JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : GARDNER & ANOR -v- SMITH [1999] WASCA 168
CORAM : HEENAN J
HEARD : 10 AUGUST 1999
DELIVERED : 9 SEPTEMBER 1999
FILE NO/S : SJA 1106 of 1999
BETWEEN : ROBERT CHARLES GARDNER
ROBERT MITCHELL
Appellants
AND
PETER VICTOR SMITH
Respondent
Catchwords:
Mining - Appeal from Wardens Court - Agreement to provide consultancy services - Whether agreement repudiated by consultant
Legislation:
Nil
Result:
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Representation:
Counsel:
Appellants : Mr M C Hotchkin
Respondent : Mr N P Hasluck QC & Mr G H Lawton
Solicitors:
Appellants : Hotchkin Hanly
Respondent : Lawton Gillon
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
Carr v J A Berriman Pty Ltd (1953) 89 CLR 327
Chan v Zacharia (1984) 154 CLR 178
Crocker Consolidated Pty Ltd v Wille [1988] WAR 187
Gardner & Anor v Smith, unreported; Library No 960579; 27 September 1996
Giumelli v Giumelli (1996) 17 WAR 159
Giumelli v Giumelli (1999) 73 ALJR 547
Hazlett v Rasmussen [1973] WAR 141
Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149
Hunter Resources Ltd v Melville (1987) 164 CLR 234
Muschinski v Dodds (1985) 160 CLR 583
Phillips v Ellison Brothers Pty Ltd (1941) 65 CLR 221
Rigg v Lee Loy Seng [1987] WAR 333
Shevill v Builders Licensing Board (1982) 149 CLR 620
Swan Resources Ltd v Southern Pacific Hotel Corporation Energy Pty Ltd [1983] WAR 39
Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144
Tunza Holdings Pty Ltd v Haoma Mining NL, unreported; SCL; Library No 970720; 1997
UDC Ltd v Brian Ltd (1985) 157 CLR 1
White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266
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1 HEENAN J: This is an appeal from the decision of the Mining Warden at Kalgoorlie to award $100,000 to the respondent, Mr P V Smith, by way of payment for consultancy services which he had performed for the appellants, Mr Robert Gardner and Mr Robert Mitchell.
2 The appellants were partners, engaged in prospecting for gold. While Mr Gardner looked after the business dealings, Mr Mitchell did most of the field work. Early in the year 1992 Mr Smith, a mining consultant, gave them some general advice of a business nature. On 22 April 1992 Mr Mitchell found a 520 oz gold nugget on a tenement at Ora Banda. Within the next month or so the appellants consulted Mr Smith with a view to exploiting the find. He proposed that they purchase further tenements surrounding the find in order to encourage mining companies either to enter into a joint venture with them or to purchase the tenements for a price enhanced by the find. They accepted the proposal.
3 During the months which followed the appellants, primarily through Mr Gardner, set about implementing the proposal. Mr Smith helped them in a variety of ways: he negotiated with some parties and took legal action against others in order to acquire tenements, he instructed solicitors in connection with such matters, he arranged for some of the tenements to be surveyed, he instructed a geologist to prepare a report for presentation to prospective purchasers and he conferred with the appellants, particularly Mr Gardner, as the proposal was developed. After it appeared that the appellants had acquired or would acquire the mining tenements which they wanted, he identified mining companies with sufficient capital which might be interested in what they had to offer. Mr Mitchell had arranged for GIO Australia to insure the nugget and, it seems, Mr Smith later arranged with the state manager of that company for it to have some publicity rights relating to the nugget in lieu of a premium.
4 On 3 May 1993 Mr Smith sent a circular letter to representatives of about 30 mining companies. In the letter he reported the finding of the gold nugget in April 1992 and added that the finding had been kept a "total secret" pending the acquisition of tenements on either side of the find. Having said that "the prospector, his partner and I have now acquired a 14 kilometre strike of highly prospective ground surrounding the find", he went on to say that they had decided to offer the gold and tenements for tender. He invited the representatives to visit his office in suburban Perth on Wednesday 12 or Thursday 13 May in order to inspect the gold and the geological report which had been obtained, adding that they would also be invited "to inspect the ground". In the letter he made it
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clear also that upon arrival at his office each of the invitees would be asked to sign a "confidentiality document" agreeing not to disclose the find. Tenders were to close on Friday 28 May.
