WATERLOO HOLDINGS PTY LTD v TIMSO SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SHELLER and POWELL JJA, and SHEPPARD AJA 4 August 1997, 28 August 1997 [1997] NSWCA 335 Practice and Procedure — stated case Contracts-guarantee and indemnity -interpretation of clause in deed -"indemnify" This is an appeal from the decision of Levine J dismissing the summons for the determination of questions raised in a case stated by a Local Court magistrate. On 9 August 1993 the parties executed a Deed of Acknowledgement, which recited that the appellant had agreed to buy all of the respondent's interest in Marquis Windows Pty Ltd, (60 percent), and that, as a condition of the purchase, the respondent had agreed to give certain releases and indemnities. In January 1994 the appellant's accountants noted that the operating loss of Marquis Windows was $84,299 more than originally shown in the draft financial accounts. By statement of liquidated claim issued on 15 April 1994, the appellant began proceedings to recover $40,000 from the respondent, claiming an indemnity from the respondent amounting to 60 percent of the undisclosed liabilities of Marquis Windows. The magistrate found that by para3 of the Deed, the respondent indemnified the appellant, but there was no evidence that the appellant had suffered any loss. The appellant contended that this determination was erroneous in law. The appellant accepted that the magistrate found that there was no evidence that it had suffered any loss, but submitted that a) this did not matter; or, alternatively b) this Court should find that appellant had suffered loss (i) which the parties had agreed should be assessed as the amount of the undisclosed liabilities; or, alternatively (ii) which the Court should quantify. In the alternative, it submitted that its claim should be treated as one for damages for misrepresentation or breach of a promise or warranty that there were no undisclosed liabilities. Held: per Sheller JA, Powell JA agreeing: Irrespective of the absence of the necessary findings of fact in the stated case, or the inclusion in the appeal books of transcript and documentary material not part of the stated case, the language of the Deed was such that the appellant's claim must fail. The parties neither said nor intended that, if the liabilities were not fully disclosed in the draft accounts, the respondent should be bound to pay a sum certain amounting to the difference between the liabilities shown in the draft accounts and those existing at the date of the Deed if the second amount were greater. The appellant's claim according to the stated case was that the respondent was indebted to it pursuant to, "inter alia", an indemnity contained in a deed. In the absence of evidence that the appellant suffered any loss, its claim to indemnity however formulated, must also fail. per Powell JA: The stated case fell far short of what was required of it. Since this appears to be a situation which is now commonplace, it may be that the tune has come when, even if there is to continue to be a right of appeal from decisions of the Local Court under the Small Claims Act, that appeal should be to the District Court and take the form of a hearing de novo. 2 UNREPORTED JUDGMENTS per Sheppard AJA. The respondent promised to pay the appellant itself the amount of any liabilities of Marquis Windows which existed at the takeover date and which did not appear in the financial statements. If that were the case which had been proved and found by the magistrate, the appellant would have been entitled to succeed. The difficulty arose because of the findings made by the magistrate, or rather the absence of critical findings from the stated case. To allow the appellant now to engage in an exercise which would involve it in re-opening its case would be manifestly unjust and unfair to the respondent. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991)174 CLR64 distinguished. Collins v State Rail Authority of New South Wales (1986)5 NSWLR 209 at 211; Sunbird Plaza Pty Ltd v Maloney (1988)166 CLR 245 at 254; Livingstone v The Rawyards Coal Co (1880) 5 App Cas 25 at 39; Robinson v Harman (1848)1 Ex 850 at 8553154 ER at 365; Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12; Rankin v Palmer (1912) 16 CLR 285; Wren v Mahony (1972) 126 CLR 212 referred to. Words and phrases "indemnify" Sheller JA INTRODUCTION By a summons for the determination of questions raised in a case stated Waterloo Holdings Pty Ltd (Waterloo) appealed to the Supreme Court from a decision of the Local Court. Levine J dismissed the summons with costs. Waterloo appeals from this decision. Paul Johnson and the respondent, George Timso, were parties to an option agreement for the purchase of Mr Timso's shareholding and loan account in Marquis Windows Pty Ltd (Marquis Windows). Mr Johnson exercised the option and nominated Waterloo "as the transferee of the shares". On 9 August 1993 Mr Timso and Waterloo executed a Deed of Acknowledgment (the Deed), which recited that Waterloo had agreed to buy all of Mr Timso's interest in Marquis Windows, and that, as a condition of the purchase, Mr Timso had agreed to give certain releases and indemnities. In the body of the Deed, Mr Timso acknowledged that he had transferred to Waterloo a full 60 percent of the issued shares of Marquis Windows, referred to in the Deed as "the company" (cl1). C13 of the Deed provided: "Timso acknowledges having perused the draft financial accounts prepared in respect of the company for the year ended 30 June 1993 and which have been marked by him for identification. He acknowledges that he believes the draft accounts correctly set out the position of the company and he expressly indemnifies Waterloo against any liabilities of the company which exist at this date and which are not shown in such financial statements. It is acknowledged that this indemnity relates only to 60% of any such liabilities on the basis that Paul Johnson is liable for the remaining 40% of such undisclosed liabilities." Mr Timso declared that he had not taken any money or benefits from Marquis Windows since 30 June 1993 and that the receipt by him of the sum of $80,000 would satisfy entirely all claims which he had against Marquis Windows for repayment of loan account or for any other claims of any nature whatsoever. He confirmed that the payment of such sum of $80,000 included the consideration for the transfer of all of his shares (cl4). As