Consideration
39 Despite the lack of any direct written evidence of an agreement between Adnunat and ITW, Adnunat contends that one must be inferred from their conduct. A contract may in certain circumstances be inferred from conduct, even where no offer and acceptance can be identified: see Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326; Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 (Vroon); Industrial Rollformers (2001) Aust Contract R 90-129. However the existence or otherwise of an enforceable agreement depends ultimately on the manifest intention of the parties, objectively ascertained: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-50 (Gleeson CJ) and his Honour's reference to Gissing v Gissing [1971] AC 886; see also Cheshire & Fifoot's Law of Contract (9th ed, LexisNexis, 2008) at [3.5] and [3.9]. Where mutual promises are sought to be inferred, the conduct relied upon must, on an objective assessment, evince a tacit agreement with sufficiently clear terms. It is not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement: Industrial Rollformers (2001) Aust Contract R 90-129 at [137]-[138] and [142]; Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 (Pacific Brands) at [47].
40 As Finkelstein J observed in Pacific Brands [2005] FCA 288, it will only be in very clear cases that the courts will infer a contract from conduct in the absence of written or oral communications that evidence the exchange of mutual promises: see [2005] FCA 288 at [45] and the cases there referred to. In most instances, contract by conduct cases will involve a complex set of facts and require evidence from those who have played a role in the relationship between the parties. Necessarily, where a contract is denied, the credibility of those involved on both sides may be crucial. These considerations are in my view an obstacle to Adnunat obtaining summary relief. At its simplest, Adnunat's case consists of the following steps:
· The original parties to the Settlement Deed (Adnunat and Reid) intended that the terms of the Deed would be binding on their "successors": cl 17 (the enurement clause). In other words, Adnunat and Reid agreed at the time of executing the Settlement Deed that a successor would take the benefit of and be bound by the Settlement Deed.
· As a successor, ITW agreed with Reid that it would comply with the Settlement Deed on and from 28 February 2005 until there was a novation of the Deed or an assignment of the rights under it: cl 6.3 of the Business Agreement.
· ITW's intention to perform the Settlement Deed was made manifest to Adnunat by its dealings with Adnunat after 28 February 2005. From those dealings, it should be inferred that ITW had agreed to be bound to Adnunat by the terms of the Settlement Deed.
41 In my view, Adnunat's motion confronts three initial problems. First, Adnunat has adduced no evidence that ITW communicated to Adnunat a preparedness, let alone an agreement, to perform Reid's obligations under the Settlement Deed. There is simply no evidence of any discussions between ITW and Adnunat concerning the terms of the Settlement Deed. The problem confronted by Adnunat is that, given it asserts ITW "bound itself to the provisions of the [Settlement Deed]", it must point to conduct that positively and unambiguously demonstrates an agreement to observe those provisions, in particular the No Challenge Term. However there is no evidence that ITW considered itself bound by the No Challenge Term, either from its conduct or communications with Adnunat. Nor is there any evidence it agreed to the Patent Infringement Term or the indemnities given by the original contracting parties.
42 Secondly, Adnunat's reliance on cl 6.3 of the Business Agreement should be treated with some caution. The Business Agreement was between Reid and ITW. ITW's promise to comply with Reid's obligations under existing contracts was a promise given to Reid for Reid's benefit. It is true that cl 6.3 reveals an intention by ITW to perform Reid's existing contractual obligations. However it makes no specific reference to Adnunat or the Settlement Deed. At best, it demonstrates that ITW was prepared to agree with Reid that it would perform Reid's contractual obligations and be accountable to Reid if it failed to do so.
