Supreme Court New South Wales

• Medium Neutral Citation: International Fashion Group Pty Ltd v Jonco Imports Pty Ltd [2014] NSWSC 60
• Hearing dates: 13/11/2013
• Decision date: 21 February 2014
• Jurisdiction: Common Law
• Before: Garling J

Decision

(1) Appeal of International Fashion Group Pty Ltd is allowed.

(2) Notice of Contention of Jonco Imports Pty Ltd is dismissed.

(3) Set aside all of the orders of the Local Court of 19 December 2012, and in lieu thereof make the following orders with effect from 19 December 2012:

(a) Judgment for International Fashion Group Pty Ltd against Jonco Imports Pty Ltd in the sum of $83,407.84;

(b) Judgment for Jonco Imports Pty Ltd against International Fashion Pty Ltd in the sum of $46,086.50;

(c) Order that the judgments be set off against each other;

(4) Order Jonco Imports Pty Ltd to pay the costs of these proceedings;

(5) Liberty to apply on 72 hours' notice;

(6) Stand proceedings over for further argument to 7 March 2014.

• Catchwords: APPEAL - civil - local court decision - appeal as of right - errors of law - whether no evidence for finding of fact - whether wrong finding against weight of evidence constitutes an error of law - whether error of law to treat pleaded collateral contract as synonymous with variation of contract.; ADMINISTRATIVE LAW - natural justice - procedural fairness - error of law - whether denial of procedural fairness for local court to decide case on basis of cause of action not pleaded.
• Legislation Cited: Trade Practices Act 1974
• Cases Cited: Australian Gas Light Co v Valuer General (1940) 40 SR (NSW) 126; Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279; Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658; Esanda Ltd v Burgess [1984] 2 NSWLR 139; Escobar v Spindaleri (1986) 7 NSWLR 51; Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133; Hutchinson v Roads and Traffic Authority [2000] NSWCA 332; Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507; RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082; Totalisator Agency Board of NSW v Casey (1994) 54 IR 354
• Category: Interlocutory applications
• Parties: International Fashion Group Pty Ltd (P); Jonco Imports Pty Ltd (D1); Christopher John Jones (D2)
• Representation: Counsel: T R Gordon (P); N Hogan (D); Solicitors: Deutsch Partners (P); Gells Lawyers (D)
• File Number(s): 2013/1256

Judgment

1 International Fashion Group Pty Ltd ("International Fashion") has brought proceedings in this Court against Jonco Imports Pty Ltd ("Jonco") by way of an Appeal and an Application for Leave to Appeal against the decision of Pierce LCM in the Local Court at Sydney, delivered on 19 December 2012.

2 The substance of International Fashion's proceedings in this Court is set out in the Amended Summons, which was filed on 29 August 2013.

3 The Amended Summons contends that there were five errors of law made in the judgment of the Local Court and one error of mixed fact and law, in respect of which leave to appeal is sought.

4 Jonco, while opposing the relief sought in the Amended Summons, filed a Notice of Contention on 17 September 2013, contending that the judgment of the Court below ought be affirmed on grounds other than those relied on in that Court on the basis that, on the facts found by the Magistrate, a particular finding of law would follow.

5 In order to understand the issues raised, it is necessary to describe the factual background to the claim in the Local Court.

Local Court Proceedings

6 On 22 March 2011, International Fashion issued proceedings in the Local Court against Jonco, claiming damages in the sum of $83,987.85 for breach of an agreement which was entered into on or about 8 September 2008, relating to the supply by International Fashion to Jonco of clothing and clothing related products.

7 In that Statement of Claim, International Fashion also claimed against two other defendants upon a guarantee. That claim forms no part of the present Supreme Court proceedings and can be put to one side.

8 In the Schedule to the Statement of Claim, International Fashion claimed that a number of invoices for the period from 28 October 2010 to 22 March 2011 remained unpaid, notwithstanding that the goods, the subject of the invoices, had been delivered to and accepted by Jonco.

