New South Wales Court of Appeal CITATION : Cuzeno Pty Ltd v Powercell Pty Ltd [2000] NSWCA 78 FILE NUMBER(S) : CA 40628/98 HEARING DATE(S) : 18/8/99 22/9/99 (1st judgment date) JUDGMENT DATE : 5 April 2000 PARTIES : Cuzeno Pty Limited ACN 001 291 738 v Powercell Pty Limited ACN 051 968 613 JUDGMENT OF : Priestley JA at 1; Stein JA at 30; Davies AJA at 31 LOWER COURT JURISDICTION : District Court LOWER COURT DC 2325/97 FILE NUMBER(S) : LOWER COURT His Honour Judge Williams JUDICIAL OFFICER : COUNSEL : Appellant/Cross Respondent - T.G.R. Parker Respondent/Cross Appellant - C. Harris SOLICITORS : Appellant/Cross Respondent - Michie, Shehadie & Co Respondent/Cross Appellant - Willis Bowring CATCHWORDS : Cross-appeal LEGISLATION CITED : Fair Trading Act s 42 Trade Practices Act s 52 DECISION : Cross appeal dismissed with costs THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40628/98 DC 2325/97 PRIESTLEY JA STEIN JA DAVIES AJA Wednesday, 5 April 2000 CUZENO PTY LTD v POWERCELL PTY LTD POWERCELL PTY LTD v CUZENO PTY LTD & ANOR CROSS APPEAL - respondent had brought action against two defendants in District Court and had succeeded against one, who appealed, and failed against the other, the cross-respondent - cross-appeal fails because cross-appellant not permitted to argue the point it was relying on - that point had not been litigated below and was in any event unlikely to succeed. ORDER Cross-appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40628/98 DC 2325/97 PRIESTLEY JA STEIN JA DAVIES AJA Wednesday, 5 April 2000 CUZENO PTY LTD v POWERCELL PTY LTD POWERCELL PTY LTD v CUZENO PTY LTD & ANOR 1 PRIESTLEY JA: On 22 September 1999 the court dismissed an appeal by Cuzeno Pty Ltd (Cuzeno) against a judgment given on 27 July 1998 by his Honour Judge Williams of the District Court ordering that Cuzeno pay a specific sum of damages and interest to Powercell Pty Ltd (Powercell). 2 In the proceedings before Judge Williams Powercell had also made a claim against Mr Jabbour (the "mind" of Cuzeno), which the judge dismissed. 3 Cuzeno's appeal was listed for hearing and was heard on 18 August 1999. 4 On 28 July 1999 Powercell filed a notice of motion seeking leave to file a notice of cross-appeal against the dismissal of its claim against Mr Jabbour. Written submissions in support of the application were filed. The application was referred to at the beginning of the oral hearing of the appeal but not mentioned again in the oral argument. The court was uncertain of what Powercell wanted to do about the application to file the notice of cross-appeal and made no decision upon it, but, when the order dismissing the appeal was made, gave the parties an opportunity to raise the matter further with the court if desired. Powercell then sought a further oral hearing on its application, and if successful, sought to be heard in support of the cross-appeal. The further hearing took place on 1 December 1999. 5 In giving my opinion on this part of the case I will not restate the basic facts set out in the reasons of 22 September 1999. 6 At the further hearing of this part of the case, counsel for Cuzeno indicated that he would not oppose the filing of the notice of cross-appeal, although he made it clear that he would be contending not only that the cross-appeal should fail in any event, but also that Powercell should not be allowed to raise certain arguments because they had not been litigated before his Honour Judge Williams. 7 The starting point for consideration of this latter submission is the relevant pleadings. 8 Powercell, in par 4 of its statement of cross-claim Powercell was a cross-claimant because the District Court action of which the litigation with Cuzeno was part was commenced by a plaintiff purchaser from Powercell against Powercell as defendant; Powercell then cross-claimed against Cuzeno and the cross-claim was heard separately. against Cuzeno (First Cross Defendant) had alleged it had made a contract with Cuzeno as follows: " On or about 19 July 1996, the Cross-Claimant and the First Cross-Defendant agreed that, in consideration of the Joint Venture Agreement being terminated, and of the Cross-Claimant entering into a contract with the First Cross-Defendant to construct the home unit development (called 'the Building Contract'), the First Cross-Defendant would take over the Cross-claimant obligations under the Contract between the Cross-claimant and the Plaintiff and would indemnify the Cross-Claimant in respect of any liability which the Cross-claimant might have to the Plaintiff under that Building Contract ." 9 Paragraph 7 alleged a breach, as follows: " The First Cross-Defendant did not take over the Cross-Claimant's obligations under the contract with the Plaintiff ." 10 (Both contract and breach were found in Powercell's favour against Cuzeno by Judge Williams, and affirmed in this court). 11 There had been an alternative claim against Cuzeno based on the Trade Practices Act and the Fair Trading Act. Powercell did not need to appeal against its failure on this claim against Cuzeno because of its success on its contract claim. However, since Cuzeno failed altogether against Mr Jabbour on its only claim against him (based on his participation in the alleged Trade Practices Act and Fair Trading Act breaches) it wished to have its cross-appeal. 