this case turns on the construction of a relatively few documents. This issue of construction may well determine the case'. HIS HONOUR: Can I decide it merely on the documents?' DOWNES: 'It may be necessary to put some contextual material before the Court'. HIS HONOUR: 'What do you say about that, Mr McClintock?' McCLINTOCK: 'It may be possible to dispose of the case on the construction issue. I will need to seek instructions as to whether we wish to tender any other material'. HIS HONOUR: 'I will stand the matter down for a short time to see if Counsel can reach some agreement as to this." 5. I discussed the matter with Mr Johnson, my instructing solicitor, and representatives of our client. I selected certain pages from the affidavit of David Matchett Newby. The following discussions then took place: DOWNES: 'Bruce, I have got instructions that if you let me read paragraphs 6 to 9 of Newby's affidavit, without objection, and you don't cross-examine him, then we are prepared to let the Judge decide the main issue of liability on that material and the correspondence. What is the attitude of your people?" McCLINTOCK: 'Well I'll get instructions'. 6. After a time the following further exchange took place: McCLINTOCK: "We'll agree to your proposal if you'll allow us to read paragraphs | to 7 of Neville Yeatman's affidavit without cross-examination' . DOWNES: 'T will talk to my people, but I'm sure it will be okay. 7.1 subsequently said to McClintock: 'That's alright. Let's tell the Judge we're ready'. 4 UNREPORTED JUDGMENTS 8. It has been drawn to my attention that one sentence from para 7 of the Affidavit of Mr Newby has been deleted. I had no independent recollection of how that occurred. Refreshed by an examination of the document my best recollection is that this sentence was deleted during the negotiations with Mr McClintock at his request. 9. When his Honour returned to the Bench, I said: "We have agreed that the principal question of liability can be determined on one or two documents and a few paragraphs of the Affidavits of Mr Newby and Mr Yeatman and the issue can be very shortly disposed of'. 10. The agreed material was admitted into evidence and Counsel addressed. The addresses concluded just before the luncheon adjournment. 11. During the adjournment I went back to my chambers with my instructing solicitor and others. As a result of our discussions, I wrote out a page which summarised the amount which the Plaintiff believed it was entitled to recover, if successful on the argument before his Honour, excluding interest. A copy of that page is annexed hereto and marked 'A'. I took the page to Mr McClintock's chambers, sat across the desk from him and explained plained it to him. He said: "Well, that seems justified, although I have to trust the calculations.' I may have given him a copy. 12. At 2.00 pm I went back to Court to hear his Honour's decision because I realised that there might be other issues to be determined, depending on what his Honour decided. His Honour gave his decision wholly in favour of the Plaintiff, and stood the matter down so that agreement could be reached as to the form of Orders. The Judge adjourned and I left the Court and returned to chambers. 13. Approximately one hour later my instructing solicitor came to my chambers and said to me: 'They won't agree to the figures'. I then returned to the Court room. His Honour was not sitting. I said to Mr McClintock, in the presence of his solicitor and others: 'What is the problem with the figures? They were all agreed at lunch. What's all the fuss about?' There were some whispered discussions between Mr McClintock, his solicitor and his client's representative, and then Mr McClintock, or his client's representative, said: McCLINTOCK: 'Okay, we will agree to the figures'. I said: 'Good. That's all okay then. You won't need me anymore'. I returned to my chambers." This material explains how the evidence came to be so exceedingly sparse. It also shows that nothing was ever said to his Honour to the effect either that the par 4 claim alone was being argued, or more importantly, that the same construction argument did not cover the claims under both pars 4 and 5. There is no sign in Rogers J's reasons that he was conscious the plaintiff was preserving a fall-back position on par 5 if it lost the construction argument, which was presented to him as one on which "the principal question of liability can be determined". Our view, based on the appeal papers and Mr Downes' affidavit(and without reference to Mr McClintock's affidavit) that the whole issue of the defendant's liability for the alleged overpayments was dealt with by Rogers J without any reservation of alternate arguments in regard to the par 5 claim, is reinforced by the following considerations. The basis of the Court's decision of 31 May 1989 was the following paragraph in Meagher JA's reasons: "This certainly fixes the rate as being the current market rate, but it does not really deal with the quantities involved. On the other hand, as the appellant pointed out to us, there is distinct evidence as to how the defendant would WAANILDRA FLOUR MILLS MANUFACTURING PTY LTD v BELTAVIA PTY LTD (Priestley and Meagher JJA and Hope AJA) compute the tonnage. Mr Yeatman's letter to Mr Newby of 7 May 1984, referring to an agreement reached previously on the telephone, said: 'It is anticipated when we receive your flour invoices we will send you an invoice for the