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Midas Management v Equator Communications [2008] NSWSC 255 (28 March 2008)

Last Updated: 31 March 2008

NEW SOUTH WALES SUPREME COURT

CITATION:
Midas Management v Equator Communications [2008] NSWSC 255


JURISDICTION:
Common Law

FILE NUMBER(S):
11160/2007

HEARING DATE(S):
13 December 2007

JUDGMENT DATE:
28 March 2008

PARTIES:
Midas Management Pty Ltd (Plaintiff)
Equator Communications Pty Limited (First Defendant)
Anthony Mead (Second Defendant)

JUDGMENT OF:
Harrison AsJ

LOWER COURT JURISDICTION:
Local Court

LOWER COURT FILE NUMBER(S):
12162/2005

LOWER COURT JUDICIAL OFFICER:
Dillon LCM

LOWER COURT DATE OF DECISION:
5 February 2007, 10 June 2007


COUNSEL:
R Winfield (Plaintiff)
A Crossland (First Defendant)


SOLICITORS:
Griffin Lawyers (Plaintiff)
Robinson Legal (First Defendant)
A Mead (Second Defendant in person)



CATCHWORDS:
APPEAL - Local Court Magistrate - Agency - Christmas Parade

LEGISLATION CITED:
Civil Procedure Rules 2005
Fair Trading Act 1987
Local Courts Act 1982
Trustee Act 1923
Uniform Civil Procedure Rules 2005

CATEGORY:
Principal judgment

CASES CITED:
Allen v Kerr & Anor [1995] Aust Torts Reports 81-354
Alliance & Leicester Building Society v Edgestop Ltd (1993) 1 WLR 1462
Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156
Calyton Robard Management Ltd v Siu (1988) 6 ACLC 57
Carr v Neill  [1999] NSWSC 1263 
Colgate Palmolive v Cussons [1993] FCA 536; (1993) 46 FCR 225
Combulk Pty Ltd v TNT Management Pty Ltd [1993] FCA 89; (1993) 113 ALR 214
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd [1975] VicRp 59; [1975] VR 607
Devries v Australian National Railways Commission [1993] HCA 78; (1993) 177 CLR 472
Eygptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and P S Refson & Co Ltd [1985] 2 Lloyd’s Rep 36
Fry v Smellie [1912] 3 KB 282
Henry J B Kendall v Hamilton (1879) 4 AC 504
International Paper Company v Spicer [1906] HCA 75; (1906) 4 CLR 739
Jacob v Morris [1902] 1 Ch 816
Lloyds Bank v The Chartered Bank of India, Australia and China [1929] 1 KB 40
Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421 Armagas Ltd v Mundogas SA [1985] UKHL 11; [1986] 1 AC 717
Marginson v Ian Potter & Co [1976] HCA 35; (1976) 136 CLR 161
Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 3 All ER 511
Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91
R L & D Investments Pty Ltd v Bisby (2002) 37 MVR 479; [2002] NSWSC 1082
Rasnoimport v Guthrie & Co Ltd [1966] 1 Lloyd’s Rep 1
Russo-Chinese Bank v Li Yau Sam [1910] AC 174
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) [1999] HCA 3; (1999) 160 ALR 588
Swain v Waverley Municipal Council [2005] HCA 4; (2005) 220 CLR 517

TEXTS CITED:
Bowstead & Reynolds on Agency 18th ed, Sweet & Maxwell, London, 2006
Jacobs' Law of Trusts in Australia 7th ed, LexisNexis Butterworth, Sydney 2006

DECISION:
(1) The appeal is allowed.
(2) The judgment and orders made by his Honour Magistrate Dillon on 5 February 2007 and 20 June 2007 are set aside.
(3) The matter is remitted to the Local Court to be determined according to law.
(4) Costs are reserved.



JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

ASSOCIATE JUSTICE HARRISON

FRIDAY, 28 MARCH 2008

11160/2007 - MIDAS MANAGEMENT PTY LTD v

EQUATOR COMMUNICATIONS PTY

LIMITED

JUDGMENT (Appeal Local Court Magistrate

- agency – Christmas parade)

1 HER HONOUR: By amended summons filed 17 August 2007 the plaintiff seeks orders firstly, that the appeal be allowed; secondly, that the judgment and orders of his Honour Magistrate Dillon made on 5 February 2007 be set aside; thirdly, that there be judgment for the plaintiff in the Local Court proceedings 12162 of 2005; and finally, that the costs order made on 20 June 2007 be set aside.

2 The plaintiff is Midas Management Pty Ltd (Midas) who was the first defendant in the Local Court. Equator Communications Pty Limited (Equator) is the first defendant and was the plaintiff in the Local Court. The second defendant is Anthony Mead (Mr Mead) who was also the second defendant in the Local Court. He appeared at the hearing of this appeal and was not legally represented and wishes to make submissions concerning costs. For convenience, I shall refer to the parties by name in this judgment.

3 Midas Management relied on two affidavits of Jacqueline Ann Griffin both sworn 14 September 2007.

4 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 permits a party who is dissatisfied with a judgment as being erroneous on a point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor [1995] Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill  [1999] NSWSC 1263  and R L & D Investments Pty Ltd v Bisby (2002) 37 MVR 479; [2002] NSWSC 1082. The judicial officer cannot act on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission [1993] HCA 78; (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) [1999] HCA 3; (1999) 160 ALR 588.

5 In Swain v Waverley Municipal Council [2005] HCA 4; (2005) 220 CLR 517, the Chief Justice at 519 reiterated that in the common law system of civil justice, the issues between the parties are determined by the trial process. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal.

6 Section 75 of the Local Courts Act provides that the Court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Court for determination in accordance with the Supreme Court’s directions, or (d) by dismissing the appeal.

7 Midas raised 21 grounds of appeal which are convoluted. Doing the best I can, the grounds of appeal raise the following:

(1) Did Equator adequately plead its case in the Local Court?

(2) Did the Magistrate err in finding that Mr Mead was an agent of the Trust? In particular did Magistrate Dillon err in finding that:

a. The principle of delegatus non potest delegare did not have any application to the case?

b. That Midas did “hold Mr Mead out” as an agent of the Trust and is thereby estopped from denying his ostensible authority?

c. That Equator did not have sufficient notice that Mr Mead was

not an agent of the trust?

(3) Did the Magistrate err in setting aside the default judgment against Mr Mead and entering judgment against Midas?

(4) Did the Magistrate err in ordering Midas and Mr Mead to pay Equator’s costs on an indemnity basis?

8 Many of the grounds of appeal are repetitive and raise matters of fact.

9 On 5 February 2007, the Magistrate entered judgment in favour of Equator and awarded it $35,507.01 for damages plus interest. On 20 June 2007, the Magistrate ordered the defendants to pay Equator’s costs on an indemnity basis.

Factual findings by the Magistrate

10 The following paragraphs are a summary of the facts that were found by the Magistrate in the trial at the Local Court.