security for Mr Timso's guarantee that there were no unknown liabilities, it was agreed that the sum of $10,000 should be retained out of the payment of $80,000 for a period of six months (cl6). URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Sheller JA) 3 Waterloo agreed that it would ensure that Mr Timso was released from his existing personal guarantees to Alcan and the National Bank (cl7). The 1993 draft financial accounts of Marquis Windows, identified in the Deed, included a profit and loss account, which showed an operating loss before income tax of $9,694.76, and a balance sheet, which showed receivables of $235,818.05, as part of the current assets, and creditors and borrowings of $409,356.15, as part of the current liabilities. The net liability of the company was said to be $16,877.70. By letter dated 19 January 1994, Waterloo's accountants, McLean Charge Partners, furnished an amended set of unaudited financial statements for Marquis Windows for the year ended 30 June 1993. The accountants noted that the operating loss as per the revised accounts was $84,299 more than originally shown. This variance was explained by a reduction in receivables from $235,818 to $229,623 ($6,195) and a net increase in creditors and provisions from $409,356 to $487,460 ($78,104). By a statement of liquidated claim issued on 15 April 1994 in the Local Court, Waterloo began proceedings to recover $40,000 from Mr Timso. Waterloo alleged, inter alia, that during July and August 1993 the parties negotiated terms whereby Waterloo agreed to purchase from Mr Timso 60 percent of the issued shares in Marquis Windows, that the parties on 9 August 1993 entered into the Deed and that further investigations into the financial affairs of Marquis Windows revealed that the financial accounts agreed to by Mr Timso were incorrect and that there were liabilities of Marquis Windows that were not disclosed. The statement of claim continued: "6. The Plaintiff claims an indemnity from the Defendant amounting to 60% of the undisclosed liabilities of Marquis Windows. 7. The Plaintiff's accountants assess the undisclosed liabilities to amount to the sum of $71,053.00. 8. The Plaintiff claims the sum of $42,631.80 against the Defendant as set out below:- Undisclosed liabilities $71,053.00 x 60% = $42,631.80" The operating loss of $84,299, noted by the accountants in their letter of 19 January 1994, was adjusted down to $71,053 by making a small increase to the provision for doubtful debts, reducing creditors to allow for the waiver of late payment tax penalties and including an amount for an insurance claim on a car. Waterloo abandoned $2,631.80 and claimed $40,000. A Local Court magistrate, Mr Bailey, heard the proceedings. On 20 February 1995, pursuant to Pt21 15(2) of the Local Court (Civil Claims) Rules the magistrate dismissed Waterloo's claim "that [Mr Timso] was indebted to [Waterloo] pursuant to, inter alia, an indemnity contained in a Deed entered into by [Waterloo] and [Mr Timso]." The magistrate ordered Waterloo to pay Mr Timso's costs of the action and dismissed with costs Mr Timso's claim for contribution against the third party, McLean Charge Partners. Pursuant to s69 of the Local Courts (Civil Claims) Act 1970 Waterloo appealed by stated case, as prescribed by Pt5 Division 1 of the Justices Act 1902 (s69(3)), from this decision to the Supreme Court as being erroneous in point of law. On 5 October 1995 the magistrate stated a case for the opinion of the Supreme Court. S101(1) of the Justices Act requires that the case set forth the facts and grounds of the magistrate's determination. S106 (1) of the Justices Act provides: "The Court shall hear and determine the question or questions of law arising on such case, and shall: 4 UNREPORTED JUDGMENTS (a) reverse, affirm, or amend the determination in respect of which the case was stated, or (b) remit the matter to the Justice or Justices with the opinion of the Court thereon, or (c) make such other order in relation to the matters as seems fit: Provided that the Court may cause the case to be sent back for amendment, and thereupon it shall be amended accordingly, and judgment shall be delivered after it has been so amended." On 23 October 1995 Waterloo filed its summons for determination of the questions and matters in the stated case. On 14 May 1996 Levine J dismissed the summons and ordered Waterloo to pay Mr Timso's costs. By leave granted on 22 July 1996 Waterloo appealed to this Court. STATED CASE An appeal by way of stated case is a cumbersome process long recognised as unsatisfactory; compare the remarks of Street CJ in Collins v State Rail Authority of New South Wales (1986) 5 NSWLR 209 at 211. The form of the stated case in this appeal presents problems which were discussed during argument. It was the duty of Waterloo to ensure that the stated case contained the magistrate's findings on all the facts upon which it wished to rely. The stated case referred to the proceedings before the magistrate and to the Deed which became exhibit 1. The following paragraphs are relevant to this appeal "2, FACTS: (vii) On 9 August 1993, a meeting of the Directors of Marquis Windows Pty Ltd was held at which:-....... (e) Marquis Windows Pty Ltd repaid its loan of $80,000 to George Timso. The minutes of the meeting became exhibit 3 in the proceedings. (x) On 19 January 1994, the Third Party sent a letter to the Appellant which advised that the assets and liabilities of Marquis Windows Pty Ltd was [sic] different to those shown in the draft Financial Accounts attached to the Deed of Acknowledgment dated 9 August 1993, by $84,299.00. This letter became exhibit 2 in the proceedings before me. (xii) There was evidence before me which would enable me to hold that the draft Financial Accounts attached to exhibit 1 were not correct and that the liabilities for Marquis Windows Pty Ltd were far greater than detailed in the draft Financial Accounts. 