12 The Trade Practices Act and Fair Trading Act claim against Cuzeno was made in par 9: " Additionally or alternatively, on or about 19 July 1996, the First Cross-Defendant represented to the Cross-Claimant that it would take over the Cross-Claimant's obligations under the contract with the plaintiff and would indemnify the Cross-Claimant in respect of any liability which the Cross-Claimant might have to the plaintiff under that contract. Particulars: The representations were oral and were made by the Second Cross-Defendant [Mr Jabbour] on behalf of the First Cross-Defendant. " 13 Paragraph 10 alleged that the representations were in trade or commerce. 14 Paragraph 11 was as follows: " 11. The representations were misleading or deceptive, in breach of section 52 of the Trade Practices Act and section 42 of the Fair Trading Act. Particulars: (a) The First Cross-Defendant did not take over the Cross-Claimant's obligations under the contract with the plaintiff. (b) The First Cross-Defendant has refused to indemnify the Cross-Claimant in respect of his liabilities under the contract to the Plaintiff. " 15 Paragraph 12 made the claim against Mr Jabbour: " 12. The Second Cross-Defendant was involved in the contravention by the First Cross-Defendant of the Trade Practices Act and the Fair Trading Act. Particulars: The Second Cross-Defendant made the representations on behalf of the First Cross-Defendant. " 16 Paragraph 12A alleged Powercell relied upon the representations and that in reliance upon them it terminated the joint venture agreement, entered into the building contract and rescinded the contract it had made with Mr Grasso. 17 Here it is necessary to add to what was said in the earlier reasons about how the new arrangement between Powercell and Cuzeno came to be made on 19 July 1996. Mr Ward's evidence was that before 19 July 1996 there had been a sequence of discussions between him and Mr Jabbour which ended with the making of the new arrangement. In the course of these discussions he had made known to Mr Jabbour that he had exchanged nine contracts for his nine units and that if they came to the new arrangement the nine contracts would have to be taken over. Mr Jabbour had said he would agree to that but first must check that the contracts would not have a problem with specific performance. The events of 19 July 1996 then followed. 18 In par 8 of my earlier reasons I set out the finding made by Judge Williams which stated what the new contractual arrangement was which was made between Powercell and Cuzeno on 19 July 1996. The judge's finding was based directly upon Mr Ward's evidence of what happened on that day. I summarised that evidence in par 9. As appears from the summary, there were two meetings between Mr Ward and Mr Jabbour on 19 July 1996 which were of significance to the litigation, and it was at the first of these meetings that the agreement found by the trial judge was made. 19 Counsel for Cuzeno took the view that on the facts as found by the trial judge, (which, as mentioned, were based on acceptance of Mr Ward's account) his submissions had to be based on what had happened and been said at the second meeting and afterwards (see the transcript of argument at, inter alia, pp 4, 10 and 11). The submission was that from the evidence accepted and facts found by the trial judge, the inference was clear that Cuzeno through Mr Jabbour had represented that it was instructing Mr Savelle its agent to exchange four contracts with purchasers on the same terms as those Powercell had made with those purchasers when in fact it had no intention of exchanging contracts on those terms. 20 The allegation that the events giving rise to the way the representation took place after the first meeting was undoubtedly not pleaded. I say undoubtedly because par 12A of the cross-claim was unequivocal in its allegation that it was in reliance upon the representations that Powercell terminated the joint venture agreement and entered into the new contractual arrangement upon which it was bringing its contract case. 21 Reading Powercell's cross-claim together with Mr Ward's evidence of the events both before and at the two principal meetings on 19 July 1996 upon which the pleader must have based the allegations in the cross-claim, makes me think it likely that the pleader was acting on the theory that the new contractual arrangements were made following the discussions before and then in the course of those two principal meetings and did not foresee that it might be found that the new contractual arrangements had come into existence by the end of the first meeting. As well as I can judge that is the way in which the case was fought before the trial judge. It seems fairly clear that what was contended before the trial judge was that the same dealings and statements between the parties which resulted in the contract, looked at from another perspective, gave rise to the representations which were pleaded. That was the case which the trial judge accepted against Cuzeno on Powercell's contract claim but rejected under its Trade Practices Act and Fair Trading Act claim. Further, in regard to the latter claim, the only basis particularised (par 11(a) of the cross-claim) in support of the "misleading" allegation was that Cuzeno did not take over Powercell's obligations with the particular plaintiff purchaser. Mr Jabbour's intention at the time was not alleged as a necessary element of the cause of action. 