(a) The letter was merely one in a chain of correspondence.
(b) The defendants did not demonstrate an ability to meet their interest commitments.
(c) The letter was preliminary to an offer as it used the words "prepared".
(d) The acceptance was not unconditional.
24 Other than stating that the letter was in the course of correspondence this does not assist in arriving at a conclusion as to whether a contract came into existence. That fact depends upon the terms of the particular letters and it is certainly not unusual for a contract to arise out of a chain of correspondence particularly as that is the object of the chain of correspondence. So far as the use of the word "prepared" is concerned that word has to be seen in the context of the letter. See Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 PBR 97578 at 14570.
25 The suggestion that the acceptance was not unconditional I think has no substance. In express terms the letter of 23 March 2001 makes it clear that there is an unconditional acceptance. The additional words in the third paragraph are just nothing more than a request for further consideration of particular matters. The first sentence, the words that begin the third paragraph and the last paragraph all point to the acceptance being unconditional. It is apparent on the face of the letter of 13 March 2001 that there had been a number of offers by the defendants to settle the matter. In response the bank set out what it was prepared to offer after rejecting the defendant's earlier offers. In my view the language is the language of an offer and there has been an acceptance.
26 The second last paragraph of the letter of 13 March 2001 I would not construe as a condition of the offer. The schedule contains what the bank is prepared to offer and all the second last paragraph does is to provide against a not improbable consequence that the defendants might make a counter offer which by reason of timing or other matters would raise the possibility of interest not being met. In terms it is expressly directed to further offers by the cross defendant.
27 In the event that this construction is not correct it is abundantly plain on the evidence that the defendants kept appropriate books and records which would have enabled them to demonstrate their financial situation. The parties have only attempted this exercise ex post facto and in addition there has, of course, been no default under the facilities in respect of payment of interest from 13 March 2001 to the present time. If it were a condition of the offer it arguably would have to be a condition subsequent in respect of which reasonable time would need to be allowed by the bank for its satisfaction. The bank did not do this.
28 The other matter that has to be addressed in terms of whether there is a concluded agreement are the terms of clause 11 which provides for the execution of releases and other associated matters within 14 days. That 14 days would obviously run from the time of acceptance and conclusion of the agreement on 23 March. There was no submission of that deed by the bank given the steps which they had taken. However, it should be noted that in September 2000 following the conclusion of the second mediation in that year a form of deed of release had been submitted to the defendants by the plaintiff and accordingly were known to all parties.
29 The principles in this regard are well known and the starting point is Masters v Cameron (1954) 91 CLR 353. At page 360 the majority said:-
"Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. (at p360)"
30 There should be added to that statement what appears to be a fourth category which appears from the decision of Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd and Ors (1986) 40 NSWLR 622 at 628 where McLelland J as he then was said:-
"There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron , as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, "... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms". Their Honours refer to the speech of Lord Loreburn, in Love & Stewart v S Instone. "
It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain."
31 This case was approved on appeal at (1996) 40 NSWLR 631.
32 As the Thirteen Point Plan is quite detailed in the number of matters with which it deals and there are already in place existing securities, it seem to me that there has been agreement reached and that that agreement would be within the first class of Masters v Cameron. As has been pointed out in a number of authorities the second agreement is specifically enforceable. See Niesmann v Collingridge (1921) 29 CLR 177 at 184 and Godecke and anor v Kirwan (1973) 129 CLR 629 at 648.
33 In the circumstances I am satisfied that there is a contract between the plaintiff and the cross claimants as a result of the exchange of correspondence.
Implied terms
34 In paragraph 8 of the second further amended cross claim the following implied terms were pleaded:-
"…that the Bank:
(a) would not seek to demand repayment of the monies due to the Bank under the loan facilities prior to 31 December 2002 unless the cross-claimant failed to honour his obligations under the 13 Point Agreement. (b) would not rely upon any alleged default by the cross-claimant occurring prior to the 13 Point Agreement as a basis for exercising its rights under the Security Agreements against the cross-claimant or in relation to the Security Property; and
(c) would exercise its powers and discretions under the Agreement in good faith, fairly and reasonably and for the purpose for which they were given."
35 The first two terms are to be implied if at all pursuant to the principles set out in BP Refinery (Westernport) Pty Limited v Shire of Hastings (1997) 180 CLR 266 at 283. The second term said to be implied as a result of Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 187.
36 In respect of the first implied term it was submitted by the defendant that such a term should not be in conflict with the securities which were still in existence under the Thirteen Point Plan. The very terms of the Thirteen Point Plan obviously contemplate the securities being in existence and being part of the new agreement. The only way the securities appear to be varied is in respect of the outstanding repayment of the outstanding debts which are postponed to 31 December 2002 and the rate of interest. The Thirteen Point Plan, although giving 30 days to rectify default, does not itself provide for a demand for repayment of monies in case of default. Clearly in these circumstances the implied term is necessary, is obvious and does not contradict any express term of the contract. The term is reasonable and is clear in its expression. In my view, the term should be implied.
37 In respect of term (b) it was suggested that there should be a right for the bank to rely on a default that occurred prior to the Thirteen Point Plan but which was then unknown to it. The bank in this case relied upon an analogy with McMahon v State Bank of New South Wales (1990) 8 ACLC 315 which held that a receiver could justify his appointment by relying upon a default the existence of which was not known at the time of the receiver's appointment. See also Canberra Advance Bank Ltd & Anor v Benny & Ors (1992) 9 ACSR 179 and Union Bank v Downes & Anor (1896) 12 WN (NSW) 131.
38 The matter has some relevance because it is plain that on 20 October 2000 the Ciavarellas gave a crop lien to the Murrumbidgee Irrigation Authority to secure payments for water. Such a lien was prohibited by the banks securities without consent and no consent was obtained. So far as the giving of the crop lien is concerned it is clear that the bank knew a crop lien had been given prior to 13 March 2001. That breach was just one of many defaults which had occurred and the whole of the attempt to settle the dispute between the parties was predicated upon there being defaults in existence with the parties trying to find a means to proceed to an orderly separation of their affairs. It would run counter to the detail of the Thirteen Point Plan if it could be immediately frustrated by the bank at will in respect of some part of the existing defaults all of which were being put behind the parties as is evidenced by the terms of clause 11. In my view, it is appropriate to imply the term referred to in 8 (b).
39 So far as the third term is concerned, namely, to act in good faith, fairly and reasonably for the purposes for which the powers and discretions under the agreement were given is concerned, this would normally be implied. See Burger King Corporation (supra), Overlook Management BV v Foxtell Management Pty Ltd (2002) NSWSC 17 paras 62-65, Commonwealth Bank of Australia v Spira (2002) NSWSC 905 paras 137-148.
Breaches of the implied term
40 There are three breaches relied upon by the defendants. The first breach is the issuing of the demand of 26 March 2001, the second the appointment of the receiver on 27 March 2001 and the third is the commencement of these proceedings on 27 March 2001. As the appointment of the receiver can only made on there being a default, it follows, as no fresh default has been established, that he was invalidly appointed. As the principal debts are not due the bank was not entitled to make demand or commence proceedings for recovery of the principal sum. In my view there were breaches of the first two implied terms. Given the seriousness of the bank's actions I would also think that there would be a breach of the third term.