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Parties in Dispute Over Contract for the Sale of a Vessel
The parties entered into a contract for the sale of a vessel. The plaintiff decided not to proceed with purchasing the vessel and required a refund of the deposit. MYSA, the defendant, seeks damages for the plaintiff, Ms Cheng’s refusal to perform her obligations under the contract. The Court, in adjudicating this dispute, assessed whether or not the contract is binding.
Facts:
On 29 September 2016, Plaintiff Ms Cheng’s son, Mr Cheng Shu, contacted Mr Damien Johnson, a marine broker employed by MYMB at the relevant time. When Mr Cheng Shu visited MYSA’s offices at Rose Bay Marina with Ms Cheng and her husband, Mr Johnson introduced them to the V48 Vessel. Ms Cheng and her husband do not speak English. On Saturday 1 October 2016, Ms Cheng, her husband, Mr Cheng Shu spoke to a different broker, Mr Sean O’Doherty. Ms Cheng (with Mr Cheng Shu acting as translator for his mother) and Mr O’Doherty negotiated a sale price for the V48 Vessel of $1,180,000 with a deposit of $20,000.
Ms Cheng signed a pro forma contract for sale of the V48 Vessel, which contained handwritten special conditions completed by Mr O’Doherty, and paid the $20,000 deposit by electronic funds transfer. On 1 October 2016, Mr Johnson telephoned Mr Cheng Shu and informed him that Ms Cheng’s offer of $1,180,000 for the V48 Vessel was accepted by MYSA. On 2 October 2016, Messrs Thompson and Sutton motored the V48 Vessel to Ms Cheng’s residence in Woolwich. Mr Thompson and Mr Sutton collected friends of Ms Cheng’s husband and motored those passengers around Sydney harbour for 30 minutes before dropping them back at Ms Cheng’s residence.
Mr Thompson and Mr Sutton then motored the V48 Vessel back to Rose Bay Marina. Ms Cheng said that she had decided not to proceed with purchasing the V48 Vessel and required a refund of the deposit. MYSA, the defendant, seeks damages for the plaintiff, Ms Cheng’s refusal to perform her obligations under the Contract. Ms Cheng alleges that there was an oral term or condition of the Contract that the boat must “fit” within a mooring at her property in Woolwich which was breached or not fulfilled, such that she was entitled to refuse to perform her obligations under the Contract.
Secondly, Ms Cheng alleges that the Contract is not binding as it was only signed by one director of MYSA, whereas the signature of two directors is required to authorise MYSA to enter into a valid contract. Lastly, Ms Cheng submits that MYSA has not proved the loss it claims. MYSA commenced proceedings in the Supreme Court. Mr Johnson alleges that Ms Cheng is contractually obliged to purchase the V48 Vessel.
MYSA’s case is that this dispute arose because, after having signed the Contract on 1 October 2016, Ms Cheng wished to renegotiate the purchase price.
Issues:
I. Whether or not the Contract constituted a binding agreement between the parties.
II. Whether or not contract for sale of vessel included a term that the vessel would “fit” in a dock
III. Whether contract entered into with the express or implied authority of the company
IV. Whether costs incurred in mitigation are too remote to be recovered.
Applicable law:
Civil Procedure Act 2005 (NSW), s 100 - provides that in proceedings for the recovery of money (including any debt or damages or the value of any goods, the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:
(a) on the whole or any part of the money, and;
(b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect.
Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, ss 18, 21 - provides the grounds for misleading or deceptive conduct in breach of the Act.
Contracts Review Act 1980 (NSW) s 7 - provides that where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
(a) it may decide to refuse to enforce any or all of the provisions of the contract,
(b) it may make an order declaring the contract void, in whole or in part,
(c) it may make an order varying, in whole or in part, any provision of the contract,
(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:
(i) varies, or has the effect of varying, the provisions of the land instrument, or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.
Corporations Act 2001 (Cth), ss 124, 126, 198A, 198C, 198D - provides the grounds for legal capacity and power to enter a contract. That power to contract must be exercised either by the company itself through an organ of the company, or by an agent with authority to exercise that power.
District Court Act 1973 (NSW) s 44 - provides for the actions the Court has jurisdiction to hear and dispose of.
Justice Legislation Amendment Act (No 3) 2018 (NSW) - provides that any action arising out of a commercial transaction in which the amount (if any) claimed does not exceed the Court’s jurisdictional limit, whether on a balance of account or after an admitted set-off or otherwise.
Sale of Goods Act 1923 (NSW) ss 19, 52 - provides the measure of damages.
Supreme Court Rules 1970 (NSW), r 14.2 - provides that the District Court does not have jurisdiction to hear any matter arising from a commercial transaction.
Birjandi v Todaytech Distribution Pty Ltd [2005] WASCA 44 - provides that a person holding the office of managing director is impliedly authorised “to do all such things as fall within the usual scope of that office” including the making of contracts in the course of the company’s normal trading activities.