11 When Mr Mead was a child he was taken by his parents to New York City to see the city’s annual Christmas parade. That memory stayed with him for the rest of his life and gave Mr Mead the idea that a similar parade should be organised in Sydney. (at [1])

12 In 2004 Mr Mead took action to realize this goal. He contacted his friend and business advisor of 35 years Mr Farr who resided in Noosa, Queensland. To facilitate the raising of capital and to organise the event it was decided that some type of trust or corporate entity should be created to represent the parade. On 29 July 2004 the Sydney Christmas Parade Trust (“the Trust”) was created by deed to act as such an entity. (at [2] and [18])

13 Equator is an advertising agency that specialises in the production of brochures. On 31 March 2005, Mr Mead left a telephone message with Equator, asking David Stobart a director of Equator whether he could phone Mr Mead regarding a “business opportunity”. (at [19])

14 On 1 April 2005 Equator received a letter by email (“the 1 April 2005 letter”). It was headed "Sydney Christmas Parade" and had a logo of a Christmas bauble on which the Sydney Opera House appeared. Below the header appeared a postal address (a post office box number) in Gladesville, NSW, together with telephone and fax numbers and Mr Mead's email address. Immediately below those identifying details appeared the name "Sydney Christmas Parade Trust” with an Australian Business Number. The trustee was then identified as Midas Management Pty Ltd and a post office box number in Noosa was provided but no telephone number, fax number or email address appeared on the letter. (at [21]) The letter read as follows: (at [22])

“Dear Sir,

Steven Allen of Essence Media suggested we contact you to obtain a quote for

a) Poress and Advertising Layout and Copy

b) Radio Commercials Copy

c) TV Commercials

d) Sales Brochure (required now)

Enclosed is a copy of out draft Brochure, “Sydney Joins the World”, Press Release and Story Board.

City of Sydney Council has provided approval for the conduct of the Parade, which will be a major annual event based on the very successful Macy’s Christmas parade in New York.

The advertising campaign would commence (say) October 2005, targeting greater Sydney, Central Coast, Wollongong, Newcastle and Canberra.

Please let us know if your agency can help us to establish this event as a Sydney icon.

I can also be contracted on 02 xxxx xxxx or email xxxxxxxx@xxxx.net.au”

15 Although the letter was unsigned, having been emailed, Mr Mead was nominated as the writer of the letter. There was no office or position nominated for Mr Mead under his signature (at [23]).

16 Mr Farr admitted that he knew about the letter and that he authorised Mr Mead to contact Equator (Farr Aff, 12/07/06). At para [11], he deposed that in authorizing Mr Mead to speak to Equator he warned that only he as trustee was empowered to sign contracts on behalf of the Trust.

17 Nonetheless, although Equator was interested in the parade concept and becoming more and more involved, past business dealings had made them careful about completing large amounts of work before they had been formally appointed by their clients. As a result from 18 April 2005, Equator began pressing Mr Mead for a letter of appointment. (at [27]-[28])

18 On 26 April 2005 when Mr Mead had another meeting with Equator events reached a head. Mr Anderson, a director of Equator frustrated by Mr Mead’s failure to commit presented him with a pre-drafted letter of appointment. (at [27]) The letter dated 26 April 2005 is as follows: (at [30])

“Sydney Christmas Parade Trust

PO Box xxx

Gladesville NSW 1675

Equator Communications Pty Ltd

xxx xxxxx Street

North Sydney NSW 2060

Dear Sirs

This letter confirms the appointment of Equator Communications Pty Ltd as Advertising Agency for the Sydney Christmas Parade 2005.

The Sydney Christmas Parade Trust Agrees to pay all invoices for approved work within 30 days.”

Yours faithfully

Anthony Mead”

19 Mr Anderson, in his evidence stated that he told Mr Mead that if desired he could contact Mr Farr before signing it. Mr Mead replied that because they had to get the project moving he would sign it himself. In early June Equator received a signed copy of this letter from Mr Mead. No effort was made by Equator at any time to contact Midas to confirm that Mr Mead had the authority to conclude such a deal (at [28]).

20 Mr Farr admitted that he was told by Mr Mead that he [Mead] had signed the letter of 26 April 2005. However, he claims that when quizzed about it Mr Mead told him that he had signed the letter in his personal capacity and not on behalf of the Trust (at [32]-[33]).

The pleading framework in the Local Court

21 The first ground of appeal is that Equator did not adequately plead its case in the Local Court and the Magistrate failed to take into account the unfairness this caused to Midas. Equator submitted that its pleading was not inadequate and that it did give Midas sufficient notice of their allegation of agency.

22 The relevant sections of Equator’s statement of claim filed in the Local Court are as follows:

“Contracts Claim

6. By an agreement between the plaintiff [Equator] and the first defendant [Midas] made in April 2005, the plaintiff agreed to provide advertising services at the first defendant’s request and the first defendant agreed to pay the plaintiff for those services (“the Agreement”).

Particulars

(i) The agreement is partly written and partly oral.

(ii) The written part of the Agreement is embodied in a letter from the Trust to the plaintiff dated 1 April 2005 and in a letter from the Trust to the plaintiff dated 26 April 2005.

(iii) In so far as the Agreement is oral, the Agreement consists of:-

...“

[particular dates of conversations and names of participants and the place where the conversation occurred given]

23 The relevant section of Midas’ amended defence in the Local Court was as follows:

“Contracts Claim

5. The first defendant denies Paragraph 6(iii) or in the alternative that the plaintiff relies on a private agreement, between the plaintiff and the second defendant, and the first defendant says that the plaintiff at all times knew that the second defendant lacked the requisite authority to enter into any agreement on behalf of the Respondent trustee.”

24 Midas’ submitted that by putting the question of agency in issue as part of its defence, the onus was then on Equator to file a reply pleading their allegation of agency and detailing whether Mr Mead had actual or ostensible authority and the factual basis for that submission.

25 Part 14.14 of the Civil Procedure Rules 2005 provides:

“(1) In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise.

(2) In a defence or subsequent pleading, a party must plead specifically any matter:

(a that, if not pleaded specifically, may take the opposite party by surprise, or

(b) that the party alleges makes any claim, defence or other case of the opposite party not maintainable, or

(c) that raises matters of fact not arising out of the preceding pleading.

(3) Matters which must be pleaded pursuant to subrule (2) include (but are not limited to) fraud, performance, release, statute of limitation, extinction of right or title, voluntary assumption of risk, causation of accident by unknown and undiscoverable mechanical defect and facts showing illegality.”

26 In relation to this issue, in his judgment the Magistrate at [49] stated:

“Midas complains in its submissions that the issue of agency was not raised by the plaintiff’ in its pleadings. Two things should be said about that. First there is no rule of pleading that requires a party specifically to plead agency. Second, an issue of agency is implicitly raised whenever one party alleges certain conduct done or omitted by a corporate entity because a corporation can only act through its human agents. The first defendant understood that the plaintiff was alleging that Mr Mead was its agent. Particulars of relevant contractual conversations between Mr Mead and Equator were set out in the statement of claim against the first defendant. This complaint has no substance.”

27 It is my view that Midas was well aware of the allegation of agency as, in its defence, it pleaded that Mr Mead did not have the requisite authority to enter into a contract on behalf of the trustee.