9 The breach of contract, which was claimed, was that Jonco had not paid for the goods in accordance with the terms of the contract.

10 In its Amended Defence, which was filed on 21 July 2011, Jonco admitted that the agreement existed in the way pleaded and denied that it was in breach of that agreement because it pleaded that the term as to payment alleged by International Fashion, namely payment for goods within 30 days, had been varied so as to provide for payment within 90 days after delivery of the products. It denied that it was indebted to International Fashion.

11 On 19 March 2012, Jonco filed a cross-claim entitled "Amended First Cross-Claim" against International Fashion. In that Cross-Claim Jonco pleaded two causes of action.

12 The first was a cause of action claiming damages for misleading and deceptive conduct contrary to the provisions of the Trade Practices Act 1974. The second cause of action was a claim for damages for breach of what was called an oral collateral contract.

13 The substance of the terms of the oral collateral contract and the terms of the representations of International Fashion, which were said to be misleading and deceptive, were identical.

14 It will be necessary to return to the detail of that pleading in due course.

15 In its Defence to the Amended First Cross-Claim, International Fashion, as cross-defendant, denied both causes of action and denied Jonco's entitlement to damages.

16 The proceedings were heard by the Local Court on four days, between 16 February 2012 and 23 July 2012. At the conclusion of the hearing, with the consent of the parties, the Magistrate directed that the parties put all of their submissions in writing and file them with the Court. The Magistrate then proceeded to consider his judgment, which was delivered on 19 December 2012. There were no oral submissions made.

Result of Local Court Proceedings

17 It is convenient to set out in short form the result of the Local Court proceedings.

18 The Magistrate was satisfied that International Fashion had proved that it had supplied the clothing and goods set out in the invoices attached to the Statement of Claim, and that those goods had not been paid for. The Magistrate concluded that International Fashion was entitled to a total amount of $83,407.84 with respect to its claim.

19 That judgment in favour of International Fashion, and against Jonco, has not been challenged by any appeal or any other process.

20 On the cross-claim, the Magistrate dealt separately with the two causes of action. On the cause of action for misleading and deceptive conduct engaged in by International Fashion by way of oral misrepresentations, the Magistrate found that the misrepresentations were proved, that they were made by, or on behalf of, International Fashion, and that they were misleading and deceptive. He found that Jonco had acted in reliance on those representations and as a consequence, had suffered damage in an amount of $46,086.50.

21 International Fashion, in Ground 5 of its Amended Summons, seeks to challenge the finding that Jonco relied on the misrepresentations in a way that caused any loss or damage. It seeks to do so upon the basis that there was an error of law because there was no evidence upon which the Magistrate could find, as a matter of fact, that any such reliance existed.

22 Although the second ground contained within the Notice of Contention filed by Jonco, sought to argue about the method of calculation of damages on the cross-claim with respect to this cause of action, counsel for Jonco expressly abandoned that point during argument.

23 On the claim for damages for breach of a collateral contract, the Magistrate found in favour of Jonco. He held that as a consequence of this cause of action, Jonco had suffered damages of $100,000. It will be observed that this damages figure significantly exceeded the damages suffered by Jonco by reason of the misleading and deceptive conduct of International Fashion. The difference in the sums for damages was explained by the Magistrate on the basis that a different method of calculation was appropriate where a claim for breach of contract was being made, as against a claim under the Trade Practices Act.

24 The consequence was that the Magistrate had ordered on the principal claim that International Fashion was entitled to the sum of $83,407.84 from Jonco, and on the cross-claim that Jonco was entitled to $100,000 from International Fashion.

25 Appropriately, the Magistrate set off these amounts, and as a consequence, entered judgment on the claim and the cross-claim in favour of Jonco in the sum of $16,592.16.

26 He made a series of orders as to costs, the detail of which is unnecessary to be considered in the determination of this appeal. No party made any separate submissions about the orders for costs.

Leave to Appeal

27 As has earlier been indicated, Ground 4 in the Summons dealt with a mixed question of fact and law. Accordingly, leave to appeal was sought.

