White v Philips Electronics Australia Ltd t/as Philips Healthcare

1. [1]

   BELL P:

Introduction

1. [2]

   Mr Bevyn White (Mr White) brings this appeal from a decision of Olsson DCJ delivered on 20 July 2018.

2. [3]

   Mr White was the second of three defendants in proceedings brought by Philips Electronics Australia Ltd trading as Philips Healthcare (Philips). Philips sought damages from the first defendant, Victorian XRay Group (Balwyn) Pty Ltd (Balwyn), which was party to a written agreement (the Contract) with Philips entered into on 14 May 2013, pursuant to which Philips agreed to provide services for certain computed tomography (CT) equipment. Mr White and the third defendant, Mr Richard Mensink (Mr Mensink), guaranteed the obligations of Balwyn to Philips.

3. [4]

   Balwyn was one of a number of companies in the Victorian XRay group of companies, which conducted its business in various suburbs of Melbourne and other parts of Victoria, including Dandenong, Frankston and Boronia. The group’s head office was in Carlton. Each individual company in the group (whose name reflected its physical location) appears to have had separate service agreements with Philips.

4. [5]

   The primary judge gave judgment in favour of Philips against Messrs White and Mensink in the sum of $263,994.10 together with an award of costs on an indemnity basis pursuant to cl 6 of the Contract. Balwyn had gone into liquidation by the time of the hearing, although it filed a defence which Mr White verified in his capacity as a director the company. Of the two guarantors, only Mr White brings this appeal.

5. [6]

   The appeal is of very narrow compass. As was submitted on behalf of Mr White, “[t]he proceedings largely turned on whether the Court accepted [Mr White’s] version of what occurred at a meeting on 19 November 2014 between [Mr White] on behalf of Balwyn and Mr John Damen on behalf of [Philips]” (the 19 November Meeting). Mr John Damen (Mr Damen) was employed by Philips as a customer support and operations manager responsible for Victoria, South Australia and Tasmania. He had been in that role for approximately 25 years at the time of the trial.

6. [7]

   The appeal centres upon whether the primary judge erred in her assessment of the evidence at trial in relation to the 19 November Meeting, both in terms of what was said and the effect of what was said.

7. [8]

   It is necessary to identify the background to and context in which the 19 November Meeting took place, and her Honour’s findings in relation to it, before turning to consider the principles applicable to a challenge to a factual finding of the kind made by the primary judge and Mr White’s specific criticisms of the primary judge’s decision.

Background

1. [9]

   The following statement of background is taken from the primary judge’s reasons for judgment and is not in dispute:

2. [10]

   Philips’ contract manager at the time the Contact was entered into was Mr Simon Tomek (Mr Tomek). He left the business in about April 2014 and Mr Damen assumed his responsibilities thereafter.

3. [11]

   The Contract was entered into by Balwyn and Philips on 14 May 2013, for a term running from 23 May 2013 to 9 December 2015. The annual charge under the Contract was $82,000 plus GST, amounting to a total contract value of $203,872.22. The contract price was to be invoiced at monthly intervals. The services provided by Philips pursuant to the Contract included a telephone response service, service attendances, labour and software for both planned maintenance and priority responses, and two annual quality assurance visits.

4. [12]

   Clause 6 of the Contract provided that interest at the rate of 3 per cent above the Westpac indicator lending rate would be charged, calculated on a daily basis on any overdue payment commencing the day after the due date of the overdue payment up to and including the date of payment of the overdue amount. This clause also required Balwyn to reimburse Philips for all collection costs, including legal costs and disbursements calculated on a solicitor and own client basis, incurred by Philips in connection with any default in payment.

5. [13]

   Clause 8 of the Contract dealing with termination provided that except as otherwise provided in the clause, the Contract was “non-cancelable by Customer” and would remain in effect for the specified term. Clause 8 provided two circumstances in which the Contract was “cancelable”, neither of which applied in the instant case.

6. [14]

   The Contract also contained an “entire agreement” clause, cl 18, as follows:

7. [15]

   The key terms of the written guarantee were as follows:

8. [16]

   Following commencement of the Contract, monthly invoices for $7,516.66 inclusive of GST were sent up to and including November 2014. There was then an invoicing hiatus and, in June 2015, seven invoices for each of the months from December 2014 to June 2015 were issued. Monthly invoices continued to be issued until the end of the Contract’s term.