43 The third related issue is that cl 6.3 of the Business Agreement in fact shows that Reid and ITW intended that existing contracts would be novated. This suggests an intention by ITW to bind itself to third parties only where formal novation agreements were entered into. Adnunat does not contend that there was a novation of the Settlement Deed and there is no evidence that a novation was attempted or suggested to Adnunat. Adnunat instead claims that a new bilateral contract came into existence between it and ITW on the same terms as the Settlement Deed. However on the evidence on this application it is reasonable to infer that ITW did not intend to bind itself to the Settlement Deed, because the parties did not, as ITW and Reid contemplated, novate the terms of the Deed. Indeed, a reasonable inference to draw from the lack of a novation is that ITW considered there to be little benefit to it in rendering itself a party to the Settlement Deed. In the absence of any evidence of discussions about the terms of the Settlement Deed, it is difficult to see what consideration ITW would have understood it was receiving in agreeing to take on Reid's obligations, other than Adnunat's promise to supply anchors at "a reasonable market price" subject to alteration at any time by Adnunat "in its absolute discretion": see cl 3.4 of the Settlement Deed. The difficulty for Adnunat is that, without more, ITW's conduct appears to be equally consistent with an intention not to bind itself to the Settlement Deed but instead simply to purchase anchors that it knew Adnunat was in a position to supply. In that regard, it should be noted that Mr Olivetti says he cannot explain why the price paid by ITW for anchors after it acquired the business was not the same as that which had been set previously with Reid: see [10] above. The evidence seems to me at best ambiguous as to the basis upon which the parties were conducting themselves in relation to the supply of anchors.
44 Adnunat sought to draw assistance from the decision of the House of Lords in Tolhurst v The Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414 (Tolhurst). Tolhurst involved a contract for the supply of chalk at a stipulated price over a 50 year period. In 1898, Alfred Tolhurst entered into a long term agreement with a cement manufacturer, the Imperial Portland Cement Company, to supply chalk on a weekly basis from the extensive chalk quarries located on his land. The long term arrangement was to both parties' benefit, securing a regular market for Mr Tolhurst and a regular source of supply for Imperial. Two years later in 1900, Imperial sold its cement business to another company, the Associated Portland Cement Manufacturers (1900) Limited, assigned the benefit of the chalk agreement to Associated and went into voluntary liquidation. Mr Tolhurst, while prepared to supply to Associated, was unwilling to do so at the price stipulated in the chalk agreement. Nevertheless, he supplied chalk on credit and brought an action against Associated to recover a higher price. He claimed that Imperial had by its conduct rescinded the chalk agreement and sought a declaration that he was not bound to supply to Associated, as the purported assignee, at the stipulated contract price. Associated and Imperial brought a separate action seeking declarations that the agreement was valid and subsisting and that Mr Tolhurst was bound to supply chalk to Associated at the contract price.
45 On appeal, the House of Lords upheld the Court of Appeal's decision to grant the declarations sought by Imperial and Associated. The House of Lords considered that the terms of the chalk agreement, properly construed, permitted the benefit of the chalk agreement to be assigned. Lord Macnaghten, delivering the leading opinion, observed that contractual rights are not always assignable, for example where the contract involves an element of personal skill or confidence on the part of the original parties. However in the circumstances their Lordships held that the chalk agreement did not require personal performance by either Imperial or Tolhurst and the rights under it were assignable by Imperial, notwithstanding the absence of any express provision regarding assignment in the agreement.
46 Adnunat referred to two particular passages in Lord Macnaghten's judgment. At 419, his Lordship said:
[The chalk agreement] is expressed to be made between Alfred Tolhurst and the Imperial Company. They, and they only, are named as the persons to perform the contract. From beginning to end of the instrument, if the contract be taken literally, there is not one word pointing to the continued existence of the contract in the hands of any other person, either by succession or substitution. … And yet the contract is to endure for the period of fifty years, or if the supply of chalk in the quarries does not hold out so long, it is to last for thirty-five years at least. Now, when it is borne in mind that the Imperial Company must have been induced to establish its works at Northfleet by the prospect of the advantages flowing from immediate connection with Tolhurst's quarries, and that the contract in substance amounts to a contract for the sale of all the chalk in those quarries by periodical deliveries (less what Tolhurst might sell elsewhere), it is plain that it could not have been within the contemplation of the parties that the company would lose the benefit of the contract if anything happened to Tolhurst, or that Tolhurst would lose the benefit of the market which the contract provided for him at his very door in the event of the company parting with its undertaking, as it was authorized to do by its memorandum.
