New South Wales Court of Appeal CITATION : Kavanagh v Blissett [2001] NSWCA 79 FILE NUMBER(S) : CA 40781/00 HEARING DATE(S) : 03/07/01 JUDGMENT DATE : 23 August 2001 Andrew Bruce Kavanagh & 1 Or PARTIES : v Matthew James Blissett & 1 Or JUDGMENT OF : Meagher JA at 1; Brownie AJA at 15; Ipp AJA at 31 LOWER COURT JURISDICTION : District Court LOWER COURT 5695/97 FILE NUMBER(S) : LOWER COURT Fisher DCJ JUDICIAL OFFICER : COUNSEL : A: R Dubler R: V R Gray SOLICITORS : A: Hegarty & Elmgreen R: Werry & Associates CATCHWORDS : Contract - collatoral contract - Trade Practices Act s75B - where Builder in breach of building agreement - whether directors of builder also liable - assessment of damages under Trade Practices Act s82 - appeal dismissed. LEGISLATION CITED : Trade Practices Act 1974 CASES CITED: Shanklin Pier (1951) Limited & Dettol Products Limited (1917) 2 KB 854 Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 DECISION : Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40781/00 MEAGHER JA BROWNIE AJA IPP AJA Thursday, 23 August 2001 ANDREW BRUCE KAVANAGH & 1 OR v MATTHEW JAMES BLISSETT & 1 OR FACTS The respondents commenced proceedings in the District Court against Kayuu Pty Limited ("the Builder"), which had performed residential building work for them, claiming damages for breach of contract and misleading and deceptive conduct. The Builder cross-claimed for wrongful repudiation of the contract. The proceedings were referred to a Referee who found that the Builder was seriously in breach of the agreement between the parties and that the appellants, who were shareholders and executive directors of the Builder, were also liable. The Referee's report was adopted by the trial Judge. The finding against the appellants formed the subject of this appeal. The issues were whether the appellants were liable along with the Builder on a collateral contract and / or under the Trade Practices Act, s75B. The appellant also submitted that the method by which damages had been assessed, under s82 of the Act, was flawed. HELD per Meagher JA (Ipp AJA & Brownie AJA agreeing): (i) The appellants associated themselves with false and misleading documents and assurances provided by the Builder to the respondents. The representations applied to the future as well as the present. By virtue of s75B of the Trade Practices Act, the appellants are as liable as the Builder. Per Ipp AJA & Brownie AJA: There was evidence, on which the trial Judge was entitled to rely, that the representations as to the existing and future matters were false. In any event, the appellants and the Builder bore the onus of proof and they did not discharge that onus. (ii) Per Brownie AJA (Ipp AJA agreeing): The appellants are not liable under a collateral contract. Neither appellant said or wrote words on his own personal behalf as distinct from speaking in his capacity as director of the Builder. Per Meagher JA (dissenting): Granted the findings that the intention of the representors was to induce the respondent to enter the agreement with the Builder and that the contents of the documents did in fact induce the respondents so to act, a collateral warranty is made out. The directors guaranteed the excellence of the Builder in consideration of the respondents entering the contract. (iii) Per Ipp AJA & Brownie AJA: The trial judge did not incorrectly assess the damages to which the respondents are entitled. In the circumstances of this case, the damages awarded against the Builder for breach of contract coincided with the damages payable by the appellants, assessed under s82. (iv) Per Meagher JA: Counsel for the appellants' argument that a finding of personal liability contradicted the fundamental principles of agency is not to the point. s75B applies to agents as much as principals. As for the collateral contract, the parties to it are the appellants in their personal capacity, and the respondents. ORDERS Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40781/00 MEAGHER JA BROWNIE AJA IPP AJA Thursday, 23 August 2001 ANDREW BRUCE KAVANAGH & 1 OR v MATTHEW JAMES BLISSETT & 1 OR JUDGMENT 1 MEAGHER JA: By a written building agreement dated 8 December 1995 between the Respondents ("the Owners") and Kayuu Pty Limited ("the Builder"), the Builder was to perform residential building work at Castle Hill, a suburb of Sydney. By notice dated 25 July 1996 the Builder purported to suspend the works for non-payment of its progress claim. By notice dated 20 October 1996 the owners purported to terminate the contract. 2 The owners commenced legal proceedings in the District Court claiming against the builder damages for breach of contract and damages for misleading and deceptive conduct. The Builder cross-claimed for wrongful repudiation of the contract. 3 The proceedings were referred out by the District Court to Mr Geoffrey Lumsdaine as Referee. He issued a report dated 6 November 1998. That report was almost entirely in the Owners' favour. He found that the Builder was not entitled to payment on its progress claim, because the works were incomplete and defective. Hence the Builder's notice was ineffective and inoperative, and the Owners' notice was valid and effective. And , hence also, the Builder was seriously in breach of the agreement between the parties. The amount of money the owners had to pay to complete the building was $189,676.00 4 The referee's report to this effect was adopted by the trial judge, Fisher A-DCJ. 5 On the findings which I have so far recounted, there was no dispute in this Court. The appellants accept that the Builder was in serious default under its contract, and is liable to the respondents for damages in respect of such default. However, the Builder (who, initially was not party to this appeal) is now in liquidation. 