28 Even if it was not clear to Midas from the pleadings and prior to the commencement of the trial, the fact that agency was relied upon by Equator at the commencement of the trial in its opening would have put Midas on notice. Counsel for Equator stated:

“The outstanding issue then, if this all together forms a contract, is the question of agency and indeed we submit that this probably the only real question before the Court. That is whether Mr Mead had authority to do what he purported to do, that is to bind the Trust and thereby the trustee to a contract with Equator.” (27/07/06. T9. 12-17)

29 Counsel for Equator then indicated that they relied on five types of authority to make out their claim and that any one of them alone would be sufficient to make out their claim. Counsel for Equator continued:

“So those are the five basis, we rely on all of them and we say that the evidence plainly supports each of them. We say we get across the line on at least one of them and we say, indeed, all of them.” (27/07/06. T10. 2-5)

30 The trial proceeded for a further 2 days until it was adjourned part heard on 28 July 2006. The trial did recommended some 4½ months later, on 11 December 2006 when a final witness gave evidence and counsel for each party gave their closing addresses. Even if it was possible to say that Midas was initially taken by surprise, the opening of trial would of given them an indication of what submissions Equator was making in regard to Mr Mead’s authority and the 4½ month adjournment would of given them ample opportunity to prepare a response.

31 The pleading in the defence and the opening submissions would have put Midas on notice beyond doubt that agency was central to Equator’s case. This ground of appeal fails.

Agency

Delegatus non potest delegare

32 Midas submitted that because of the general law principle delegatus non potest delegare and the absence of any delegation in writing of the Trust's decision-making power that the Magistrate erred in law in finding that Midas as trustee of the Sydney Christmas Parade Trust had delegated to Mr Mead any power to enter into a contract.

33 Delegatus non potest delegare is an old common law rule which prohibited trustees from delegating their duties or powers to a third party. The extent to which this continues to reflect Australian law is open to debate. The learned authors of Jacobs’ Law of Trusts in Australia have expressed the view that in the light of the amendments made to previous law by statute, it is arguable whether delegation by trustees should not be treated as a power which they possess rather than an exception to the duty not to delegate: (7th ed, LexisNexis Butterworths, Sydney, 2006) at [1723] and [1731].

34 Turning to the trust deed, schedule 3 of the Sydney Christmas Parade Trust Deed (Ex B) outlines the powers and duties of Midas as trustee of the Trust. Clause 25 of Sch 3 provides that Midas may:

“25. Employ agents in the execution of the trusts and powers herein contained and instead of acting personally from time to time to employ and pay out of the Trust Fund such managers, agents, advisers, solicitors, accountants or other persons or transact any business or to do any act required to be done in connection with the administration of the trusts hereof declared including the receipt and payment of money.”

35 This clause essentially replicates s 53 of the Trustee Act 1923 and empowers the Trust to employ agents.

36 Midas submitted that even if such a power did exist it could only be exercised in writing. Midas submitted that since there is no evidence indicating that Midas passed a resolution appointing Mr Mead as an agent or ratifying the contract he entered into with Equator, that Midas is not bound to accept the contract. To support this submission Midas points to cl 50 of the deed which reads as follows:

“50. The trustee may in writing delegate the exercise of all or any of the powers or discretions hereby conferred on the Trustee and execute powers of attorney or other instruments necessary to effectuate such purpose.”

37 Clause 50 states that a trustee may choose to exercise its powers in writing it does not (as is contended by Midas) say that it must exercise its powers in writing.

38 The Magistrate at paras [65]–[66] of his Honour’s judgment stated:

65. Midas makes the argument that trustees cannot delegate the exercise of their powers, authorities and discretions to a third party (see McMillan v McMillan [1891] VicLawRp 10; (1891) 17 VLR 33). It then argues that this principle supports Mr Farr's claims that he was the only person with authority to enter agreements on behalf of the trust.

66. That argument is flawed in three respects: First, trustees may appoint agents to carry out the decisions of the trustees. Indeed, a trust company could not perform any of its functions as a trustee except through its agents. Second, Mr Farr was himself an agent of the trustee company. He was not the trustee but a person who implemented the trustee's decisions. True it is that he was the controller of the trustee company but that did not transform him into the trustee. Third, the trust needed agents to implement its decisions in Sydney. This could best be through Mr Farr, who was in Queensland. If something urgent needed doing in Sydney, it made sense for the trust to have a local agent. He was not making decisions of the trust, he was implementing its decision to engage an advertising agency. The letter of 1 April demonstrates this point. That is a fifth reason for finding that the contract was made between Equator and Midas.”

39 Whether the doctrine of delegatus non potest delegare continues to form part of Australian law is, as I have said, open to debate. But that is not to the point because clauses 25 and 50 of the trust deed allows an agent to be appointed and such an appointment does not need to be in writing. The Magistrate was correct. There is no error of law.

Ostensible Authority

40 The Magistrate held that Mr Mead was an agent of the Trust because Midas had given him ostensible authority to enter into contracts on behalf of the Trust.

41 The Magistrate provided the following reasons, which for the benefit of later discussion is extracted at length:

“59. For the following reasons I have concluded that Equator's contract was with Midas:

60. First, the letter of 1 April 2005 was sent, by his own admission, by Mr Farr. His name appears nowhere in the letter. Nor did he provide in it any contact details for himself or Midas other than a Queensland post office box number. The letter was sent on what was ostensibly the letterhead of the trust. While the letter was clearly an invitation to treat, a fair reading of it held Mr Mead out as the agent of the trust for the purposes of. negotiation of any agreements that may flow from the invitation. Nowhere does the letter suggest that Mr Mead's authority was limited in any way or that any person wishing to enter an agreement with the trust must get in touch with Mr Farr.

61. Second, Mr Farr is a person of extensive business and financial experience. His advice has been sought and relied upon by Mr Mead for many years. It is, therefore, in my opinion, inconceivable that, when he sent the letter of 1 April 2005, Mr Farr had any intention but to hold out Mr Mead to the world as the agent of the trust for the purpose of negotiating a contract with an advertising agency. Had it been his intention as director of the trustee company to limit the scope of Mr Mead's authority it would have been the simplest of measures to advert to this in that letter. He did not.

62. Third, there is no rational way of reading the letter of 1 April 2005 other than as suggesting that Mr Mead had the authority of the- trust to enter contractual relations on its behalf: the only contact person nominated was Mr Mead and the only fast way of dealing with the trust was to get in touch with Mr Mead by email, fax or telephone. In stating that the. sales brochure was "required now" the letter implied that there was a degree of urgency in the trust's approach, through Mr Mead, in coming to an agreement. Moreover, the letter, asks the recipient to "let us know if your agency can help us..." The letter directs the recipient's attention to Mr Mead, not away from him, and the use of the pronoun "us" implies that Mr Mead had the authority of the trust to speak for it and to negotiate for it.

63. Fourth, apart from the tendering of the three written contracts, the defendants called no evidence from other witnesses to prove that Mr Mead had advised all suppliers to approach Mr Farr with their quotations. Perhaps that occurred in some instances, but it is revealing that the two contracts signed by Mr Farr for the trust in April hold Mr Mead out as the "executive producer manager" (which implies he had executive authority to act for the trust) and it is only in the July contract that any reference to Mr Farr having sole authority to make contracts emerges. That, of course, was at about the time Mr Mead was seeking to hold Equator at bay while he sought funding from Myer and other sources.