(Emphasis added.)
47 Lord Macnaghten then continued at 420:
Something more is comprehended [by the chalk agreement] than the particular company and the individual Tolhurst. It seems to me that the contract is to be read and construed as if it contained an interpretation clause saying that the expression "Tolhurst" should include Tolhurst and his heirs, executors, administrators and assigns, owners and occupiers of the Northfleet quarries, that the expression "the company" should include the company and its successors and assigns, owners and occupiers of the Northfleet Cement Works, and that the words "his" and "their" should have a corresponding meaning. That, I think, was the plain intention of the parties.
48 In this case, Adnunat contended that the draftsperson of the Settlement Deed has made explicit (in the enurement clause (cl 17)) what Lord Macnaghten (at [47] above) considered to be the implicit intention of the parties in Tolhurst [1903] AC 414, namely that the parties to the Settlement Deed were to include any successors of the original parties. Adnunat acknowledged that, unlike this case, Tolhurst [1903] AC 414 was concerned with an action by an assignee to enforce the chalk agreement against an original party. However, in reliance largely on the passage quoted at [46] above (in particular the last sentence), it said that this case was otherwise "on all fours with the facts in Tolhurst" and submitted that it was irrelevant, in determining whether there was a mutual intention to contract, which one of the two parties sought to enforce the agreement (ie the assignee or the original debtor). This latter proposition requires some further explanation. Adnunat appeared to place significance on the fact that the House of Lords had made it a condition of the assignee's entitlement to the benefit of the agreement that it perform Imperial's obligations (ie to pay for the chalk): see [1903] AC 414 at 421 (Lord Macnaghten). This, said Adnunat, was significant because Imperial had been dissolved (and existed in name only) and the House of Lords, while observing that it is not possible to assign the burden of a contract without the original debtor's consent, was prepared in the circumstances to find that both Tolhurst and Associated had effectively consented to Associated taking the benefit, along with the burden, of the chalk agreement. This conclusion was reached notwithstanding that Mr Tolhurst had never previously discussed or agreed terms with Associated directly. Mr Tolhurst's consent arose from the terms of the chalk agreement, while Associated's consent was self-evident from the assignment and its preparedness to perform the agreement in place of Imperial. This was an example, said Adnunat, of how a contractual burden may be transferred to a third party - without there being a formal novation - giving rise to new rights and obligations as between the original debtor (Tolhurst) and the new party assignee (Associated). Applying that result to this case, Adnunat contended that the necessary consent as between ITW and Adnunat should be found given the existence of the enurement clause and ITW's conduct in accepting both the benefit and burden of the Settlement Deed.
49 In my view Tolhurst [1903] AC 414 provides little assistance in resolving the dispute in this case. The issue in Tolhurst [1903] AC 414 was whether the rights created by the chalk agreement were capable of assignment. Once it was decided that they were, it followed as a relatively straightforward matter that the party to whom the rights had been assigned was capable of enforcing them against the original debtor. That is not this case. Adnunat's case is not based on an assignment of the Settlement Deed. Adnunat seeks to enforce the terms of the Deed against a third party, ITW. Its ability to do so depends on there being a finding that a new bilateral contract exists between it and ITW, on the same or substantially the same terms as the Settlement Deed. Rather than it being irrelevant, it is a critical difference here that there was no assignment of the relevant contractual benefit and ITW (unlike Mr Tolhurst) had nothing to do with the original negotiation and formation of the Settlement Deed. Here, the consent of the party against whom the alleged agreement is to be enforced does not turn on the construction of that agreement (or, more particularly, its assignability), as was the case in Tolhurst [1903] AC 414. Instead, this case requires a detailed factual analysis of the parties' conduct, and correspondence, in order to determine whether ITW (a stranger to the original contract) truly made its consent manifest to Adnunat (as the original contracting party).