3. GROUNDS OF DETERMINATION: (ii) I determined that by para3 of the Deed (exhibit 1) the Respondent indemnified the Appellant. For such indemnity to arise the Appellant must show a loss. (v) It was submitted by the Respondent that there was no evidence before me that the Appellant has suffered any loss. I acceded to this submission. URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Sheller JA) 5 4. APPELLANT'S CONTENTION: The appellant contends that my determination was erroneous in point of law upon the grounds:- (ii) That in reaching my determination I failed to consider that; (a)The Deed was an indemnity by the Respondent for an amount equal to 60% of the undisclosed contingent and other liabilities of the company. (e) The Respondent having perused the company draft financial accounts and indemnified the Appellant for an amount equal to the undisclosed liabilities of the company to the extent of 60%. [sic] (f) The Appellant to its detriment relied upon the Respondents representation and entered into the Deed. (g) The fact that the parties did set aside $10,000 as a form of security bond which indicated the importance of the matter to the parties, was disregarded. (h) It was common ground between the parties that the Appellant would have to provide monies to pay for all debts of the company and, accordingly it was an amount equal to such liabilities which was being agreed to be paid to the Appellant. (i) The Respondent in consideration for such indemnity received from the Appellant:- A. $80,000 being repayment of his loan to the company; and B. release from personal guarantees to Alcan and National Australia Bank." Counsel for Waterloo accepted that the magistrate had found that there was no evidence that it had suffered any loss, but submitted that: (a) this did not matter; or, alternatively (b) this Court should find that Waterloo had suffered loss, (i) which the parties had agreed should be assessed as the amount of the undisclosed liabilities; or, alternatively (ii) which the Court should quantify. I need not dwell on the absence of the necessary findings of fact in the stated case, or the inclusion in the appeal books of transcript and documentary material not part of the stated case. The language of the Deed is such that Waterloo's claim must fail and this appeal must be dismissed. DEED OF ACKNOWLEDGMENT Waterloo's primary argument was that cl3 of the Deed should be read as meaning that if the liabilities of Marquis Windows were not fully disclosed, Mr Timso promised to pay Waterloo "an agreed liquidated sum", namely "60% of the amount of the undisclosed debts of (Marquis Windows)". In support of this submission, counsel relied on the terms of the Deed, and in particular those terms wherein it was expressed or acknowledged that Waterloo would buy all of Mr Timso's 60 percent interest in Marquis Windows, that Waterloo would procure the payment to Mr Timso of $80,000 and the release of Mr Timso from his existing personal guarantees to Alcan and the National Bank and that, out of the $80,000, the sum of $10,000 should be retained for a period of six months as security for Mr Timso's "guarantee" that there were no unknown liabilities. Counsel contended that the proper construction of the Deed, read as a whole, required the implication that Mr-Timso agreed, in the events which had happened, to pay to Waterloo an amount equal to the undisclosed liabilities of Marquis Windows. 6 UNREPORTED JUDGMENTS The second sentence of cl3 of the Deed was in two parts. In the first Mr Timso acknowledged not the fact, but his belief of the fact, that the draft accounts correctly set out the position of Marquis Windows, that is to say, its assets and liabilities and its profit or loss either accrued or for the year in question. The second part of the sentence contained the expression "indemnifies Waterloo against any liabilities" of Marquis Windows. As a matter of everyday language, the word "indemnify" denotes the provision of compensation for damage or loss sustained or expense incurred. The different uses of the term in law are discussed in Chitty on Contracts - Specific Contracts, 27th ed, para42-006-7. The application of s4 of the Statute of Frauds 1677 (UK) to contracts of guarantee has necessitated the drawing, in particular cases, of a distinction between contracts of guarantee and contracts of indemnity. In this dichotomy an indemnity has been described as "a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party"; per Mason CJ in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254 and the cases there referred to. The language of cl3 is obscure and intractable. Mr Timso did not agree to keep Waterloo harmless against a loss resulting from its entering into a transaction with a third party. C13 must be read in the context of Mr Timso's sale of his shares in Marquis Windows to Waterloo. But the "indemnity" was not expressed to be "against" the misstatement of the value of the shares or of the position of Marquis Windows, but "against" its "liabilities". If Mr Timso had promised or warranted, contrary to the fact, that the liabilities of Marquis Windows at the date of the Deed did not exceed a particular amount, Waterloo might have recovered damages in contract. In this sense Mr Timso would have been bound to indemnify Waterloo for any loss it suffered. The general rule at common law is "that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed"; Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365. The difficulty of treating cl3 as a promise or warranty, breach of which would give rise only to damages for loss suffered, which Waterloo had failed to establish, no doubt led counsel for Waterloo to urge that the clause should be read as a promise to pay a sum certain, to be ascertained when and if the liabilities of Marquis Windows at the date of the Deed were found to exceed the liabilities disclosed in the draft accounts. However, this contention gives the word "indemnifies" a strained and unnatural meaning, and one not likely to have been intended by the parties."The position of the company" was a matter about which Waterloo was, no doubt, concerned. If the identified draft accounts had accurately reflected the position of Marquis Windows, the parties could scarcely have intended that Mr Timso should pay Waterloo a sum certain ascertained as the difference between the amounts shown for liabilities in the draft and revised accounts, for reason only that, although the assets were of higher value, the liabilities in the revised accounts were greater. On the other hand, if the liabilities had been correctly stated in the draft accounts, but the assets grossly overstated, the draft accounts would not have reflected the true position of Marquis Windows, but the indemnity, construed in the way Waterloo contended, would have provided no relief. The variance between the identified draft accounts and the revised accounts, referred to in the accountants' letter of 19 January 