64. Mr Mead put Equator and, no doubt, other suppliers on notice that Mr Farr was his adviser or partner. Equator understood that Mr Mead would on occasion need to consult Mr Farr. That, however, is a long way short of being put on notice that he had no authority to bind the trust. I find it difficult to accept that in April 2005 such a limitation had been placed on Mr Mead's authority or, if it had, that this had been communicated to all suppliers including Equator. Mr Mead claimed that all suppliers, including Equator, were told that only Mr Farr could enter agreements on behalf of the trust. There was no need for him to tell Equator this, however, if he was entering a personal agreement with Equator. This appears to be an internal contradiction in his account. Moreover, if he had a personal agreement with Equator it is odd indeed that the agency addressed its invoices to the trust not to him.

...

67. Sixth, during the long course of email correspondence that followed the production of the brochures and in which Mr Anderson pursued Mr Mead for payment between May and July 2005, not once did Mr Mead deny the trust's liability or remind Equator that the contract had been made with him rather than with the trust (see below for more detailed discussion).

68. Seventh, Mr Farr gave evidence that Mr Mead told him that he, Mr Mead, had made a personal arrangement with Equator. That evidence was supported by the evidence of Ms Emerson. On Mr Mead's evidence, Equator could have been in no doubt that they were contracting with him personally. But if that were the case, why did Equator draw up a letter of authority addressed to itself from, the Sydney Christmas Parade Trust for Mr Mead's signature? If it had a contract with Mr Mead, why did it address its five invoices dated 31 May 2005 to the trust and not him? Neither of these things makes sense unless Equator was of the view that its agreement was with the trust. Messrs Anderson and Stobart could only have come to that view because the trust held Mr Mead out as its agent or because Mr Mead held himself out to be its agent. Either way, Equator was never put on notice that Mr Mead was forming a contract with it on a personal basis.

69. Mr Mead was not an impressive witness but it seems unlikely that he felt any need to lie to his own financial adviser about the contract. He had no reason to do so. I therefore cannot accept that Mr Mead told Mr Farr that he had a personal contract with Equator. Mr Farr is, consequently, not a witness in whom I can place confidence concerning Mr Mead's authority as an agent or lack of it. (Nor is Ms Emerson whose evidence is of questionable reliability on the further grounds that she lacks independence both because she is Mr Farr's partner and because she stands to gain if the trust is relieved of liability.) If in about July 2005 Mr Farr considered that he ought to remove Mr Mead's authority to act as agent, that had not occurred in April.

70. As Lord Ellenborough said in 1812, "strangers can only look to the acts of the parties" and, looking to these acts of the trustee and Mr Mead, the only reasonable conclusion a stranger (in this case Equator) could have drawn was that Mr Mead had actual authority to negotiate a deal for the provision of advertising services. Absent some express statement of lack of authority from either Mr Mead or the trustee, Equator was entitled to rely upon that apparent authority. Once the trustee had held Mr Mead out as its agent for the purposes of entering a contract with the advertising agency, it was immaterial whether Mr Mead in fact had actual authority from the trustee or not.

71. I do not accept Mr Mead's evidence that he did not read the letter of authority. But even if true it, of course, provides the trust with no defence. In Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 the High Court applied the principle that a document containing contractual terms is signed, then, in the absence of fraud or misrepresentation, a party signing a commercial contract is bound by it and it is wholly immaterial whether the party (or its agent) has read the document or not when signing the document. Upon Mr Mead signing the letter of appointment, the trust, having held Mr Mead out to be its agent, was bound by the terms of that contract. It is no defence for Mr Mead to claim that he did not read it properly. No fraud or misrepresentation on the part of Equator was pleaded and those issues cannot be relied upon and are not relied upon by the defendants.

72. While, having made those findings, it is unnecessary to decide whether, at the time he signed the letter of authority Mr Mead had actual authority to bind the trust it is, in my view, more likely than not that he had. There is significant evidence to suggest that, while Mr Mead had put Equator on notice that he had a partner or adviser in Queensland, he had the actual authority in his own right to enter the agreement. That is implicit in the terms of the letter of 1 April 2005, it is implicit in the fashion that he conducted business with Equator, it is implicit in the fact that he signed the letter of appointment, it is implicit in the fact that Equator had no contact whatsoever with Mr Farr during the period they performed work for the trust and it is implicit in the fact that during June and July, when Equator and Mr Mead were negotiating a time for the payment of the invoices, he did not refer them to Mr Farr. It is also implicit in the very title Mr Mead bore on contractual documents signed by Mr Farr: "Executive Producer Manager of the Sydney Christmas 'Trust". It is utterly implausible that Mr Mead did not read the letter of authority and implausible that he would have signed it without authority.

73. Ultimately, however, it does not matter whether Mr Mead had been delegated the authority to make contracts on behalf of the trust because he had the trust's ostensible authority.

74. Considering the urgency of getting the sales brochures done and the demands made by Equator upon Mr Mead for a letter of appointment before it would undertake the work, it seems more likely than not that the formal letter of appointment was signed around 2 May rather than in June as Mr Mead asserted in his oral evidence.”

42 Although there is some confusion caused by the unintentional interchangeable use of the terms “actual authority”, “apparent authority” and “ostensible authority”, from his Honour’s findings (at [73]) it is clear that the Magistrate’s primary legal finding was that Mr Mead had been acting with ostensible authority and that Midas are therefore estopped from denying the contract that resulted from that agency.

43 Midas submitted that the Magistrate erred in law in reaching this conclusion on two grounds. They are firstly, that the representations and behaviour of Midas was not sufficient to be characterised as “holding out”; and secondly, that the Magistrate did not put enough emphasis on the fact that Equator had notice that Mr Mead needed to consult with Mr Farr before acting and made no effort whatsoever to contact Midas.

Holding Out

44 The notion that a principal has by their actions, or in some cases their inactions, “held out” a person to be their agent is a fundamental justification for imposing liability upon a principal rather than a contracting party for agents who act beyond their actual authority. As Vaughan Williams LJ in Fry v Smellie [1912] 3 KB 282 at 293 explained:

“When one of two innocent persons must suffer, the person who renders it possible for the wrongdoer to do the wrong by reason of the trust he reposed in the wrongdoer, should suffer, rather than the person who suffers from the agent having that opportunity.”

45 This raises the question as to what conduct on behalf of the principal will count as holding out? In International Paper Company v Spicer [1906] HCA 75; (1906) 4 CLR 739, Griffith CJ at 747 indicated that it must be shown that the principal has so conducted themselves as to enable the agent to hold themselves out as the representative of the principal. The word enable has the significance of “making possible”, and is not to be regarded as simply meaning “did not prevent”: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd [1975] VicRp 59; [1975] VR 607 at 615 per Lush J.