50 It is true that in Tolhurst [1903] AC 414the House of Lords considered it unnecessary that the assignor (Imperial) be made a party to Associated's action and held in effect that the assignee itself was obliged to pay for the chalk, if it were to have the benefit of the chalk agreement. The question of necessary parties and the appropriate relief to be given to the assignee in Tolhurst [1903] AC 414 were dictated strongly by the particular circumstances. Imperial was in liquidation, no longer had a board of directors and was deemed by the Companies Act 1862 (UK) to have been dissolved. In the absence of the assignor in all but name, the House of Lords considered it appropriate to grant a declaration that the assignee was entitled to the benefit of the agreement, but only so long as it was willing to pay for the chalk, in place of the assignor. In so doing, their Lordships recognised that in ordinary circumstances an assignor would need to be made a party by an assignee seeking to enforce an agreement: see [1903] AC 414 at 420 (Lord Macnaghten). All of this seems to me to provide little assistance to Adnunat in this case. The House of Lords in imposing the payment condition on Associated was doing no more than fashioning relief, in exercise of its equitable jurisdiction, to ensure an equitable result in the circumstances of that case. Given their Lordship's conclusion as to the assignability of the rights under the agreement, it followed that it would make no difference to Tolhurst if Imperial's obligation to pay for the chalk was performed, albeit vicariously, by Associated. This was not to determine that a new contract existed between Tolhurst and Associated but rather that the original agreement subsisted and was capable of enforcement by Associated as assignee.
51 Having dealt with what I consider are the main difficulties with Adnunat's motion, I turn to some of the key factual matters it relied on. First, it will be recalled that the letter dated 1 March 2005 giving notice of the transfer of business was addressed to Adnunat (as the contracting entity) and stated that the sender was looking forward to "continuing our relationship with you". It thus referred to an existing "relationship" and expressed a desire that that relationship would continue. The letter also stated that the change "reflects only a change in the legal ownership of the Reid business". That statement appears to have been made to explain that the new owner would operate the Reid business separately from its other business units. The letter makes no reference to the Settlement Deed or, significantly, to any possible novation of the Deed (a matter which, it might reasonably be inferred, was in the mind of the new owner, given the terms of the Business Agreement). Once all relevant evidence is in, one might conclude that the letter, viewed from the perspective of the reasonable observer and taking into account all of ITW's conduct after 1 March, demonstrates an intention to take on and perform the terms of the Settlement Deed. However at this stage I do not accept that that is the only reasonable conclusion to reach. It seems to me reasonably arguable that the import of the letter, which is apparently in a standard form, amounts to no more than putting each previous supplier to Reid on notice that Reid's business had been sold and would now be operated by a new entity. A reasonable recipient of the letter might in that context wonder what effect that was to have on any existing contracts, rather than assume that the new owner would as a matter of course observe existing contracts. In my opinion it is not so clear from the letter and the other relevant conduct that these arguments have no reasonable prospects of success.
52 Second, it is true that ITW continued to order 9 tonne anchors from Adnunat over a period spanning four months from March to June 2005. However as I have said earlier, the parties' intentions as revealed by that conduct alone are not unequivocal. Taking into account the matters I have referred to at [41]-[43], it is reasonably arguable that the parties were simply content as a practical commercial matter to continue a pre-existing anchor purchase and supply relationship, without having directed their attention to whether ITW would be bound by the Settlement Deed. It is of some relevance in that regard that this is not a case in which the relevant conduct took place over a long period of time (cf Pacific Brands [2005] FCA 288 and Vroon [1994] 2 VR 32) but instead came to an apparently abrupt end after only four months. It may be that ITW considered it commercially expedient to continue sourcing anchors from Adnunat rather than to challenge the Patent and manufacture the 9 tonne anchors it required itself. While that is speculation at this stage, it highlights the difficulty in finding that ITW has no reasonable prospects. Adnunat relied in particular on the email from Mr Pleysiar (see [10]) and contended that it was consistent only with a demand for supply pursuant to the Settlement Deed. However the email makes no reference to the Settlement Deed and the insistence on supply might be said to have arisen just as much from the commercial exigencies ITW faced at the time, compounded by Adnunat's apparent inability to meet existing purchase orders.