5 Thirteen of the invitees responded to the letter by attending at Mr Smith's office. Five of them went with Mr Mitchell to the site to conduct their own appraisal. On 12 May 1993 a photograph was taken of Mr Mitchell and the state manager of GIO with the nugget in Mr Smith's office.
6 Some time before then the appellants had agreed with Mr Smith that for his services he would receive 5 per cent of the proceeds of the sale of the tenements. On 10 May 1993, the three men signed a written agreement which he had prepared. The agreement was expressed to have been made between the appellants. The bulk of its provisions related to their respective interests in the partnership and the gold nugget, but it also contained the following clauses:
"Further
the parties have agreed that Gardner will have the authority to decide upon the sale of the tenements provided the sale price exceeds $1m. Should the tenements not sell for $1m or more then the parties agree to register the tenements as two thirds interest in Gardners name and one third in Mitchells name thereby reflecting the respective input by the parties.
Further
Gardner and Mitchell have agreed to engage the services of mining consultant Peter Victor Smith to handle the affairs of the partnership in exchange for a 5% interest in the tenements at Ora Banda the subject of the find. Such 5% interest is to be realised upon the sale of the tenements and payable in cash. Smith must use his expertise to effect the sale of the tenements. Smith is not liable for any debts of the partnership. Should the tenements not be sold then Gardner and Mitchell agree to compensate Smith for his time spent on this project."
Because it seemed that no decisions would need to be made before the end of the month Mr Gardner decided that there was no point in "sitting back waiting". He flew to Brazil on 18 May and did not return to Western Australia until 2 June 1993. In the meantime, the events which brought about this litigation took place.
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7 Information about the finding of the nugget soon leaked out. A brief article appeared in the Sunday Times of 16 May, and the contents of the geological report appeared in the Gold Gazette, a publication widely read within the mining community. Because of the secrecy which the parties had imposed upon themselves there was a good deal of speculation. Some of the print media suggested that the nugget was a fabrication. Because he was concerned about it Mr Smith told Mr Mitchell that they should do something. The latter said he thought that it would be better if they waited until Mr Gardner returned from Brazil. As speculation continued Mr Smith made tentative arrangements for the nugget to be "unveiled" on Wednesday 26 May at the Perth office of GIO and then for it to be displayed both in Kalgoorlie and in Sydney. Because he was away from Perth on holidays Mr Smith arranged for his secretary to contact Mr Gardner's wife, Mr Mitchell and the local manager of GIO with a view to having the arrangements implemented. Shortly afterwards he received a telephone call from Brazil in which Mr Gardner told him that he did not want the unveiling to take place. They argued about the matter and Mr Gardner agreed to speak to Mr Mitchell. On Tuesday 25 May Mrs Gardner telephoned Mr Smith. She told him that everything was cancelled and that nothing would happen until Mr Gardner returned. In responding to that information Mr Smith told Mrs Gardner that "when Robert comes back from Brazil he may as well find a new adviser". Then he telephoned Mr Mitchell and told him the same.
8 On 28 May Mrs Gardner sent a circular letter to each of those who had been invited to tender. The letter was in the following terms:
"Dear Sir
On behalf of our husbands ROBERT GARDNER and ROBERT MITCHELL, owners of the "EVENING STAR" nugget.
I wish to advise you that the closing date for tenders for the Leases surrounding the discovery area has been postponed until FRIDAY 4TH JUNE 1993.
The reason for this is that Mr Robert Gardner is presently in Brazil and returning to Perth by the above mentioned date. Mr Robert Mitchell is camped on his lease at ORA BANDA and can be contacted on site to confirm this facsimile.
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In light of Mr Peter Smith's resignation as their advisor (sic), Tenders should now be forwarded directly to Mr Robert Gardner at the address shown above by 5pm 4th June 1993.
Tenders already submitted may be re-submitted.