9. [17]

   As the primary judge recorded:

10. [18]

    There is no contest that “preventative maintenance” services to the CT equipment at Balwyn’s premises were provided throughout the life of the Contract together with what were styled “corrective maintenance services”.

11. [19]

    This meeting occurred almost 18 months into the Contract’s life. By that time, only two of some 18 invoices which had been issued had been paid, and it appears that one had been partly paid. The amount owing at that time was approximately $100,000.

12. [20]

    The background to the 19 November Meeting was set out by the primary judge at [41]–[42]. Mr Damen had contacted Mr Vincent O’Rourke (Mr O’Rourke) (chief radiographer for Balwyn) regarding renewing the contract for Balwyn and another company in the group. He said that he had not been able to contact Mr White, so took the opportunity to discuss the outstanding invoices with Mr O’Rourke. Mr O’Rourke said that that was Mr White’s business and not his but he agreed to, and did, organise a meeting between Mr White and Mr Damen. Mr O’Rourke sent the following confirmatory email on 13 November 2014:

13. [21]

    The reference to the “front end staff” in this email was to Mr Damen’s apparent agreement to request Philips’ Accounts Receivable department temporarily to cease following up on the outstanding invoices until after he and Mr White had met.

14. [22]

    Mr Damen’s affidavit evidence in relation to the 19 November Meeting was to the following effect:

15. [23]

    Mr Damen said that, as Mr White listed the correct addresses for each of the sites, he wrote them down on various invoices which had been issued to companies in the Victorian XRay group.

16. [24]

    Mr Damen made a file note of the meeting which was not referred to in either his affidavit in chief nor his reply affidavit. He said he only located it shortly before the hearing. It contained one reference to Balwyn which was “Balwyn CT = change contract level??”. In this context, it should be noted that Philips evidently offered customers different levels of service according to their needs and commercial desires. The service level provided under the Contract the subject of the current proceedings was that offered under a “Gold Agreement”.

17. [25]

    Mr White’s account of the 19 November Meeting was very different from Mr Damen’s. He said that a number of matters were discussed relating to the various service agreements which companies in the Victorian XRay group had with Philips, and continued as follows:

18. [26]

    Like Mr Damen, Mr White also produced a handwritten note in relation to the meeting. It was in the following terms:

19. [27]

    Mr Damen denied making the statements attributed to him by Mr White in the 19 November Meeting.

20. [28]

    Both Mr Damen and Mr White were challenged in relation to their respective accounts. Mr White’s evidence under cross-examination fell out somewhat differently from his affidavit evidence, as evidenced by the following exchange:

21. [29]

    Counsel for Philips also put the following series of questions to Mr White:

22. [30]

    Mr O’Rourke, as noted earlier, was the chief radiographer for Balwyn and Ms Nicole Cole (Ms Cole) was Mr White’s personal assistant.

23. [31]

    Mr O’Rourke and Ms Cole gave evidence in the proceedings although neither of them referred to having been told that the Contract had been cancelled. Mr O’Rourke’s evidence was that, whilst he had not been told that the Contract had been cancelled, he said he was told that “we were going to parts and… labour”. This appeared to be a reference to a more ad hoc relationship whereby there would not be any regular servicing of the CT machine at Balwyn.

24. [32]

    Mr White’s affidavit and oral account of the 19 November Meeting were in turn inconsistent with para 4 of Balwyn’s defence which had been verified by Mr White and which in turn was adopted and relied upon by him in his own defence. Paragraph 4 of Balwyn’s defence was that the Contract was varied:

25. [33]

    There were at least two key differences between this version of events and Mr White’s evidence. First, that a variation had been effected in a conversation between Mr White and Mr Tomek in April 2014. No such case was advanced at the hearing, and indeed the account in Mr White’s affidavit was inconsistent with it. Secondly, that the 19 November Meeting concerned an agreement not to charge by way of variation of the Contract as opposed to the cancellation forthwith of the Contract.

