Lion White Lead Ltd v Rogers [1918] HCA 71; (1918) 25 CLR 533 (28 November 1918)

HIGH COURT OF AUSTRALIA

Lion White Lead Limited and Others Defendants, Appellants; and Rogers and Others Plaintiff and Defendants, Respondents.

H C of A

On appeal from the Supreme Court of New South Wales.

28 November 1918

Barton, Isaacs and Rich JJ.

Loxton K.C. and S. A. Thompson, for the appellants.

R. K. Manning, for the respondent Rogers.

The following judgments were read:—

Nov. 28

Barton J.

Having had the advantage of reading the judgment of my brothers Isaacs and Rich, which is about to be delivered, I do not propose to state my conclusions at length, as I am in agreement with those at which my colleagues have arrived. I desire, however, to make a few observations on the third question—that is, the competency of the respondent Rogers as sole plaintiff to sue for the relief he seeks.

The plaintiff had the sole proprietary interest in the process which was the subject of the agreement. Blackman was really brought into the agreement for the purpose of securing to him certain remuneration for his services to the plaintiff. The consideration for the agreement was the process, a consideration moving from the plaintiff only. The complaint of the appellants is that Blackman was not made a party plaintiff. As a party defendant he has been before the Court throughout. Blackman was obviously in opposition to the plaintiff from a time not very long after the variation of 28th August; he refused to sign a paper repudiating the agreement, and indeed is a director of the Company formed in defiance of it, and, as a request for his consent would have been a manifest futility, it is quite plain that Rogers could not have joined him as a co-plaintiff. No doubt, equity requires that all the parties directly concerned should be before the Court. But the plaintiff has not offended against that requirement. Is he, then, to be deprived of his remedy because he has made a defendant of one whom he could not have as a co-plaintiff? I think such a conclusion would be quite absurd. Of course, Blackman would have been within his right in refusing, as he must have refused, his consent to be joined. Bigham J. (now Lord Mersey) says, in Cullen v. Knowles[1]: "The question, therefore, here is whether such refusal prevents his co-promisee from suing at all, or whether he can get over the difficulty by joining the co-promisee who refuses to join as plaintiff, as a defendant." Here there has been no formal request and therefore no refusal: the plaintiff's course has been taken because Blackman's consent is inconceivable. To my mind the absence of consent does not affect the principle in such circumstances. It is impossible for any of the defendants to say that the consent was obtainable. All the parties interested were before the Court, and, once there, the Court was fully entitled to adjudicate. Had the facts admitted of some decree which would have given relief to both the plaintiff and Blackman, it would have been open to Harvey J. to pronounce it. But it is through Blackman's conduct in allying himself with Bowen and Fletcher that no such decree was open on the facts.

The appeal must be dismissed with costs.

Isaacs and Rich JJ.

Rogers sued all the other parties to this appeal, substantially claiming that in view of the events that have happened he is entitled to a declaration either (1) that on the true construction of the documents he is not now bound by any agreement of sale of his white lead process, or (2) that if on the true construction of the documents as they stand he is bound, then they should be rectified so as to conform to the actual agreement he entered into, and that on such agreement he is not now bound. There was the usual general prayer for relief. The defendants to the action, except Catherine Fletcher, in a joint defence resisted both specific claims, and denied all right to relief.

The case was heard by Harvey J., who made the first declaration asked for, and added ancillary relief specifically claimed. A good deal of oral evidence was taken, including that of Rogers, Blackman, Bowen and Fletcher, and others. The learned Judge said:—"I think Rogers is a truthful witness, though he is anything but a shrewd business man. The recollection of Bowen and Fletcher and Blackman is, in my opinion, not reliable, and I think they have deposed to conversations taking place with Rogers which took place behind his back. In my opinion there was a want of frankness on their part in dealing with Rogers."

In view of the direct conflict of testimony which the evidence presents, it is clear that unless some overwhelming circumstances could be pointed to in order to show that the Court's reliance on Rogers was misplaced, his version of the facts must be accepted should it be necessary for him to travel outside the purport of the documents themselves. Learned counsel for the appellants did not suggest any such circumstance, except what was termed the probabilities of the situation. It was urged for the appellants that even accepting the uncontroverted facts they should succeed.

The facts which must govern our decision are contained in the documents themselves and in Rogers's evidence, which is mostly uncontradicted on the material facts, and, where contradicted, must be accepted, having regard to the opinion of the learned Judge on the question of his reliability.

Three questions present themselves for determination, namely, (1) the terms and effect of the contract actually made; (2) the nature of the breach if any; and (3) the competency of the respondent Rogers as sole plaintiff to sue for the relief he seeks.