Yours sincerely
A Gardner
AUDREY GARDNER and LEONIE MITCHELL"
Several of those who received the letter contacted Mr Smith the same day, enquiring as to what was behind it. In turn, he promptly sent a handwritten letter addressed to Mr and Mrs Gardner explaining that he thought it appropriate that he "attempt to diffuse what could amount to an untenable situation". In the letter he referred to an article which had appeared in the West Australian newspaper on 18 May entitled "Doubt over nugget find" which read, "The authenticity of a gold nugget, said to be WA's second biggest, is being viewed with suspicion as the gold industry waits for details of the discovery …". He went on to assert that the main aim of the parties "from day one" was to orchestrate the find in order that it returned the maximum amount of money to the appellants and that, because aspersions had been cast on the authenticity of the nugget it was necessary "to act to demonstrate good faith and prove the veracity of our claims. The mining companies were jittery - was it a con or what was going on?" That was why, he explained, he had made preparations for the unveiling. Because those preparations had been welcomed by GIO and the find "was getting the best possible national coverage through a brilliant and expensive promotional programme by GIO" he was "stunned" by what Mrs Gardner had said in her telephone call to him on 25 May. Having emphasised that his reference to the finding of a new adviser related to "when Robert comes back from Brazil", he said that there was "no way that my professionalism would allow me to quit on the spot." He went on to say that since the decision on 25 May he had been "in damage control", that the effect of the cancellation of the unveiling had been "catastrophic" and that the "whole beautifully orchestrated plan has fallen into a great big heap". He concluded the letter with the following paragraph:
"Congratulations you have both effectively sabotaged a wonderful scenario - I hope for your sakes, the Mitchells and mine it can be successfully resurrected. I am still involved
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albeit in a different role and I suggest Robert that you contact me upon your return to set matters straight."
On 8 June Mr Smith had an angry meeting with Mr Gardner. On the following day the latter wrote to him in the following terms:
"I refer to our discussion of 8th June 1993. I confirm your resignation as our adviser and our acceptance of your resignation as at 25th May '93. You have no authority to act for and on behalf of myself or Robert Mitchell in any way whatsoever.
All tenders you called for us have been resubmitted to us and all are unacceptable to Robert Mitchell and myself.
Kindly return any papers or documents you still hold on behalf of Robert Mitchell or myself to me at the above address."
Mr Smith acknowledged the letter and asserted that, although he was no longer the appellants' adviser, he was still "a 5 per cent equity participant in the tenements" and hence had "an ongoing role in participation of the project". In further correspondence Mr Gardner rejected that claim saying, among other things, "Since you resigned as manager in May 1993 and we have accepted your resignation, neither Robert Mitchell nor I believe we owe you anything at all". In turn, Mr Smith acknowledged that he had resigned as the appellants' adviser because it was obvious that they did not want or did not intend to take his advice but stressed that, as for marketing the tenements, his resolve was "as strong as ever".
9 Mr Smith instituted these proceedings in the Warden's Court at Kalgoorlie in 1995. The hearing took place on 23 and 24 November 1995 and 27 and 28 June 1996. Mr Smith claimed the sum of $100,000, being 5 per cent of $2 million, the value of the tenements. Alternatively, he sought a declaration that the appellants held a 5 per cent interest in the Ora Banda tenements on trust for him. In the further alternative he claimed that on 25 May 1993 Mr Gardner, acting as agent for the appellants, wrongly terminated his services as consultant for them, thereby repudiating the agreement, and that he accepted the repudiation. He claimed damages, quantified in the alternative at $100,000 or $72,000. There was also a claim based on a quantum meruit.
10 In their defence and counterclaim the appellants contended that the written agreement did not set out all the terms of Mr Smith's engagement and that there were additional terms, some oral and some implied. They admitted that Mr Smith had performed certain services in part
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performance of the obligations owed by him to them under the agreement, but they claimed that he had repudiated the agreement, and that they had accepted the repudiation. They denied that he had acquired any interest in the tenements and they maintained that the agreement was an entire agreement with respect of which no entitlement to payment had arisen. Further, they denied the claim based on a quantum meruit. Finally, they counterclaimed damages for breach of contract.