The primary judge’s judgment

1. [34]

   The primary judge recorded her reasons for rejecting Balwyn’s and therefore Mr White’s defence in relation to the alleged variation of agreement reached at the 19 November Meeting at [81]–[82]. Referring to a passage in the judgment of Hammerschlag J in John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94] she continued:

2. [35]

   Her Honour went on to observe (at [83]) that she was not persuaded that any consensus was reached that was capable of forming a binding contract or that was intended by the parties to be legally binding. At best, she said, it was an agreement to agree.

Relevant principles on appeal

1. [36]

   It was accepted on behalf of Mr White that he needed to displace the primary judge’s critical finding of fact in relation to the 19 November Meeting and that he needed to do so by reference to incontrovertible facts or uncontested testimony, or to show that her Honour’s findings were “glaringly improbable” or contrary to “compelling inferences”. The heavy burden which falls on an appellant met with adverse findings of fact flows from the decisions of the High Court in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 and Robinson Helicopter Company Inc v McDermott [2016] HCA 22; 331 ALR 550 (Robinson Helicopter).

2. [37]

   Robinson Helicopter was considered by Basten JA in Springfield v Duncombe [2017] NSWCA 137 (Springfield) where his Honour drew attention to the danger in reading Robinson Helicopter in a manner that might be thought to have undermined the long established approach to appellate review in relation to the drawing of inferences from undisputed facts associated with decisions such as Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9. Basten JA’s criticism in this respect of the decision in Melbourne City Investments Pty Ltd v UGL Ltd [2017] VSCA 128 was endorsed by a differently constituted Victorian Court of Appeal in Australian Securities and Investments Commission v Geary [2018] VSCA 103; 126 ACSR 310 at [208]ff (Geary) and the position now seems to be settled in Victoria in line with Basten JA’s consideration of the question in Springfield: see Bauer Media Pty Ltd v Wilson (No 2) [2018] VSCA 154; 361 ALR 642 at [269]–[287].

3. [38]

   In Geary at [223], the Court offered the following useful summary, in line with Basten JA’s analysis in Springfield:

4. [39]

   Reference should also be made to the observations of Bathurst CJ in Szeto v Situ [2017] NSWCA 136 at [25]–[26] which are germane to the present case:

Grounds of appeal

1. [40]

   Eight grounds of appeal were advanced on behalf of Mr White.

2. [41]

   The first ground related to the primary judge’s observation in [84] that:

3. [42]

   Counsel for Mr White accepted in the course of argument that this ground would not be reached if Mr White’s challenge to the findings of fact was not upheld. For the reasons given later in this judgment, the challenge to the central finding of fact fails so that it is not necessary to consider the first appeal ground, nor the issue noted by Gleeson JA in this Court’s recent decision in Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 at [122], namely whether a “no-oral modification” clause will or can preclude parties to a contract agreeing orally to vary it.

4. [43]

   The point can conveniently be made in this context, however, that “no-oral modification” clauses, even if not necessarily preclusive of oral modifications, provide important context in considering whether the requisite contractual intention to modify or vary a written contract, objectively ascertained, exists. It may also be observed, parenthetically, that one of the virtues of such clauses might be thought to be the avoidance of disputes of the very kind that arose in the present case as to whether there had in fact been a variation of the contract and, if so, what the terms of that variation were. Variations in writing leave no room for dispute as to what was actually agreed, subject to any ambiguity in the agreed form of written words.

5. [44]

   Many of the other grounds of appeal were expressed in terms of the primary judge “failing to have regard to or place sufficient or proper weight on” certain matters. These familiar formulations are not suggestive of the existence of “incontrovertible facts” inconsistent with the primary judge’s conclusions or matters which made her central findings “glaringly improbable”. Indeed, towards the end of his oral submissions, counsel for Mr White conceded that the critical findings reached by the primary judge were “open to her”. This concession, rightly made, was in my opinion all but fatal to the case sought to be brought on appeal.

6. [45]

   Out of deference to the appellant’s arguments, however, I will address each of the remaining grounds of appeal in turn with the exception of ground 8, which was in effect an omnibus challenge to the ultimate decision in the case and in substance was subsumed by the other grounds of appeal.

