Evans Deakin Industries Ltd v Noyes Bros Pty Ltd [1992] QCA 379

IN THE COURT OF APPEAL [1992] QCA 379 SUPREME COURT OF QUEENSLAND Appeal No. 125 of 1992 BETWEEN: EVANS DEAKIN INDUSTRIES LIMITED (Plaintiff) Respondent AND: NOYES BROS PTY LIMITED (Defendant) Appellant JUDGMENT OF THE COURT Delivered the Ninth day of November 1992 This is an appeal against a judgment of the District Court in a contract case. On 27 May 1992, judgment was given for the respondent plaintiff in a sum of $151,123.85 with costs, in a claim by a prospective purchaser of valves against the vendor, for damages for breach of contract. The only question raised is whether there was a contract and that depends, in the end, on the effect to be attributed to two written communications between the parties on 2 October 1986. As will appear, those documents evidence an agreement between the parties, but the appellant challenges the trial judge's view that they had the effect of making the contract which was sued upon. The contract was alleged to be contained in six documents identified in the respondent's pleading, the first of them being a quotation by the appellant on 5 August 1986 giving prices for various items. It produced a "purchase order" of 16 September 1986 from the respondent for the supply and delivery F.I.S. Cairns of 98 ball valves at prices set out in the order. Eight of those ball valves had a description which included a -- 1 of 13 -- 2 dimension of 150 mm, and those valves turned out to be central to the argument. Clause 2.0 of the terms and conditions forming part of the order reads in part as follows: "(b) It is a condition of this order that certification and supporting drawings are provided for Monsoon Ball Valves for use on this project, certifying that Valves are manufactured in accordance with BS5351 and with BS5146 (Fire test to be witnessed by Lloyds of London or an equivalent independent group approved by both the Principal and the Purchaser). (c) Certification that the valves comply with BS5251 and BS5146 is fundamental to this contract and failure to obtain such certification by October 31, 1986 will entitle Evans Deakin Industries Limited to cancel the contract and recover damages". It will be noticed that paragraph (b) refers to a fire test and two British standards (BS). Of those, it is BS5146 which provides, amongst other things, for fire testing of valves. Clause 4.0 of the terms and conditions of the purchase order reads as follows: "Delivery is to be effected within 16 weeks upon receipt of this order and on or before 5th January, 1987". On 23 September 1986, the appellant sent the respondent a telex rejecting that order and giving reasons for doing so, five of which are presently relevant. Those reasons -- 2 of 13 -- 3 were responded to by a telex of 25 September 1986 sent by the respondent to the appellant and it is convenient to deal with these two documents - those of 23 and 25 September 1986 - together. The appellant's telex sought "QUALIFICATION ... RE VALVE SIZE FOR TESTING TO BS5146" which was taken to mean nomination of a valve size. The respondent nominated 150 mm and it will be recalled that the order included eight valves of that size. By paragraph 3 of the appellant's telex, it was proposed in effect that the BS5146 fire safety test need not be carried out on a random valve selected from the assembly line, but could be carried out as a prototype test. The respondent said, as to that, that they would expect "WITNESSED TEST CERTIFICATION" would be done "ON A RUN OF VALVES INTENDED FOR THIS PROJECT", implicitly rejecting the suggestion that it would be enough to test a prototype. Paragraph 4 of the appellant's telex said, in effect, that the appellant could not, starting from that date, make a "RUN OF VALVES" and send a random sample to Australia for fire safe testing approval before 31 October 1986. The respondent said, as to that, that 31 October had been discussed previously as a "PRACTICAL TIME" and asked that the appellant "ADVISE LATEST DATE FOR FIRE SAFE TESTING IF -- 3 of 13 -- 4 THIS IS PHYSICALLY IMPOSSIBLE". Paragraph 5 of the appellant's telex said, in effect, that "THE REQUIRED DELIVERY TIME OF 16 WEEKS OR PRIOR TO 5/1/87" could not necessarily be met and that the appellant could not "GUARANTEE DELIVERY PRIOR TO 20 WEEKS FROM ORDER DATE BUT WILL OBTAIN LATEST DELIVERY POSITION FROM OUR SUPPLIER". The reference to "16 WEEKS OR PRIOR TO 5/1/87" was a reference back to the delivery date given in clause 4 of the purchase order of 16 September 1986. As to that issue, the respondent said: "EARLY JAN. 87 DATE IS CRITICAL TO PROGRAMME PLEASE ADVISE LATEST DELIVERY POSITION". Lastly, by paragraph 6, the appellant said: "WOULD YOU PLEASE ADVISE RE PARA 2 AND 3 A.S.A.P. SO WE CAN REQUEST DEFINITE ACTION FROM THE FACTORY WITH A HIGH DEGREE OF PRIORITY". The respondent commented merely "ACKNOWLEDGED ABOVE". After that exchange, there appeared to be three matters left in issue. The first was the question whether the fire safe test could be carried out on a prototype or had to be done on a "RUN OF VALVES". The second was whether the contract would require the testing to be complete by 31 October. The third was the question of the delivery time for the whole of the order. The appellant's strongest point is, we think, that there was never an express resolution of -- 4 