1994, related to the assets as well as the liabilities which, as the accounts acknowledged, included provisions. URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Sheller JA) 7 The true "position" of Marquis Windows, as the variance showed, was not equated to, and could not be ascertained simply by reference to, the extent of its liabilities. Furthermore the liabilities described as provisions or estimates were not final computations. If the draft accounts did not "correctly set out the position of the company", and the difference was adverse in the sense that Marquis Windows, and accordingly the shares purchased, were worth less than Waterloo legitimately expected, the parties may have intended that Waterloo should be indemnified by Mr Timso for that disappointed expectation. If this was intended, cl3 did not say how the amount of the indemnity was to be calculated. In my opinion, the parties neither said nor intended that, if the liabilities were not fully disclosed in the draft accounts, Mr Timso should be bound to pay a sum certain amounting to the difference between the liabilities shown in the draft accounts and those existing at the date of the Deed if the second amount were greater. Accordingly, this argument fails. ALTERNATIVE SUBMISSIONS In the alternative Waterloo submitted that its claim should be treated as one for damages for misrepresentation or breach of a promise or warranty that there were no undisclosed liabilities. In such case, it said either that the damages were agreed between the parties to equal 60 percent of the proved undisclosed, but subsequently quantified, liabilities of Marquis Windows, or that Waterloo proved its damages by proving that it assumed the liability to pay away $80,000, and to accept an unlimited liability to procure a release of Mr Timso from personal guarantees. These obligations were said to have been undertaken in reliance on the truth of Mr Timso's promise or representation as to the absence of any undisclosed liabilities. Neither the stated case nor the statement of claim, which is not part of the stated case but included in the appeal book, suggests that Waterloo presented its case in the Local Court in this way. The magistrate made no findings that would support such a case. He found that on 19 January 1994 the accountants sent a letter to Waterloo which advised that the assets and liabilities of Marquis Windows were different from those shown in the draft financial accounts by $84,299. The magistrate said there was evidence before him which would enable him to hold that the draft financial accounts were not correct and that the liabilities for Marquis Windows were far greater than detailed in the draft financial accounts, but made no such finding. Importantly, he acceded to the submission that there was no evidence before him that Waterloo had suffered any loss. According to the stated case, Waterloo contended that the magistrate was in error of law in holding that Waterloo did not suffer any losses. Waterloo submitted that such loss was proved by its showing that it had incurred expenditure, and Mr Timso's failure to show that the expenditure would not have been recouped even if the contract had been fully performed. In support of his argument, counsel referred to the decision of the High Court in The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64. That case concerned the quantification of damages flowing from the Commonwealth's repudiation of a contract by a purported, but invalid, termination. The High Court affirmed a decision of the Full Federal Court that Amann was entitled to damages referable to its wasted expenditure. Counsel relied particularly on passages in the judgment of Mason CJ and Dawson J dealing with the award of damages 'for breach of contract. In the context of the general rule expressed in Robinson v 8 UNREPORTED JUDGMENTS Harman whereby damages are often equated to loss of profits, their Honours, at 82 and following, considered the case in which a plaintiff might recover damages for expenditure wasted based on his reliance interest "if he cannot prove his profit with reasonable certainty", and remarked at 85 that: "Naturally, the categories of case in which a plaintiff is likely to make a claim for the recovery of expenditure incurred are those in which the plaintiff has not suffered a loss of profits and those in which it is impossible to assess what would have been the outcome had the contract been performed or those in which that outcome is otherwise uncertain." At 86 and following, their Honours referred to "strong authority" to the effect that, where a plaintiff claimed damages for expenditure reasonably incurred, it was prima facie sufficient for that plaintiff to prove his or her expenditure and that it was reasonably incurred."'The onus then shifts to the party in breach of contract to establish that such expenditure would not have been recouped even if the contract had been fully performed. If this onus is not discharged, a plaintiff's entitlement to reliance damages remains intact." Counsel for Waterloo relied upon these propositions to submit that in this case it was sufficient that Waterloo showed that an amount of $80,000 had been paid to Mr Timso and other expenditure incurred to meet its obligations under the contract, and that the magistrate should have awarded damages by reference to this wasted expenditure. With all respect, I do not think that the principles stated in Amann apply to the present case. The stated case seems to demonstrate that the shares were transferred by Mr Timso to Waterloo and that Waterloo carried out its part of the bargain. If there was a breach of contract arising from his acknowledgment of belief as to the correctness of the draft accounts, any damages would have been assessed in accordance with the principles stated in Robinson v Harman to protect Waterloo's expectation of receiving Mr Timso's performance. Ordinarily, that would be demonstrated by proving that Waterloo bargained to buy 60 percent of the shares in a company worth X, but that at the relevant time the company was worth X - Y. The damages recoverable would be Y. Alternatively, if there was an actionable misrepresentation, Waterloo might have recovered damages for loss incurred in reliance upon this representation; see Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR | at 11-12. SUMMARY Waterloo's claim according to the stated case was that Mr Timso was indebted to it