46 In many cases it is not always easy to find one definitive document or representation produced by the principal that enables the agent to act. After all if such a document did exist one would be dealing with a case of actual rather than ostensible authority. As a consequence it is often necessary to consider a mosaic of evidence: Calyton Robard Management Ltd v Siu (1988) 6 ACLC 57 at 59 per Kirby P. This point was emphasized by Browne Wilkinson LJ in Eygptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and P. S. Refson & Co Ltd [1985] 2 Lloyd’s Rep 36 at 41:

“It is important to bear in mind that the doctrine of holding out is a form of estoppel. As such, the starting point is that the principal must be shown to have made a representation, which the third party could and did reasonably rely on, that the agent had the necessary authority. The relevant enquiry, therefore, in all cases is whether the acts of the principal constitute a representation that the agent had a particular authority and were reasonably so understood by the third party. This requires the Court to consider the principal's conduct as a whole. In many cases, the holding out or representation by the company consists solely of the fact that the company has invested the agent with a particular office, e.g., 'managing director' or 'secretary'. For example, in a case such as British Bank of the Middle East v. Sun Life Assurance of Canada (U.K.) Ltd., [1983] 2 Lloyd's Rep. 9, the only holding out by the defendants to the third party was to invest someone with the title 'Branch Manager', which enabled him so to describe himself in correspondence relied upon by the third party: in such a case, the only representation which the third party can reasonably rely upon is the representation that that person has the powers normally or usually enjoyed by a branch manager. Therefore, in such a case, the only relevant enquiry is as to the powers normally enjoyed by branch managers in general. But where, as in the present case, the holding out is alleged to consist of a course of conduct wider than merely describing the agent as holding a particular office, although the authority normally found in the holder of such an office is very material, it must be looked at as part and parcel of the whole course of the principal's conduct in order to decide whether the totality of the principal's actions constitute a holding out of the agent as possessing the necessary authority.”

47 The Magistrate examined the factual matrix and the acts of the principal and the action of Mr Mead. Mr Farr admitted in his evidence that he had seen and acquiesced to Mr Mead sending the 1 April 2005 letter to Equator. That letter was prepared on official Sydney Parade Trust letterhead and although it nominated Midas as trustee, all of the contact details where Mr Mead’s. The purpose of the letter was to introduce Equator to the parade concept and to provide a stimulus for further discussions concerning the event. In my view, it was open for the Magistrate to decide that the letter of 1 April 2005 was sufficient to demonstrate that Midas had held Mr Mead out as an agent of the Trust.

48 The Magistrate decided that by including Mr Mead’s name without disclosing any warning that he did not have the authority to bind the Trust or that all final decisions would have to be approved by Mr Farr, Mr Farr gave the impression that Mr Mead had more authority than he actually did. According to the Magistrate, by conducting himself in this way Mr Farr enabled Mr Mead to hold himself out as an agent of the Trust. It is immaterial that Mr Farr may have told Mr Mead privately that Mr Mead was not authorised to bind the trust, and this was mutually recognised by Mr Mead, what matters is the perception that the letter created in Equator’s mind: see Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 3 All ER 511 at 516 per Brightman J.

49 Midas responded by asserting that even if this letter did amount to a representation all it did was hold Mr Mead out as an agent authorised to negotiate on the Trust’s behalf and to assist in the organisation of the parade, but not to contract on its behalf. This is said to arise from the fact that the 1 April 2005 letter is no more than an “invitation to treat”.

50 This is not to the point. As mentioned above, in terms of agency law what is formative is the perception created in third parties by the holding out. The Magistrate made a finding that Mr Farr in holding Mr Mead out as the person to contact for all queries to do with the parade may of not in itself conferred actual authority on Mr Mead to bind the Trust, however it certainly gave the perception to outside third parties that he was authorised and in a position to act on behalf of the Trust. The authority was unqualified and enabled Mr Mead to claim with credibility he otherwise would not have had that he was authorised to bind the Trust. In such a situation it would be unfair to allow a principal to escape liability. As was explained by Browne-Wilkinson LJ in Egyptian International at 43:

“It is obviously correct that an agent who has no actual or apparent authority either (a) to enter into a transaction or (b) to make representations as to the transaction cannot hold himself out as having authority to enter into the transaction so as to effect the principal's position. But, suppose a company confers actual or apparent authority on X to make representations and X erroneously represents to a third party that Y has authority to enter into a transaction; why should not such a representation be relied upon as part of the holding out of Y by the company? By parity of reasoning, if a company confers actual or apparent authority on A to make representations on the company's behalf but no actual authority on A to enter into the specific transaction, why should a representation made by A as to his authority not be capable of being relied on as one of the acts of holding out? There is substantial authority that it can be: see British Thomson-Houston Co. Ltd. v. Federated European Bank Ltd., [1932] 2 K.B. 176, especially at p. 182 (where the only holding out was an erroneous representation by the agent that he was managing director); and the Freeman & Lockyer case per Lord Justice Pearson at p. 499; Hely-Hutchinson v. Brayhead Ltd., [1968] 1 Q.B. 549 per Lord Denning, M.R. at p. 593A-D.”

51 There is an authority which supported Midas’ submission. In Russo-Chinese Bank v Li Yau Sam [1910] AC 174 at 184 Lord Atkinson said:

“in order that the principle of "holding out" should in any given case of agency apply, the act done by the agent, and relied upon to bind the principal, must be an act of that particular class of acts which the agent is held out as having a general authority on behalf of his principal to do; and, of course, the party prejudiced must have believed in the existence of that general authority and been thereby misled. In other words, if the agent be held out as having only a limited authority to do on behalf of his principal acts of a particular class, then the principal is not bound by an act done outside that authority, even though it be an act of that particular class, because, the authority being thus represented to be limited, the party prejudiced has notice, and should ascertain whether or not the act is authorized.”

52 To assist Midas it would need to be established that they told Equator that Mr Mead’s authority was limited. On the Magistrate’s findings there is no evidence that this disclosure occurred. Hence no assistance can be drawn by Midas from the judgment of Lord Atkinson.

Notice

53 From the paragraphs of the Magistrate’s decision extracted earlier in the judgment the Magistrate accepted that Equator was told by Mr Mead that he had a business partner in Mr Farr who on occasion he would consult before acting. Nonetheless, the Magistrate concluded that although this may have placed Equator on notice that such a partner or consultant existed, it falls short of being put on notice that Mr Mead had no authority to bind the trust.

54 Midas submitted that the Magistrate made an error of law in setting the threshold for notice so high. It submitted that in the circumstances of this case the information disclosed by Mr Mead as to the existence of Mr Farr should have put Equator on notice that Mr Mead did not have the authority to bind the Trust. In particular, Midas pointed to the following circumstances which they submitted in combination with the above mentioned disclosure would have given a reasonable person suspicion that Mr Mead was not the agent he was purporting to be. Firstly, it is noted that after the letter of 1 April 2005 Mr Mead was never able to produce any correspondence on official trust letterhead, a letterhead they knew was used for official correspondence. Secondly, that the only letter of appointment Equator were eventually able to obtain was on an authority prepared by themselves, which even then was only secured after applying considerable pressure on Mr Mead. Midas submitted that to obviate all of these suspicious circumstances Equator should have contacted Midas and made inquiries about Mr Mead’s authority. Midas claims that if Equator had contacted Midas they would have discovered that Mr Mead was not acting with authority and they must therefore bare the consequences of their own carelessness.