6 What is in dispute in this appeal is the additional finding by the Referee, also endorsed by his Honour, that the two appellants are also liable. The appellants are described by Mr Dubler, learned counsel for the appellants, as "natural persons formerly associated with the Builder". This is a little disingenuous. They were shareholders in the Builder; they were also directors of the Builder, and executive directors at that; they were apparently the only directors of the Builder. 7 In these circumstances, the Respondents claimed that the appellants were liable along with the Builder both on a collateral contract and also under the Trade Practices Act 1974. Unfortunately, his Honour's reasoning on the claims is far from satisfactory, although he must have upheld one or both of them because he found the appellants liable to the Owner, what His Honour said was: "Mr Gray dealt with the amended Statement of Claim which contained two causes of action: one under section 75B of the Trade Practices Act and a second cause of action based upon a collateral contract between the Second Defendants and the Plaintiffs by which in consideration of the promises or warranties by the Second Defendants (sic). There were in law governed by the principles in Shanklin Pier [1951] Limited & Dettol Products Limited [1917] 2 KB 854. Oral assurances are noted in transcript and written assurances are earlier cited in this decision." 8 Whilst it is difficult to understand at first glance what his Honour was saying in this passage, it is arguably easier to comprehend if one examines some of the background facts. Exhibit 11B is an example of a document published by the Builder, and handed by the Builder to the Owners, under the trade name "Marwick Homes": "Marwick Developments Pty Ltd is a company that is committed to effective and enthusiastic service. Marwick strives to provide innovative ideas in design and planning to ensure your project meets not only your expectations in quality but also meets your financial considerations. We will always individually assess the relevant site conditions including solar access, land usage and market demands whether or not we are building a home for you and your family or designing, building and managing your residential investment property. Our objective is to establish a client base whereby our customers are exceptionally satisfied and will continue an association with Marwick in the future. Mark Withnall Managing Director" It will be observed that the document was signed by the appellant Withnall. In cross examination, Kavanagh made it plain that he also associated his name with the document and its pretensions. 9 The Referee found, and his Honour adopted, the conclusion that this document (and similar other assurances) was made with a view to inducing the Owners to enter into this building agreement with the Builder, and that the contents of the document did in fact induce the Owners so to act. 10 As a matter of construction, the document is both representational and promissory; it is not merely expression of an opinion; it is meant to apply to the future as well as the present, and in some places actually does so explicitly - for example; "We will always individually assess the relevant site conditions including solar access, land usage and market demands whether or not we are building a home for you and your family or designing, building and managing your residential investment property"; in effect, it is saying: "Marwick Developments is a first-rate reliable building company, and if you contract with it you will be very content with its services". In these respects it is false and misleading within the meaning of the Trade Practices Act. Moreover, it is not only the Builder which is responsible for the document; it is actually signed by the appellant Withnall, and in cross examination the appellant Kavanagh associated himself with it. In these circumstances, by virtue of s 75B of the Trade Practices Act, the appellants are as liable as the Builder. 11 What is more, granted the findings of the intentions of the representers and the effect of the representation on the respondent Owner, in my view a classical case of collateral warranty is made out. In other words, the bargain was "We the directors will guarantee the excellence of the Builder in consideration of you, the Owner, entering into a contract with the Builder". 12 I agree with his Honour that in this respect the case is on all fours with Shanklin Pier (1951) Limited v Dettol Products Limited [1917] 2 KB 854. 13 Mr Dubler made great play of an argument that a finding of personal liability in the appellants contradicts the fundamental principles of agency. I am not attracted to this argument. In the first place, it is irrelevant to the Trade Practices point, as s 75B obviously applies to agents as much as to principals; and in the second place, as far as the collateral contact is concerned, it misses the point, because the parties to the collateral contract are the appellants (in their personal and not in any representative capacity) and the Owners - the Builder is not a party to the collateral contract. 14 For these reasons I would dismiss the appeal with costs. 15 BROWNIE AJA: The basic facts are summarised in the judgment of Meagher JA, which I have had the advantage of reading. I respectfully agree with his Honour's conclusion about the liability of the appellants under the Trade Practices Act ("the Act"), but disagree with his conclusion about their liability under a collateral contract. 16 The documentary record before us is deficient, omitting amongst other things the pleadings, but as is clear from the reasons for judgment of the learned primary judge, one strand of the respondents' case, before the referee and before the primary judge, was that the appellants, in breach of the provisions of s.75B(1)(c) of the Act, had been knowingly concerned in the breach by the Builder ("Kayuu") of the provisions of s.52 of the Act. In summary, the respondents said that Kayuu, and therefore the appellants, had represented that Kayuu would carry out the relevant building work in a workmanlike manner, and in a timely manner, and that Kayuu had in place a management process that would produce these results. 