28 It was submitted that leave to appeal ought be granted because the sums of money involved were significant, consideration of the ground would take little additional time in the context of the balance of the grounds raised by the Amended Summons and that a clear injustice had been done in the Local Court.

29 No submission was made by Jonco opposing a grant of leave to appeal.

30 It is appropriate that leave be granted because the sums of money in issue are not insignificant to the parties and the consideration of the point raised in this ground can be conveniently addressed in the course of the general consideration of the other points raised.

Ground 5: No Evidence of Reliance

31 It is convenient to consider this ground first because it was the only one addressed to the cause of action pleaded by Jonco in the Amended Statement of Claim based on misleading and deceptive conduct contrary to the Trade Practices Act.

32 This ground was expressed in the following terms in the Amended Summons:

"The Court below erred on a question of law by making a finding for which there was no evidence.

Particulars

There was no evidence to support the Court below's finding that all of the stock listed in the cross-claim was stock that the defendant would not have bought but for the plaintiff's representations."

33 This ground raises the question of what constitutes an error of law when a court is called upon to consider whether there is any evidence available upon which the lower court could make a finding.

34 In Australian Gas Light Co v Valuer General (1940) 40 SR (NSW) 126, Jordan CJ said at [137]:

"In cases in which an appellate tribunal has jurisdiction to determine only questions of law, the following rules appear to be established by the authorities:

1. The question of what is the meaning of an ordinary English word or phrase as used in the Statute is one of fact not of law ... .

2. The question whether a particular set of facts comes within the description of such a word or phrase is one of fact ...

3. A finding of fact by a tribunal of fact can be disturbed if the facts inferred by the Tribunal, upon which the finding is based, are capable of supporting its finding, and there is evidence capable of supporting its inferences ...

4. Such a finding can be disturbed only:

(a) if there is no evidence to support its inferences; or

(b) the facts inferred by it and supported by evidence are incapable of justifying the finding of fact based upon those inferences ... "

35 That part of the decision of Jordan CJ was referred to by Kirby J in RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 at [12]-[14] where his Honour encapsulated the relevant authorities in this way:

"Arising from these authorities, a number of broad propositions can be stated:

First, there is no error of law in simply making a wrong finding of fact (Australian Broadcasting Tribunal v Bond ... per Mason CJ at 341), unless there is no evidence to support that finding.

Second, it does not amount to an error of law if the finding of fact, or the inference (or the refusal to make a finding of fact or draw an inference) is perverse, in the sense that it is contrary to the overwhelming weight of evidence: Glass JA in Azzopardi v Tasman UEB Industries Ltd ... at 155.

Third, it is not an error of law even if the reasoning process by which the court reaches its conclusion of fact is demonstrably unsound or illogical (Menzies J in R v District Court: Ex Parte White ..., at 654).

Fourth, there is limited exception (which has no application in this case) in relation to decisions of fact in the context of a statutory description. In such a case there may be an error of law if the decision on the facts is one which could not be reasonably entertained, or supported, if the tribunal had properly understood the true construction of the relevant enactment: Mahoney v Industrial Registrar of NSW & Anor ... per Hope JA at 1 and Samuels JA at 5."

36 I will apply these principles in considering this ground of appeal.

37 International Fashion in its written submissions with respect to this ground, did not submit, as the Amended Summons alleged, that there was no evidence before the Local Court which justified the finding of reliance on the representations by Jonco. Rather, counsel for International Fashion submitted that the evidence before the Local Court was incapable of supporting the finding because the evidence in chief given by a principal witness for Jonco, whose evidence was accepted by the Magistrate, was significantly qualified during cross-examination.

38 In his findings the Magistrate said this:

"Ms Gordon submitted that Jonco could not show that it relied on the representations, even if made. She relied in part on the fact of the stock reports having gone missing. However, Ms Jones gave evidence that on the faith of the representation she placed larger orders than she would otherwise have done, and I believe her. She said moreover, and I find, that the stock listed in the cross-claim was the stock which she would not have bought but for the representations."