22 The way in which counsel sought to support the cross-appeal was summarised in the written submissions and elaborated in the oral argument on 1 December 1999. The written submissions stated: " 1. The evidence showed that: (a) At a meeting in mid July 1996 Jabbour said to Ward that Cuzeno would agree to take over the nine contracts which Powercell had entered into (subject to a condition which is irrelevant): Black AB 13Q. (b) On 19 July 1996 Cuzeno actually executed and handed over to Ward nine contract back pages to enable new contracts to be prepared between Cuzeno and the nine purchasers: Black AB 16C-J. (c) Ward left Cuzeno's office but then returned to speak to Jabbour's son-in-law who was doing the engineering plans for the project. Jabbour was on the telephone to Savelle, his real estate agent and partner in other home unit developments, and when the telephone call had finished he asked Ward to return the nine back pages saying: 'Apparently we have to rescind the contracts first, we can exchange at any time(Black AB 16R). (d) At a meeting later that day in Jabbour's office, Ward asked Jabbour to return the nine back pages (Black AB 17G) and Jabbour refused to do so. Finally after pressure from Ward and Savelle, who was also present, Jabbour gave four of those back pages to Savelle and indicated that Cuzeno would take over Powercell's obligations under the contracts to the four purchasers who were expected to take action if Powercell repudiated its contracts with them: Black AB 18B. (e) Apparently Jabbour telephoned Savelle after Savelle and Ward had left his office to tell Savelle not to exchange with Powercell's obligations under those contracts: Black AB 74T. (f) But Powercell, believing that Cuzeno would enter into new contracts with the purchasers, repudiated its own contracts with those purchasers on 1 August 1996: Black AB 60O-S 75K. (g) In these circumstances, Cuzeno had no intention of 'taking over' Powercell's contracts, nor did it ever do so, and the representations by Jabbour on behalf of Cuzeno that it would do so were misleading and deceptive. Powercell suffered loss in reliance on those representations, however, when it repudiated its contracts, and rendered itself liable in damages for breach of those contracts to its purchasers. 2. The Trial Judge concluded (Red AB 23K-24E) that the representations were part of the contract, rather than being collateral to it, and that, since there was a breach of the contract, the Trade Practices Act did not apply. He concluded 'this was not in fact a representation as such but an enforceable promise'; Red AB 24C. This conclusion overlooked the effect of section 4(2)(a) and (b) of the Trade Practices Act which confirm that the making of a contract, and the giving effect to a contract, constitute conduct within section 52 of the Act. Contractual terms, which are misleading and deceptive, can be the basis of an application under section 52: Accounting Systems 2000 (Developments) Pty Limited-v-CCH Australia Limited (1993) 42 FCR 470. This is particularly so where the party has no intention of complying with its obligations under the contract: Wright-v-TNT Management Pty Limited (1988) 15 NSWLR 679 particularly per Mahoney JA at 648F. 3. In any event, the representations by Jabbour that Cuzeno would take over the Powercell contracts were representations as to future matters and were misleading and deceptive because, as the evidence showed, Jabbour had no intention that Cuzeno would comply with those representations and there was no reasonable grounds upon which the representation could have been made. So the Act does apply to representations which are incorporated in contractual terms and, having regard to the findings in the judgment at Red AB 23V-24C, judgment should have been given against both Cuzeno and Jabbour for damages for breach of section 52 of the Trade Practices Act. The damages would have been in the same amount as was ordered for breach of contract. " 23 As earlier mentioned, in his oral submissions counsel submitted that the conduct at and after the second meeting on 19 July 1996 constituted the representation relied on and also showed that there had never been any intention of acting in accordance with the representation. In the oral argument considerable emphasis was placed upon what was referred to in par 2(e) of the written submissions, that is Mr Jabbour's telephone call to Mr Savelle after the second meeting on 19 July 1996. If this evidence was properly admissible it was a powerful indication that at the time the new arrangement was made Mr Jabbour did not intend to carry out one aspect of it. It does not however assist Powercell in regard to the making of the representation relied on. 24 The problem with the argument outlined in the written submissions from the point of view of Powercell against Mr Jabbour is that it does not recognise that on the account of events as given by Mr Ward and substantially accepted by the trial judge the new arrangement was complete at the end of the first meeting on 19 July 1996 (see in particular the trial judge's reasons in the long paragraph at pp 5 and 6, Red AB 12-13). 