17 The representations in question, constituting the presently significant part of the conduct said to have infringed the provisions of s.52, consisted in part of representations about future matters, so as to attract the operation of s.51A of the Act, and in part of representations about present matters, that is, "present" at the time the representations were made, prior to the date of the contract, 20 October 1996. 18 These representations include the document quoted by Meagher JA at [8]. In my view, these documents, read as a whole, cannot properly be described as relating only to a present, as distinct from a future state of affairs. Whilst it is true that some fragments of the documents are expressed in the present tense, a fair view of the documents, read as a whole, points to the conclusion that they should be taken to be representations about the future conduct of Kayuu. Perhaps the point is more clearly illustrated by a letter from Kayuu to the first respondent dated 26 June 1995 (relating to a project which did not proceed, and not to the project the subject of the litigation). In that letter, Kayuu said, over the signature of the first appellant, Mr Kavanagh, on behalf of Kayuu (which traded as Marwick Homes):- Marwick Homes, in accordance with the strict quality regulation of the Housing Industry, is required to following (sic) the building standards as stipulated by the Building Code of Australia (BCA). Such standards must also meet the numerous inspection/approval requirements from a range of statutory and lending authorities, forming an industry-wide model for ensuring quality building practices. The in-house management process for quality control starts with the subcontractors executing an agreement (attached) which binds them to tight time periods and ensures the highest quality of workmanship. 19 In my judgment, this is representational as to the future conduct of Kayuu. The respondents also relied upon other, oral, representations. I do not think they are significantly different, on this point. That is, the statements were representations about future matters. 20 The appellants submitted that there was no evidence that they or Kayuu did not have reasonable grounds for making the representations in question. I do not accept this: there was evidence capable of supporting the view that Kayuu did not have in place the management process mentioned in its letter of 26 June 1995, but in any event, the appellants and Kayuu bore the relevant onus of proof: s.51A of the Act; and they did not discharge that onus. 21 The appellants also submitted that the method by which damages had been assessed, under s.82 of the Act, was flawed. Before the referee, respondents presented a case, primarily against Kayuu, and primarily for damages for breach of contract, and the referee assessed damages under this rubric in a conventional way: he made findings as to the cost of completing the work and of rectifying the faulty workmanship, and he assessed a sum representing the loss to the respondents resulting from the failure of Kayuu to complete the building work within the time stipulated for in the contract. 22 Then, without comment, the referee treated the damages payable under the Act as being the same sum of money, and the learned primary Judge adopted the report, without significant discussion of this point. 23 The appellants say, however, that as a matter of general principle, it is necessary to approach the task of assessing damages under s.82 in a different way. One should compare the actual position of the respondents with what their position would have been but for the breach of the provisions of s.52, and not by comparing their actual position with what their position would have been but for the breach by Kayuu of its contractual obligations. 24 There is no doubt that, generally speaking, this is the correct approach: Marks v GIO Australia Holdings Limited (1998) 196 CLR 494. However, this generality is not to be elevated into some absolute rule of law, not justified by the words of the statute and where, as is the case here, the conduct found to have constituted a breach of the provisions of s.52 led the respondents into entering into a contract, it may be that the contract would have produced the very benefit that was the subject of the representation, so that it might be appropriate to assess damages by reference to the contract: Marks at 504. 25 A result of the conduct of Kayuu and of the appellants, in breach of the provisions of s.52, was that the respondents entered into a contract with Kayuu, for the construction of residential premises. I think that we are entitled to know that, in Sydney at the relevant time, there were many people engaged in work of that nature, in competition with each other. The evidence makes it plain that if the respondents had not contracted with Kayuu, they would have contracted with someone else to do the same general work. It is no doubt possible that the contract which the respondents would have entered into with some other builder might have been for a different contract sum, might have been made pursuant to a different form of contract, and might have stipulated a different date for completion of the work, but it seems legitimate to infer that the contract between the respondents and Kayuu represented what was generally available in the market place at the time. 26 The conduct of the appellants which infringed s.52 consisted of representations that Kayuu would do the work in question in a workmanlike manner, and in a timely manner. The loss or damage suffered by the respondents "by" that breach consisted of the cost of completing the work, and of rectifying the faulty work, $189,676, together with the further sum of $10,640 in respect of the delayed completion of the work. The latter sum represented rent of $190 per week, for 56 weeks: a rent expense incurred by the respondents as the result of the failure of Kayuu to complete the work in a timely manner. That is, in the circumstances of this case, the damages awarded against Kayuu for breach of contract coincided with the damages payable by the appellants, assessed under s.82. 