55 It is trite law that no act done by an agent in excess of his or her authority is binding on a principal with respect to persons having notice that in doing the act the agent is exceeding their authority: Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421 at 431 per Griffith CJ; Russo-Chinese Bank v Li Yau Sam [1910] AC 174 at 184 per Lord Atkinson. The rationale being that if a third party has knowledge, it cannot be said that they relied on a principal’s representation or “holding out” in contracting with the agent: Armagas Ltd v Mundogas SA [1985] UKHL 11; [1986] 1 AC 717 at 777 per Lord Keith of Kinkel.

56 Even though this principle may seem straight forward, in practice it can be difficult to determine what level of notice will suffice. The following commentary in Bowstead & Reynolds on Agency (18th ed, Sweet & Maxwell, London, 2006) at p 362 is helpful:

“Situations of express notice cause no difficulty. The problem is to know what constitutes notice, and when there is a duty to inquire. It is often said that neither constructive nor presumed notice apply in commercial transactions. This certainly excludes the full doctrine of constructive notice of equitable interests in land, whereby a person may be deemed to have notice of property interests which would have come to his knowledge if such inquires and inspections had been made as ought reasonably to be made. But there can be no doubt that in many situations where it is relevant to know whether one person has knowledge of the facts, including those raising the doctrine of apparent authority, the court may infer from the circumstances that the person concerned must have known the facts in question or at least must have been suspicious to the extent that further inquires would have been appropriate in the context.”

This commentary was referred to with approval by a Full Bench of the Federal Court in Combulk Pty Ltd v TNT Management Pty Ltd [1993] FCA 89; (1993) 113 ALR 214 at 222.

57 A similar point was made by Mummery J in Alliance & Leicester Building Society v Edgestop Ltd (1993) 1 WLR 1462 at 1480 where his Honour said:

“It appears that there may be cases in which a third party cannot hold the principal liable on the grounds of ostensible authority if he, the third party, did not rely on the representation by the principal or if he knew or must be taken to have known of the agent's lack of authority or if he neglected to take the opportunity of ascertaining the agent's authority or if he was put on inquiry by the facts of the transactions.”

58 This statement seems to have been taken from Lloyds Bank v The Chartered Bank of India, Australia and China [1929] 1 KB 40 where Scrutton LJ at 56 spoke of an “irregularity” in a transaction that puts a contracting party on notice.

59 Examples of cases in the past that have given rise to such irregularities are situations where a third party is aware that an agent is under a conflict of duty and self interest (Lysaght Bros, Combulk Pty Ltd v TNT), is acting in a way beyond the authority usually delegated to an agent in their position (Overbrooke Estates v Glemcombe Properties Ltd [1974] 1 WLR 1335) or when an agent is acting in a way that deviates from an established custom that is usually applied in such circumstances (see Rasnoimport v Guthrie & Co Ltd [1966] 1 Lloyd’s Rep 1). In other cases a contracting party has been held to have constructive notice that an agent did not have the requisite authority when that party has failed to take ordinary business precautions which if utilized would have discovered the truth. For example when they have failed to properly read the document that established the authority (see Jacob v Morris [1902] 1 Ch 816).

60 From paragraphs [24] – [29] the Magistrate outlined what exchanges occurred between Equator and Mr Mead between Equator receiving the 1 April 2005 correspondence and the letter of appointment executed by Mr Mead on 29 April 2005:

24. Mr Boyd Anderson, another director of Equator, and Mr Stobart gave evidence that on 7 April 2005 they had met Mr Mead at their office. They both stated that at that meeting Mr Mead told them that Mr Mead and his "partner" Mr Wayne Farr were organising the parade, that he had various people involved in the planning and that he needed Equator to handle the advertising and also that he needed a sales brochure produced "as soon as possible" to enable the parade's sales staff to obtain sponsors. Both Messrs Anderson and Stobart expressed interest in doing the work. Mr Anderson gave evidence that he had told Mr Mead at that meeting that they would need "a formal letter of appointment".

25. Evidence was given by Equator's witnesses that, following the initial meeting, a number of further meetings of parties involved in the planning and organisation of the parade were convened. Messrs Anderson and Stobart stated that on 11 April they met Mr Mead and Mr Craig Gibbs to discuss sales packages. On 18 April, a large meeting attended by 15, people was held to discuss the parade. Mr Mead was nominated in the minutes as the representative of the Sydney Christmas Parade Trust. Minutes of another meeting held on 9 May also listed Mr Mead as representative of the trust.

26. Messrs Anderson and Stobart gave evidence that after the meeting of 18 April. 2005 they had pressed Mr Mead for a letter of appointment authorising the agency to do the work on the sales brochure. According to Mr Anderson, Mr Mead's reply had been, "I will get Wayne to send a letter of appointment to you." No letter was produced by Mr Farr or Mr Mead.

27. On 26 April 2005, Messrs Stobart and Anderson had another meeting with Mr Mead concerning the sales brochure. Mr Anderson, somewhat frustrated by the trust's failure to provide a letter of appointment had Equator had been requesting, had drafted a letter addressed to Equator from the trust for Mr Mead's signature and took it to the meeting where it was presented to him.

28. In Mr Anderson's statement, tendered in evidence, he said that he had told Mr Mead about the estimates Equator had obtained for the sales brochures but that before Equator could commit itself to spending money it required the letter of appointment. He said that he had told Mr Mead he could have Mr Farr examine it if he wished but that Mr Mead had replied in words to the effect of "I have to get the job moving or we will lose opportunities for getting sponsors. I can't wait for Wayne. I will sign it now.”

29. He also gave evidence that in the course of the discussion that day Mr Mead had told him and Mr Stobart about his business background and had said at one point, "I never make any business decisions without [Mr. Farr's] approval." Mr Anderson said that Mr Mead had also said that he had "never cheated anyone for payment and I do not intend to start doing that now."

61 I agree with the Magistrate that when Mr Mead met with a group of subcontractors and acted as the representative of the Trust this could only have helped to persuade Equator that Mr Mead could bind the Trust.

62 In relation to the letter dated 1 April 2005, the Magistrate dealt with that at [60] to [62] which had been reproduced earlier in this judgment. The Magistrate made a finding that Mr Farr’s intention was to hold out Mr Mead to the world as agent for the trust for the purpose of negotiating a contract with an advertising agency and that there was no rational way of reading the letter of 1 April 2005 other than suggesting Mr Mead had authority of the trust to enter contractual relations on its behalf.

63 From a series of findings of fact, it was open to for the Magistrate to find that Mr Mead was the agent of Midas. Even if I am wrong and Mr Mead did not have ostensible authority, the Magistrate held the view that it was more likely than not that Mr Mead had actual authority to bind the trust [72]. There is no error of law. This appeal ground fails.

Quantum – the amount owing

64 Midas submitted that in the light of the evidence that Equator did not send Midas any invoice prior to 22 August 2005 and Midas was not aware of the invoices prior to 22 August 2005, the Magistrate erred in law in finding at [67] that Mr Mead’s non-denial of the trust’s liability amounted to an admission of liability by the Trust. There was evidence that on 31 May 2005 that Equator produced five invoices for its work. The Magistrate gave details of the invoices at [81]. The Magistrate held at [99] that firstly, Mr Mead’s implied acceptance of the fact that the trust owed Equator the sum claimed; secondly, Mr Mead did not dispute the claim by even one cent all that time; and thirdly, Mr Mead simply sought to evade making the payment. It was open for the Magistrate to accept that the whole amount was due and owing.