39 In submissions, counsel for International Fashion accepted that Ms Jones had given the evidence upon which the Magistrate relied in making the findings in the extract of his judgment set out immediately above. She submitted however, that further evidence given by Ms Jones in cross-examination meant that the evidence in chief was qualified and ought not to have been accepted.

40 As is obvious from the terms of the Amended Summons, in respect of this ground, International Fashion relies only on an error of law. It asserts in that respect that it has an appeal as of right. But as the principles to which I have drawn attention show, where a court makes a wrong finding of fact, it does not amount to an error of law unless there is no evidence to support that finding. An erroneous finding of fact can be perverse in the sense that it is contrary to the overwhelming weight of the evidence, but that does not constitute an error of law.

41 The submissions of International Fashion amount to no more than a complaint in substance that the Magistrate made a wrong factual finding and a finding which, it was submitted, was against the weight of the evidence.

42 This does not constitute an error of law. There was evidence to support the finding of the Local Court in this respect.

43 I am not satisfied that this ground of appeal has been made out.

44 As a consequence, the finding of the Local Court that Jonco is entitled to damages for breach by International Finance of the Trade Practices Act in the sum of $46,086.50 must stand. It will be necessary to consider in light of the future issues whether this makes any difference to the ultimate outcome of the appeal, and what orders this Court should make.

Collateral Contract

45 The first five grounds in the Amended Summons dealt with the question raised by the collateral contract cause of action, which was pleaded in the Amended First Cross-Claim.

46 Those grounds were:

"(1) The Court below erred on a question of law by treating a collateral contract as being synonymous with a variation to a contract.

(2) The Court below erred on a question of law by denying the plaintiff procedural fairness.

Particulars

The Court below found there was a variation to the contract in circumstances where a variation of the contract was not pleaded by the defendant.

(3) The Court below erred on a question of law by failing to take into account a material fact.

Particulars

The Court below failed to take into account the fact that the terms of alleged collateral contract were inconsistent with the terms of the main contract.

(3A) The Court below erred on the question of law by failing to take into account relevant evidence.

Particulars

The Court below failed to consider the terms of the main contract when deciding whether or not there was a collateral contract.

(4) The Court below erred on a question of mixed law and fact by finding that the representations made by the plaintiff amounted to a collateral contract.

Particulars

The Court below found that the representations amount to a collateral contract in circumstances where the terms of the alleged collateral contract were inconsistent with the terms of the main contract."

47 In order to understand the basis upon which International Fashion submitted that there were errors of law (or mixed fact and law), it is first necessary to understand the pleading which raised and dealt with the collateral contract.

48 It is to be recalled that this pleading is to be found in the Amended First Cross-Claim in the Local Court.

49 In the Amended First Cross-Claim, Jonco pleaded that representations were made to it by International Fashion in 2006 and on two occasions in 2010. The representations pleaded included a representation to the effect that Jonco should place large orders with International Fashion to ensure that it always carried a large enough stock of International Fashion's product in case there was a disruption of supply. The representation included a statement to the effect that if Jonco could not sell all of this stock, International Fashion would buy it back, or pay Jonco compensation.

50 In the context of those pleaded representations, Jonco pleaded that there was an oral collateral contract in these terms:

"7B. Further and/or in the alternative, in the course of the negotiations described in paragraph 3 hereof, the cross-defendant, by its agent Joseph Borchan, entered into an oral collateral contract with the cross-claimant represented by Carly Jones.

7C. The terms of the settled oral collateral contract were as follows:

...

7D. The said oral collateral contract was repeated and/or confirmed by Joseph Borchan to Carly Jones in early 2010 in October 2010.

...

8B. Relying on the terms of the oral collateral contract ... the cross-claimant purchased products from the cross-defendant which it otherwise would not have purchased.

...

11B. In breach of the said oral collateral contract the cross-defendant refused to accept return of the stock or offer compensation, and as a consequence the cross-claimant suffered loss."