7. [46]

   Ground 2 was in these terms (noting that part of this ground was abandoned in the course of argument):

8. [47]

   This ground combines a number of her Honour’s findings all of which, in my opinion, were not only open to her but entirely correct. The vagueness and uncertainty of the terms of the alleged agreement (putting aside the basal fact that her Honour did not accept that any such agreement had been made) are sufficiently reflected in the various accounts of the disputed conversation contained in the defence and Mr White’s affidavit and oral evidence (see [25]–[33] above). As to a “lower price solution”, this, on Mr White’s affidavit evidence, was referred to in terms of “an alternative lower price solution” needing to be put in place. The use of the indefinite article really makes good her Honour’s observations as to uncertainty. There could be any number of alternative contractual arrangements which effected such a result but none was specified in the 19 November Meeting, or Mr White’s own account of it. That an “alternative time and parts” contract may have been mentioned to Mr Tomek in April 2014 is not to the point. On Mr White’s own evidence, which “lower priced solution” and what its terms might be were left wholly unspecified. Further, Mr White’s handwritten note reproduced at [26] above referred to a “cheaper alternative” for Dandenong and not Balwyn.

9. [48]

   As to the challenge to the primary judge’s finding that it was “inherently implausible that Mr Damen would not have forthwith presented [Balwyn] with another contract and had it executed before further work was done”, again her Honour’s findings were not only open to her but entirely correct. Balwyn and Mr White’s case was wholly implausible from a commercial perspective. It entailed the propositions that a company (Philips) that had carefully constructed commercial documentation, both in terms of written credit applications, formal contractual documentation (including entire agreement and no oral-variation clauses), together with other bespoke terms and conditions would, in effect, walk away from that documentation and its contractual entitlement, waive on the spot a $100,000 accrued debt and continue to supply services without any contractual documentation in place.

10. [49]

    The implausibility of the case and Mr White’s varying accounts of the 19 November Meeting is further reinforced, in my opinion, by the fact that neither Balwyn nor Mr White sought to confirm what, on their account, was the very significant outcome of the 19 November Meeting in writing. Nor, and perhaps even more significantly, was any correspondence sent by Balwyn following receipt of a letter of demand from Philips dated 12 August 2016 in which Balwyn referred to the alleged variation or cancellation of the Contract and waiver of payment of invoices. It defies credulity, in my opinion, that a strong response to Philips’ letter of demand would not have been made on its receipt had a conversation of the kind and in the terms on which Balwyn’s defence was built occurred. It would be expected that such a response would make explicit reference to the alleged “variation” or “cancellation” of the Contract: cf Thomas v Hollier (1984) 156 CLR 152 at 157; [1984] HCA 35 per Gibbs CJ.

11. [50]

    This ground was expressed in the following terms:

12. [51]

    This ground is more than adequately answered by the various matters I have referred to in [48]–[49]. The finding in relation to “inherent implausibility” was as far from being “glaringly improbable” as is imaginable.

13. [52]

    The matters raised in subparagraphs (a)–(d) of ground of appeal 3 do not supply any basis for undermining her Honour’s finding in this regard. As to (a), what is of significance is what Philips had bargained for, not how much work it may or may not have had to do to earn its contractual fee. As to (b), even if there were some suggestion that an alternative time and parts arrangement was to be put in place, this would still have entailed the implausible writing off on the spot of significant moneys then owing, and an agreement to do this with no replacement agreement in place. As to (c), this is a point of utter speculation. Any wider association with the corporate group may have in the circumstances been a source of greater disquiet to Philips rather than a reason to waive a significant debt, and there was no evidence that the wider commercial relationship was of such value to Philips that it would willingly and casually write off a significant sum owing. As to (d), the state of indebtedness of Balwyn to Philips as at April 2014 was and is wholly irrelevant to the plausibility of an alleged agreement having been reached between the parties more than six months later.

14. [53]

    This ground is expressed in the following terms:

15. [54]

    This submission was variously described in oral argument as a procedural fairness ground or as founded on the principle in Browne v Dunn (1893) 6 R 67. The criticism was not that her Honour found that there was a variance in Mr White’s written and oral evidence (for there undoubtedly was), but rather in her Honour’s attribution to Mr White of a reason for that variance.