From the facts in evidence, ascertained as abovementioned, it appears that Rogers was the discoverer of a valuable process of manufacturing white lead, and, though immaterial to the decision of this appeal, it may be observed that it was a process which perhaps he brought to a more satisfactory operation after meeting Fletcher, but which owes almost its whole merit to Rogers himself. He employed Blackman, who informed him that he was a successful company promoter and knew a good many business people of standing in Sydney, to assist him in disposing of his process. The arrangement was that Rogers would give Blackman 40 per cent. of what he was allowed. Blackman never acquired any proprietary interest in the process. So Harvey J. found, and from that Blackman has not appealed, and the facts support the conclusion. Blackman's only interest was as Rogers's agent to share his remuneration, and this fact was throughout well known to everybody concerned. Efforts to sell extended over many months. Blackman brought Fletcher to Rogers in connection with some other matter, and then the process itself was spoken of. Several conversations ensued. Rogers constantly made plain and prominent his belief that £20,000 working capital must be provided by the purchasers.

Eventually, an agreement in writing was drawn up, dated 9th July 1917. It is signed by Rogers and Blackman, and purports to give jointly an option to Fletcher. But Blackman's position being as described, he had, of course, nothing to give, and as the consideration moved from Rogers, his participation was apparently to secure himself with respect to his share of the remuneration which Rogers was to receive. But his joining in the offer did not in fact, as between him and Rogers, give him any right to control the process or the performance of the contract; and Fletcher knew and admitted as much to Rogers. By the terms of the document of 9th July 1917 Rogers, who may for present purposes be regarded as the sole offeror, agreed to give Fletcher an option of purchasing the process, but the document provided in the clearest terms that the purchasers should "guarantee to find £20,000 working capital if required." The document left it to the purchasers themselves to determine whether they would be incorporated or unincorporated. The word "guarantee" is very strong to indicate the importance of the stipulation as to working capital. The expression "if required" is attached, not to "guarantee," but to the words "working capital." The stipulation is preceded by the phrase "terms and conditions," and on the proper construction of the document the stipulation is a true condition that the purchasers must "guarantee," or warrant, that £20,000 for working capital must be forthcoming if that amount should be required for the purposes of the business. And it is equally clear that either manifest inability or unwillingness to provide that capital when the time of performance arrived would be a vital breach of the condition of the offer. The document provided also that if the purchasers decided to incorporate, then additional time should be allowed for the completion of the purchase. The consideration for the sale, apart from the guarantee as to working capital, was to be 20,000 one pound 6 per cent. debenture "shares," which meant simply debentures, and also a royalty of 10 per cent. on net profits, and other terms unnecessary to specify.

On 20th July the option was accepted by Fletcher, and also, separately, by Bowen as Fletcher's principal. A few days later Fletcher informed Rogers that the provision as to debentures was impracticable from a business standpoint, and suggested that, instead of the debentures and 10 per cent. royalty, there should be substituted a 20 per cent. royalty. To this Rogers agreed; and about a week later, Fletcher informed Rogers that the Commonwealth authorities, acting under the War Precautions Act, would object to any company if the basis of royalty was adopted, and said that Rogers would have to choose between partnership and shares. He chose "shares" since there was "no alternative," as he supposed from what he was told. Accordingly, the letter of 28th August 1917 was signed addressed to Bowen. On 1st September Bowen by letter closed the matter, intimating also that a company was to be registered. The additional time referred to in the letter of 9th July then commenced, and ended on 17th October, when the Company was registered, as hereinafter mentioned.

Throughout, according to Rogers's evidence, he insisted on retaining the obligation of the purchasers to see that £20,000 working capital should be provided. The letter of 28th August is quite consistent with that, provided it be remembered that Rogers was not himself contracting or proposing to contract with a company formed or to be formed, but with Bowen and anyone associated with him; and it was to him or them that Rogers looked to see that the company if formed had £20,000 working capital. If Bowen or his friends paid to the company they formed cash for whatever shares they handed paid up to Rogers, the two conditions could stand together. But Bowen did not disclose to Rogers that he contemplated selling, as his own and independently, to a company which he was proposing to treat as an independent purchaser, and represented by another person as trustee in that company, the process in return—not for cash—but for 10,000 paid up shares, leaving only 10,000 shares to be paid for in cash, if indeed they were taken up. This, however, he did on 17th October, a person named Barry being the ostensible purchaser for the company to be formed. The Company was registered on 19th October. On 20th October—the next day—the Company by agreement with Bowen formally adopted the agreement and became the legal purchaser from Bowen so far as it could under the terms of the agreement of 17th October. But up to 10th December 1917, at all events, no shares were issued except Bowen's 10,000 and 250 others. As the shares were one pound shares, it is evident that Bowen as the purchaser could not guarantee, and never intended to fulfil a guarantee, that £20,000 working capital would be forthcoming if required, and, further, it is plain that there could not, even if all the remaining shares had been applied for and allotted, be in any real business sense £20,000 working capital. Doubtless there is power under the Companies Act 1899 and the articles of this Company to increase the capital. But that has not been done, and may never be done; and the Company is under no contractual obligation to any person to do it. Besides, a special resolution, even if passed, would not in itself provide the capital: the shares might not be taken up. That this is not a merely theoretical consideration is further shown by the fact that even as late as February 1918, when the defence was put in, there were only 5,637 shares applied for "issued as fully paid up" (whatever that means)—par. 7 of the defence—in addition to the 10,000 Bowen shares.