pursuant to, "inter alia", an indemnity contained in a deed. According to its statement of claim Waterloo claimed "an indemnity from the defendant amounting to 60 percent of the undisclosed liabilities of Marquis Windows". The claim so formulated rightly failed in the Local Court. In the absence of evidence that Waterloo had suffered any loss, its claim to indemnity, however formulated, must also fail. CONCLUSION In my opinion, the appeal should be dismissed with costs. URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Powell JA) 9 Powell JA The proceedings which have led ultimately to this appeal provide yet another recent example (see, for example, Allen v Kerr!; Melesco Manufacturing Pty Ltd v Thompson?; Carcosa Pty Ltd v Czerwaniw3), first, of the fact that many members of the legal profession appear to be of the view that knowledge, and the understanding, of the rules of litigious practice and of procedure no longer form a desirable, let alone a necessary, part of the armoury of a reasonably competent member of the legal profession; and, second, of both the unsatisfactory nature of an appeal by way of case stated and of the abysmal lack of knowledge on the part of many members of the legal profession of the tules and practice to be followed in relation to the institution, and prosecution of the hearing, of such an appeal. As Sheller JA has recorded in his Judgment, which I have read in draft, the proceedings in the Local Court were commenced with the filing, on 15 April 1994, of a Statement of Liquidated Claim, a form of originating process which might properly be resorted to only when the amount sought to be recovered is a debt, or liquidated claim (Local Court (Civil Claims) Rules 1988 ("the Rules") Pt r1(1)(b)). Before passing on, it is convenient to record, here, that s69 of the Local Courts (Civil Claims) Act 1970 ("the Civil Claims Act') provides (inter alia): - "69. (1) Subject to subs(2), all judgments and orders of a court exercising jurisdiction under this Act shall be final and conclusive. (2) A party to proceedings under this Act who is dissatisfied with the judgment or order of the court as being erroneous in point of law, may appeal to the Supreme Court therefrom. (3) The provisions of s101 to s115, both sections inclusive, of the Justices Act 1902. apply, to the extent to which they are applicable, to appeals under subs(2) in the same way as they apply to appeals to the Supreme Court under those provisions." and that, so far as is relevant to the present appeal, the Justices Act 1902 ("the Justices Act") provides: - "PtS Appeal and Review Division 1 - Stated Case to Supreme Court 101. (1) Any party to the proceedings, if dissatisfied with the determination by any Justice or Justices in the exercise of their summary jurisdiction of any information or complaint as being erroneous in point of law may, within 35 days (or such longer period as may be fixed under s102A(1) in respect of the party) after such determination, apply in writing to the said Justice of Justices to state and sign a case, setting forth the facts and grounds of such determination for the opinion thereon of the Supreme Court. 106. (1) The Court shall hear and determine the question or questions of law arising on such case; and shall: (a) reverse, affirm, or amend the determination in respect of which the case was stated; or (b) remit the matter to the Justice or Justices with the opinion of the Court thereon; or (c) make such other order in relation to the matter as seems fit: 1. Court of Appeal 7 August 1995 (unreported) 2. (1996) 40 NSWLR 525 3. Court of Appeal 25 June 1997 (unreported) 10 UNREPORTED JUDGMENTS Provided that the Court may cause the case to be sent back for amendment and thereupon it shall be amended accordingly, and judgment shall be delivered after it has been so amended. 107. Subject to this Act, the practice and proceedings in reference to the stating of cases as herein provided shall be as provided by rules of the Supreme Court made under the Supreme Court Act 1970." As will be apparent from what I have just recorded, the right of appeal granted by the provisions of s69 of the Civil Claims Act is limited, and does not permit the Supreme Court to correct actual, or alleged, errors of fact, it following that any ground of appeal, however dressed up, which seeks to have the Supreme Court correct an alleged error of fact does not disclose a valid ground of appeal - since it discloses no error of law - and, thus, must be rejected (see, for example, Azzopardi v Tasman UEB Industries Ltd'). The proceedings in the Local Court appear to have come before Bailey LCM on 20 February 1995. Although, in the matter appearing in the Stated Case under the title "DETERMINATION", Bailey LCM recorded that "(he) dismissed (the Appellant 's claim) pursuant to " Pt21 15(2) of the Local Courts (Civil Claims) Rules 1988, ("the Civil Claims Rules"), the Transcript Record of proceedings in the Local Court - which, quite irregularly, was tendered on the hearing before Levine J (see, for example, McNeall v Goker5; Glover v MacDougall®) - the fact that, on at least two occasions (see AB 70,73) during the hearing before him, his Worship described his determination as a "verdict" suggests that the power which he purported to exercise was, not that contained in Pt21 r5, but that contained in Pt21 16, of the Civil Claims Rules. Pt21 r5, r6 of the Civil Claims Rules, which rules were introduced into the Civil Claims Rules on and from 27 April 1990 are in the following terms. "5 (1) The court, on the application of the plaintiff in any action, may, at any time before judgment is given. make an order, on terms, for the dismissal of the action so far as concerns any cause of action on which the action is brought. (2) Where the plaintiff is the beginning party and no judgment has been given, a defendant may, at any time after the conclusion of the evidence in the plaintiff's case in chief, move for an order for the dismissal of the plaintiffs action. or of the action so far as concerns any cause of action on which the plaintiff claims against that defendant, on the ground that, on the evidence given. a judgment for the plaintiff could not be supported. (3) The plaintiff may decline to argue the question raised by a defendant's motion. (4) Unless the plaintiff declines to argue the question so raised, the court shall, if the ground of the defendant's motion is established, make an order for the dismissal of the plaintiffs action, or of the action so far as concerns the cause of action in question, as the nature of the case requires. (5) If the plaintiff declines to argue the question, or if the defendant's motion is refused. the defendant may adduce evidence or further evidence or may make an application for judgment under r6. 