11 On 12 July 1996 the learned Warden found in favour of Mr Smith and gave judgment against the appellants in the sum of $100,000. He dismissed their counterclaim. Without making any finding as to whether the agreement between the parties was constituted solely by the written agreement, the Warden found that the agreement was valid. He noted an acknowledgment by the appellants in their defence and counterclaim that the value of the tenements was $2 million as at 25 May 1993. That value was not disputed at any time. His Worship concluded his reasons as follows:
"I am satisfied that the agreement was and is a valid binding contract. I am satisfied that [Mr Smith] carried out the bulk of his work and is entitled to payment. I am satisfied that [Mr Smith] was in a position where, there being no acceptance of his advice, correctly resigned his position as adviser and consultant. I am of the view that the [appellants] repudiated the agreement. I am satisfied that [Mr Smith] is entitled to 5 per cent of the tenements according to the agreement beforementioned and I have calculated his damages to be 5 per cent of $2,000,000, being the sum of $100,000 …"
12 The appellants appealed to a single Judge of this Court claiming that the learned Warden had erred in concluding that they had repudiated the agreement. They argued that the Warden should have concluded that Mr Smith himself had repudiated the agreement and that his repudiation had been accepted by the appellants, with the result that he was liable to them in damages. On 25 September 1996 his Honour overturned the Warden's decision that the appellants had repudiated the contract, and expressed his views in this way:
"A party will be regarded as having repudiated his obligations under a contract if his conduct, viewed objectively and in context, would convey to a reasonable person in the position of the other party that the first party had renounced the contract or did not intend to perform it except in a manner substantially
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inconsistent with its terms. Rigg v Lee Loy Seng [1987] WAR 333. Before there can be a finding as repudiation there needs to be a finding as to the obligation said to have been repudiated and the conduct said to constitute the repudiation. In this case it seems the Warden simply considered that the mere failure of the [appellants] to accept the [Mr Smith] advice amounted to a repudiation of the contract of engagement; and that the repudiation was accepted by the [Mr Smith] resigning his position as adviser. If that was the Warden's conclusion it involves a misapprehension as to what is repudiatory conduct within contractual relations. All that appears from this contract is that the [Mr Smith] was engaged 'to handle the affairs of the partnership'. Apparently this was said to include an obligation to provide advice and assistance regarding the marketing of the partnership's tenements. However there is nothing in the contract and nothing so far as I can see in the evidence to sustain the proposition that the [appellants] were under an obligation to implement the advice given by the [Mr Smith]. The engagement of consultants does not normally involve a binding obligation to accept and implement their advice. Any such obligation would have to be expressly provided for in the contract. There is no such provision in this contract. Hence a failure or refusal to accept advice, even good advice, could not be a breach of the contract.
On the whole of the evidence, as I understand it, the situation was reached that the [Mr Smith] and the [appellants] could not agree on how best to go about marketing the tenements and under those circumstances the [Mr Smith], as the Warden found, 'resigned his position as adviser and consultant'. There is simply nothing in that state of affairs which justifies a finding of repudiatory conduct on the part of the [appellants]."
His Honour found that the Warden was justified in dismissing the counterclaim and ordered that the matter be remitted to the Warden's Court for re-hearing of Mr Smith's claim for remuneration, accepting that each of the parties could adduce further evidence.
13 Mr Smith appealed to the Full Court against his Honour's judgment, arguing that there was no need for the matter to be remitted, the Warden having found for Mr Smith on both limbs of his claim, that is, on the issue of his entitlement to remuneration pursuant to the terms of the agreement and on the issue of his entitlement to damages by reason of the
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repudiation of the agreement by the appellants. However, the members of the Full Court agreed with his Honour that the Warden squarely based his award on a finding that the consultancy agreement had been repudiated by the appellants and that, as the contract between the parties did not expressly provide for a binding obligation on their part to accept Mr Smith's advice, it was a finding which was not open on the evidence. On 13 November 1997 the Full Court therefore agreed that the matter had to be remitted to the learned Warden for determination of Mr Smith's claim for remuneration under the agreement. However, in light of the public interest in there being an end to litigation and bearing in mind that the parties already had their opportunity to call the evidence which they desired to call, the Full Court remitted the matter to the learned Warden for determination in accordance with his Honour's reasons, without the taking of further evidence.
14 It is important to note that in his reasons of 12 July 1996 the learned Warden did not identify precisely when the appellants, in his view, "repudiated the agreement". Clearly, his Honour and the members of the Full Court assumed that the conduct which the Warden had in mind was the refusal by the appellants "to accept and implement" Mr Smith's advice, that refusal being conveyed to Mr Smith by Mrs Gardner in their telephone conversation of 25 May 1993. Bearing in mind that in his particulars of claim Mr Smith had asserted that the agreement was repudiated by the wrongful termination of his services on that date, it is not surprising that their Honours made that assumption. However, in the course of the reasons which he delivered on 30 April 1999 (a fortnight more than one year after he had heard the further submissions of counsel in accordance with the order of the Full Court) the learned Warden said,
"The repudiation which I referred to was in fact brought about when the [appellants] wrote to the various mining companies which [Mr Smith] had previously been dealing with. It became abundantly clear to [Mr Smith] that he could no longer sell the tenements in the way that he had been advocating. … I find as a fact that the [appellants] did repudiate the contract by their conduct in writing letters to the other companies which [Mr Smith] had been dealing with. It seems quite clear to me on the facts that the [appellants] did not intend to perform the contract at all and not just in a manner which was substantially inconsistent with the contractual terms. … It was not just a mere failure of the appellants to accept [Mr Smith's] advice which amounted to repudiation. It was their entire conduct."