51 The terms of the collateral contract are not reproduced in this judgment, because they substantially replicate the representations, the effect of which has been referred to in [49].

52 In its Defence to the Amended First Cross-Claim, International Fashion denied the existence of any collateral contract.

53 The Magistrate's judgment in considering this cause of action proceeded, it must be said, in a rather unusual way.

54 It is necessary to set out relevant parts of the judgment, but before doing so, it is convenient to note that the Magistrate proceeded on the basis that he was entitled to treat the pleading of the oral collateral contract as being a pleading which was identical to a pleading of a variation of the original contract, or perhaps some other form of contract.

55 When he came to consider the question on the cross-claim of the representations as a collateral contract, the Magistrate said this:

"Jonco put its cross-claim in such a way as to rely in the alternative on the collateral contract, which I treat as a variation. Initially I had some doubts with that part of its cross-claim. A reassurance of the kind relied on (that one might order in large quantities because excess stock could be returned and either bought back or compensation provided) generally bears the appearance more of a true representation than a contract. However, it was repeated at least three times, and partly because of that repetition and partly because of the obvious seriousness with which the parties treated what was said, I find that the parties intended to be contractually bound. There was consideration, in the form of an agreement on the part of Jonco to order in large amounts, as distinct from just placing sufficient orders to meet demand from the public from time to time. I find that the conversations containing the representations did amount to a variation of the contract whether or not called the collateral contract, and are enforceable. The promises so made resulted in loss in the way otherwise described in these reasons. The result is that for that reason also Jonco must succeed on its cross-claim. It must be kept in mind, however, the contractual representations attract larger damages. Jonco is entitled to damages for loss of profit on the items sold at discounted prices, the detail of which I explore below." (Emphasis added)

56 The Magistrate found that Jonco had purchased goods in larger quantities than it ordinarily would, that it had attempted to return the items to International Fashion, and that International Fashion had refused to accept the items and refused to pay compensation. These findings are not the subject of challenge in this Court.

57 At an earlier point in his judgment, the Magistrate considered and dealt with a submission on International Fashion's principal claim about whether the parties had by their conduct, varied the agreement between them with respect to the period of time within which invoices had to be paid. In the course of that part of his judgment, the Magistrate drew attention to a statement of principle in a textbook. He quoted this part of the textbook:

"If there is an independent and sufficient consideration provided in support of the representation and the other elements of a contract are present, it will be enforceable as an ordinary contract rather than as a collateral contract even if it is inconsistent with the so-called main contract. In such a case the latter contract will be treated as having varied the earlier contract to the extent of any inconsistency between the two."

The Magistrate went on to say:

"To my mind, that simply is another way of saying that the parties can always vary a contract they may have made. In my view, Ms Gordon's submission that the variation was expressly prohibited by the main contract should not be accepted."

58 I draw attention to that part of the reasoning because it may be that the extract from the textbook referred to by the Magistrate in one context has influenced his approach to the issue of the collateral contract, in an entirely different context.

59 When dealing with the cause of action by way of a collateral contract, the Magistrate found that the alleged misrepresentations were made. He found that they were misleading and deceptive and that Jonco had acted on the basis of those representations by purchasing additional stock. He then went on to consider what damages ought be awarded for the breach of contract.

60 He said:

"What follows relates to damages for breach of the contract as varied by the misrepresentations. Damages for misrepresentation per se are dealt with separately below, although it should be noted that damages will be less in that case. I note in passing that in the case of the statutory causes of action for misrepresentation, damages are an ingredient of the cause of action, but not in the case based on breach of contract, and that causation will need to be proved, and I find is proved, on the balance of probabilities ...

What Jonco needs to prove is a lost opportunity to profit, and I find on the balance of probabilities that it did suffer the loss of a chance to profit. ... "

61 At the conclusion of his judgment, the Magistrate made these remarks:

"I should add that as the contract in this matter appears to have been made in Queensland, the proper law of the contract might well be that of Queensland. However, nothing was made of that in the hearing, and in any case the law of Queensland is the same as that of NSW on the question of general contract and of course, the application of the Commonwealth Trade Practices Act."