4. (1985) 4 NSWLR 139 5. (1939) 56 WN 57 6. [1976] 2 NSWLR 359 URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Powell JA) 11 (6) If the court makes an order for the dismissal of the plaintiff's action, or of the action so far as concerns a cause of action, the plaintiff shall pay the defendant's costs of the action, or of the action so far as concerns the cause of action in question, as the case may be. (7) If fewer than all defendants move the court under this rule, the court shall not entertain the motion before the conclusion of the evidence given for all parties. 6 (1) This rule applies to the hearing of an action. (2) An opposite party may: (a) after the conclusion of the evidence in the beginning party's case in chief; or (b) after the conclusion of the evidence given for all parties, move the court for judgment for that opposite party in the action generally, or on any claim for relief in the action, on the ground that, on the evidence given, a judgment for the beginning party could not be supported. (3) If the ground of an opposite party's motion is established, the court shall give judgment for the opposite party accordingly. (4) If an opposite party moves the court under this rule, that party may not adduce evidence or further evidence in the action generally (where the motion is for judgment in the action generally) or on the claim for relief in question (where the motion is for judgment in the action on a particular claim). (5) If fewer than all opposite parties move the court under this rule, the court shall not entertain the motion before the conclusion of the evidence given for all parties." Even a cursory reading of Pt21 15, r6 would indicate that those rules have their origins either directly, or indirectly, in the provisions of SCR Pt34 17, r8, the former of which rules was intended to replace the former procedure whereby a defendant might apply for, but a plaintiff was not obliged to argue, a non-suit, and the latter of which was intended to replace the former procedure whereby a defendant might move for judgment, or for a verdict by direction, the defendant, in such case, not having the right to tender evidence, or further evidence, if his application were rejected. Be all that as it may, the fact is that the Appellant's claim at first instance failed, and that Bailey LCM, either, dismissed the proceedings, or, entered Judgment in the proceedings in favour of the Respondent. Being dissatisfied with that result, the Appellant then invoked the provisions of s69 of the Civil Claims Act and s101, s106, s107, of the Justices Act and applied to Bailey, LCM to state a case for determination by the Supreme Court. The provisions relating to the stating, and determination, of such cases is contained in SCR Pt32, which, so far as is relevant, provides as follows: - 2(1) Proceedings in the Court on a stated case shall be commenced by summons claiming the decision or determination of the questions and matters stated for decision or determination in the stated case. (2) The plaintiff shall file and serve the stated case with the summons. Division 2 - Stated Cases Generally 4. A stated case shall - (a)be divided into paragraphs numbered consecutively; 12 UNREPORTED JUDGMENTS (b)state concisely the facts and documents necessary to enable the Court to decide the questions arising or otherwise to hear and determine the proceedings on the stated case; and (c) state the questions and matters to be decided or determined. 6. The Court may draw inferences from the facts and documents stated in a stated case. 7. (1) Where it appears to the Court that a stated case does not state the facts and documents sufficiently to enable the Court to decide the questions arising or otherwise to hear and determine the proceedings on the stated case, the Court may - (a) with the consent of all parties interested, add to or otherwise alter the stated case: (b) send the stated case back to the Division or court in which it is stated or to the judge, justice or person by whom it is stated for the purpose of addition or other alterations; or (c) receive evidence. make findings of fact, and add to the stated case in accordance with the findings of fact of the Court. Division 3 - Cases Stated by Justice 13. (1) Within 28 days after the expiration of the time limited under s101(1) of the Justices Act for making an application under that subsection, the appellant shall serve the draft case upon the clerk of the court at which the determination was made and upon the respondent. (2) A copy of any record of evidence need not be annexed to the draft case. (3) The appellant shall commence proceedings on the case by filing with the case a summons claiming the decision or determination of the questions and matters stated for decision or determination in the case. " To the requirements set out in SCR Pt32 r4, r13 the following may be added: 1. the applicant for a case stated should set out clearly the ground or grounds upon which it is contended that the Magistrate's decision is erroneous, although a mere failure to formulate those grounds clearly will not debar the Court from considering substantial questions of law on appeal (Bennett v Dickson'; Jones v Cunningham'); 2. it is essential (see Dennis v Watt?) that a stated case set out: (a) what facts the magistrate found established by the evidence; (b) his grounds for making the determination; (c) in what respect it is contended that his determination is erroneous in law. 3. in arriving at any decision on a question of fact in any case in which there is a conflict the magistrate must reach a definite conclusion, or definite conclusions, (Hale v Kaffer!