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Having accepted that the value placed upon the tenements by the appellants themselves was "the true value" the Warden found that Mr Smith was entitled to $100,000 arising out of the appellants' repudiation of the contract. The Warden added, "I do not need to consider whether or not there should be an amendment to the particulars of claim and I do not".
15 The present appeal is against that judgment. In essence the appellants attack the Warden's findings which I have just quoted. The main ground, ground 1, reads as follows:
"The learned Warden erred in fact and in law in concluding that the Appellants repudiated the contract between the Respondent and Appellants, in that:
(a) the Appellants' act of writing letters to other companies which the Respondent had been dealing with cannot in law constitute a repudiatory act;
(b) the act of writing letters only took place after the Respondent withdrew his services as a consultant to the Appellants on 25 May 1993 and after the Appellants accepted the Respondent's resignation and terminated the contract."
In that ground the appellants attack the two most important findings made by the learned Warden. The facts upon which the findings were based are not in dispute. In each case the issue is one of interpretation and it is convenient to deal with the two findings in chronological order.
16 As we have seen, on 25 May Mrs Gardner told Mr Smith, in effect, that the appellants refused to accept his advice as to the "unveiling" of the nugget. Clearly the appellants had not been obliged to accept his advice and they were entitled to reject it. Because it was important that the parties agree on how best to go about marketing the tenements, the appellants' rejection of his advice was a matter of concern to Mr Smith. But, in my opinion, the evidence falls far short of showing that he "withdrew his services as a consultant" on that date. By telling Mrs Gardner and Mr Mitchell that "when Robert comes back from Brazil he may as well find a new adviser", he was expressing his dissatisfaction with the stance taken by the appellants and was giving notice that if Mr Gardner still adopted that stance when he returned from Brazil, he (Mr Smith) would cease to act as the appellants' adviser. That view of the
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situation is supported by the contents of the letter which Mr Smith wrote to Mr and Mrs Gardner on 28 May.
17 In my opinion, what Mr Smith told Mrs Gardner and Mr Mitchell on 25 May was not an unequivocal assertion that he would not carry out his part of the contract. Thus, when Mrs Gardner circulated the letter of 28 May 1993 to those who had been invited to tender, the contract still was on foot. The sending out of that letter went far beyond the refusal of the appellants to accept Mr Smith's advice. As his counsel submitted on the hearing of this appeal, it subverted Mr Smith's managerial role. His situation really was "untenable". Thus, the learned Magistrate was quite correct in finding that the appellants "did repudiate the contract by their conduct in writing letters to the other companies which [Mr Smith] had been dealing with". The circular letter showed that by then the appellants had decided that Mr Smith was no longer their adviser and that they would no longer accept the obligation, imposed upon them by reason of their agreement with him, to allow him to fulfil his role as manager, handling the affairs of the partnership. As counsel for Mr Smith submitted on the hearing of the appeal, when the appellants commenced to deal directly with the invitees they breached that obligation and thereby repudiated the contract. The evidence shows that Mr Smith accepted that repudiation after Mr Gardner returned from Brazil.
18 By the time when the circular letter of 28 May 1993 was sent out Mr Smith had been acting as consultant to the appellants for about 12 months and he had done all that was required of him until that time. As the written contract shows, in qualifying for a 5 per cent interest in the tenements at Ora Banda he was required to "handle the affairs of the partnership" and, in particular to "effect the sale of the tenements". The sale contemplated was that which would result from the invitations to tender which he had already sent out. In those circumstances, he had fulfilled his obligations under the contract and he had become entitled to a 5 per cent interest in the tenements. According to my interpretation of the written agreement that interest was to take the form of a cash payment equivalent to 5 per cent of the value of the tenements. The parties agreed that the value of the tenements as at 25 May 1993 was $2 million. The evidence does not suggest that their value diminished after that. Pursuant to the agreement, the interest was to be "realised" - that is, payment was to be made - upon sale of the tenements, but the appellants were not entitled to deprive Mr Smith of that money simply by refusing to proceed with the sale. As the learned Warden found, the reason why the sale did not take place was that Mr Gardner chose not to sell.
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19 I am far from satisfied that the learned Magistrate was wrong in finding that Mr Smith was entitled to judgment in the sum of $100,000. Indeed, in my opinion, he was correct in so finding. That being so, the appeal should be dismissed.