Submissions in the Local Court

62 Since these grounds of appeal deal with matters raised by Jonco's cross-claim, it will be appropriate to commence a review of the submissions made in the Local Court with the submissions made by Jonco.

63 Further, it will only be necessary to concentrate on the submissions made with respect to the collateral contract.

64 Jonco submitted in the introduction to its submissions this, with respect to the contract:

"[Jonco] sues ... pursuant to an oral contract varying the terms of the written contract relying upon statements alleged to be made by Joseph Borchan, the sales manager at all relevant times of the plaintiff/cross-defendant."

65 Although it made more detailed submissions with respect to the contractual cause of action, it is fair to say that those submissions made on behalf of Jonco are properly described as spare. Having drawn attention to a provision of the written contract which required that the terms and conditions of the original written contract prevailed over any other terms and conditions unless otherwise expressly stated, and also to the provisions of clause 11 of the written contract which deals with returns and claims for credit, the submissions consisted of this:

"There is nothing in clause 11 which is inconsistent with the supplier agreeing with the particular purchase that if it 'got stuck with stock, it could not sell, IFG would buy it back or give Jonco compensation' ... This clause, it is submitted, is either a proven collateral contract to the written contract or it is enforceable as an ordinary contract because there is independent and sufficient consideration provided in support of the representation ... The independent and sufficient consideration for placing large forward orders, carrying large amounts of stock to be paid 90 days from invoice (supply date). At no point in clause 11.4 does it say goods are only returnable for the following reasons or on the following conditions. [Jonco] submits that [International Finance] in refusing the return of stock or giving credit for stock paid for was a breach of a collateral contract or, alternatively, breach of an independent contract." (Emphasis in original)

66 Little more is said in the submissions of Jonco.

67 The submissions made on behalf of International Fashion on the contractual cause of action were rather more fulsome.

68 Having reviewed the evidence, and made submissions with respect to appropriate findings, including as to whether there was any reliance on the representations and whether there is any causal relationship with the representation, International Fashion made these submissions:

"64. The Cross Claimant's argument that the alleged Representations constituted a collateral contract between the Cross Claimant and the Cross Defendant must fail for three reasons.

65. First, a collateral contract must be consistent with, must not contradict and must not conflict with the main contract (Esanda Ltd v Burgess [1984] 2 NSWLR 139, 145-6 (Samuels JA)). Two of the terms alleged by the Defendant are that the Cross Defendant would never decrease its wholesale or recommended retail prices and that if the Cross Claimant got stuck with stock it could not sell the Cross Defendant would buy it back or give the Cross claimant compensation. These terms are inconsistent with clause 6.2 of the contract, which says that the Cross Claimant can alter its prices at any time and clause 11.4, which sets out the very limited circumstances in which the Cross Claimant can return stock to the Cross Defendant.

66. Secondly, oral statements that are relied upon as constituting a collateral contract must be clearly promissory in nature (Esanda Ltd v Burgess [1984] 2 NSWLR 139, 146 (Samuels JA)). The law distinguishes between contractual promises and mere representations where there is an absence of contractual intent. The content of the alleged Representations in the context in which they were made were not promissory in nature. They do not reveal intention to be contractually bound.

67. Finally, representations will not constitute a collateral contract where they would be expected to be incorporated into the principal contract (Metz Holding Pty Ltd v Simmac Pty Ltd (No.2) [2011] FCA 981 at [635] (Barker J)). In circumstances where there was a contract between the parties that dealt with price changes and the limited circumstances in which the Cross Claimant can return stock to the Cross Defendant, one would expect an undertaking to accept any excess stock to be included in that contract. This is particularly the case where that contract was entered into after the Cross Claimant and the Cross Defendant had already been dealing with each other for two years."