°; Dennis v Watt!!) and that conclusion, or those 7. (1947) 64 WN 23 8. (1949) 66 WN 44 9. (1942) 59 WN 204 10. (1940) 58 WN 1 11. supra URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Sheppard AJA) 13 conclusions, should be specified, in a logical, or chronological, order (Ex pate Benson; Re Harris!2); the evidence should not be set out in, or otherwise made part of, the case unless it is contended that there was no evidence of a question in issue (see, Orange City Council v Canoblas Shire Council!3), nor should the magistrate's reasons for his conclusions as to questions of fact unless those reasons are necessary to elucidate the point of law raised or decided; 4. the question of law determined by the magistrate should be set out clearly, but not the reasons; 5. the grounds for the magistrate's determination should then be set out, those grounds being clearly distinguished from the grounds upon which it is contended that his determination was erroneous. As will be apparent from those portions of the case stated which Sheller JA has set out in his Judgment - setting out the whole of the case would have served only to provide further examples of the deficiencies in it - the case fell far short of what was required of it in the present case. Since this appears to be a situation which is now commonplace, it may be that the time has come when, even if there is to continue to be a right of appeal from decisions of the Local Court under the Small Claims Act - a question upon which minds may differ - that appeal should be to the District Court and should take the form - as does an appeal pursuant to s122 of the Justices Act from a conviction or order of a magistrate - of a hearing de novo. Having made those comments I wish to add no more than that, for the reasons given by Sheller JA in his Judgment, I agree that the appeal should be dismissed with costs. Sheppard AJA In this matter I have had the advantage of reading the judgment to be delivered by Sheller JA. I agree in his conclusion that the - appeal should be dismissed. I have, however, approached the matter slightly differently as is revealed by what follows. The clause of the Deed which is in question is cl3. So far as relevant, it provided: "Timso acknowledges having perused the draft financial accounts prepared in respect of the company for the year ended 30 June 1993 and which have been marked by him for identification. He acknowledges that he believes the draft accounts correctly set out the position of the company and he expressly indemnifies Waterloo against any liabilities of the company which exist at this date and which are not shown in such financial statements." The reference to Timso is a reference to the respondent. The company is Marquis Windows Pty Ltd and Waterloo is a reference to the appellant. The critical words are."... he expressly indemnifies Waterloo against any liabilities of the company which exist at this date [30 June 1993] and which are not shown in such financial statements." In its statement of claim relied upon by Waterloo before the magistrate it was alleged in para7 that "its accountants assess the undisclosed liabilities of the company to amount to the sum of $71,053." Waterloo's case is that cl3 the Deed obliged Mr Timso to indemnify it against a proportion of these liabilities because they existed at 30 June 1993 and were not shown in the financial statements. 12. (1949) 66 WN 18 13. (1969) 91 WN 676 14 UNREPORTED JUDGMENTS An initial difficulty arises because of the use of the word "indemnifies". In its more usual context. the word refers to a situation in which one party promises to indemnify another against a liability which that party may incur. If the liability is incurred and is paid, the party who is indemnified is entitled to rely upon the indemnity to recover the amount which he has been required to pay. In some circumstances the Court may be prepared to make a declaration that, in given circumstances, a party is obliged to indemnify another if the other pays out a liability against which he is indemnified, but more usually there is no cause of action until the person entitled to the benefit of the indemnity has paid the creditor. The explanation for this is referred to by Griffith CJ in Rankin v Palmer (1912) 16 CLR 285. His Honour said (at 289-290): "The learned Judge - I think by inadvertence - after declaring the plaintiffs right to an indemnity - in which he was clearly right - went on to order that the full amount which the plaintiff had paid over to the defendant, and which the plaintiff might be called on to repay, should be paid to him by the defendant. It is clear, however, that the plaintiffs only right is to indemnity, and the Court is bound to see that it does not prejudice the defendant by giving the plaintiff anything more. If the judgment stood in its present form, and the defendant paid the whole sum to the plaintiff. the plaintiff might not pay it to the creditors, in which event the defendant as principal might have to pay the money over again. Such a result would be manifestly unfair. An undertaking by the plaintiff would not obviate this difficulty. The principle governing such cases was fully discussed in the Court of Appeal in the recent case of In re Richardson; Ex parte Governors of St Thomas's Hospital ([1911] 2 KB, 705). In that case Fletcher Moulton LJ, after pointing out that at common law a person entitled to an indemnity could not avail himself of his right until he had actually paid the money, said ({1911]2 KB 705, at p712) - "The rule in Chancery is somewhat different, and yet, to my mind, it emphasizes the fundamental principle that you must have paid before you have a right to indemnity, because the remedy which equity gave was a declaration of a right. You could file a bill against the principal debtor to make him pay the debt so that you would not be called upon to pay it, and then you obtained a declaration that you were entitled to an indemnity. You could in certain cases have a fund set aside in order that you might be indemnified to avoid the necessity of your having to pay and then to sue for the money you had paid, which perhaps would not repair your loss and credit even if it discharged the debt. But I do not think that equity ever compelled a surety to pay money to the person to whom he was surety before the latter had actually paid." Rankin v Palmer was referred to by Barwick CJ in Wren v Mahony (1972) 126 CLR 212. His Honour said what he did with the agreement of Windeyer and Owen JJ (see at 237). In the circumstances of the case before him Barwick CJ said (at 225) that the Deed in question contained no express promise by the appellant in terms to pay the amount of any tax which had become or might become due by the respondent to the Commissioner of Taxation. Without such a promise, a cause of action could only arise against the appellant when the respondent had paid the