25 As already noted, in the oral argument counsel accepted that the new arrangements had been made by the end of the first meeting. He also accepted that the case he was seeking to make under the cross-appeal had not been pleaded. However, he submitted that it had been raised in the course of the hearing. He said that according to his notes of opening he had " said to the trial judge that the misleading and deceptive conduct case was based on the fact that Mr Jabbour had no intention of exchanging the contracts that he handed over. " He pointed out that he had put that assertion to Mr Jabbour in cross-examination. (Mr Jabbour had denied it.) He had also submitted in final address that Mr Jabbour had never had the relevant intention. However these matters were all relevant to the case as conducted in accordance with the pleadings. The passage in the trial judge's reasons referred to in par 2 of Powercell's written submissions does not help Powercell's contention that the case now sought to be put under the cross-claim was put before the trial judge. That passage suggests quite strongly to me that the representations the trial judge was speaking of were those made in the discussions preceding the making of the new arrangement at the first meeting of 19 July 1996 and what was said at that meeting. 26 Nowhere in the materials before this court can I see anything to support the view that a case was made at the trial based upon representations to be inferred from the conduct of Mr Jabbour after the making of the new arrangements at the first meeting of 19 July 1996. Counsel for Mr Jabbour (who had also appeared for Cuzeno at the trial) submitted that had the claim now made been made at the time of the trial he would have had to give consideration to possible different ways of dealing with it, which he did not consider in view of the way the case was conducted. One reason why this seems to me to be a realistic claim was well conveyed by counsel in argument. It had been suggested to him that the best foundation for the submission for Powercell that the case had in substance been litigated at the trial was the cross-examination of Mr Jabbour about his intentions on 19 July 1996. Stein JA commented that that was evidence relevant to the first conversation on 19 July and therefore admissible. Counsel then submitted " Yes, your Honour, but your Honour will recall that I'd actually objected to the evidence which Mr Ward gave. That evidence was allowed in over my objection. One wonders what would have happened if the trial judge had been told, well, we want this evidence because we want to make an argument not recorded in the pleadings, to the effect that you should find as a fact that Mr Jabbour not only made these representations or entered into this contract but he never intended to comply with it and we want to have Mr Sevelle's evidence in hearsay form for that purpose. One can't unscramble the egg is really what I'm saying, however much it might be correct, strictly speaking, to say, well look the evidence is there, it can be used. It's impossible, I submit, to divorce the form of the evidence from the way the case was presented, " 27 It seems to me that the idea in this submission is sound - it illustrates the real possibility of the case having gone differently if it had ever been made clear to the court and the cross-defendants that Powercell wanted to rely on the argument it now seeks to put to this court. In my opinion it would be unfair to allow the argument now to be relied on. 28 In my opinion this court should not entertain argument on the misleading representation alleged to have been made after the making of the new arrangements at the first meeting of 19 July 1996. Since this was the only representation relied on by Powercell in the final form of its argument at the hearing, it follows that in my opinion the cross-appeal should be dismissed with costs. 29 I should add that one of the central reasons for the foregoing conclusion would also lead to the failure of the cross-appeal in any event. When at the first meeting on 19 July 1996 the agreement to transfer an interest in the land was by agreement between Powercell and Cuzeno brought to an end, Powercell at once became unable to fulfil its contracts with its purchasers and so then became liable to them. Any subsequent liability established by a purchaser against Powercell must in law have flowed from that new arrangement, which was complete before the alleged reliance on the subsequent alleged misleading representation. 30 STEIN JA: I agree with Priestley JA. 31 DAVIES AJA: I agree with Priestley JA. ********** I. 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