Ground 1

69 This ground alleges that the Local Court erred in treating the collateral contract as being synonymous with a variation to the contract. The principal authority relied upon by International Fashion was that of the High Court of Australia in Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133. At 147, Isaacs J said:

"The truth is that a collateral contract, which may be either antecedent or contemporaneous ... being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made; ... If in any case the Court finds two enforceable agreements executed in such circumstances that one is intended to affect the other, no doubt such effect will be given to them as the superimposing operation of the governing contract requires; but in that case, it is not collateral but dominant."

70 Earlier, at 139, Knox CJ said:

"A distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneous with the main agreement, is valid and enforceable even though the main agreement be in writing, provided the two may consistently stand together so that the provisions of the main agreement remain in full force and effect notwithstanding the collateral agreement."

71 The submission which International Fashion makes points to the significant difference between a variation to a contract, by which parties agree to change the terms of the principal agreement for consideration, which stands outside that principal agreement, and a collateral agreement - the consideration for which is the entry into the principal agreement. As is submitted, ex hypothesi, a collateral agreement cannot vary the terms of the main agreement. It may, as Isaacs J said in Hoyt's, supplement the main agreement, but it does not contradict the terms of that main agreement.

72 Accordingly, it is submitted that to equate a variation of contract with a collateral contract is to confuse two quite different legal concepts.

73 In Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 at 517, the High Court of Australia (Dixon CJ, Fullagar and Taylor JJ) said:

"... a collateral agreement made in consideration of a main agreement cannot effectively subsist unless it is consistent with the main agreement. Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations. If it is established that the writing was intended to contain only part of a fuller agreement, it may be otherwise. That, however, is not the present case. But it may be established that an entirely separate agreement was made by the parties. One of them may give a collateral promise in consideration of the other entering into the principal agreement. But if such a collateral agreement is to have effect as a contract, it must be consistent with the provisions of the main agreement, the making of which by the other party provides the consideration. The promise sought to modify, control or restrict the principal agreement would detract from the very consideration which is alleged to support the promise."

See also: Esanda Ltd v Burgess [1984] 2 NSWLR 139 at 145A, per Hutley JA, at 146B per Samuels JA, at 152F per Priestley JA.

74 International Fashion submitted that the representations could not constitute a collateral contract because they were inconsistent with the express written terms of the contract. In particular, International Fashion pointed to the provisions of clause 11.4 of the contract, which dealt with the basis upon which goods were returnable to the supplier, and claims for credit could be made. As well, International Fashion submitted that the consideration found by the Magistrate was not the entry into the principal agreement, rather it was to purchase larger quantities of stock.

75 In his decision, the Magistrate, as has earlier been pointed out, did not find the existence of any collateral contract. What he found was a variation of the principal contract. In short, he must have found that the terms of supply contained in the representations were inconsistent with the principal contract, because he held that those representations varied the original contract. He also held that there was consideration "... in the form of an agreement on the part of Jonco to order in large amounts ...". This consideration was not consideration of a kind which could constitute a collateral contract, because the consideration for a collateral contract is the entry into the principal agreement. It could only support a variation.

76 Therefore, the Magistrate did not find a collateral contract. There was no evidence upon which he could properly find that there was a collateral contract. Such evidence as was relied upon by Jonco was incapable of amounting to a collateral contract as, on any view, it was inconsistent with the principal contract. The consideration found did not permit of a finding of collateral contract. This cause of action pleaded, as it was, as a collateral contract, ought to have been dismissed. It was an error of law to treat it any other way.

77 It was also an error of law to equate a collateral contract with a variation of a contract. Accordingly, Ground 1 is made good.

Ground 2

78 Ground 2 contains an allegation that there was an error of law because in the Local Court, International Fashion was denied procedural fairness.

79 There can be no doubt that a denial of procedural fairness is an error of law: see Hutchinson v Roads and Traffic Authority [2000] NSWCA 332 at [29], per Giles JA (Meagher JA agreeing).