of 13 -- 5 the third question. The two telexes which, according to the view of the learned trial judge, concluded the contract read as follows; both were dated 2 October 1986: Appellant's telex: "WE HAVE BEEN ADVISED BY THE MONSOON VALVE CO OF TAIWAN THAT THEY HAVE 18 WORKING DAYS IN OCTOBER AND PROVIDED WE SO DIRECT THEM TODAY, THEY WILL COMPLETE THIS RUN BY END OCTOBER AND WE WILL ARRANGE FOR LLOYDS TO INSPECT, RANDOM SELECT AND FORWARD VALVE TO BRISBANE FOR WITNESSED TESTING IN ACCORD BS 5146, ALLOWING FOR AIRFREIGHT/CLEARING TIME IT IS EXPECTED AT THIS STAGE THAT TEST RESULTS SHOULD BE KNOWN DURING SECOND WEEK NOVEMBER. PLEASE CONFIRM YOUR APPROVAL SO WE CAN PROCEED". Respondent's telex: "PROGRAMME FOR FIRE SAFE TEST IS ACCEPTABLE. PLEASE PROCEED ACCORDINGLY". In our opinion, these two telexes were plainly intended to put an end to the difference of view about the first two points just mentioned. The appellant's telex accepted the respondent's view that it would not be enough to test a prototype, but that, on the other hand, there would have to be a selection from a run of valves. As to completion of the fire test, all the appellant was prepared to say was that the test results "SHOULD BE KNOWN DURING SECOND WEEK NOVEMBER" and that "PROGRAMME" was expressly accepted by the respondent's telex. The gap is, as counsel for the -- 5 of 13 -- 6 appellant pointed out, that there was no reference in either telex to the third point, namely the delivery date. Some discussion took place as to what the delivery date agreed should be taken to have been, if there was contract. But a prior question is, of course, whether the absence of any specific agreement on delivery date showed that there was no concluded contract. It is convenient to mention now a point which was raised as relevant to the appellant's intention. On the day of the two telexes just set out, 2 October 1986, the appellant sent a telex to a Taiwan company which was to supply the valves explaining, among other things, that it was ordering six 150 mm valves "AND THIS ORDER WILL BE EXTENDED TO COVER ALL VALVES SHOWN ABOVE IMMEDIATELY THE TEST VALVE IS APPROVED". The telex went on: "IF THE VALVE FAILS, THE CLIENT WILL CANCEL HIS ORDER ON US AND WE WOULD CANCEL ORDER ON MONSOON". The portion quoted means that the writer of the telex regarded the appellant as having an order not merely for initial testing, but for all the valves. But even if the telex should be treated as evidence against the appellant that it regarded itself as having a contract for all the valves, it cannot assist the respondent if analysis of the documents pleaded demonstrates that there was not such a concluded contract. The same may be said of a second, -- 6 of 13 -- 7 similar, document relied on by the respondent, dated 23 October 1986. It also was sent to the appellant's Taiwan supplier and was again written on the basis that the appellant had an order for all the valves. Both these telexes sent to Taiwan were objected to before the trial judge as irrelevant and the objection was pressed in this Court. It is not hard to find authorities in which the actual state of mind of an alleged party to a contract has been treated as relevant in determining whether a contract has been made; see Smith v. Hughes [1871] L.R. 6 Q.B. 597 at 607 and The Hannah Blumenthal [1983] 1 A.C. 854 at 915. Authorities of this kind tend to support the view that lack of belief, in a party alleging a contract, that the other side had so acted as to show an intention to contract may defeat the former party's case. That is so at least where there are communications which, as here, do not unequivocally point to an intention to form a concluded contract. We were referred to no authority, however, in which a belief or intention of a defendant was allowed to be proved directly - for example by proof of admissions as to state of mind - to support an allegation that a series of letters constituted a concluded contract. Before us, the matter was argued on a broader basis, the respondent's counsel asserting that an admission may be let in although relating to a question of mixed fact and -- 7 of 13 -- 8 law: Pitcher v. Langford (1991) 23 N.S.W.L.R. 142 at 160; it was also pointed out that a contract may in general be proved by admissions: Australian Energy Limited v. Lennard Oil N.L. [1986] 2 Qd.R. 216 at 237 per Thomas J. The present is a narrower point; it is whether a statement tending to show the existence in the defendant of an intention to contract can be admitted to support an allegation of a contract constituted by a course of correspondence. Although the point was not comprehensively argued, we are inclined to think that such direct proof of intention is irrelevant in those circumstances. That is, although the telexes sent to Taiwan support the view that the appellant possessed on 2 October 1986 an intention to make such a contract as was found by the learned trial judge, we do not accept that those telexes were admissible to prove that the pleaded correspondence constituted a contract. For a discussion of the admissibility of communications with third parties, as relevant to the question whether there was an intention to contract, we refer to Australian Broadcasting Corporation v. XIVth Commonwealth Games Ltd. (1988) 18 N.S.W.L.R. 540 at 550, 551. Nevertheless, and although the