The setting aside of the default judgment against Mr Mead

65 At the conclusion of the hearing, the Magistrate drew counsel’s attention to the problem of inconsistent judgments that would occur if Mr Mead was held to be an agent of the trust. The inconsistency arose from the fact that Equator in its pleadings had claimed damages against Mr Mead in his personal capacity for breaching s 42 of the Fair Trading Act 1987 (NSW) as an alternative to its contract claim against Midas. The basis of the s 42 claim against Mr Mead was that if he was not an agent of the Trust then he had engaged in misleading and deceptive conduct in holding himself out as being an agent of the Trust. On these pleadings both claims cannot succeed. It is either one claim or the other.

66 No defence was filed for Mr Mead. Equator sought default judgment. On 1 February 2006, the court entered default judgment against Mr Mead with damages to be assessed.

67 On 25 July 2006, Mr Mead filed a notice of motion seeking to set aside the default judgment entered against him. On 31 August 2006 this notice of motion was heard by a Registrar in the Local Court. Equator opposed Mr Mead’s motion. The notice of motion was dismissed and the default judgment remained on foot.

68 When the Magistrate sought submissions from the parties on the issue of inconsistent judgments, neither party addressed that issue. Midas submitted that the entry of default judgment against Mr Mead acts as an estoppel, preventing Equator from maintaining its action against Midas. Equator submitted that it could have judgment against both Midas and Mr Mead. No authority was cited by either party in support of their submissions.

69 The Magistrate, in his written reasons, drew an analogy from the situation in which a third party sues an agent and then an undisclosed principal for breach of contract and that third party is forced to make an election. His Honour referred to Marginson v Ian Potter & Co [1976] HCA 35; (1976) 136 CLR 161 where Gibbs CJ and Mason J at 169 said:

“...But once a third party has sued the agent to judgment he cannot thereafter, without setting aside that judgment, sue the undisclosed principal even if the existence of the principal was not known to the third party at the time when the judgment was obtained. This proposition rests not on the doctrine of election which depends in general upon knowledge of relevant facts but on another principle, namely that when judgment is obtained on a cause of action the cause of action merges in the judgment. Thus the liability of an undisclosed principal merges in a judgment obtained against the agent by the third party ...”

70 The Magistrate considered that Marginson stood for the proposition that two inconsistent judgments cannot coexist and the Court may set aside the earlier judgment.

71 On this topic, the Magistrate at [118] stated:

“118. Generally, where there has been no hearing on the merits a res judicata estoppel will not arise. It has been held that a default judgment may give rise to a res judicata estoppel but that a default judgment "must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and... they can estop only for what ‘must necessarily and with complete precision' have been determined": Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1010-12. (See also Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd [1993] FCA 342; (1993) 115 ALR 377.)

119. What precisely has been determined, if anything, by the entry of the default judgment? When it filed its statement of claim against the defendants the plaintiff was saying, in effect, our contract was with Midas but, if we are incorrect in our assertion, then it must have been with Mr Mead because he misled us by representing himself to be Midas's agent. It was only because of Midas's denial that Mr Mead was its agent that the plaintiff joined Mr Mead at all. Thus it is difficult to see that the default judgment can be said to have determined any factual issue.

120. The plaintiff's submissions are incorrect: it cannot have a judgment against both parties when they are sued in the alternative. In any event, its case against Mr Mead is pleaded in terms of his lacking authority to bind Midas but representing that he had that authority. If he was Midas's agent, as I have found, how could he have been making a misleading representation if he was making that very representation? Mr Mead can only be held liable in damages if he is found to have made a false or misleading representation upon which Equator relied to its detriment. He was not misleading Equator when he held himself out to be Midas’s agent.”

72 From paragraphs [121] – [123] the Magistrate outlined why he considered that the Court on its own motion had the power to set aside the default judgment. Although he noted that “ordinarily it would be highly inappropriate to set aside a judgment on the Court’s own motion”, “here it would be a travesty of justice if, at the end of a hard fought trial in which the merits of the case have been subjected to intense scrutiny and the facts distilled, the plaintiff were now estopped from proceeding to obtain judgment against Midas”.

73 Part 36.16 (2)(a) of the Uniform Civil Procedure Rules 2005 provides “The court may set aside or vary a judgment or order that it has been entered if: it is a default judgment.” In my view the Magistrate had the power to set aside the default judgment on the Court’s own motion. His Honour considered that the default judgment had been procured irregularly, in that the defendants in bad faith were seeking to hide behind it in order to protect the assets of the Trust.

74 The Magistrate referred to cases involving agents and undisclosed principals. In these cases there is one cause of action (for example a breach of contract) being pleaded against two independent parties – the agent and the undisclosed principal. While the parties are independent, agents are held to have entered such transactions both for themselves and on behalf of their principal and can thus sue and be sued on the contract: Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207. When a contracting party sues under that contract and succeeds in obtaining judgment against either an agent or an undisclosed principal, or vice versa, they cannot then turn around and sue the other party because to do so would be to give them two judgments for the one wrong: Henry J B Kendall v Hamilton (1879) 4 AC 504 at 515 per Lord Cairns. In taking one of the parties through to judgment, a plaintiff’s claim against the agent and the undisclosed principal merges, and it is as if the claim against the party that has not been sued never existed in the first place.

75 The Magistrate identified that this was not the situation before the Court. The issue that presented itself was one of alternative liability on different causes of action. The problem that arose was not that the cause of action against Midas had merged into the judgment against Mr Mead – as the cause of action against Midas was for breach of contract whereas the cause of action against Mr Mead was for misleading and deceptive conduct but rather that the success of either action depended upon the finding of agency. If Mr Mead were the agent of Midas his claim for false and misleading conduct would fail. Alternatively, if Mr Mead was not the agent of Midas, the claim for misleading and deceptive conduct would fail. I agree with the Magistrate that Equator could not maintain two actions where success in one would be inconsistent with success in the other.

76 The Magistrate considered Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91, which held that a party cannot maintain two actions where success in one would be inconsistent with success in the other. In that situation the plaintiff has to make an election as to which judgment is to be maintained. In Petersen v Moloney, Mr Petersen had engaged Pullbrook, an estate agent to help sell his property. Moloney contacted Pullbrook after seeing the property advertised and over the proceeding days entered into a contract with Petersen to purchase the property. In believing that Pullbrook was authorised to receive money on behalf of Petersen, Moloney paid the purchase price to Pullbrook. Pullbrook misused the money and when none was received Petersen sued Moloney for failing to pay the purchase price.

77 At trial, Petersen pleaded two alternative causes of action. Firstly, it was claimed that since Pullbrook did not have the authority to receive the purchase price on behalf of Petersen, any money paid to him did not count. It was submitted that if Moloney wanted to recover its money it needed to pursue Pullbrook, but this in no way affected their rights to the purchase price. In the alternative, in case the first submission failed, Petersen also added Pullbrook as a defendant claiming that if he was an agent he had misused his authority and must therefore account. There were two alternative claims the success or failure of each depending upon the findings of agency.