Again, Rogers's agreement of 28th August was to get a 20 per cent. interest in the Company, and it would raise a very serious question whether he would not be entitled to have allotted to him fully paid for shares to maintain his proportional interest in the full capital of the Company. In any event, the attitude assumed by the defendants, in the action, was that they were not bound to provide £20,000 working capital; they refused to do so, and the breach was complete.

Consequently, construing the documents by the light of the relations in which the parties stood to each other, the condition as to guaranteeing £20,000 working capital was broken, and it is fundamental as it stands in the document of 9th July. Even supposing in favour of the appellants—a violent supposition—that the 20 per cent. remuneration ultimately agreed to was pro tanto a modification of the requirements of £20,000 working capital, that would leave the requirement still standing as to 80 per cent., and would require £16,000 working capital to be provided, which is also a fatal deviation. But if, going further, the strict construction of the letter of 28th August would bind Rogers to present arrangements, the evidence he gives, both alone and supported by his attitude as deposed to by Sir Allen Taylor, makes it quite clear that he was persistent in adhering to the requirement of £20,000 working capital, and that both Fletcher and Bowen must be taken on the evidence as tacitly agreeing to this, and in that case the document should be rectified accordingly, so as to accurately represent the contract actually made.

The real position, however, is that Bowen's sale to the Company on 17th October 1917, as already pointed out, is ultra the position of Rogers, and that Bowen, whatever he chose to arrange between himself and the Company, was bound to see (1) that Rogers got 20 per cent of the share capital and (2) that the Company provided £20,000 as working capital. If that were not so, Bowen could, if he had chosen, have fixed his own consideration at 16,000 shares less a sufficient number to constitute the Company, and so he could have left the Company without any means of working the process, but in possession of the process, for which Rogers would ultimately receive nothing. That position is too absurd for contemplation.

It was argued that the failure to comply with the stipulation as to £20,000 working capital was not fundamental, but at most a subject for damages, and that no substantial sum would in the circumstances be awarded. The rule of law applicable to this particular branch is that where the thing tendered as the consideration differs essentially from the thing contracted for, there is a failure of consideration, and the bargain is at an end (Kennedy v. Panama, New Zealand and Australian Royal Mail Co.[2]). A company with only £5,637 of working capital, and not only so, but with 10,000 shares issued as paid up and participating in dividend though not contributing to capital, is essentially different from a company having £20,000 of working capital and formed merely of those who have bought the process for no consideration but that paid and payable to Rogers himself, which was the plain object of the option.

Questions 1 and 2 must, therefore, be answered adversely to the appellants.

The third question, namely, Rogers's status in suing alone, is an interesting one. Learned counsel put the matter thus:—There were two joint contractors, Rogers and Blackburn, and whatever their respective proprietary rights might be, they were still joint contractors. Consequently, it was said, they must agree between themselves whether they would elect to affirm or to disaffirm the contract; in other words, whether they would sue for damages on the basis of transferring the process, or would sue for rescission on the basis of keeping it. The position, however, though somewhat novel, seems clear in principle. If A and B jointly agree with C, and if C announces, before the normal moment of performance arrives, that he renounces the contract, it is competent for A and B jointly to accept that renunciation, and to terminate the contract. But that is a new agreement, and requires the assent of all. A may refuse, and, if so, B and C must abide by the bargain until the time for actual performance arrives. The contract may or may not then be normally performed. But once that time has arrived, if C commits an actual breach going to the root of the bargain, A has a right, by virtue of the contract already made, to say he will not proceed further, and he may refuse notwithstanding B's desire to waive his rights and proceed. The same necessity of a new bargain which in the case first put prevents A from altering the existing position prevents B in the second case from affecting A's accrued rights. It is the second case that arises here. The time for performance having arrived and an actual fundamental breach having occurred, Rogers is entitled to say "I will not proceed further. There is nothing to compel me." Bowen cannot affect Rogers's rights in that regard, and Bowen has no right to compel Rogers to agree to what Blackman may desire. Blackman, who is a director of the appellant Company and who as such director agreed to adopt Bowen's sale to the Company, and who is interested in sharing whatever Rogers might be paid for transferring his process, naturally does not join Rogers in this action. But his wish is immaterial unless Rogers concurs. Rogers, having joined all parties interested in the suit, had a right to ask a Court of equity to declare, in the circumstances as they existed when he commenced his proceedings, that he was not bound to proceed further with the transaction. Having established his necessary facts, his status is clear. The case of Cullen v. Knowles[3] is a clear authority.

In the result, the appeal should be dismissed with costs.

[Note.—As to the third question see per Lord Wrenbury in the case of Bradley v. Newsum, Sons & Co. Ltd.[4], the report of which was not available to us until after this judgment was delivered.—I.A.I. G.E.R.]

Appeal dismissed with costs.

Solicitor for the appellants, R. W. Fraser.

Solicitors for the respondents, Pigott & Stinson; Dodds & Richardson; R. W. Fraser.