16. [55]

    It is true that no particular motivation for the variance was put to the witness. Whatever Mr White’s motivation or explanation may have been, however, formed no part of Philips’ case. The observation to which objection is taken was no more than an aside by the primary judge in the context of her consideration and assessment of Mr White’s evidence. The case and, in particular, the observation which is the focal point of this ground of appeal was far removed from that which attracted the criticism of the High Court in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [67] upon which counsel for Mr White relied. There is no substance in this ground of appeal.

17. [56]

    This ground is expressed in the following terms:

18. [57]

    The two matters referred to in this ground of appeal were taken into account by the primary judge. Whilst it may be accepted that there was a conspicuously long gap in time between the meeting and the issuing of invoices for the first half of 2015, her Honour accepted the explanation given by witnesses called on behalf of Philips as to why there was a hiatus in both billing and chasing up payment for outstanding invoices.

19. [58]

    Furthermore, it may be noted that a very important subsequent event which was wholly inconsistent with Balwyn and Mr White’s case, and which reinforces her Honour’s observation at [81(ix)] of the judgment, was Balwyn’s receipt of services from Philips consistent with the Contract remaining on foot and not having been cancelled in the course of 2015 or following the 19 November Meeting.

20. [59]

    This ground of appeal related and involved a challenge to [45], [49] and [50] of the primary judge’s reasons, which were in the following terms:

21. [60]

    The primary judge had the advantage of assessing Mr Damen’s evidence through seeing him in the witness box but her Honour’s finding as to his credibility went further than a simple assessment based on demeanour. In noting that Mr Damen had only very limited authority to waive invoices, her Honour was adverting to the commercial implausibility of Balwyn’s case and Mr White’s evidence which, had it been accepted, would have meant that Mr Damen acted significantly in excess of his authority for no apparent reason other than that he had been asked to do so. This is not conduct one would expect from an employee of Mr Damen’s experience.

22. [61]

    The Court was taken in argument to various handwritten entries on invoices made by Mr Damen in the course of the 19 November Meeting. These recorded addresses of various companies in the Victorian XRay group. Forensic attempts to analyse these entries with a view to discrediting the whole of Mr Damen’s account were a long bow to draw, and also overlooked the fact that it was for Balwyn positively to satisfy the court that a contractual variation had occurred.

23. [62]

    Moreover, the manner in which Mr Damen annotated various invoices at the 19 November Meeting formed no part of and was not critical to the primary judge’s central reasoning in [81] and [82] of her judgment which I have set out above. Her Honour was entitled to accept Mr Damen’s evidence, and her conclusion that he was unshaken in cross-examination is supported by a review of the transcript.

24. [63]

    This ground of appeal was as follows:

25. [64]

    This ground arises from the fact that, in cross-examination, Mr White said that he had told Ms Cole of the “cancellation” of the Contract shortly after the 19 November Meeting. One might well have expected to see a reference to this fact in her affidavit, which was the point being made by the primary judge in [71].

26. [65]

    Although her Honour did not refer to this Court’s judgment in Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418–419, the observation challenged in this ground of appeal was consistent with the following well-known passage in the judgment of Handley JA in that case:

27. [66]

    The observations in respect of Ms Cole were certainly open to her Honour.

28. [67]

    In any event, as counsel for Philips pointed out in oral argument, these observations did not form any critical part of her Honour’s reasoning as set out in [81] extracted at [34] above.

29. [68]

    Her Honour’s erroneous reference to the April meeting was, in my opinion, of no consequence.

Conclusion

1. [69]

   The following observations of Barrett AJA in Pickham v Binary Engineering Pty Ltd [2018] NSWCA 105 at [42], coincidentally also an appeal from the primary judge in the present case, are equally applicable to this appeal:

2. [70]

   It follows from the foregoing reasons that, in my opinion, the appeal should be dismissed with costs.

3. [71]

   As with the award of costs at first instance, costs should be awarded on a solicitor/client basis, consistent with cl 6 of the Contract, the terms of which have been referred to at [12] above.

4. [72]

   BASTEN JA: I agree with Bell P.

5. [73]

   GLEESON JA: I agree with Bell P.