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; [1986] HCA 81 - where it was held that the concept of mitigation is also linked with that of remoteness, in the sense that it would not reasonably be in the contemplation of the defendant that the plaintiff will fail to prevent loss that can be reasonably avoided.
Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648; [2006] NSWCA 133 - provides that the concept of mitigation is linked with that of causation, in the sense that if the steps taken by a plaintiff to mitigate its loss are so unreasonable so as to break the chain of causation between the defendant’s breach and the plaintiff’s loss, the plaintiff is prevented from recovering damages for that loss which was properly caused by its own unreasonable conduct.
Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (2017) 251 FCR 404; [2017] FCAFC 75 - where it was held that an implied grant of authority can result from acquiescence in a course of behaviour by persons who have actual authority to delegate.
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2010] NSWSC 1073 - describes entry into substitute contracts as conduct which “crystallises” the plaintiff’s loss.
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 - Clarke and Cripps JJA emphasised that the question of implied actual authority must be determined based on the particular facts of the case.
Fox v Wood (1981) 148 CLR 438; [1981] HCA 41 - where it was held that where the plaintiff is able to take steps to restore his regular receipt of income and thereby to avoid further loss, and where he incurs costs in doing so, the costs may be recoverable from the defendant.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 - where Lord Diplock said that to confer actual authority would have required not merely the silent acquiescence of the individual members of the board, but the communication by words or conduct of their respective consents to one another and to [the agent].
Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12; [2007] 2 AC 353 - Lord Brown said that “the injured party should ordinarily go out into that market to make a substitute contract to mitigate (and generally thereby crystallise) his loss.”
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 - where it was held that a person holding the office of managing director is impliedly authorised “to do all such things as fall within the usual scope of that office”.
James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 - where it was given consideration as to whether there were separable issues such that a differential award of costs should be made.
Junker v Hepburn [2010] NSWSC 88 - His Honour said that an implied grant of actual authority can result from acquiescence in the course of behaviour by persons who have actual authority to delegate.
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32 - Dawson J explained that an individual director does not have authority by reason of that office to bind the company in contract.
Simonius Vischer & Co v Holt [1979] 2 NSWLR 322 - provided that the criterion for tortfeasor defendant's liability is whether the plaintiff has reasonably incurred the costs in mitigating or in reasonably attempting to mitigate that damage and it is a question of fact whether the plaintiff has acted reasonably.
The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 - Rein J held that the District Court does not have jurisdiction to hear any matter arising from a commercial transaction having regard to r 14.2(1)(a) of the Supreme Court Rules 1970(NSW).
Wenkart v Pitman (1998) 46 NSWLR 502 - where it provided that in the concept of mitigation, the onus is on the defendant to show that the plaintiff has not taken reasonable steps to mitigate its loss.
Analysis:
Mr Cheng Shu insisted that he repeatedly told Mr Johnson that “we will need to make sure the V48 fits our dock”. However, there is not a word in the contemporaneous documents about any requirement that “the V48 fits our dock”. In the written complaint to NSW Fair Trading lodged by Mr Cheng Shu in his mother’s name shortly after this day, there is not a word about any requirement raised with MYSA that the V48 Vessel fit the dock. The contract is not conditional upon the V48 Vessel fitting in any berth.
The directors of the company are the primary organ of the company and derive their power and authority to act as the company from Corporations Act, s 198A. There is no evidence that the provision, which otherwise applies by default to MYSA as a proprietary company registered after 1 July 1998, has been displaced or modified by the company's constitution. Whilst there was no evidence that the MYSA board of directors had expressly delegated its contracting power to Mr Simson, Mr Thompson or any other person, so as to confer express authority to enter into contracts on behalf of MYSA, s 126 of the Corporations Act provides that an agent may act with the implied authority of the company, where the conduct of the parties and the circumstances of the case give rise to the implication that authority to so act has been conferred.
Except for the expenses incurred in relation to the V48 Vessel until the time of its sale by MYSA, the loss claimed by MYSA was incurred in the course of steps taken by MYSA to sell the V39 Vessel. MYSA submits that these were steps taken in mitigation of its loss arising from Ms Cheng’s repudiation of the Contract. However, loss is no longer foreseeable and therefore too remote to be recovered where it had become unreasonable for the plaintiff to fail to mitigate that loss, or where the steps taken by the plaintiff in mitigation were unreasonable. MYSA’s loss includes the depreciation in value of the V39 Vessel between when MYSA accepted it as a trade-in and the V39 Sale. Given that the plaintiff’s loss crystallises upon entry into a substitute contract, it follows that the plaintiff’s loss should be the difference between the value of the original contract and the value of the substitute contract as at the time it is entered into.
Conclusion:
The Court held that the defendant should pay the plaintiff damages in the sum of $62,720 as well as the costs of the trial. Pursuant to s 100 of the Civil Procedure Act 2005 (NSW), the defendant is to pay pre-judgment interest on the principal sum of $62,720 for the period from 10 January 2017 to 10 September 2021 at the rate identified by Practice Note SC Gen 16. The cross-claim is dismissed with costs.
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