53 Third, the fact that ITW paid Adnunat the final royalty amount owing by Reid does suggest an acceptance by ITW of an obligation to do so. The email dated 1 April 2005 reveals that Adnunat had sought sales information from Reid previously in January 2005 and that ITW would make the royalty payment previously due. It is not entirely clear, but it appears from the invoices adduced by Adnunat that the payment was made in about May 2005: see exhibit MGO-29 to Mr Olivetti's affidavit. However even assuming the payment was made, evidence of how and why ITW came to make the payment is not at this stage before the Court and ITW in my opinion has reasonable prospects of rebutting the inference that it made the payment because the parties considered it was bound. In Pacific Brands [2005] FCA 288 at [47], Finkelstein J said:
If the conduct in question is consistent with an intention not to contract, for example, if the conduct is referable to some other obligation, a contract by conduct will not arise: Horrocks v Forray [1976] 1 WLR 230, 238-239; The Aramis [1989] 1 Lloyd's Reps 213, 224.
54 His Honour was there dealing with a long course of conduct lasting over two and a half years, which it was alleged had given rise to an implied novation of a sub-licence. In concluding there was no novation, Finkelstein J said (at [47]):
In this case, when viewed objectively by a person in Pacific Brands' position (as to the importance of this approach for the creation of a contract see Smith v Hughes (1871) 6 QB 597, 607), Underworks' conduct may be explained as referable at least in part to an assignment of some of the rights under the sub-licence (for example the payment of royalties to Pacific Brands) and a belief (as asserted by Pacific Brands itself) that thereafter as a practical matter Underworks was required to deal with Pacific Brands rather than Sara Lee. All in all, I think the applicants' claim for novation is hopeless.
55 On this summary judgment application, the question is of course only whether ITW has reasonable prospects of ultimately showing that its conduct ought not be construed as giving rise to a binding agreement. In my view the fact that ITW made the royalty payment might be said at this stage to be just as consistent with a recognition that it would have to pay any old debts of the Reid business before it could expect to secure the further supply of anchors from Adnunat. Alternatively it is open to infer that ITW was doing no more than complying with cl 6.3 of the Business Agreement, ensuring that Reid was not in breach of its pre-existing contractual obligations. Either way, those contentions do not in my view lack reasonable prospects of succeeding.
56 Fourth, Adnunat's reliance on the fact that invoices from Olivetti Concrete included ITW's ABN need to be approached with some caution. ITW's ABN also appears on invoices dated earlier than 1 March 2005, the date on which, on Adnunat's case, it was first notified of the change of ownership. It is not clear whether this is easily explicable, because for example Adnunat's electronic accounting system has been updated subsequently (causing newly generated copies of old invoices to record the updated information). It raises an important factual question however as to precisely when and in what circumstances Adnunat was first informed of the change of ownership.
57 Finally, from the pleadings and Mr Olivetti's affidavit, Adnunat appears to rely on the fact that a number of individuals were employed by or associated with both Reid and ITW. In particular:
· Mr Bob Connell was employed by Reid as well as ITW (when it was called Ramset Fasteners (Aust) Pty Ltd); and
· Messrs Michael David, Allan Sutherland, Bela Hargitay and David Speer were directors of both companies at the time of the transfer of business.
58 Adnunat however did not advance this matter in its submissions. I am not in a position to draw inferences either way in relation to their knowledge or intentions in connection with the parties' relationship. In contract by conduct cases, the key individuals involved will usually provide probative and helpful evidence, both in chief and in cross-examination. In this case, I am of the view that such evidence will be necessary.