equivalent wheat, based on your grist rate less your freight in', ie working the 4 May formula backwards. Similarly, Mr Newby in his statement said that Mr Yeatman said to him 'You will present us with an invoice for flour delivered, and we will in turn invoice you for the equivalent in wheat, based on your grist rate'. Mr Yeatman's account of the same conversation has him saying to Mr Newby, 'We will physically exchange cheques each month. You will invoice for flour delivered and we will invoice you for wheat, based on your grist rate'. On this evidence it seems clear to me that the defendant was contractually entitled to charge every month on receipt of the plaintiff's invoice, armed with no other knowledge than that contained in the invoice itself and the agreed formula. In other words, the parties had agreed to charge for, and pay for, quantities of wheat not as actually delivered but as computed on an agreed basis." When the evidence there collected, and the point of the construction argument are together related to par 5, it seems reasonably clear to us that the argument before Rogers J proceeded on the footing that although in regard to the par 5 period the price of flour and wheat in the formula had changed, and an additional term added (par 5(b)) the arrangement between the parties was still that the defendant invoiced the plaintiff for wheat, upon receipt of the plaintiffs invoice for flour, by calculating the quantity supplied by multiplying the quantity of flour invoiced by 1.31. On this footing the same construction argument necessarily applied to both par 4 and par 5, and if the plaintiff won the argument it won its whole claim; if it lost the argument, it lost its whole claim. On this view everything done by the parties, and the judge, at the trial makes complete sense, and the Court is satisfied that that is what happened. On this approach, the orders the Court will make are that the appeal be upheld, the judgment below set aside, the plaintiff's summons dismissed and judgment entered for the defendant, the plaintiff to pay the costs of the proceedings here and below. Two further matters should be noted. On the argument concerning the orders to be made the respondent made the further submission that the effect of applying the formula set out in the plaintiffs letter of 4 May 1984 (reproduced in Meagher JA's reasons) is that the plaintiff is not allowed an amount of $100.00 x.31 per tonne of flour for offal but only an amount of $100.00 x.2364, this being what the grist rate would have been if the 8422 tonnes of wheat supplied by the defendant to the plaintiff had been the only source of the 6812 tonnes of actual flour supplied by the plaintiff to the defendant (in the period to 6 December 1985). In the result, it was submitted the plaintiff had not been allowed the agreed amount by way of production costs and margin and should now be allowed to claim an account against the defendant to recover such amounts. The foregoing contention is in one sense factually correct, but fails for two reasons. It had never been mentioned, in any shape, or at any time in these proceedings, until the final argument on the orders in the appeal and we do not think it can be raised now. The other point is even more fundamental. All the formula did was to fix two prices, those of wheat and flour between the parties. The formula showed how the second was derived from the first. The agreement between the parties, which was partly evidenced by the letter of 4 May 1984, established what price was to be paid for wheat and flour and how each party was to invoice the other and be paid for the product each supplied. The parties did not 6 UNREPORTED JUDGMENTS agree on the production cost and margin the plaintiff should obtain for milling wheat. The price of flour was worked out by reference to them, but all that the defendant promised to do was to pay the price, not to guarantee that the costs and margin on which the price was based, would be met by the price. The final matter to be mentioned is that the arrangement between the parties, as construed by the Court, was one by which the plaintiff paid for wheat the quantity of which which was not measured but calculated by a formula which brought out a figure of wheat supplied which, as the defendant admitted, was greater than it actually supplied. The result of this Court's decision may seem artificial, and as Meagher JA previously remarked, it is not difficult to sympathize with Rogers J's approach. However, this feeling arises from matters extraneous to the materials the parties chose to place before the Court. On appeal, the record was frozen with the evidence in an extraordinarily scanty state. That evidence is obviously only a fragment of the commercial setting in which the parties were operating. On the available evidence the Court was unable to supply the contract with the extra terms and meaning the plaintiff argued for. Had the evidence been more ample the result may have been different, or may have been the same. The Court simply does not know. The orders will be as earlier indicated. Appeal upheld. Judgment below set aside. Summons dismissed. Judgment for defendant. Plaintiff/respondent to pay costs of proceedings at first instance and on appeal. Counsel for Appellant: T Jucovic QC with BR McClintock WARYNP Solicitors for Appellant: Baker and McKenzie Counsel for Respondent: JJ Spigelman QC with A Johnston Solicitors for Respondent: MJ Duffy and Son