27 As to the collateral contract question, it does not seem to me that the evidence shows that either of the appellants ever said (or wrote) words on his own personal behalf, as distinct from speaking in his capacity as a director of Kayuu. Thus, the two documents mentioned above were signed by the appellants, as directors; and as I read the affidavits, and the transcript of the oral evidence, neither of the appellants ever said anything, purportedly on his own behalf, as distinct from speaking in his capacity as a director. 28 There might be one apparent exception to this: in paragraph 7 of the affidavit of Mr Blisset of 24 December 1996, he spoke of a conversation he had with Mr Whitnall, in which the two men spoke of the then contemplated contract between the respondents and Kayuu. In that conversation Mr Blisset referred to Kayuu as "you", and Mr Whitnall referred to it as "we". At the end of the conversation, Mr Blisset said: I am relying on you to do this job properly. If this job falls over it will jeopardise my position for [another then proposed project]. Mr Whitnall replied: There won't be any problems. You can count on me. 29 Given the context, I do not think that the last sentence quoted can be treated as a sound foundation for a finding that there was a collateral contract, pursuant to which Mr Whitnall promised the respondents anything, in consideration of their contracting with Kayuu. 30 I would dismiss the appeal so far as concerns the finding of liability under the Act, and allow it so far as concerns the finding that there was a collateral contract. I consider that the appellant should pay the costs of the respondent of the appeal. 31 IPP AJA: I have had the benefit of reading the judgments of Meagher JA and Brownie AJA. 32 I agree with Brownie AJA, for the reasons he gives, that there was no collateral contract. 33 The representations made in the letter dated 26 June 1995 from Kayuu to the first respondent and in exhibit 11B concern both existing matters and future conduct. 34 As to existing matters, the representations were to the effect that Kayuu had an established and qualified management and work force that would enable it to carry out appropriate procedures for quality control and to perform the work under the contract timeously and in a satisfactory manner. 35 As to future conduct, the representations were to the effect that Kayuu would utilise its management and work force so that the work under the contract would be performed timeously and in a satisfactory manner. 36 There was evidence, on which the trial judge was entitled to rely, to the effect that the representations as to the existing matters were false. That is, there was evidence that Kayuu did not have an established and qualified management and work force, as represented. 37 There was evidence, on which the trial judge was entitled to rely, that tended to establish that there were no reasonable grounds for making the representations as to future conduct. This evidence consisted of inferences that arose from the way in which Kayuu in fact performed the contract. In this regard, the appellants and Kayuu did not attempt to rebut the onus imposed on them by s 51A of the Trade Practices Act. In the circumstances, the trial judge was entitled to find that the representations as to future matters were false. 38 Accordingly, the findings made by the trial judge as to misleading conduct were justified. I agree with the reasons of Meagher JA and Brownie AJA in this respect. 39 Although the words used in this regard by the trial judge are by no means clear, I am satisfied that he found, by virtue of s 75B(1)(c) of the Trade Practices Act, that the appellants were persons who were directly or indirectly knowingly concerned in or party to Kayuu's misleading conduct. No reasonable argument to the contrary could have been mounted and, as I understood counsel for the appellants, he did not attempt to do so. 40 As regards damages under s 82 of the Act, the task of the court was: "Simply to identify the loss or damage suffered or likely to be suffered and, then, to make orders for recovery of that amount under s 82 or to compensate for or prevent or reduce that loss or damage under s 87 of the Act." (per Gaudron J in Marks v GIO Australia Holdings Limited & Ors (1998) 196 CLR 494 at 503). Or, as it was put by McHugh, Hayne and Callinan JJ, in that case, at 512: "The question presented by s 82 is not what would be allowed in deceipt, it is what loss or damage has been caused by the conduct contravening the Act." (see also at 514). 41 As Brownie AJA has demonstrated, the loss caused by the misleading conduct was established as being $189,676.00, in respect of the cost of the rectifying of faulty work and completing the work, and $10,640 in respect of rent expenses incurred by the respondents as a result of the failure of Kayuu to complete the work in good time. Accordingly, I do not accept the submissions advanced on the appellants' behalf to the effect that the trial judge incorrectly assessed the damages to which the respondents are entitled. 42 I agree with the orders proposed by Meagher JA. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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