arguments advanced on behalf of the appellant had substance, we think the primary judge was right in his conclusion as to the existence of a contract. -- 8 of 13 -- 9 If a contract was made, its scheme was that proof that the valves proposed to be delivered under it would comply with the standard was fundamental and, in default, the respondent was entitled to cancel the contract: see clause 2.0(c) quoted above. It is clear that the telexes of 2 October 1986 brought into existence an agreement, at least for the manufacture of valves for testing. If the appellant is right, that was the whole of it and when the valves were tested, the legal obligations on each side were fulfilled. The appellant, indeed, argued that there was no consideration for the initial agreement, apparently because the respondent was not to pay for what the appellant had agreed to do. To our minds, that makes little commercial sense. The more natural inference to draw is that the parties intended, when they agreed on the details of the testing, that subject to the possibility of cancellation under clause 2.0(c), the whole contract would be performed. The alternative view is that even if the test phase was successfully completed, there was no contract for the supply of the 98 valves, no obligation on the part of the respondent to buy any valves, nor any obligation on the part of the appellant to sell the respondent any. On that view, the agreement about testing stood on its own and did not necessarily lead to any consequences, nor did the result of the testing affect the party's legal relationship. The appellant argued that treating the arrangement as one for making only valves for -- 9 of 13 -- 10 testing made sense, because that "might lead to a contract with delivery guaranteed by a specific date"; but as the appellant knew, the respondent was anxious to acquire the valves quickly and would hardly have intended to defer negotiations for the acceptance of its order indefinitely, while the initial arrangement was proceeding. In our opinion, although on both sides the language used was surprisingly terse, the more reasonable construction of the telexes of 2 October 1986 was that they manifested an intention to make a contract relating to all the valves mentioned in the respondent's order. We think that the fact that there is room for argument as to what was finally agreed, expressly or implicitly, about final delivery date should not be held to defeat the respondent. If, as may well have been so, on the proper construction of the documents no specific delivery time was agreed, then that would not in itself show there was no contract: "But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts ... [decide] is its proper construction ...": The Council of the Upper Hunter County District v. Australian Chilling and Freezing Co. Ltd. (1968) 118 C.L.R. 429 at 436 per Barwick C.J. We are not persuaded that the parties implicitly agreed on -- 10 of 13 -- 11 the delivery date stipulated by the respondent, and the matter was too important to be left unresolved. Rather, it seems to us that, while stressing the urgency and pressing for its requirement of delivery in early January 1987, the respondent recognised the reality that the appellant could not guarantee delivery in less than 20 weeks from the order. That had been its position for months, from an early stage in the neogtiations, and the respondent's placing of the order without having obtained any satisfaction concerning its request for an earlier delivery date tacitly accepted the period insisted on by the appellant. The judge was right in thinking that the parties, by their written communications, showed an intention to contract on the basis that the appellant would fulfil the respondent's order, not merely make valves for testing. The appeal will therefore be dismissed with costs. -- 11 of 13 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 125 of 1992 BETWEEN: EVANS DEAKIN INDUSTRIES LIMITED (Plaintiff) Respondent AND: NOYES BROS PTY LIMITED (Defendant) Appellant _______________________________________________ The President Mr. Justice Pincus Mr. Justice de Jersey _______________________________________________ Judgment of the Court delivered on 9th November, 1992. _______________________________________________ APPEAL DISMISSED WITH COSTS. _______________________________________________ -- 12 of 13 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 125 of 1992 Before the Court of Appeal The President Mr. Justice Pincus Mr. Justice de Jersey BETWEEN: EVANS DEAKIN INDUSTRIES LIMITED (Plaintiff) Respondent AND: NOYES BROS PTY LIMITED (Defendant) Appellant JUDGMENT OF THE COURT Delivered the Ninth day of November 1992 MINUTE OF ORDER: The appeal is dismissed, with costs. CATCHWORDS: CONTRACT - OFFER AND ACCEPTANCE - Appeal from award of damages to respondent/plaintiff in action for breach of contract - whether trial judge correctly concluded written communications evinced an intention to contract - whether statement tending to show existence in defendant of intention to contract admissible. Counsel: J.D. Muir Q.C., with him J. Sullivan for the Appellant P.A. Keane Q.C., with him J.L. Bond for the Respondent Solicitors: Neil O'Sullivan and Rowell for the Appellant Minter Ellison Morris Fletcher for the Respondent Hearing Date(s): 27 October 1992 -- 13 of 13 --