amount of tax. Barwick CJ then set out part of the passage which I have quoted from Griffith CJ in Rankin v Palmer (at 225-6) and added that the Court was not concerned with equitable rights which might become exerciseable before the payment was made by the person having the benefit of a promise of indemnity. The position is the same in the present case. URJ WATERLOO HOLDINGS PTY LTD v TIMSO (Sheppard AJA) 15 But the question arises whether this is a case of a true indemnity. Notwithstanding the use of the word "indemnifies" in cl3 of the Deed, there is a question whether the parties intended their agreement to be an indemnity in the true sense or simply a promise to pay. This is a case where Waterloo was indemnified in respect, not of liabilities which it itself might incur, but in respect of liabilities which had been incurred by Marquis Windows u hose shares it was acquiring. The intention was not that Mr Timso would pay the moneys to the debtor, Marquis Windows; he was to pay them to Waterloo. That was the agreement which the parties made. The clause in question is contained in a commercial document. There may be difficulties in giving effect to it, but the Court ought, if it is reasonably possible to do so, give to the provision the meaning which it seems tolerably clear the parties intended it to have, cf The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429. Whether or not one explains the case as one in which there is a misuse of the word "indemnifies" is not to the point. What seems to me to have been the position was that Mr Timso promised to pay Waterloo itself the amount of any liabilities of Marquis Windows which existed at the takeover date and which did not appear in the financial statements. If that were the case which had been proved and found by the magistrate, Waterloo would, in my opinion, have been entitled to succeed. The difficulty arises because of the findings made by the magistrate or rather the absence of critical findings from the stated case. The relevant findings are to be found in para2(x) and para2(xii). These are set out in the judgment of Sheller JA but, for completeness, I repeat them here. They are as follows: "(x) On 19 January 1994, the Third Party [Waterloo's accountants] sent a letter to the Appellant which advised that the assets and liabilities of Marquis Windows Pty Ltd was [sic] different to those shown in the draft Financial Accounts attached to the Deed of Acknowledgment dated 9 August 1993, by $84,299.00. This letter became exhibit 2 in the proceedings before me. (xii) There was evidence before me which would enable me to hold that the draft Financial Accounts attached to exhibit 1 were not correct and that the liabilities for Marquis Windows Pty Ltd were far greater than detailed in the draft Financial Accounts." No relevant finding is made in para2(x). The only finding is that a letter was sent on 19 July 1994 by Waterloo's accountants which advised that the assets and liabilities of Marquis Windows were different from those shown in the draft financial accounts. The paragraph contains no finding about the actual amount of liabilities of Marquis Windows at 30 June 1993 not shown in its accounts for the period ending 30 June 1993 or in its balance sheet as at that date. In para2(xii) the magistrate finds that there was evidence before him which would have enabled him to hold that the draft financial accounts attached to the agreement were not correct and that the liabilities of Marquis Windows "were far greater than detailed in the draft financial accounts." But that does not establish the amount of them and provides no basis upon which judgment could be given for Waterloo for the amount which it claimed in its statement of claim. There was discussion during the course of the argument about sending the matter back to the magistrate for further findings. In this regard one needs to consider s106(1) of the Justices Act 1902 which, in a proviso, empowers the Court to cause the case to be sent back for amendment. If it is, it is to be amended 16 UNREPORTED JUDGMENTS accordingly and judgment is to be given after it has been so amended. There was no argument about the ambit of operation of this provision; all that occurred was that there was general discussion about sending the case back for the making of further findings by the magistrate. Waterloo must take responsibility for the form of the case and particularly for the findings which appear in it. That was because it accepted them as they are now expressed. It sought no addition to them nor alteration of them. It was content to argue this matter on the basis of those findings before the primary judge and would have been content to argue it on that basis before this Court had it not been for the difficulties which were raised by members of the Court with its counsel. It is not clear precisely how much money is involved in this case, but the amount can be no more than $40,000. Already there have been hearings before the magistrate himself and before the primary judge. The matter has been allowed to proceed to a hearing before this Court on the basis of the case as it is. What would be involved in the way of further expense if the matter were to go back to the magistrate to make further findings, I do not know but there comes a point when litigation must come to an end. The costs incurred by the parties in this matter must already be considerable and it seems to me that in all the circumstances it would be inappropriate to accede to the request made by counsel for Waterloo that the matter be sent back to the magistrate for the making of further findings. Particularly is that the case when one considers that the findings may not necessarily provide a foundation for the case which Waterloo wishes to make. There is no reason to suppose that a further hearing before the magistrate would be merely a formality or some sort of perfunctory exercise. On the material which is presently before us one cannot tell what is likely to be involved. Justice must be done to both parties. In my opinion, to allow Waterloo now to engage in an exercise which would involve it in re-opening its case, would be manifestly unjust and unfair to Mr Timso. In the result I agree that the appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for Appellant: J B Matson Solicitors for Appellant: Conway Maccallum Counsel for Respondent: D K L Raphael Solicitors for Respondent: Smith Monti Costa & Carbone