The Court of Appeal of the Supreme Court of Western Australia recently dismissed an appeal from a decision of the District Court that the purchaser under a written contract for the construction of a new design “dual console” fishing boat.  It was a far cry from a submarine contract dispute but the trial judge decided that the purchaser was entitled to refund of the deposit and the first instalment paid following the boatbuilder’s repudiation of the contract.

The boatbuilder maintained that the contract was a design and construct contract and the purchaser had received the benefit of design and built work equivalent to the monies paid.  The purchaser maintained that there had been a total failure of consideration.  The boat was not built to the purchaser’s design requirements and when completed, the builder repudiated the contract by demanding payment in excess of the contract price.  The purchaser accepted the repudiation and sued for return of money paid.

Construction commenced in September 2014 but by April 2015 the purchaser was concerned that the boat was not being built as required.  At a pivotal meeting the builder maintained that the purchaser conveyed that the builder could proceed to complete the boat for himself and so the builder understood that the purchaser was no longer his customer.  There was no communication between them from that point and no further demands for payment.  Ultimately, the boat was finished with changes made by the builder and sold to someone else.

The trial judge determined the issue between the parties was whether the contract was severable or was to be regarded as an entire contract.  The builder maintained that he was entitled to payment for each stage (there were four stages) so that the contract was severable.  The purchaser maintained that the entire obligation was to deliver a finished boat.  The trial judge found that there had been a total failure of consideration so that the purchaser was entitled to restitution of all monies paid.

On appeal, the builder raised issues about the proper construction of the written contract and whether the “non-refundable” deposit was in fact just that.  The builder also challenged the finding that there had been a total failure of consideration.

The Court of Appeal took an orthodox approach in examining and construing the terms of the contract.  Morison AJA  (Buss P and Vaughan JA agreeing) determined that objectively, the contract was one for the sale and purchase of a boat, rather than what might be thought of as a typical construction contract [72].  This was reinforced by the condition that the purchaser was not entitled to possession until payment of the whole of the purchase price. 

The Court did not consider that the terms of contract reflected a bargain for design work that would enure for the benefit of the purchaser irrespective of whether the boat was completed and delivered [79].  Importantly, it was accepted that the builder was to retain the rights to design [81].

Morrison AJA referred to Baltic Shipping Company v Dillion and distinguished the comments of Mason CJ – to the effect that if an incomplete performance results in the innocent party retaining any substantial benefit under the contract, there will not be a total failure of consideration. That was not the case under consideration because the purchaser did not receive or retain any substantial part of the benefit of the contract.  Restitution was therefore the appropriate remedy.

Perhaps nothing surprisingly flows from this decision but it highlights the care that should be taken in recording the terms of a bargain, particularly where it may be a little bit out of the ordinary.  Let’s hope Australia’s interests have been carefully protected in its submarine build contracts!
 
Ian Percy
 
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