78 The trial judge made two findings. They were firstly, that Pullbrook was Petersen’s agent; and secondly, that Pullbrook was liable to account. For Petersen this judgment was a disaster. Pullbrook was a bankrupt and incapable of repaying the debt. As a result Petersen appealed. Peterson sought to have the judgment against Pullbrook set aside and the question of agency reconsidered. Moloney opposed the appeal on the basis that Peterson had an opportunity to drop the case against Pullbrook but chose not to do so. It was submitted that once Petersen had obtained judgment against Pullbrook that judgment was final and they were estopped from denying the agency. The High Court disagreed stating at 102-104:

“The case is clearly one of alternative liability. Either Moloney or Pulbrook might be liable to the plaintiff, but both could not be. In such a case a final election to treat either as liable would preclude the plaintiff from proceeding against the other, and it is a well-settled general principle that, while the commencement of an action against one of two persons alternatively liable does not, the entry of judgment against one of them does, constitute a final and irrevocable election: see Morel Bros & Co Ltd v Earl of Westmoreland [13]. In the present case the plaintiff (as she was clearly entitled to do) proceeded against both of the persons possibly liable, claiming alternatively as against each. After Walker J had pronounced his decision she entered judgment against Pulbrook. Did this amount to a final election to treat Pulbrook as liable to the exclusion of Moloney? Apart from appeal, clearly it would amount to such an election. But the judgment was subject to appeal, and we do not think that the plaintiff can, by suing in the alternative and having judgment against one defendant, be precluded from maintaining on appeal that the judgment against that defendant should be discharged and that judgment should go against the other defendant. This is what the plaintiff seeks on this appeal, for her notice of appeal asks that the whole of the judgment of Walker J should be set aside and that in lieu thereof the judgment should be against Moloney. She has never asked, or put herself in a position where she must be treated as asking, for a judgment against both defendants. Herein the case differs from Morel Bros & Co Ltd v Earl of Westmoreland [14] and from Moore v Flanagan [15]. In each of those cases the plaintiff had obtained judgment against one of two defendants, of whom one but not both might have been liable, and then, without setting aside or seeking to set aside that judgment, had sought judgment against the other. This offended against the rule stated by Atkin LJ (as he then was) in Moore v Flanagan [16] at 928 that "a plaintiff cannot sue an agent to judgment and then sue the principal". The plaintiff in this case is not offending against that rule. It is to be noted that, although the rule is often stated in terms which would seem to make it depend on election, Vaughan Williams J (as he then was) in Hammond v. Schofield [17], at 457 said:- "The basis of this defence is not the election or unconscious election, if there can be such a thing, of the plaintiff, but the right of the co-contractor when sued in a second action on the same contract to insist, though not a party to the first action, on the rule that there shall not be more than one judgment on one entire contract". This passage is quoted by Scrutton LJ in Moore v Flanagan [18], at 925. Moore v Flanagan [19] was not, and this case is not, a case of "co-contractors", but the same rule is applicable, and it must rest on the same basis. There must not be more than one judgment where there is only one antecedent obligation. What Vaughan Williams J said in Hammond v. Schofield [20] seems to be in accord with what Lord Cairns said in Kendall v. Hamilton [21], at 514, 515. In Buckingham v Trotter [22] Darley CJ, speaking for the Full Court, said:- "The principle to be deduced from the authorities is that, in the case of principal and agent, the election to sue one or the other is not concluded until after final judgment has been obtained against the one or the other, but, after obtaining this final judgment against the one, so long as it remains of record, no action is maintainable against the other, lest such second action bring about the inconvenient results alluded to by Lord Cairns in Kendall v Hamilton" [23] 514, 515. Here the plaintiff asks that judgment against the one shall no longer remain of record but that judgment against the other shall be substituted for it. There is no rule which prevents her from doing this.” [citations omitted]

79 As in Peterson, either Midas or Mead would be liable but both could not be. Equator submitted to the Magistrate that it could have judgment against both Mr Mead and Midas. This proposition is wrong. In the Local Court Equator did not made an election nor has it asked that the judgment against Mr Mead no longer remain on record and the judgment against Midas be substituted for it. Both judgments cannot be maintained because they are inconsistent.

80 It is my view that it is not open for the Magistrate to make the election only Equator could do that. Hence, it is my view that the Magistrate was not entitled to set aside the judgment against Mr Mead. However, neither party has turned its mind to address the principle in Peterson v Maloney. In the circumstances of this case, it is my view that the parties should be given an opportunity to do because otherwise the result may be unjust in the light of the Magistrate’s findings in relation to the conduct of Midas and Mr Mead.

81 The decision of the Magistrate dated 5 February 2007 is set aside. The costs order made on 30 June 2007 is set aside for reasons given later in this judgment.

82 It is my view that the Magistrate erred in his reasons for setting aside the default judgment. The parties have not specifically had the opportunity to address the principle set out in Peterson v Maloney and what flows from that decision. This matter is remitted to the Magistrate to be dealt with according to law.

The costs order dated 20 June 2007

83 On June 2007, the Magistrate ordered that the defendants severally pay the plaintiff’s costs as agreed or assessed on an indemnity basis.

84 Midas submitted that the Magistrate’s findings on costs were based on erroneous findings of facts and errors of law. The Magistrate referred to the wide discretion as to costs and the ordinary rule that costs follow the event.

85 The Magistrate at [14] stated:

“The defendants apparently found themselves embarrassed when they could not raise the funds needed to pay Midas’s creditors. Although it was not part of the evidence, it was stated by Mr Mead’s solicitor in the course of submissions that he was virtually bankrupt and had not the means to pay a costs order. That came as no surprise. His willingness to accede to judgment against him indicated he was trying to accept the burden of a judgment in order to preserve Midas. Given that at all times Mr Mead had acted as Midas’s agent, this was not only dishonest conduct on his part but, in my view, came perilously close to an attempt to pervert the course of justice.”

And at [17] his Honour continued:

“In my view, Mr Farr and Mr Mead attempted to mislead the court. Further, Midas maintained proceedings without real prospects of success because it knew that Mr Mead was its agent and had made contracts which had not been honoured with Equator. Mr Mead played his appointed role in this subterfuge by claiming, falsely, that he had been on a frolic of his own.”

86 The Magistrate referred top Colgate Palmolive v Cussons [1993] FCA 536; (1993) 46 FCR 225, which sets out circumstances where indemnity costs can be awarded. Attempting to mislead the Court is a circumstance where indemnity costs can be awarded. The Magistrate did not err in his findings of fact or law in awarding costs on an indemnity basis. This ground of appeal fails.

87 However, the costs order should also be set aside as the decision of the Magistrate in relation to the election issue may impact upon his decision in relation to order for costs on an indemnity basis. I express no view on this issue.

88 The appeal is allowed. The judgment and orders made by his Honour Magistrate Dillon on 5 February 2007 and 20 June 2007 are set aside. The matter is remitted to the Local Court to be determined according to law.

89 Costs are reserved.

The Court orders:

(1) The appeal is allowed.

(2) The judgment and orders made by his Honour Magistrate Dillon on 5 February 2007 and 20 June 2007 are set aside.

(3) The matter is remitted to the Local Court to be determined according to law.

(4) Costs are reserved.

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LAST UPDATED:
28 March 2008