80 In Totalisator Agency Board of NSW v Casey (1994) 54 IR 354 at 359, Kirby P said:

"Where a tribunal in the course of making a purported decision, fails to afford natural justice or procedural fairness to a party, this constitutes jurisdictional error. It will authorise the provision by this Court of relief in the nature of prerogative writs."

81 Although there is no claim here for any prerogative writ, because International Fashion has an appeal as of right, the remarks of the learned President demonstrate that a failure to afford procedural fairness constitutes an error of law: see also Escobar v Spindaleri (1986) 7 NSWLR 51 at 59A.

82 The underlying question is therefore whether there has been a breach of procedural fairness, as International Fashion submits there was.

83 In Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658, the Court said, at [6]:

"Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it ...; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial ...; and they give a defendant an understanding of the plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings ..."

84 In Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, at 286-7, Mason CJ and Gaudron J said (omitting citations):

"The function of pleadings is to state with sufficient clarity the case that must be met. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings, secures the parties right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings, are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities."

85 It is clear in this case that Jonco, in its Amended First Cross-Claim, pleaded an oral collateral contract. It did not plead that there was a variation of the principal contract, either directly or indirectly, and the thrust of its submissions, although characterised by loose language, required the Court to deal with its pleaded case.

86 International Fashion did not accept in its submissions that there was any case pleaded below of a variation of contract, and confined its submissions in the Local Court to whether or not Jonco had established the existence of a collateral contract which had been breached.

87 In those circumstances, there was no proper basis for the Magistrate to find in favour of Jonco in respect of a variation of contract, being a cause of action which was neither pleaded nor the subject of submissions to him by International Fashion. By deciding the case on the basis of a cause of action which was not pleaded, the Magistrate has denied International Fashion procedural fairness.

88 This is an error of law. Accordingly, Ground 2 of the appeal must be upheld.

89 In light of the determination that the Magistrate fell into error by treating an allegation of the existence of a collateral contract as being synonymous with an allegation that the principal contract had been varied and by denying procedural fairness, it follows that the award of damages of $100,000 based upon a breach of the varied contract, cannot stand.

Grounds 3, 3A and 4

90 The remaining grounds deal with asserted errors, namely, failing to take into account a material fact, or relevant evidence relating to whether a collateral contract existed and, if so, what the terms of it were and whether there were findings sufficient to justify the cause of action pleaded.

91 These three grounds allege that the Magistrate ought to have made factual findings as a consequence of which the claim on the collateral contract ought to have been dismissed.

92 As I have said, there was no evidence sufficient to justify a finding of a collateral contract, which was the cause of action pleaded. Accordingly, it is unnecessary to deal with these three grounds specifically. Any findings which would be made are subsumed in this overall conclusion, and the upholding of Ground 1.

Costs

93 The costs of this appeal should follow the result. Accordingly, Jonco ought pay International Fashion's costs of these proceedings.

94 The conclusions which I have reached on Grounds 1 and 2 mean that the orders for costs in the Local Court should be set aside. The parties ought agree on what costs orders should be substituted. If they are unable to do so, I will receive argument on that question on Friday 7 March 2014.

Orders

95 I make the following orders:

(1) Appeal of International Fashion Group Pty Ltd is allowed.

(2) Notice of Contention of Jonco Imports Pty Ltd is dismissed.

(3) Set aside all of the orders of the Local Court of 19 December 2012, and in lieu thereof make the following orders with effect from 19 December 2012:

(a) Judgment for International Fashion Group Pty Ltd against Jonco Imports Pty Ltd in the sum of $83,407.84;

(b) Judgment for Jonco Imports Pty Ltd against International Fashion Pty Ltd in the sum of $46,086.50;

(c) Order that the judgments be set off against each other;

(4) Order Jonco Imports Pty Ltd to pay the costs of these proceedings;

(5) Liberty to apply on 72 hours' notice.

(6) Stand proceedings over for further argument to Friday 7 March 2014.

**********

Decision last updated: 21 February 2014